<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MEGABIOS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8731 94-3156660
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
----------------
863A MITTEN ROAD
BURLINGAME, CA 94010
(415) 697-1900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
PATRICK G. ENRIGHT
CHIEF FINANCIAL OFFICER AND VICE PRESIDENT
MEGABIOS CORP.
863A MITTEN ROAD
BURLINGAME, CA 94010
(415) 697-1900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
ALAN C. MENDELSON, ESQ. ROBERT V. GUNDERSON, JR., ESQ.
PATRICK A. POHLEN, ESQ. DAVID T. YOUNG, ESQ.
COOLEY GODWARD LLP GUNDERSON DETTMER STOUGH VILLENEUVE
FIVE PALO ALTO SQUARE FRANKLIN & HACHIGIAN, LLP
3000 EL CAMINO REAL 155 CONSTITUTION DRIVE
PALO ALTO, CA 94306-2155 MENLO PARK, CA 94025
(415) 843-5000 (415) 321-2400
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value................. 2,875,000 $13.00 $37,375,000 $11,325
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</TABLE>
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(1) Includes 375,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933.
----------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST , 1997
2,500,000 SHARES
[LOGO]
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold by
Megabios Corp. ("Megabios" or the "Company"). Prior to this offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price for the Common Stock will be
between $11.00 and $13.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "MEGA."
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN PURCHASING THE SHARES OF
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
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<S> <C> <C> <C>
Per Share.................................... $ $ $
Total (3).................................... $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $600,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 375,000 shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will total
$ and the Proceeds to the Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.
-----------
MONTGOMERY SECURITIES HAMBRECHT & QUIST
, 1997
<PAGE>
[GRAPHIC DEPICTION OF FIGURE ILLUSTRATING BUSINESS OPPORTUNITIES]
TITLE: (Centered)
"Megabios Business Opportunity"
A. GENES AS POTENTIAL THERAPEUTIC PRODUCTS
. 100,000 genes in the human genome.
. At least 5,000 genes of known function.
. Many genes have been identified as potential therapeutic genes.
. Certain therapeutic genes may be attractive product candidates.
B. MEGABIOS' PROPRIETARY GENE DELIVERY SYSTEMS
. Lack of safe, effective gene delivery technology has limited the
development of gene-based therapeutics.
. Megabios develops proprietary gene delivery technology and provides
preclinical development expertise.
. Megabios' in vivo, non-viral gene delivery technology is designed to
avoid the limitations of other gene delivery systems.
C. PORTFOLIO OF PRODUCT CANDIDATES SPONSORED BY CORPORATE PARTNERS
. Megabios' goal is to create a portfolio of funded product development
programs.
. Clinical programs are expected to be sponsored through corporate
partnerships.
. Such collaborations are structured to provide research and development
funding, milestone payments and royalties.
. Megabios' three corporate partners are: Glaxo Wellcome plc for the
treatment of cystic fibrosis, Pfizer Inc for the treatment of cancer via
angiogenesis inhibition, and Eli Lilly and Company for the treatment of
cancer using BRCA-1.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN ACTIVITIES THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY INCLUDING OVERALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. THESE TRANSACTIONS MAY BE EFFECTED ON
NASDAQ OR OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
The Company was incorporated in California in April 1992 and will be
reincorporated in Delaware prior to effectiveness of this offering. The
Company's executive offices are located at 863A Mitten Road, Burlingame,
California 94010, and its telephone number is (415) 697-1900.
2
<PAGE>
[GRAPHIC DEPICTION OF MEGABIOS' TECHNOLOGY]
The artwork will feature a rendering of the information contained in the table
on page 30 of the prospectus and a rendering of the drawing on page 25 of the
prospectus. In addition, the left hand panel will contain text describing
Megabios' core technology, as drafted in the prospectus.
LEGEND
The Company's gene delivery systems are under development and have not been
approved for sale in any country. Such approval may take several years and there
can be no assurance that such approval will ever be obtained. See "Risk
Factors."
TEXT
A. MEGABIOS' PLATFORM TECHNOLOGY
Megabios is developing seven series of gene delivery systems and expects to
design additional series of gene delivery systems.
Megabios believes that its gene delivery systems may have the following
benefits:
. therapeutically-relevant gene expression,
. tissue-specific gene delivery and expression,
. ease of handling and administration,
. stability and scalable manufacturing methods and
. improved safety profile.
B. DELIVERY AND EXPRESSION OF A THERAPEUTIC GENE
Megabios' proprietary gene delivery systems consist primarily of two
components: (i) DNA plasmids containing a therapeutic gene that controls its
proper expression; and (ii) lipids and other agents that facilitate the
delivery of the DNA plasmids into the target cell.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. Unless otherwise indicated, all information in this
Prospectus assumes: (i) the shares issued in the May 1997 Series F Preferred
Stock financing are not outstanding; (ii) a 1-for-3 reverse split of the
Company's outstanding Common Stock and Preferred Stock to be effected prior to
effectiveness of this offering; (iii) the reincorporation of the Company in the
State of Delaware to be effected prior to effectiveness of this offering; (iv)
the conversion of all outstanding shares of Preferred Stock into shares of
Common Stock to be effected upon the closing of this offering; and (v) no
exercise of the Underwriters' over-allotment option. Except for the historical
information contained herein, the discussion in this Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as those
discussed elsewhere in this Prospectus.
THE COMPANY
Megabios Corp. ("Megabios" or the "Company") develops proprietary gene
delivery systems and provides preclinical development expertise to create gene-
based therapeutics for the treatment or prevention of genetic and acquired
diseases. The Company has developed several in vivo, non-viral gene delivery
systems to address a number of potential therapeutic applications using a
variety of therapeutic genes. The Company's clinical development and
commercialization strategy is to enter into collaborative research and
development agreements or "corporate partnerships" with pharmaceutical and
biotechnology companies. To date, the Company has established corporate
partnerships with Glaxo Wellcome plc ("Glaxo Wellcome") to develop a treatment
for cystic fibrosis using the CFTR gene, Pfizer Inc ("Pfizer") to develop a
treatment for solid tumors through angiogenesis inhibition and Eli Lilly and
Company ("Lilly") to develop treatments for breast and ovarian cancer using the
BRCA1 gene.
Gene-based therapy is an approach to the treatment or prevention of certain
diseases in which therapeutic genes are introduced into target cells to cause
the production of specific proteins needed to bring about a therapeutic effect.
To date, a limiting factor in gene-based therapy has been the lack of safe,
effective gene delivery systems. The Company's in vivo, non-viral gene delivery
systems are designed to avoid the significant limitations of ex vivo (whether
viral or non-viral) and in vivo, viral gene delivery. Furthermore, the Company
believes it has made progress in overcoming the limitations often associated
with in vivo, non-viral gene delivery approaches. The Company believes that its
proprietary, non-viral gene delivery systems may have the following benefits:
(i) therapeutically relevant gene expression; (ii) tissue-specific gene
delivery and expression; (iii) ease of handling and administration, stability
and scalable manufacturing methods and (iv) an improved safety profile. The
Company's portfolio of gene delivery systems is classified by series based on
the mode of administration and the cell type to which the gene-based
therapeutic is delivered, with each formulation within a series having distinct
specifications and potential applications. The Company intends to enter into
corporate partnerships using each of its gene delivery systems for multiple
potential applications.
Megabios' emphasis on entering into corporate partnerships is intended to
enable the Company to extend and leverage its technology platform, focus on
preclinical development of gene-based therapeutics and create a portfolio of
product development programs sponsored by its corporate partners. This strategy
limits the Company's exposure to capital-intensive activities such as large-
scale clinical trials, commercial manufacturing and sales and marketing
activities, while providing the opportunity to receive a substantial economic
interest in the products which it develops in conjunction with corporate
partners, primarily through the receipt of royalties on product sales. In
addition, the Company believes that creating a portfolio of product development
programs will reduce the Company's dependence on any particular product
development program.
3
<PAGE>
In April 1994, the Company entered into a corporate partnership with Glaxo
Wellcome to develop a gene-based therapeutic for the treatment of cystic
fibrosis. Cystic fibrosis is caused by a defect in the CFTR gene and is
believed to afflict approximately 60,000 patients in the United States and
Europe. The Company has conducted preclinical testing of a gene delivery system
in the MB100 Series as a carrier for the CFTR gene. These studies include
primate inhalation studies which have demonstrated expression of the human form
of the CFTR gene in the correct cell type and at levels believed to be
potentially therapeutic, with no evidence of inflammation, a common problem
associated with non-viral gene-based therapeutics. In June 1997, Glaxo Wellcome
commenced a Phase I/II clinical trial in cystic fibrosis patients using a gene
delivery system in the MB100 Series as a carrier for the CFTR gene.
In May 1996, the Company entered into a corporate partnership with Pfizer to
develop a gene-based therapeutic for the treatment of solid tumors using gene
delivery systems in the MB200 Series which are designed to deliver genes that
inhibit angiogenesis. Angiogenesis is the formation of new blood vessels needed
for solid tumors to survive and multiply. The initial disease targeted by this
corporate partnership is non-small cell lung cancer, which affects over 300,000
patients annually in the United States and Europe. Gene delivery systems in the
MB200 Series have been shown in animal models to achieve gene expression
selectively in the vascular endothelial cells of the lung and other tissues
following intravenous administration.
In May 1997, the Company entered into a corporate partnership with Lilly to
develop a gene-based therapeutic to treat breast and ovarian cancer using
BRCA1, a gene which has been identified as a putative tumor suppressor. There
are over 180,000 new cases of breast cancer and over 26,000 new cases of
ovarian cancer reported each year in the United States. When a tumor suppressor
gene, such as BRCA1, is missing or defective, a cell may begin to replicate
uncontrollably resulting in the formation of a tumor. Increased expression of
the BRCA1 gene in diseased tissue may inhibit or prevent the uncontrolled cell
growth associated with cancer, without causing any adverse effect in normal
cells. The Company and Lilly will develop a gene-based therapeutic using BRCA1
initially using gene delivery systems in the MB300 Series that are administered
via direct injection.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company... 2,500,000 shares
Common Stock to be outstanding after
the offering......................... 12,225,939 shares(1)
Use of proceeds....................... For research and development activities,
leasehold improvements, the purchase of
capital equipment, working capital and
general corporate purposes.
Proposed Nasdaq National Market
symbol............................... MEGA
</TABLE>
- --------
(1) Based on 9,725,939 shares outstanding as of July 15, 1997 (including shares
of Series F Preferred Stock issued in May and June 1997). Excludes
(i) 476,180 shares of Common Stock issuable upon exercise of outstanding
stock options as of July 15, 1997 at a weighted average exercise price of
$1.22 per share, (ii) 84,009 shares of Common Stock issuable upon exercise
of warrants outstanding at July 15, 1997 at an exercise price of $3.88 per
share, (iii) an additional 771,100 shares of Common Stock reserved for
future grants pursuant to the Company's 1997 Equity Incentive Plan and (iv)
200,000 shares of Common Stock reserved for purchase pursuant to the
Company's 1997 Employee Stock Purchase Plan.
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
APRIL 23, 1992 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED JUNE 30, MARCH 31,
JUNE 30, ------------------------- ------------------
1993(1) 1994 1995 1996 1996 1997
-------------- ------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Collaborative research
and development
revenue............... $ -- $ 500 $ 1,157 $ 1,890 $ 750 $ 4,586
Operating expenses:
Research and
development.......... 593 1,922 4,691 6,487 4,596 6,080
General and
administrative....... 165 796 1,811 2,169 1,548 1,498
----- ------- ------- ------- -------- --------
Total operating
expenses........... 758 2,718 6,502 8,656 6,144 7,578
----- ------- ------- ------- -------- --------
Loss from operations... (758) (2,218) (5,345) (6,766) (5,394) (2,992)
Interest income
(expense), net........ (20) 65 (84) (135) (102) 131
----- ------- ------- ------- -------- --------
Net loss............... $(778) $(2,153) $(5,429) $(6,901) $ (5,496) $ (2,861)
===== ======= ======= ======= ======== ========
Pro forma net loss per
share(2).............. $ (0.94) $ (0.33)
======= ========
Shares used in
computing pro forma
net loss per share(2). 7,339 8,566
======= ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..... $ 12,326 $ 39,626
Working capital....................................... 10,707 38,007
Total assets.......................................... 17,064 44,364
Long-term debt, less current portion.................. 1,613 1,613
Accumulated deficit................................... (18,122) (18,122)
Total stockholders' equity............................ 13,255 40,555
</TABLE>
- --------
(1) The Company's financial data for fiscal 1992 and 1993 is not presented
separately as the Company's operations from April 23, 1992 to June 30, 1992
were immaterial.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
computation of pro forma net loss per share.
(3) Adjusted to give effect to the receipt of the estimated net proceeds from
the sale of 2,500,000 shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $12.00 per share. See "Use
of Proceeds."
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Accordingly, prospective investors should consider carefully
the following factors, together with the other information contained in this
Prospectus, in evaluating the Company and its business before purchasing the
shares of Common Stock offered hereby. This Prospectus contains forward-
looking statements that involve risk and uncertainty. Actual results and the
timing of certain events could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below and
other factors discussed elsewhere in this Prospectus. See "Risk Factors--
Special Note Regarding Forward-Looking Statements."
UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT
The Company is at an early stage of development and must be evaluated in
light of the uncertainties and complications present in an early stage
biotechnology company. Since the Company's inception in 1992, substantially
all of the Company's resources have been dedicated to the research and
development of gene delivery systems, and no revenues have been generated from
product sales. Because substantially all of the products under development by
the Company are in research or preclinical development, revenues from the sale
of any such products will not be realized for at least the next several years,
if at all. There can be no assurance that any of the Company's product
development efforts will be successfully completed, that any of the Company's
products will be proven to be safe and effective, that regulatory approvals
will be obtained at all or be as broad as sought, that the Company's products
will be capable of being produced in commercial quantities at reasonable cost
or that any products, if introduced, will achieve market acceptance.
DEPENDENCE ON CORPORATE PARTNERS; NEED FOR ADDITIONAL CORPORATE PARTNERSHIPS
The Company is highly dependent upon its separate corporate partnerships
with Glaxo Wellcome, Pfizer and Lilly. In connection with these corporate
partnerships, the Company has entered into agreements with Glaxo Wellcome (the
"Glaxo Wellcome Agreement"), Pfizer (the "Pfizer Agreement") and Lilly (the
"Lilly Agreement"). Under these agreements, each of Glaxo Wellcome, Pfizer and
Lilly were or are required to undertake certain collaborative activities with
the Company, fund research and development activities with the Company, make
certain payments to the Company upon achievement of related milestone events
and pay royalties to the Company if and when a product is commercialized by
its corporate partners. There can be no assurance that Glaxo Wellcome, Pfizer
or Lilly will devote sufficient resources to the Company's research programs
or product development efforts on a timely basis, and such resources could
vary and have varied due to factors unrelated to the Company's product
development efforts. If such corporate partners fail to conduct these
collaborative activities in a timely manner or at all, the preclinical or
clinical development or commercialization of the Company's gene delivery
systems could be delayed or terminated.
The Pfizer Agreement permits Pfizer to cancel the Company's research and
development program with Pfizer, for any reason, including reasons unrelated
to such program, after June 1998 upon six months prior notice. In order to
extend the program beyond June 1998, Pfizer is required prior to January 1998
to commit to purchase $10.0 million of the Company's Common Stock at a premium
to the then current market value, subject to certain adjustments. The Company
is uncertain whether Pfizer will exercise its option to extend the Pfizer
Agreement and make the corresponding equity investment in the Company. Even if
Pfizer exercises its option, there can be no assurance that research funds or
milestone payments under the Pfizer Agreement will be received. The Lilly
Agreement permits Lilly to cancel the Company's research and development
program, for any reason, including reasons unrelated to such program, after
May 1999 upon three months prior notice. There can be no assurance that the
Lilly Agreement will be extended or that research funds or milestone payments
under the Lilly Agreement will be received. Megabios' research obligations and
Glaxo Wellcome's funding obligations under the Company's research program with
Glaxo Wellcome have been completed, and the Company will only receive future
payments, if any, under the Glaxo Wellcome Agreement through the achievement
of certain milestones and the payment of royalties. There can be no assurance
that any of these corporate partnerships will result in successfully
commercialized products and the receipt by the Company of related royalty
revenues.
6
<PAGE>
Should the Company fail to receive research funds or should milestones set
forth in any or all of the Glaxo Wellcome Agreement, the Pfizer Agreement or
the Lilly Agreement not be achieved, or should Glaxo Wellcome, Pfizer or Lilly
breach or terminate their respective agreements, either prior to scheduled
termination or on a termination date, the Company's business, financial
condition and results of operations will be materially adversely affected. See
"Business--Corporate Partners."
The Company will need to enter into additional agreements with corporate
partners or otherwise raise substantial additional funds to conduct the
research and development, preclinical studies, clinical trials, manufacturing
and marketing necessary to commercialize its gene delivery systems. The
Company expects that future revenues from corporate partnerships, if any, will
be dervied primarily from royalties on product sales. There can be no
assurance that the Company will be able to establish such additional corporate
partnerships on favorable terms, or at all, or that its current or future
corporate partnerships will be successful. In addition, there can be no
assurance that existing or future corporate partners will not pursue
alternative technologies or develop alternative products either on their own
or in collaboration with others, including the Company's competitors. There
also can be no assurance that disputes will not arise in the future with
respect to the ownership of rights to any technology developed with corporate
partners. Disagreements between corporate partners and the Company could lead
to delays or termination in the research, development or commercialization of
certain product candidates or result in litigation or arbitration, which would
be time consuming and expensive. Should any corporate partner fail to develop
or commercialize successfully any product to which it has obtained rights from
the Company, the Company's business, financial condition and results of
operations may be materially adversely affected. See "Business--Corporate
Partners."
UNCERTAINTY OF PRODUCT DEVELOPMENT AND GENE-BASED THERAPEUTICS
Before the Company or its corporate partners can obtain regulatory approval
for the commercial sale of any of its products, the Company or its corporate
partner must demonstrate, through preclinical studies and clinical trials,
that a potential product is safe and efficacious for use in each target
indication. There can be no assurance that the Company or its corporate
partners will be permitted to undertake clinical testing of the Company's
products, or, if permitted, that such products will receive other necessary
regulatory approvals. The Company or its corporate partners may also
experience delays in commencing clinical trials due to a variety of factors
including unfavorable or delayed preclinical study results, inability to
manufacture sufficient quantities of materials used for clinical trials,
delays or difficulties in patient enrollment, delays in regulatory approvals
and other factors. While the Company has demonstrated some evidence of the
utility of its gene delivery systems in preclinical animal studies, these
results do not predict safety or efficacy in humans, when, and if, clinical
trials are conducted. The Company's products may prove to have undesirable and
unintended side effects or other characteristics in preclinical development or
clinical trials that may prevent or limit their use. In addition, there can be
no assurance that any of the Company's products will ultimately obtain United
States Food and Drug Administration ("FDA") or other regulatory or foreign
marketing approval for any indication. See "Business--Corporate Partners" and
"--Government Regulation."
In addition to risks particular to the development of the Company's
products, the Company's products are also subject to risks particular to the
development of gene-based therapeutics. Gene-based therapy is a new and
rapidly evolving technology and is expected to undergo significant
technological changes in the future. While many companies are seeking to
identify therapeutic genes and understand their function in the development
and progression of various diseases, there is limited clinical data available
regarding the safety and efficacy of gene-based therapeutics. The Company is
not aware of any gene-based therapeutics that have received marketing approval
from the FDA or the regulatory bodies of other countries. As a result of the
limited data available or other factors, clinical trials relating to gene-
based therapeutics may take longer to complete than clinical trials involving
more traditional pharmaceuticals. There can be no assurance that any gene-
based therapeutics will be demonstrated to be safe or effective or that the
Company or its corporate partners will be able to manufacture such gene-based
therapeutics on a commercial scale or in an economical manner.
7
<PAGE>
UNCERTAINTY OF PATENT POSITION AND PROPRIETARY RIGHTS
The patent positions of biotechnology and pharmaceutical companies are often
uncertain and involve complex legal and factual questions, and the breadth of
claims allowed in biotechnology and pharmaceutical patents cannot be
predicted. In addition, there is a substantial backlog of biotechnology patent
applications at the U.S. Patent and Trademark Office (the "PTO") that may
delay the review and the potential issuance of patents. The Company's success
will depend to a significant degree on its ability to obtain patents and
licenses to patent rights, to maintain trade secrets and to operate without
infringing on the proprietary rights of others, both in the United States and
in other countries.
To date, the Company has filed a number of patent applications in the United
States and other countries and has participated as a licensee in the filing of
a number of patent applications in the United States and other countries. The
Company intends to continue to file applications as appropriate for patents
covering both its products and processes. There can be no assurance that
patents will issue from any of these applications, that any patent will issue
on technology arising from additional research or that patents that may issue
from such applications will be sufficient to protect the Company's technology.
Patent applications in the United States are maintained in secrecy until a
patent issues, and the Company cannot be certain that others have not filed
patent applications for technology covered by the Company's pending
applications or that the Company was the first to invent the technology that
is the subject of such patent applications. Competitors may have filed
applications for, or may have received patents and may obtain additional
patents and proprietary rights relating to, compounds, products or processes
that block or compete with those of the Company. The Company is aware of
patent applications filed and patents issued to third parties relating to gene
delivery technologies. The Company's development efforts are at an early
stage, however, and the Company currently is unable to verify that any such
patent applications or patents will have any effect on its products in
development. Should any of its competitors have filed patent applications in
the United States that claim technology also invented by the Company, the
Company may have to participate in interference proceedings declared by the
PTO in order to determine priority of invention and, thus, the right to a
patent for the technology in the United States, all of which could result in
substantial cost to the Company. In addition, litigation, which could result
in substantial cost to the Company, may be necessary to enforce any patents
issued to the Company or to determine the scope and validity of the
proprietary rights of third parties. There can be no assurance that any
patents issued to the Company or to licensors from whom the Company has
licensed rights will not be challenged, invalidated or circumvented, or that
the rights granted thereunder will provide proprietary protection or
commercial advantage to the Company.
The commercial success of the Company depends significantly on its ability
to operate without infringing upon the patents and other proprietary rights of
third parties. There can be no assurance that the Company's technologies do
not and will not infringe upon the patents or other proprietary rights of
third parties. In the event of such infringement, the Company and its
corporate partners may be enjoined from pursuing research, development or
commercialization of their products or may be required to obtain licenses to
these patents or other proprietary rights or to develop or obtain alternative
technologies. There can be no assurance that the Company or its corporate
partners will be able to obtain alternative technologies or any required
license on commercially reasonable terms, if at all. If such licenses or
alternative technologies are not obtained, the Company may be delayed or
prevented from pursuing the development of certain of its potential products
which could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company also relies on proprietary information and trade secrets,
including its proprietary database of preclinical in vivo experiments, to
develop and maintain its competitive position. There can be no assurance that
third parties will not independently develop equivalent proprietary
information or techniques, will not gain access to the Company's trade secrets
or disclose such technology to the public, or that the Company can maintain
and protect unpatented proprietary technology. The Company typically requires
its employees, consultants, collaborators, advisors and corporate partners to
execute confidentiality agreements upon commencement of employment or other
relationships with the Company. There can be no assurance, however, that these
agreements will provide meaningful protection or adequate remedies for the
Company's technology in the event of unauthorized use or disclosure of such
information, that the parties to such agreements will not breach such
8
<PAGE>
agreements or that the Company's trade secrets will not otherwise become known
or be discovered independently by its competitors. See "Business--Patents and
Proprietary Technology."
NEED TO OBTAIN RIGHTS TO PROPRIETARY GENES AND TECHNOLOGY
A number of the gene sequences that the Company and its corporate partners
are investigating or may use in its products are or may become patented by
others. As a result, the Company or its corporate partners may be required to
obtain licenses to such gene sequences or other technology in order to use or
market such products. In addition, some of the products based on the Company's
gene delivery systems may require the use of multiple proprietary
technologies. Consequently, the Company or its corporate partners may be
required to make cumulative royalty payments to several third parties. Such
cumulative royalties could reduce amounts paid to the Company or be
commercially prohibitive. In connection with the Company's efforts to obtain
rights to such gene sequences or other proprietary technology, the Company may
find it necessary to convey rights to its technology to others. There can be
no assurance that the Company or its corporate partners will be able to obtain
any required licenses on commercially reasonable terms or at all. Failure by
the Company or a corporate partner to obtain a license to any technology
required to commercialize its products could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Patents and Proprietary Technology."
SIGNIFICANT GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The production and marketing of the Company's products and its ongoing
research and development activities are subject to extensive regulation by
governmental authorities in the United States and other countries. The Company
believes that the commercial uses of its products will be regulated as
biologics by the FDA and comparable regulatory bodies of other countries.
Gene-based therapy is, however, a relatively new technology, and the
regulatory requirements governing gene-based therapeutics are uncertain. This
uncertainty may result in excessive costs or extensive delays in the
regulatory approval process, adding to the already lengthy review process for
human therapeutic products in general. The Company is not aware of any gene-
based therapeutics that have received marketing approval from the FDA or any
comparable regulatory body of other countries. The regulation of the Company's
products and its ongoing research is subject to change, and future legislative
or administrative acts in the United States or other countries could have a
material adverse effect on the Company's business, financial condition and
results of operations. Regulatory requirements ultimately imposed could
adversely affect the ability of the Company's corporate partners to clinically
test, manufacture or market products, and could significantly delay or reduce
the milestone or royalty payments payable to the Company.
Currently, the Company is conducting preclinical studies and a corporate
partner is conducting a clinical trial of one of the Company's gene delivery
systems. Prior to marketing in the United States, any drug, including any
biological product, developed by the Company or its corporate partners must
undergo rigorous preclinical studies, clinical trials and an extensive
regulatory approval process implemented by the FDA under the federal Food,
Drug and Cosmetic Act and, for biologics, the Public Health Service Act.
Satisfaction of such regulatory requirements, which includes satisfying the
FDA that the product is both safe and efficacious, typically takes several
years or more depending on the type, complexity and novelty of the product,
and requires a substantial commitment of resources. In addition, academic
institutions and companies conducting research in the gene-based therapy field
are using a variety of approaches and technologies. Any adverse results
generated by such academic institutions or companies in preclinical studies or
clinical trials could adversely affect the regulatory environment for gene-
based therapeutics generally, possibly leading to delays in the approval
process for the Company's products or preventing approval altogether.
Preclinical studies must be conducted in conformance with the FDA's Good
Laboratory Practices ("GLP") regulations. Before clinical trials may be
commenced, an Investigational New Drug Application ("IND") for each planned
trial must be filed with and cleared by the FDA. There can be no assurance
that submission of an IND will result in regulatory authorization to commence
clinical trials. The sponsors of any clinical trials of the Company's products
will be responsible for initiating and overseeing the clinical trials to
demonstrate the safety and efficacy that are necessary to obtain FDA marketing
approval of such products.
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<PAGE>
Clinical trials must meet FDA regulatory requirements for Institutional
Review Board ("IRB") oversight, informed consent and Good Clinical Practices.
The Company has limited experience in conducting preclinical studies and
clinical trials. The Company will rely primarily on its corporate partners to
conduct the clinical trials necessary to obtain regulatory approval, but it
may conduct initial clinical trials to attract corporate partners. There can
be no assurance that those clinical trials can be conducted at preferred
sites, sufficient test subjects can be recruited or clinical trials will be
started or completed successfully in a timely manner, or at all. Furthermore,
the FDA may suspend clinical trials at any time if it believes the subjects
participating in such trials are being exposed to unacceptable health risks or
if it finds deficiencies in the IND or the conduct of the trial. There can be
no assurance that the Company or its corporate partners will not encounter
problems in clinical trials that cause the Company or its corporate partners
or the FDA to delay, suspend or terminate such trials.
Manufacturing facilities in the United States are subject to periodic
inspection by the FDA and state authorities, and must comply with the FDA's
good manufacturing practice regulations ("GMP"). Manufacturers of biologics
also must comply with the FDA's general biological product standards and also
may be subject to state regulation. Failure to comply with GMP or other
applicable regulatory requirements may result in withdrawal of marketing
approval, criminal prosecution, civil penalties, recall or seizure of
products, warning letters, total or partial suspension of production, FDA
refusal to review pending marketing approval applications or supplements to
approved applications, or injunctions, as well as other legal or regulatory
action against the Company or its corporate partners.
There can be no assurance that any product developed by the Company and its
corporate partners will prove safe and effective in clinical trials or will
meet all the applicable regulatory requirements necessary to receive marketing
approval from the FDA or any appropriate regulatory body in other countries.
Data obtained from preclinical studies and clinical trials are susceptible to
varying interpretations that could delay, limit or prevent regulatory
approvals. If regulatory approval is granted for a product, such approval will
be limited to only those disease states and conditions for which the product
is safe and effective, as demonstrated through clinical trials. Furthermore,
approval may require ongoing post-marketing studies. After a product is
approved for marketing, the product, its manufacturer and its manufacturing
facilities are subject to continued regulatory review oversight and periodic
FDA inspections. Discovery of previously unknown problems with a product,
manufacturer or facility may result in penalties such as restrictions on such
product, manufacturer or facility, including withdrawal of the product from
the market.
In order to market its products outside of the United States, the Company
and its corporate partners must also comply with numerous and varying
regulatory requirements of other countries implemented by authorities of such
other countries governing the design and conduct of clinical trials and
marketing approval. The approval procedures vary among countries and can
involve additional testing. The time required to obtain approval in other
countries may differ from that required to obtain FDA approval. The regulatory
approval process in other countries includes all of the risks associated with
obtaining FDA approval set forth above, and approval by the FDA does not
ensure approval by the regulatory authorities of any other country. See
"Business--Government Regulation."
INTENSE COMPETITION
The pharmaceutical and biotechnology industries are highly competitive. The
Company is aware of several pharmaceutical and biotechnology companies which
are exploring the field of gene-based therapy, are actively engaged in
research and development in areas related to gene-based therapy, or have
commenced clinical trials of gene-based therapeutics. Many of these companies
are addressing diseases which have been targeted by the Company or its
corporate partners. Megabios also may experience competition from companies
that have acquired or may acquire gene-based technology from universities and
other research institutions. As competitors develop their technologies, they
may develop proprietary positions in certain aspects of gene delivery and
gene-based therapeutics that may have a material adverse effect on the
Company's business, financial condition or results of operation. The Company
faces and will continue to face intense competition from other companies for
corporate partnerships with pharmaceutical and biotechnology companies, for
establishing relationships with
10
<PAGE>
academic and research institutions, and for licenses to proprietary
technology, including intellectual property related to gene delivery systems.
Corporate partners may also elect to internally develop gene-based
therapeutics which compete with the Company's products. In addition, many
other companies are developing non-gene-based therapies to treat these same
diseases.
Most of the Company's competitors and potential competitors have
substantially greater product development capabilities and financial,
scientific, manufacturing, managerial and human resources than the Company.
There can be no assurance that research and development by others will not
render the Company's delivery systems or the products developed by corporate
partners using the Company's delivery systems obsolete or non-competitive or
that any product developed by the Company or its corporate partners will be
preferred to any existing or newly developed technologies. In addition, there
can be no assurance that the Company's competitors will not develop safer,
more effective or less costly gene delivery systems, gene-based therapeutics
or non-gene-based therapies, achieve superior patent protection or obtain
regulatory approval or product commercialization earlier than the Company, any
of which could have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business--Competition."
ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE PROFITABILITY
Since its inception, the Company has been engaged in research and
development activities, has generated minimal revenues from operations and has
experienced significant operating losses. As of March 31, 1997, the Company
had an accumulated deficit of approximately $18.1 million. The process of
developing the Company's gene delivery systems will require significant
additional research and development, preclinical testing, clinical trials and
regulatory approvals. These activities, together with the Company's general
and administrative expenses, are expected to result in operating losses for
the foreseeable future. There can be no assurance that the Company will
generate revenues or achieve and sustain profitability in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
NEED FOR ADDITIONAL FUTURE CAPITAL; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require additional funding after this offering in order to
continue its research and development activities. The Company has financed its
operations primarily through the sale of equity securities and through
corporate partnerships. The Company has generated no royalty revenues from
product sales, and no such revenues are expected for the foreseeable future,
if ever. The Company anticipates that its existing resources, including the
net proceeds of this offering, committed funding from existing corporate
partnerships and projected interest income, will enable the Company to
maintain its current and planned operations through fiscal 1999. However,
there can be no assurance that the Company will not require additional funding
prior to such time. The Company's future capital requirements will depend on
many factors, including scientific progress in its research and development
programs, the size and complexity of such programs, the scope and results of
preclinical studies and clinical trials, the ability of the Company to
establish and maintain corporate partnerships, the time and costs involved in
obtaining regulatory approvals, the time and costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market
developments, the cost of manufacturing preclinical and clinical material and
other factors not within the Company's control. There can be no assurance that
such additional financing to meet the Company's funding requirements will be
available on acceptable terms or at all. If additional funds are raised by
issuing equity securities, substantial dilution to existing stockholders may
result. Insufficient funds may require the Company to delay, scale back or
eliminate some or all of its research or development programs or to relinquish
greater or all rights to products at an earlier stage of development or on
less favorable terms than the Company would otherwise seek to obtain. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE ON KEY PERSONNEL; NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND
CONSULTANTS
The Company is highly dependent on its executive officers and scientific
staff. In addition, the Company relies on consultants and advisors to assist
the Company in formulating its research and development strategy. The loss of
any of these persons could have a material adverse effect on the Company's
corporate partnerships,
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<PAGE>
business, financial condition and results of operations. In order to pursue
its research and product development plans, the Company is and will be
required to attract and retain additional qualified scientific and other
personnel. There can be no assurance that the Company will be successful in
attracting and retaining these skilled persons who generally are in high
demand by pharmaceutical and biotechnology companies and by universities and
other research institutions. The failure to successfully attract and retain
qualified personnel, consultants and advisors may impede the achievement of
the Company's objectives and have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Scientific Advisory Board" and "Management."
LIMITED MANUFACTURING EXPERIENCE
The Company has limited experience in manufacturing and currently lacks the
resources or capability to manufacture any of its products on a commercial
scale. While the Company has a pilot manufacturing facility, successful large-
scale manufacturing of the Company's gene delivery systems or its products has
not been demonstrated by the Company or any third parties. The Company will be
dependent initially on corporate partners, licensees or other third parties
for commercial-scale manufacturing of its products. Successful large-scale
manufacturing of gene-based therapeutics has not been demonstrated by any
third parties. There can be no assurance that the Company will be able to
reach satisfactory agreements with its corporate partners, licensees or other
third parties or that these parties will be able to develop adequate
manufacturing capabilities for commercial-scale quantities of gene-based
therapeutic products. See "Business--Manufacturing and Commercialization."
UNCERTAINTY OF COMMERCIAL ACCEPTANCE
The Company's success is dependent on commercial acceptance of its products.
The Company believes that recommendations by physicians and health care payors
will be essential for commercial acceptance of its products. Concerns have
arisen regarding the potential safety and efficacy of gene-based therapeutics
using viral delivery systems. While the Company's gene delivery systems are
lipid-based and do not contain viruses, there can be no assurance that
physicians' and health care payors' evaluations of the Company's products will
not be unfavorably effected by concerns over viral gene-based therapies or
that they will conclude that the Company's products or technology is safe and
effective. There can be no assurance that products developed by the Company
and its corporate partners will achieve commercial acceptance among patients,
physicians or third-party payors. Failure to achieve commercial acceptance
would have a material adverse effect on the Company's business, financial
condition and results of operations.
UNCERTAINTY OF PRODUCT PRICING AND REIMBURSEMENT
The ability of Megabios' corporate partners to manufacture and sell its
products successfully will depend in part on the extent to which reimbursement
for the cost of such products and related treatments will be available from
government health administration authorities, private health insurers and
other organizations. Third-party payors are increasingly challenging the price
of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly-approved health care products, and if the
Company and its corporate partners succeed in bringing any products to market,
there can be no assurance that these products will be considered cost
effective, that reimbursement will be available, or if available, that the
payors' reimbursement policies will not adversely affect the corporate
partner's ability to sell such products on a profitable basis, and thus the
Company's ability to derive revenue through royalties on sales of such
products.
PRODUCT LIABILITY EXPOSURE; AVAILABILITY OF INSURANCE
The manufacture and sale of therapeutic products involve an inherent risk of
product liability claims and associated adverse publicity. The Company
currently has only limited product liability insurance. There can be no
assurance that the Company will be able to maintain existing or obtain
additional product liability insurance on acceptable terms, if at all, or that
provides adequate coverage against potential liabilities. An inability to
12
<PAGE>
obtain sufficient insurance coverage on reasonable terms or to otherwise
protect against potential product liability claims could prevent or inhibit
the commercialization of the Company's products. A successful product
liability claim brought against the Company in excess of its insurance
coverage, if any, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Product Liability Insurance."
HAZARDOUS AND RADIOACTIVE MATERIALS; ENVIRONMENTAL MATTERS
The Company's research and development processes involve the controlled use
of hazardous materials, chemicals and radioactive materials and produce waste
products. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and waste products. There can be no assurance that
contamination or injury from these materials will not occur. In such event,
the Company could be held liable for any damages that result and any such
liability could exceed the resources of the Company. There can be no assurance
that the Company will not be required to incur significant costs to comply
with environmental laws and regulations, or that the Company's business,
financial condition or results of operations will not be materially adversely
affected by current or future environmental laws or regulations. See
"Business--Government Regulation."
ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE
Prior to this offering there has been no public market for the Common Stock,
and there can be no assurance that an active market will develop or be
maintained. The initial public offering price will be negotiated between the
Company and the representatives of the Underwriters and may not be indicative
of future market prices. See "Underwriting" for information related to the
method of determining the initial public offering price. The market price of
the shares of Common Stock, like that of the common stock of many other
biotechnology companies, is likely to be highly volatile. Factors such as the
Company's operating results, developments in the Company's relationships with
corporate partners, developments affecting the Company's corporate partners,
announcements of results of preclinical studies and clinical trials by the
Company, its corporate partners, its competitors or their products, regulatory
action or regulatory approval with respect to the Company, its corporate
partners, its competitors or their products, announcements of new products by
the Company or its competitors, developments related to patent or other
proprietary rights by the Company or its competitors, changes in the
recommendation of securities analysts with respect to the Common Stock, and
market conditions for biotechnology stocks in general may cause the market
price of the Common Stock to fluctuate, perhaps substantially. The Company
expects that operating results will fluctuate from quarter to quarter and that
such fluctuations may be substantial. In addition, in recent years the stock
market in general, and the shares of biotechnology and healthcare companies in
particular, have experienced extreme price fluctuations. These broad market
and industry fluctuations may have a material adverse effect on the market
price of the Common Stock. In some future quarter the Company's operating
results may be below the expectations of public market analysts and investors,
and, as a result, the price of the Common Stock would likely be materially
adversely affected.
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER
PROVISIONS AND DELAWARE LAW
After this offering, the Company's named executive officers, directors and
principal stockholders will beneficially own approximately 4,959,568 or 40.6%
of the outstanding shares of Common Stock (39.4% if the underwriters'
overallotment option is exercised in full). As a result, such persons may have
the ability to effectively control the Company and direct its affairs and
business. Such concentration of ownership may also have the effect of
delaying, deferring or preventing a change in control of the Company. In
addition, the Company's Board of Directors will have the authority to issue up
to 10,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action
by the stockholders. The rights of the holders of Common Stock will be subject
to, and may be materially adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company.
Furthermore, certain provisions of the Company's Restated Certificate
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<PAGE>
of Incorporation, including the provision for a staggered Board of Directors,
may have the effect of delaying or preventing changes in control or management
of the Company, which could adversely affect the market price of the Company's
Common Stock. In addition, the Company will be subject to the provisions of
Section 203 of the Delaware General Corporation Law (the "Delaware Law"), an
anti-takeover law. See "Principal Stockholders" and "Description of Capital
Stock."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price for the
Company's Common Stock. The number of shares of Common Stock available for
sale in the public market is limited by restrictions under the Securities Act
of 1933, as amended (the "Securities Act"), and lock-up agreements pursuant to
which all directors and executive officers and certain other stockholders of
the Company have agreed not to sell or otherwise dispose of any of their
shares without the prior written consent of the Company or Montgomery
Securities. However, Montgomery Securities or the Company, as applicable, may
at any time without notice, release all or any portion of the securities
subject to lock-up agreements. The Company has agreed with Montgomery
Securities not to release any stockholder from such lock-up agreement between
the stockholder and the Company without the consent of Montgomery Securities.
As a result of such restrictions and based upon the number of shares
outstanding on July 15, 1997, on the date of this Prospectus approximately
22,645 shares, other than the 2,500,000 shares offered hereby, will be
eligible for sale pursuant to subsection (k) of Rule 144 promulgated under the
Securities Act. An additional 8,012,315 shares and 275,081 shares issuable
upon exercise of outstanding vested options will be eligible for sale 180 days
after the date of this Prospectus upon expiration of the lock-up agreements
and in compliance with certain limitations set forth in the Securities Act. An
additional 1,452,372 shares held by existing stockholders will become eligible
for sale at various times over a period of less than one year. The remaining
238,607 shares currently held by existing stockholders will be subject to
rights of repurchase in favor of the Company that expire at various dates
through May 2001 pursuant to monthly vesting. After this offering, the holders
of approximately 8,154,779 shares of Common Stock will be entitled to certain
demand and piggyback registration rights with respect to registration of such
shares under the Securities Act. If such holders, by exercising their demand
or piggyback registration rights, cause a large number of securities to be
registered and sold in the public market, such sales could have an adverse
effect on the market price for the Company's Common Stock. If the Company were
to include in a Company-initiated registration shares held by such holders
pursuant to the exercise of their piggyback registration rights, such sales
may have an adverse effect on the Company's ability to raise needed capital.
See "Shares Eligible For Future Sale" and "Description of Capital Stock--
Registration Rights."
DILUTION; ABSENCE OF DIVIDENDS
The initial public offering price will be substantially higher than the book
value per share of Common Stock. Assuming an initial public offering price of
$12.00 per share, investors purchasing shares of Common Stock in this offering
will incur immediate, substantial dilution of $8.25 per share in the net
tangible book value of Common Stock. Additional dilution will occur upon the
exercise of outstanding options and warrants. See "Dilution." The Company has
never declared or paid any cash dividends and does not anticipate paying cash
dividends in the foreseeable future. See "Dividend Policy."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including without
limitation, statements containing the words "believes," "anticipates,"
"expects" and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of Megabios, or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among
others: the early stage of development of the Company and its products;
dependence
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<PAGE>
on corporate partnerships; technological uncertainty; dependence on
proprietary technology and uncertainty of patent protection; existing
government regulation and changes in, or the failure to comply with,
government regulation; intense competition; history of operating losses; the
Company's need for additional financing; dependence on key personnel; and
other factors referenced in this Prospectus. Certain of these factors are
discussed in more detail elsewhere in this Prospectus, including, without
limitation, under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
Megabios disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $27,300,000 ($31,485,000 if the over-
allotment option is exercised in full) at an assumed initial public offering
price of $12.00 per share after deducting underwriting discounts and estimated
offering expenses payable by the Company.
The Company intends to use approximately $15.0 million of the net proceeds
of the offering to fund research and development activities, including the
development of existing and future gene delivery systems and $8.0 million for
leasehold improvements to the Company's facilities and for the purchase of
certain capital equipment. The balance of the net proceeds of the offering are
expected to be used for working capital and general corporate purposes. These
corporate purposes may include the purchase of technology assets and licenses.
The Company has no present understandings, commitments or arrangements with
respect to the purchase of any technology assets or licenses, and the amount
and timing of these expenditures will depend on numerous factors, including
the progress of the Company's research programs and its ability to attract
additional corporate partners. Pending application of the net proceeds of the
offering as described above, the Company intends to invest such proceeds in
short-term, investment-grade, interest-bearing financial instruments.
The Company anticipates that its existing resources, including the net
proceeds of this offering, committed funding from existing corporate
partnerships and projected interest income, will enable the Company to
maintain its current and planned operations through fiscal 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings to finance
the growth and development of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future. The Company's term loan
with a commercial bank, which expires in August 1998, prohibits the payment of
dividends.
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CAPITALIZATION
The following table sets forth as of March 31, 1997, (i) the pro forma
capitalization of the Company giving effect to the conversion of all
outstanding shares of Preferred Stock into Common Stock and the
reincorporation of the Company into Delaware and (ii) the pro forma
capitalization as adjusted to give effect to the receipt by the Company of the
estimated net proceeds from the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $12.00 per share, after
deducting the underwriting discounts and estimated offering expenses payable
by the Company. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current portion..................... $ 1,613 $ 1,613
-------- --------
Stockholders' equity(1):
Preferred stock, $.001 par value; 10,000,000 shares
authorized; no shares issued and outstanding, pro forma
and as adjusted........................................ -- --
Common stock, $.001 par value; 30,000,000 shares
authorized; 8,317,795 shares issued and outstanding,
pro forma; 10,817,795 shares issued and outstanding, as
adjusted, at amounts paid-in........................... 31,931 59,231
Deferred compensation.................................... (554) (554)
Accumulated deficit...................................... (18,122) (18,122)
-------- --------
Total stockholders' equity............................ 13,255 40,555
-------- --------
Total capitalization................................. $ 14,868 $ 42,168
======== ========
</TABLE>
- --------
(1) Based on 8,317,795 shares outstanding as of March 31, 1997. Excludes (i)
432,504 shares of Common Stock issuable upon exercise of outstanding stock
options as of March 31, 1997 at a weighted average exercise price of $1.16
per share, (ii) 84,009 shares of Common Stock issuable upon exercise of
warrants outstanding at March 31, 1997 at an exercise price of $3.88 per
share, (iii) an additional 847,800 shares of Common Stock reserved for
future grants pursuant to the Company's 1997 Equity Incentive Plan and
(iv) 200,000 shares of Common Stock reserved for purchase pursuant to the
Company's 1997 Employee Stock Purchase Plan.
17
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997
was approximately $13.3 million, or $1.59 per share of Common Stock. Pro forma
net tangible book value per share is determined by dividing the net tangible
book value (tangible assets less total liabilities) of the Company by the
number of shares of Common Stock outstanding at that date, including shares of
Common Stock from the conversion of the Preferred Stock immediately prior to
the consummation of the Offering. Without taking into account any other
changes in the net tangible book value after March 31, 1997, other than to
give effect to the receipt by the Company of the estimated net proceeds from
the sale of 2,500,000 shares of Common Stock offered by the Company hereby at
an assumed initial public offering price of $12.00 per share, the pro forma
net tangible book value of the Company as of March 31, 1997, would have been
$40.6 million, or $3.64 per share. This represents an immediate increase in
the pro forma net tangible book value of $2.16 per share to existing
stockholders and an immediate dilution of $8.25 per share to new public
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................... $12.00
Pro forma net tangible book value before offering.............. $1.59
Increase attributable to new public investors(1)............... 2.16
-----
Pro forma net tangible book value after offering................ 3.75
------
Dilution to new public investors................................ $ 8.25
======
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1997,
the difference between existing stockholders and purchasers of shares in the
offering (at an assumed initial public offering price of $12.00 per share and
before deducting underwriting discounts and estimated offering expenses
payable by the Company) with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
------------------------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 8,317,795 76.9% $31,514,000 51.2% $3.79
New public investors... 2,500,000 23.1 30,000,000 48.8 12.00
------------ ------- ----------- -----
Total................ 10,817,795 100.0% $61,514,000 100.0%
============ ======= =========== =====
</TABLE>
- --------
(1) The foregoing computations exclude (i) 479,638 shares of Common Stock
issuable upon exercise of stock options outstanding as of June 30, 1997,
at a weighted average exercise price of $1.23 per share, (ii) 84,009
shares of Common Stock issuable upon exercise of warrants outstanding at
June 30, 1997, at an exercise price of $3.88 per share, (iii) an
additional 847,800 shares of Common Stock reserved for future grants
pursuant to the Company's 1997 Equity Incentive Plan and (iv) 200,000
shares of Common Stock reserved for purchase pursuant to the Company's
1997 Employee Stock Purchase Plan. To the extent that options or warrants
are exercised and shares of Common Stock are issued, there will be further
dilution to new investors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Management--Stock Plans" and "Description of Capital Stock."
18
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the years ended June 30,
1994, 1995 and 1996 and the balance sheet data as of June 30, 1995 and 1996
are derived from the financial statements of the Company included elsewhere in
this Prospectus which have been audited by Ernst & Young LLP, independent
auditors. The Statements of Operations Data for the period from April 23, 1992
(Inception) to June 30, 1993 and the balance sheet data as of June 30, 1993
and 1994 are derived from financial statements audited by Ernst & Young LLP
not included in this Prospectus. The Statements of Operations Data for the
nine months ended March 31, 1996 and 1997 and the balance sheet data as of
March 31, 1997 are derived from unaudited financial statements included
elsewhere in this Prospectus. The unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of the financial position and
results of operations for these periods. Operating results for the nine months
ended March 31, 1997, are not necessarily indicative of the results that may
be expected for the entire year ending June 30, 1997. The data should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and the
Notes thereto included elsewhere in this Prospectus. The Company has not paid
any cash dividends.
<TABLE>
<CAPTION>
APRIL 23,
1992 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED JUNE 30, MARCH 31,
JUNE 30, ------------------------- ------------------
1993(1) 1994 1995 1996 1996 1997
-------------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Collaborative research
and development
revenue............... $ -- $ 500 $ 1,157 $ 1,890 $ 750 $ 4,586
Operating expenses:
Research and
development.......... 593 1,922 4,691 6,487 4,596 6,080
General and
administrative....... 165 796 1,811 2,169 1,548 1,498
----- ------- ------- ------- -------- --------
Total operating
expenses........... 758 2,718 6,502 8,656 6,144 7,578
----- ------- ------- ------- -------- --------
Loss from operations... (758) (2,218) (5,345) (6,766) (5,394) (2,992)
Interest income
(expense), net........ (20) 65 (84) (135) (102) 131
----- ------- ------- ------- -------- --------
Net loss............... $(778) $(2,153) $(5,429) $(6,901) $ (5,496) $ (2,861)
===== ======= ======= ======= ======== ========
Pro forma net loss per
share(2).............. $ (0.94) $ (0.33)
======= ========
Shares used in
computing pro forma
net loss per share(2). 7,339 8,566
======= ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------- MARCH 31,
1993 1994 1995 1996 1997
----- ------- ------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-
term investments................ $ 374 $ 1,886 $ 282 $ 5,253 $ 12,326
Working capital.................. (702) 758 (873) 3,568 10,707
Total assets..................... 430 4,344 4,969 9,956 17,064
Long-term debt, less current
portion......................... -- 412 1,305 1,894 1,613
Accumulated deficit.............. (778) (2,931) (8,360) (15,261) (18,122)
Total stockholders' equity....... (701) 2,436 2,219 6,086 13,255
</TABLE>
- --------
(1) The Company's financial data for fiscal 1992 and 1993 is not presented
separately as the Company's operations from April 23, 1992 to June 30,
1992 were immaterial.
(2) See Note 1 of Notes to financial statements for an explanation of the
computation of pro forma net loss per share.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The discussion below contains certain forward-looking statements that are
based on the beliefs of the Company's management, as well as assumptions made
by, and information currently available to, the Company's management. The
Company's future results, performance or achievements could differ materially
from those expressed in, or implied by, any such forward-looking statements.
See "Risk Factors" for a discussion of factors that could cause or contribute
to such material differences. The following presentation of management's
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the Company's Financial
Statements and Notes thereto and other financial information included therein.
OVERVIEW
Megabios, incorporated in 1992, develops proprietary gene delivery systems
and provides preclinical development expertise to help create gene-based
therapeutics for the treatment or prevention of genetic and acquired diseases.
The Company has developed several in vivo, non-viral gene delivery systems and
has identified a number of potential therapeutic applications using a variety
of therapeutic genes. The Company's clinical development and commercialization
strategy is to enter into corporate partnerships with pharmaceutical and
biotechnology companies. Thus far, the Company has established corporate
partnerships with Glaxo Wellcome, Pfizer and Lilly. To date, substantially all
revenues have been generated by collaborative research and development revenue
from corporate partners, and no revenues have been generated from product
sales. The Company expects that future revenue will be derived in the short-
term from research and development revenue and milestone payments and in the
long-term from royalties on product sales.
A substantial portion of the Company's revenues to date have been from
payments under the Glaxo Wellcome Agreement, totaling approximately $4.8
million through March 31, 1997. The research and development funding portion
of the Glaxo Wellcome Agreement terminated in April 1997. The Company has
completed all of its obligations under the Glaxo Wellcome Agreement and will
receive future payments, if any, from Glaxo Wellcome only through the
achievement of certain milestones and the payment of royalties.
The Company has incurred significant losses since inception and expects to
incur substantial losses for the foreseeable future, primarily due to the
expansion of its research and development programs. The Company expects that
operating results will fluctuate from quarter to quarter and that such
fluctuations may be substantial. As of March 31, 1997, the Company's
accumulated deficit was approximately $18.1 million.
The Company's business is subject to significant risks, including the risks
inherent in its research and development efforts, uncertainties associated
with obtaining and enforcing patents, the lengthy, expensive and uncertain
regulatory approval process, competition from other companies' products, the
need for additional capital and reliance on corporate partners. The Company
does not expect to generate revenues from the sale of products in the
foreseeable future, if at all. See "Risk Factors."
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
Revenues. Revenues from corporate partnerships totaled $4.6 million and
$750,000 for the nine months ended March 31, 1997 and 1996, respectively. The
1997 revenue was attributable to amounts earned for research performed under
the Company's corporate partnerships with Glaxo Wellcome and Pfizer. The 1996
revenue resulted entirely from payments under the Glaxo Wellcome corporate
partnership as the Pfizer Agreement was entered into in May 1996.
Research and Development Expenses. Research and development expenses for the
nine months ended March 31, 1997 increased to $6.1 million from $4.6 million
for the same period in 1996. The increase was primarily attributable to
increased payroll and personnel expenses as the Company hired additional
research and
20
<PAGE>
development personnel to support both its proprietary research and
collaboration programs, increased purchases of laboratory supplies and
increased equipment depreciation. Research performed by the Company on behalf
of Glaxo Wellcome and Pfizer is funded by the respective corporate partners up
to specified levels. The Company expects to expand its research and
development programs significantly in future periods, which will result in
substantial increases in research and development expenses.
General and Administrative Expenses. General and administrative expenses for
the nine months ended March 31, 1997 and in 1996 were constant at $1.5
million. Such expenses included payroll and personnel expenses and consulting,
legal, professional, travel and other fees and expenses associated with
business development activities.
Interest Income (Expense), Net. Interest income (expense), net was $131,000
for the nine months ended March 31, 1997 compared with interest income
(expense), net of ($102,000) for the nine months ended March 31, 1996.
Interest income for the nine months ended March 31, 1997 increased to $419,000
from $177,000 for the same period in 1996. The increase in interest income
resulted primarily from higher average cash and investment balances as a
result of the sale of equity securities of the Company. Interest expense for
the nine months ended March 31, 1997 increased to $288,000 from $279,000 for
the same period in 1996. The increase in interest expense in the nine months
ended March 31, 1997 was attributable to the higher outstanding average
balance on an equipment financing line of credit.
FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Revenues. Revenues from corporate partnerships totaled $1.9 million, $1.2
million, and $500,000 for the years ended June 30, 1996, 1995 and 1994,
respectively. The 1996 revenue was attributable to amounts earned for research
performed under the Company's corporate partnerships with Glaxo Wellcome and
Pfizer. The 1995 and 1994 revenues resulted entirely from payments under the
Glaxo Wellcome corporate partnership.
Research and Development Expenses. Research and development expenses
increased to $6.5 million in 1996 from $4.7 million in 1995 and $1.9 million
in 1994. The increases in each period were primarily attributable to increased
payroll and personnel expenses as the Company hired additional research and
development personnel to support its proprietary research and collaborative
programs, increased purchases of laboratory supplies, increased equipment and
leasehold improvement depreciation, increased facilities expenses in
connection with the build-out of the present facility and an increased use of
consultants and analytical lab services.
General and Administrative Expenses. General and administrative expenses
increased to $2.2 million in 1996 from $1.8 million in 1995 and $796,000 in
1994. The increases in each period were primarily attributable to increased
payroll and personnel expenses as the Company hired additional management, and
to increased consulting, legal, professional, travel and other fees and
expenses associated with an increase in business development activities.
Interest Income (Expense), Net. Interest income (expense) net increased to
$135,000 in 1996 from $84,000 in 1995 and from interest income (expense), net
of $65,000 in 1994. Interest income increased to $230,000 in 1996 from $56,000
in 1995 and $81,000 in 1994. Changes in interest income resulted from the
change in average cash and investment balances as a result of sales of equity
securities of the Company. Interest expense increased to $365,000 in 1996 from
$140,000 in 1995 and $16,000 in 1994. The increase in interest expense in 1996
is attributable to amounts due under a term loan executed in early 1996 and to
the increased utilization of an equipment financing line of credit. The
increased expense in 1995 was due to the higher average outstanding balance on
the equipment financing line of credit.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
the sale of equity securities, funds provided under corporate partnerships and
equipment and leasehold improvement financing. As ofMarch 31, 1997, the
Company had received approximately $31.4 million in net proceeds from the sale
of equity
21
<PAGE>
securities and approximately $8.1 million for license fees and research
support payments under corporate partnerships.
Cash, cash equivalents and short-term investments at March 31, 1997 were
$12.3 million compared to $5.3 million at June 30, 1996. The increase during
the nine month period was due primarily to the proceeds received from the sale
of equity securities and payments received under corporate partnerships,
offset by net cash used in operations.
Net cash used in the Company's operations decreased to $2.1 million for the
nine months ended March 31, 1997 from $4.9 million for the nine months ended
March 31, 1996. The decrease was primarily due to the increased research and
development funding from corporate partnerships. The Company's capital
expenditures during the nine months ended March 31, 1997 and 1996 were
$652,000 and $822,000, respectively.
In May 1996, the Company entered into an equipment financing agreement for
up to $2.7 million. As of March 31, 1997, the Company had borrowed
approximately $1.4 million under this agreement for equipment purchases
structured as loans. These loans are to be repaid over 48 months at interest
ranging from 15.2% to 16.2% per annum. In connection with this agreement, the
Company issued to the lender a warrant to purchase 38,239 shares of the
Company's Series C Preferred Stock at an exercise price of $3.88 per share.
The warrant expires at the earlier of April 30, 2006 or five years after the
closing of this offering.
In June 1995, the Company obtained a $1.5 million line of credit from a
commercial bank. In August 1995, the Company converted this line of credit to
a term loan bearing interest at the prime rate plus 2%. The loan is payable in
36 equal monthly installments beginning August 31, 1995. In connection with
the term loan, the Company issued to the lender a warrant to purchase 24,141
shares of Series C Preferred Stock at an exercise price of $3.88 per share.
The warrant expires on the earlier of June 1, 2000, or a merger or sale of
substantially all of the Company's assets.
In December 1993, the Company entered into a financing agreement for up to
$2.3 million with another financing company. As of March 31, 1997, the Company
had borrowed $1.9 million under the agreement for equipment purchases and
tenant improvements structured as loans. These loans are to be repaid over 42
months at interest rates ranging from 13.8% to 16.2% per annum. In connection
with this agreement, the Company issued a warrant to purchase 21,629 shares of
the Company's Series B Preferred Stock at an exercise price of $3.88 per
share. The warrant expires on the earliest of May 13, 2000, or the day prior
to the effectiveness of a registration statement covering an underwritten
offering of the Company's securities with aggregate gross proceeds of at least
$7.5 million, or a merger or sale of substantially all of the Company's
assets.
The Company anticipates that its existing resources, including the net
proceeds of this offering, committed funding from existing corporate
partnerships and projected interest income, will enable the Company to
maintain its current and planned operations through fiscal 1999. However,
there can be no assurance that the Company will not require additional funding
prior to such time. The Company's future capital requirements will depend on
many factors, including scientific progress in its research and development
programs, the size and complexity of such programs, the scope and results of
preclinical studies and clinical trials, the ability of the Company to
establish and maintain corporate partnerships, the time and costs involved in
obtaining regulatory approvals, the time and costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market
developments, the cost of manufacturing preclinical and clinical materials and
other factors not within the Company's control. There can be no assurance that
additional financing to meet the Company's funding requirements will be
available on acceptable terms or at all. If additional funds are raised by
issuing equity securities, substantial dilution to existing stockholders may
result. Insufficient funds may require the Company to delay, scale back, or
eliminate some or all of its research or development programs or to relinquish
greater or all rights to products at an earlier stage of development or on
less favorable terms than the Company would otherwise seek to obtain.
22
<PAGE>
The Company recorded deferred compensation representing the difference
between the exercise price of options granted and the deemed fair market value
of its Common Stock at the time of grant. Deferred compensation of
approximately $580,000 was recorded in the nine months ended March 31, 1997.
Deferred compensation will be recognized as an expense over the related
vesting term of the options, generally four years.
The Company has not generated significant taxable income to date. At June
30, 1996, the net operating losses available to offset future taxable income
for federal income tax purposes were approximately $12.1 million. Because the
Company has experienced ownership changes, future utilization of the
carryforwards may be limited in any one fiscal year pursuant to Internal
Revenue Code regulations. The carryforwards expire at various dates beginning
in 2008 through 2012 if not utilized. As a result of the annual limitation, a
portion of these carryforwards may expire before becoming available to reduce
the Company's federal income tax liabilities.
23
<PAGE>
BUSINESS
Megabios develops proprietary gene delivery systems and provides preclinical
development expertise to create gene-based therapeutics designed for the
treatment or prevention of genetic and acquired diseases. The Company has
developed several in vivo, non-viral gene delivery systems to address a number
of potential therapeutic applications using a variety of therapeutic genes.
The Company's clinical development and commercialization strategy is to enter
into collaborative research and development agreements or "corporate
partnerships" with pharmaceutical and biotechnology companies. To date, the
Company has established corporate partnerships with Glaxo Wellcome to develop
a treatment for cystic fibrosis using the CFTR gene, Pfizer to develop a
treatment for solid tumors through angiogenesis inhibition and Lilly to
develop treatments for breast and ovarian cancer using the BRCA1 gene.
BACKGROUND
Genes and Gene-based Therapeutics
Genes provide the "code" for proteins, which determine the nature and
function of cells and tissues in all living organisms. The study of genes and
their function ("genomics") provides the fundamental basis for understanding
human health and disease and has led to the identification of many genes with
potential therapeutic utility ("therapeutic genes").
The entire genetic content of an organism is known as its genome. In humans,
the genome is believed to contain approximately 100,000 genes, each of which
is composed of a unique sequence of DNA molecules that encode genetic
instructions. These genetic instructions enable cells to carry out their
normal biological functions. The process by which an organism utilizes genetic
instructions and produces proteins is known as gene expression. The expression
of a defective gene, or the over- or under- expression of a normal gene, is
responsible for certain disease conditions. For example, the expression of a
single defective gene is known to cause cystic fibrosis and sickle cell
anemia, and the defective expression of multiple genes is believed to be
involved in the progression of diseases such as cancer and diabetes, as well
as cardiovascular, neurological and other diseases.
The worldwide effort to decipher the human genome and to understand the
function of its constituent genes is yielding important insights into the
roles that genes play in disease conditions, as well as how genes may be
useful in the treatment of such diseases. It is estimated that there are at
least 5,000 genes of known function, many of which have been identified as
potential therapeutic genes. Various companies and academic institutions are
investing substantial financial and human resources to identify additional
therapeutic genes, and the Company believes that this process will create
opportunities for gene-based therapeutics.
Gene-based therapy is an approach to the treatment or prevention of certain
diseases in which therapeutic genes are introduced into target cells to cause
the production of specific proteins needed to bring about a therapeutic
effect. For gene-based therapy to be effective, the therapeutic gene must be
delivered to the target cell, transported across the outer membrane and into
the cell, where it can be expressed. The expressed protein may remain within
the cell for an intracellular effect, be transported to the cell membrane to
exert a cell surface effect or be secreted into the bloodstream to have a
systemic effect. Most gene-based therapies utilize a delivery system, or
vector, into which the therapeutic gene is incorporated to facilitate its
delivery to, and uptake by, the target cell.
24
<PAGE>
EXPRESSION OF THERAPEUTIC GENE IN TARGET CELL
[GRAPHIC DEPICTION OF EXPRESSION OF THERAPEUTIC GENE IN TARGET CELL]
Gene Delivery Approaches
To date, a limiting factor in gene-based therapy has been the lack of safe,
effective gene delivery systems. A number of gene delivery approaches are
being developed, each of which has exhibited certain limitations. These
approaches may be categorized by their mode of administration, ex vivo
(outside the body) or in vivo (inside the body), and by the nature of the gene
delivery system (viral or non-viral).
Many clinical trials of potential gene-based therapeutics have used ex vivo,
viral gene delivery. Ex vivo gene-based therapies involve procedures in which
selected cells are removed from the patient, transduced with the therapeutic
gene, expanded in number, cleansed of contaminants and then reintroduced into
the same patient. This lengthy and labor-intensive process significantly
differs from traditional pharmaceutical administration and may result in a
complex, high-cost procedure.
In an effort to overcome these limitations, certain companies are developing
in vivo gene delivery systems that employ viruses to deliver the therapeutic
gene into target cells. Although in vivo, viral gene delivery approaches may
be suitable for certain applications, the Company believes that several issues
resulting from the use of viruses may limit their broad application. Certain
types of viral gene delivery systems permanently alter the DNA of the target
cell due to integration of the virus carrying the therapeutic gene into the
DNA of the cell. This permanent and potentially random integration may result
in the inability to regulate the gene-based therapeutic, the inactivation of a
beneficial gene or the unintended activation of a harmful gene. In addition,
certain viral gene delivery systems have been shown to cause immune reactions,
limiting their use for chronic diseases that may require repeat dosing. Viral
gene delivery systems may also have limitations as to the size of the
therapeutic gene that can be delivered. Furthermore, the Company believes that
it may be difficult and expensive to manufacture and purify the desired viral
strain due to the risks associated with handling viruses.
To overcome the concerns associated with the use of viruses, in vivo, non-
viral gene delivery methods are being developed. Such methods typically
include the insertion of a therapeutic gene into a circular segment of DNA
known as a DNA plasmid, which is designed to control expression of the
therapeutic gene in the cell. The plasmid is packaged with a carrier, often a
lipid-based formulation, and delivered into the target cell by various modes
of administration, including inhalation, intravenous administration, direct
injection and intraperitoneal administration. These traditional modes of
administration are familiar to physicians and may be more convenient and cost
effective than ex vivo approaches. In addition, DNA plasmids degrade over time
and do not integrate into the host genome. Therefore, plasmid-based systems
avoid the potentially random integration associated with some viral approaches
and allow for more flexible treatment since the gene is not permanently
expressed. In
25
<PAGE>
spite of the advantages of in vivo, non-viral delivery approaches, their
development has been limited by a number of considerations, including low
levels and short duration of gene expression, non-specific cell targeting,
inflammation or other adverse effects and manufacturing difficulties.
MEGABIOS' IN VIVO, NON-VIRAL GENE DELIVERY APPROACH
The Company's in vivo, non-viral gene delivery systems are designed to avoid
the significant limitations of ex vivo (whether viral or non-viral) and in
vivo, viral gene delivery. Furthermore, the Company believes it has made
progress in overcoming the limitations often associated with in vivo, non-viral
gene delivery approaches. The Company's proprietary gene delivery systems
consist primarily of two components: (i) DNA plasmids containing a therapeutic
gene that controls its proper expression; and (ii) lipids and other agents that
facilitate the delivery of the DNA plasmids into the target cell. In most of
its gene delivery systems, the Company combines negatively charged DNA with
novel, positively charged lipids and neutral lipids to form DNA:lipid
complexes. These complexes are the active ingredient in the Company's gene
delivery systems. Certain of the Company's other gene delivery systems utilize
polymers and peptides instead of lipids to facilitate the delivery of DNA
plasmids.
FORMULATION AND ADMINISTRATION OF THERAPEUTIC GENE USING MEGABIOS' NON-
VIRAL, LIPID-BASED GENE DELIVERY SYSTEM.
[GRAPHIC DEPICTION OF FORMULATION AND ADMINISTRATION OF THERAPEUTIC GENE]
The Company's portfolio of gene delivery systems is classified by series
based on the mode of administration and the cell type to which the gene-based
therapeutic is delivered, with each formulation within a series having distinct
specifications and potential applications. For example, different gene delivery
systems within the MB200 Series result in different patterns of expression
following intravenous administration. To date, the Company has developed seven
series of gene delivery systems and expects to design additional series of gene
delivery systems, expanding the scope of its commercial opportunities. The
Company believes its proprietary, non-viral gene delivery systems may have the
following benefits:
Therapeutically Relevant Gene Expression. Megabios has developed DNA
plasmids that, following their formulation with lipids and their
administration to animals, produce therapeutically relevant protein levels
that persist for up to two months. Following intravenous administration to
mice of the gene for a commercially available cytokine, the cytokine was
detected in the blood at levels consistent with those required for
therapeutic effect. Similarly, following aerosol administration to primates
of the therapeutic gene to treat cystic fibrosis, the resulting human
protein was produced in the correct cell type (lung epithelial cells) and
at levels believed to be potentially therapeutic.
Tissue-specific Gene Delivery and Expression. The Company believes that its
gene delivery systems result in specific targeting to certain tissues and a
number of cell types. In preclinical studies, the Company has demonstrated
that various formulations are taken up selectively by (i) ciliated
epithelial cells lining the airways of the lungs following aerosol
administration, (ii) vascular endothelial cells lining the blood vessels of
several tissues, including lung, heart, spleen and lymphatic tissues,
following intravenous administration, (iii) solid tumors following direct
administration either into the tumor or other local tissues, (iv) antigen
26
<PAGE>
presenting cells following intramuscular, intradermal, subcutaneous or
intravenous injection, (v) circulating macrophages following intravenous
administration and (vi) cells in the central nervous system following
direct injection. For example, in a preclinical study to test the pattern
of uptake of two intravenous formulations, one formulation resulted in over
90% of observable gene expression in the vascular endothelial cells of the
lungs, while the other formulation resulted in over 90% of observable gene
expression in the spleen. In addition, following direct injection in
animals, the Company's formulations have been demonstrated to result in
transfection of solid tumors and muscle and brain tissue.
Ease of Handling and Administration, Stability and Scalable Manufacturing
Methods. The Company's gene delivery systems are designed to be handled and
administered like traditional pharmaceuticals. These gene delivery systems
are also designed to be stable when refrigerated and are intended to be
distributed like other pharmaceuticals. Megabios has demonstrated that it
can produce clinical-grade DNA plasmids, DNA:lipid complexes and
formulations under controlled conditions without the expense and handling
requirements associated with viral gene delivery systems. In addition,
Megabios has developed manufacturing and production methods designed to be
scaled to meet commercial requirements and has produced DNA plasmids at a
contract manufacturer at the 1,000 liter scale.
Improved Safety Profile. Megabios has tested its gene delivery systems in
hundreds of in vivo, preclinical experiments. In animal models, the
Company's aerosol gene delivery systems do not appear to cause serious
adverse effects, such as inflammation, which has been seen following the
aerosol administration of lipid-based gene delivery systems under
development by other companies. Megabios believes that its gene delivery
systems may allow for repeat administration of gene-based therapeutics for
the treatment of chronic diseases, such as asthma and other inflammatory
conditions.
The Company has also developed techniques that allow it to screen genes for
potential therapeutic utility. Because the Company believes that in vitro gene
expression experiments do not correlate well with in vivo results, Megabios
has focused on testing its gene delivery systems in animals. The Company has
developed a methodology to test therapeutic genes in vivo in rapid succession.
For example, in a matter of weeks, the Company can prepare plasmids containing
different therapeutic genes, formulate them in an appropriate lipid-based
delivery system and administer the formulations to animals. After testing
several different genes, the Company can demonstrate the potential clinical
utility of a panel of therapeutic genes, facilitating selection of the gene-
based therapeutic to be developed. In addition, Megabios has expertise in the
selection of appropriate animal models, as well as in the development of
various assays and analytical techniques, to assess the performance of
formulations containing various genes. While the results of preclinical animal
studies do not predict safety or efficacy in humans, when, and if, further
clinical trials are conducted, the Company believes that its gene screening
capability and its experience in preclinical development will enable it to
accelerate the development of gene-based therapeutics and thereby attract
corporate partners.
COMMERCIALIZATION STRATEGY
The Company provides technology and preclinical development expertise that
it believes will be critical to the successful commercialization of many
therapeutic genes. The Company's commercialization strategy is to enter into
corporate partnerships with pharmaceutical and biotechnology companies to
develop gene-based therapeutics. Megabios corporate partnerships' are
structured to provide the Company with funding for research and development,
milestone payments and, upon commercialization, product royalties. This
strategy is intended to enable Megabios to extend and leverage its technology
platform, focus on preclinical development of gene-based therapeutics and
create a portfolio of product development programs sponsored by its corporate
partners. The key components of the Company's commercialization strategy are
to:
Exploit Broad Technology Platform. The Company believes that its gene
delivery systems can be used for multiple therapeutic applications. The
Company's goal is to establish several corporate partnerships for each
series of gene delivery systems that it has developed, since the plasmid
component of its formulations may contain any of several genes. For
example, the Company has entered into a corporate partnership with Glaxo
Wellcome to develop a gene-based therapeutic to treat cystic fibrosis using
the Company's aerosol gene
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<PAGE>
delivery technology, referred to as the MB100 Series. Gene delivery systems
in the MB100 Series may also be useful with different therapeutic genes to
treat other pulmonary diseases, such as asthma. Therefore, once a
particular gene delivery technology has been developed, it may be
commercialized with several partners for several different diseases. The
Company intends to expand its technology platform to include additional
non-viral gene delivery systems which target additional tissues and cell
types, creating an even broader portfolio of potential commercial
applications.
Focus Resources on Conversion of Genes into Drug Candidates. The Company
intends to focus on (i) DNA plasmid development to optimize expression of
the therapeutic gene, (ii) formulation development to achieve appropriate
targeting of the therapeutic gene to various cell types, (iii) gene
screening to validate the potential utility of a therapeutic gene, (iv)
preclinical studies, including animal models of disease, toxicology and
pharmacological testing, (v) assay development in support of preclinical
studies and clinical trials and (vi) supply of material for preclinical
studies and early clinical trials. Under certain circumstances, the Company
may sponsor early clinical testing of a potential gene-based therapeutic to
attract prospective corporate partners. In most cases, however, the
Company's corporate partners will be responsible for clinical trials,
sales, marketing, and large-scale clinical and commercial manufacturing. By
limiting its role primarily to research and preclinical development of gene
delivery systems, the Company believes it will be able to build and
maintain its expertise in the area of in vivo, non-viral gene delivery.
Diversity Through Multiple Projects and Corporate Partners. The Company's
strategy is to structure its corporate partnerships so that its research
and development activities on behalf of corporate partners will be fully
subsidized. Other potential payments that may be received by the Company
from corporate partners, including licensing fees, equity investments and
milestone payments, will be used to fund the further development of the
Company's core technology. The Company believes this will limit financial
risk by eliminating its exposure to capital-intensive activities such as
large-scale clinical trials, commercial manufacturing and sales and
marketing, while enabling the Company to continue to advance its core
technology. In addition, the Company believes that creating a portfolio of
product development programs will reduce the Company's dependence on any
particular product development program.
CORPORATE PARTNERS
The Company has entered into three collaborative research and development
agreements or "corporate partnerships" and is actively seeking additional
partnerships with pharmaceutical and biotechnology companies. Many of these
companies have identified therapeutic genes, but Megabios believes many such
companies do not possess the technology or the know-how to develop gene-based
therapeutics. Megabios seeks license fees, equity investments, funding for
research and development, milestone payments and royalties on product sales in
exchange for commercial licenses to the Company's gene delivery technologies
and access to its preclinical development expertise.
Glaxo Wellcome
In April 1994, the Company entered into a corporate partnership with Glaxo
Wellcome to develop a gene-based therapeutic for the treatment of cystic
fibrosis. Cystic fibrosis is the most common lethal genetic disease in
Caucasians, occurring in about 1 in 3,000 live births. The disease is believed
to afflict approximately 60,000 patients in the United States and Europe.
Cystic fibrosis is caused by a defect in the CFTR gene. This defect results in
production of defective CFTR protein, leading to the build-up of mucus in the
lungs that often results in multiple infections, loss of lung function and
premature death. The median life expectancy of a patient with cystic fibrosis
is approximately 30 years. Patients with cystic fibrosis typically incur
annual medical costs ranging from $15,000 to $55,000. The Company believes
that a gene-based therapeutic which results in increased levels of normal CFTR
protein on the surface of ciliated epithelial cells may slow or halt the
progression of this disease while reducing the total cost of patient care.
The Company has conducted preclinical testing of a gene delivery system in
the MB100 Series as a carrier for the CFTR gene. Data from these studies,
including the administration of the gene to primates via inhalation, have
demonstrated expression of the human form of the CFTR gene in the correct
location in the appropriate
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cell type with no evidence of inflammation, a common problem associated with
non-viral gene-based therapeutics. In addition, approximately 20% of the
target cells were shown to produce CFTR protein six weeks after a single
administration, which exceeds the level believed to be the threshold for
achieving a therapeutic effect. The Company believes that these results
suggest that this product may be useful in the treatment of cystic fibrosis.
In June 1997, Glaxo Wellcome commenced a Phase I/II clinical trial in cystic
fibrosis patients with cystic fibrosis using a gene delivery system in the
MB100 Series as a carrier for the CFTR gene.
Under the Glaxo Wellcome Agreement, the Company conducted research and
preclinical development activities for a three-year period ending April 1997.
The terms of the Glaxo Wellcome Agreement provide Glaxo Wellcome with the
exclusive rights to manufacture, market and sell gene-based therapeutics
incorporating the Company's gene delivery systems for the treatment of cystic
fibrosis. Glaxo Wellcome will be responsible for clinical trials, large-scale
clinical and commercial manufacturing, and sales and marketing of any
potential gene-based therapeutics resulting from the corporate partnership. In
addition to receiving $5.0 million in research funding, the Company is
entitled to receive a milestone payment from Glaxo Wellcome upon the
commencement of a Phase III clinical trial, a portion of which will be
credited against future royalties, as well as royalties on the sales of
products resulting from the corporate partnership. The Company has completed
all of its obligations under the Glaxo Wellcome Agreement and will receive
future payments, if any, only through the achievement of certain milestones
and the payment of royalties.
Pfizer
In May 1996, the Company entered into a corporate partnership with Pfizer to
develop a gene-based therapeutic for the treatment of solid tumors using gene
delivery systems in the MB200 Series which are designed to deliver genes that
inhibit angiogenesis. In order to survive and multiply, clusters of cancer
cells, referred to as solid tumors, require oxygen and other nutrients that
are delivered via the bloodstream. To access this blood supply, cancer cells
initiate a biochemical process that stimulates angiogenesis (the process by
which new blood vessels are formed), creating a new network of blood vessels
that nourish the tumor and remove waste products. As cancer cells grow and
metastasize (spread from primary sites to secondary sites), they stimulate
angiogenesis to form and nourish new tumors. Angiogenesis inhibitors have been
shown to slow or stop the formation of new blood vessels and therefore the
growth and spread of solid tumors.
The Company's gene-based therapeutic under development with Pfizer is
intended to inhibit angiogenesis associated with the formation and growth of
solid tumors. Gene delivery systems in the MB200 Series have been shown in
animal models to achieve gene expression selectively in vascular endothelial
cells of the lungs and other tissues. The initial disease targeted in the
Pfizer collaboration is non-small cell lung cancer ("NSCLC"). It is estimated
that there are approximately 300,000 new cases of NSCLC each year in the
United States and Europe. The Company believes there is no adequate treatment
for NSCLC. The median survival for patients with advanced forms of the disease
is approximately six months after diagnosis. The Company believes that a
therapy which is useful for the treatment of NSCLC also may be useful for
other solid tumors, such as cancer of the breast, prostate and ovaries.
Under the Pfizer Agreement, the Company is responsible for performing
research and preclinical development activities for a period of up to four
years. The Company's responsibilities include DNA plasmid development,
formulation development, assay development, preclinical studies including
toxicology and pharmacological testing and supply of material for preclinical
studies. In addition, the Company is conducting gene screening using gene
delivery systems in the MB200 Series using intravenous administration to
determine the relative utility of various therapeutic genes believed to
inhibit angiogenesis.
The Pfizer Agreement provides that Pfizer receive the exclusive rights to
develop, make, use and sell gene-based therapeutics resulting from the
corporate partnership. Under the Pfizer Agreement, the Company is conducting
research and preclinical development activities and will receive funding for
such activities through at least June 1998. Pfizer will be responsible for
clinical trials, large-scale clinical and commercial manufacturing, and sales
and marketing of any potential gene-based therapeutics resulting from the
corporate partnership. The Company will be entitled to receive up to $16.4
million in research and development funding if the agreement
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<PAGE>
continues for four years, as well as up to $20.0 million in payments upon the
achievement of certain clinical milestones, which milestone payments will be
credited against future royalties, if any. In addition, if a product receives
marketing approval from the FDA or an equivalent agency in another country,
the Company is entitled to receive royalties on sales of products resulting
from the corporate partnership. In connection with the execution of the Pfizer
Agreement, Pfizer purchased 484,697 shares of Series D Preferred Stock for
$3.5 million. The Pfizer Agreement permits Pfizer to terminate the program,
for any reason including reasons unrelated to such program, after June 1998
upon six months prior notice. If Pfizer elects to extend the research term
beyond two years, it will be required, prior to January 1998, to commit to
purchase within 60 days $10.0 million of the Company's Common Stock at a
premium to the then current market value, subject to certain adjustments. The
Company is uncertain whether Pfizer will exercise its option to extend the
Pfizer Agreement and make the corresponding equity investment in the Company.
Under the terms of the Pfizer Agreement, Pfizer's aggregate ownership in the
Company may not exceed 19.99% of the Company's outstanding capital stock.
Lilly
In May 1997, the Company entered into a corporate partnership with Lilly to
develop gene-based therapeutics using BRCA1, a gene which has been identified
as a putative tumor suppressor. In normal cells, tumor suppressor genes act to
inhibit cell division. When a tumor suppressor gene, such as BRCA1, is missing
or defective, a cell may begin to replicate uncontrollably, resulting in the
formation of a tumor. Various scientific publications have associated defects
in BRCA1 with breast, ovarian and prostate cancers. Increased expression of
the BRCA1 gene in diseased tissue may inhibit or prevent the uncontrolled cell
growth associated with cancer, without causing any adverse effect in normal
cells. BRCA1 will be developed as a gene-based therapeutic initially using
gene delivery systems in the MB300 Series, which are administered via direct
injection, as well as other gene delivery systems which are administered into
the intraperitoneal cavity.
The Company's gene-based therapeutic under development with Lilly is
initially focused on the delivery and expression of BRCA1 in diseased cells in
breast and ovarian tissue. Preliminary studies of Megabios' gene delivery
systems indicate that gene delivery systems in the MB300 Series may be useful
in the targeting of genes to ovarian and breast tissues. There are over
180,000 new cases of breast cancer and over 26,000 new cases of ovarian cancer
reported each year in the United States. In addition, other gene delivery
systems will be tested and potentially developed for the purpose of delivering
BRCA1 to various tissues using other modes of administration, including
intraperitoneal and intravenous administration.
Under the Lilly Agreement, the Company is responsible for performing
research and preclinical development activities for a period of up to four
years. The Lilly Agreement provides that Lilly receive the exclusive rights to
develop, make, use and sell gene-based therapeutics incorporating BRCA1
resulting from the corporate partnership. Under the Lilly Agreement, the
Company will conduct research and preclinical development activities and will
receive funding for a minimum of two years. Lilly will be responsible for
clinical trials, large-scale clinical and commercial manufacturing, and sales
and marketing of any gene-based therapeutics resulting from the corporate
partnership. The Company will be entitled to receive at least $7.0 million in
research and development funding during the first two years of the agreement,
which may be extended for up to two additional years provided that Lilly and
the Company agree on an appropriate level of research and development funding
for such extension period. In addition, the Company may receive up to $27.5
million in payments upon the achievement of certain preclinical and clinical
milestones and, if a product receives marketing approval from the FDA or an
equivalent foreign agency, the Company is entitled to receive royalties on
sales of products resulting from the corporate partnership. In connection with
the execution of the Lilly Agreement, Lilly purchased 285,714 shares of the
Company's Series F Preferred Stock for $3.0 million. The Lilly Agreement
permits Lilly to terminate the program, for any reason including reasons
unrelated to such program, after May 1999 upon three months prior notice.
The Company is highly dependent upon its corporate partnerships with Glaxo
Wellcome, Pfizer and Lilly. There can be no assurance that either, or both of,
the Pfizer Agreement or the Lilly Agreement will be extended, that research
funds under the Pfizer Agreement or the Lilly Agreement or milestone payments
contemplated by
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any of the Company's corporate partnerships will be received, that the equity
investment contemplated by the Pfizer Agreement will be consummated, or that
any of these corporate partnerships will result in successfully commercialized
products and the receipt by the Company of related royalty revenues. Should
the Company fail to receive research funds or should milestones set forth in
any or all of the Glaxo Wellcome Agreement, the Pfizer Agreement or the Lilly
Agreement not be achieved, or should Glaxo Wellcome, Pfizer or Lilly breach or
terminate their respective agreements, either prior to scheduled termination
or on the termination date, the Company's business, financial condition and
results of operations will be materially adversely affected. The Company will
also need to enter into additional corporate partnerships, and there can be no
assurance that the Company will be able to do so on favorable terms, or at
all. Should any corporate partner fail to develop or commercialize
successfully any product to which it has obtained rights from the Company, the
Company's business, financial condition and results of operations may be
materially adversely affected.
MEGABIOS' GENE DELIVERY SYSTEMS
The Company has developed several gene delivery systems and has identified a
number of potential therapeutic applications for each of these systems using a
variety of therapeutic genes. The Company's portfolio of gene delivery systems
are classified by series based on the mode of administration and the cell type
to which the gene-based therapeutic is delivered, with each formulation within
a series having distinct specifications and potential applications. For
example, one gene delivery system in the MB100 Series has been optimized for
the aerosol delivery of the CFTR gene to ciliated epithelial cells in the
lungs, while a different aerosol gene delivery system in the same series is
under development to deliver genes for the treatment of asthma. The table
below summarizes the Company's gene delivery systems, potential applications
and agreements with corporate partners:
<TABLE>
<CAPTION>
DELIVERY SYSTEM
(MODE OF ADMINISTRATION) CELL TYPE(S) TRANSFECTED POTENTIAL APPLICATIONS STATUS(1)
------------------------ ------------------------ ------------------------------------ ---------------------
<S> <C> <C> <C>
MB100 Series Ciliated Cystic fibrosis Phase I/II with Glaxo
(Inhalation) epithelial cells Wellcome
in the lungs and Asthma Preclinical
respiratory tract Inflammation of the lungs Research
Mucosal immunization Research
Infectious diseases of the lungs Research
- ----------------------------------------------------------------------------------------------------------------
MB200 Series Vascular Angiogenesis inhibition (cancer) Preclinical with
(Intravenous injection) endothelial cells Pfizer
in the lungs, Angiogenesis inhibition (non-cancer) Preclinical
heart, spleen and Protein replacement therapy Preclinical
lymph Cardiovascular diseases Preclinical
Inflammatory diseases Research
- ----------------------------------------------------------------------------------------------------------------
MB300 Series Solid tumor cells Cancer (using BRCA1) Preclinical with
(Direct injection) Lilly
Cancer (other genes) Preclinical
- ----------------------------------------------------------------------------------------------------------------
MB400 Series Various cells Preventive vaccines Research
(Intramuscular, involved in Therapeutic vaccines Research
intradermal, antigen Immunotherapy (cancer, infectious Research
subcutaneous and presentation diseases, autoimmune diseases)
intravenous injection)
- ----------------------------------------------------------------------------------------------------------------
MB500 Series Circulating Infectious diseases Research
(Intravenous injection) macrophages Hyperlipidemia Research
- ----------------------------------------------------------------------------------------------------------------
MB600 Series Cells in the Neurodegenerative diseases Research
(Direct injection) central nervous Cancer Research
system
- ----------------------------------------------------------------------------------------------------------------
MB700 Series Solid tumor cells Cancer Research
(Intraperitoneal
injection)
</TABLE>
- --------
(1) "Phase I/II" indicates that the compound is being tested in humans for
safety and preliminary indications of biological activity in a limited
patient population.
"Preclinical" indicates that Megabios is conducting efficacy, pharmacology
and/or toxicology testing of a gene delivery system in animal models or
biochemical or cell culture assays.
"Research" includes the development of animal models and assay systems,
discovery of prototype gene delivery systems and evaluation and refinement
of prototype gene delivery systems in in vitro and in vivo testing.
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MB100 Series
The Company has developed a class of gene delivery systems, the MB100
Series, which, following aerosol administration to animals, results in genes
being taken up and expressed primarily by ciliated epithelial cells in the
lungs and respiratory tract. The Company believes that the MB100 Series may be
useful in the delivery of therapeutic genes for a variety of purposes,
including treatment of cystic fibrosis, asthma, inflammatory conditions and
infectious diseases of the lungs, as well as for mucosal immunization. One of
these gene delivery systems is the subject of the Company's corporate
partnership with Glaxo Wellcome to develop a gene-based therapeutic for the
treatment of cystic fibrosis. See "--Corporate Partners--Glaxo Wellcome."
The Company intends to enter into a corporate partnership to develop the
MB100 Series for the treatment of asthma. Asthma, characterized by obstruction
of airways in the lung, is estimated to affect 5% of the population in the
United States, or approximately 13 million people. Certain genes believed to
be associated with the onset and progression of asthma have been identified,
and various companies are investing heavily in further understanding the
genetic cause of asthma. The Company believes that the MB100 Series may be
useful for the delivery of therapeutic genes to treat asthma as well as other
therapeutic genes to treat other inflammatory diseases in the lungs.
The Company also intends to conduct studies using the MB100 Series together
with certain therapeutic genes to achieve mucosal immunity. Mucosal immunity
is a form of immunization resulting from the introduction of an antigen to the
mucosal cells lining the airways of the lungs, oral cavity or nasal passages.
The Company believes that the MB100 Series may be useful to deliver
therapeutic genes that result in mucosal immunity in diseases, such as
tuberculosis and pneumonia. The Company believes that the MB100 Series also
may be useful to deliver therapeutic genes for the treatment of other
pulmonary disorders, such as infectious diseases.
MB200 Series
Megabios has developed a class of gene delivery systems, the MB200 Series,
which, following intravenous administration, are taken up preferentially by
vascular endothelial cells in the lungs and other tissues. The Company
believes that gene delivery systems in the MB200 Series, in combination with
various genes, may be useful in the treatment of several diseases that are
associated with angiogenesis, including cancer, macular degeneration, diabetic
retinopathy, rheumatoid arthritis and psoriasis. In addition, Megabios
believes that gene delivery systems in the MB200 Series may be useful for
protein replacement therapy and to treat other medical disorders such as
cardiovascular and inflammatory diseases. Megabios has entered into a
corporate partnership with Pfizer to develop a gene-based therapeutic to treat
solid tumors using gene delivery systems in the MB200 Series which are
designed to deliver genes that inhibit angiogenesis. See "--Corporate
Partners--Pfizer."
In preclinical studies, administration of a gene delivery system in the
MB200 Series has resulted in expression levels of a therapeutic protein
consistent with those required for a therapeutic effect. These preclinical
studies suggest that a gene delivery system in the MB200 Series could be used
for protein replacement therapy, in which the gene coding for a therapeutic
protein is administered rather than the protein itself. The Company believes
that the use of gene-based therapeutics in this manner may be a viable
alternative when therapeutic levels of a protein are difficult to sustain or
when the therapeutic protein is difficult or expensive to manufacture.
In addition, the Company believes that the ability to target certain cell
types with gene delivery systems in the MB200 Series may be useful in
developing gene-based therapeutics for a number of other medical disorders.
For example, Megabios believes that the administration of gene delivery
systems in the MB200 Series combined with certain therapeutic genes that
stimulate angiogenesis may be useful to treat certain cardiovascular diseases,
such as peripheral vascular disease and atherosclerosis, both of which may
result in the blockage of blood vessels, leading to heart attacks and strokes.
In addition, the use of gene delivery systems in the MB200 Series to deliver
therapeutic genes coding for anti-inflammatory agents may be useful to treat
inflammatory diseases following intravenous administration.
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MB300 Series
Megabios has developed a class of gene delivery systems, the MB300 Series,
which, following direct injection in animals, are taken up by cancer cells and
may be useful for the treatment of certain solid tumors. In preclinical
studies involving a canine model of spontaneously occurring oral melanoma, a
gene delivery system in the MB300 Series was used to deliver two therapeutic
genes. The data from this study indicated that a majority of the dogs that
received the treatment regimen exceeded their expected median survival period.
These dogs also had a higher number of activated white blood cells compared to
untreated animals, which suggests that the therapeutic genes augmented the
immune response to the tumor cells resulting in an increased survival rate for
these animals. The Company believes that these results support the potential
utility of the gene delivery systems in the MB300 Series to facilitate
immunotherapy approaches for the treatment of multiple forms of cancer.
Other gene delivery systems in the MB300 Series have been tested by the
Company to facilitate the treatment of multiple forms of cancer using
different approaches, such as through the delivery of suicide genes or tumor
suppressor genes. Megabios has entered into a corporate partnership with Lilly
to develop gene-based therapeutics using the MB300 Series as well as other
gene delivery systems, to deliver the BRCA1 gene to treat breast cancer and
ovarian cancer. See "--Corporate Partners--Lilly." The Company intends to
pursue additional corporate partnerships to develop gene-based therapeutics to
treat cancer using other (non-BRCA1) therapeutic genes.
MB400 Series
The Company is developing a class of gene delivery systems, the MB400
Series, designed to administer genetic vaccines following various modes of
administration, including intramuscular, intradermal, subcutaneous or
intravenous injection. To date, the use of DNA for vaccination purposes has
been limited by inadequate levels of expression of the vaccine antigen in the
appropriate cell type. The Company has designed and screened many delivery
systems, some of which may have improved targeting and expression
characteristics. If successful, these efforts could result in novel
formulations that may allow the treatment or prevention of certain diseases,
including infections and autoimmune diseases, as well as certain forms of
cancer, through a genetic vaccine approach.
Other Gene Delivery Systems
The Company is developing other classes of gene delivery systems for
additional therapeutic applications. For example, the Company believes that
the MB500 Series, which is designed to deliver genes to circulating
macrophages, has potential utility in various infectious diseases and
hyperlipidemia. The MB600 Series is designed to deliver genes to cells in the
central nervous system, which is an important target for the potential
treatment of neurodegenerative diseases, including Parkinson's and Alzheimer's
disease, as well as for the treatment of certain cancers. The MB700 Series is
designed to result in the delivery of genes to solid tumor cells following
intraperitoneal administration.
There can be no assurance that any of the Company's gene delivery systems
will have the performance attributes to justify their further development or
to attract corporate partners. While the Company has demonstrated some
evidence of the utility of its gene delivery systems in preclinical animal
studies, these results do not predict safety or efficacy in humans, when, and
if, further clinical trials are conducted. The Company's products may prove to
have undesirable and unintended side effects or other characteristics that may
prevent or limit their use. There can be no assurance that any of the
Company's products will ultimately obtain FDA or other regulatory or foreign
marketing approval for any indication. The Company's products are also subject
to risks particular to the development of gene-based therapeutics. Gene-based
therapy is a new and rapidly evolving technology and is expected to undergo
significant technological changes in the future. As a result of the limited
clinical data available regarding the safety and efficacy of gene-based
therapeutics and other factors, clinical trials relating to gene-based
therapeutics may take longer to complete than clinical trials involving more
traditional pharmaceuticals. There can be no assurance that any gene-based
therapeutics will be demonstrated to be safe or effective or that the Company
or its corporate partners will be able to manufacture such gene-based
therapeutics on a commercial scale or in an economical manner.
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TECHNOLOGY LICENSES
Megabios actively reviews technologies under development at academic and
other research institutions. The Company believes that such institutions are
an important source of breakthrough technologies and has entered into and
intends to enter into additional licensing arrangements to expand its core
technology.
The Company has an exclusive license to certain patent applications held by
The Regents of the University of California ("The Regents") related to in
vivo, non-viral delivery of genes using positively charged lipids, including
delivery by various modes of administration and for use in the treatment of
cystic fibrosis. With respect to these patent applications, one patent has
issued in the United States and two Notices of Allowance have been received in
the United States with respect to two patents and two equivalent notices have
been received in a foreign country with respect to these patent applications.
Under the terms of the agreement, the Company has paid a license fee and is
obligated to make payments upon the achievement of certain clinical milestones
and royalty payments on sales of products, if any.
PATENTS AND PROPRIETARY TECHNOLOGY
Patents and other proprietary rights are important to the Company's
business. The Company's policy is to file patent applications and to protect
technology, inventions and improvements to inventions that are commercially
important to the development of its business. The Company also relies on trade
secrets, confidentiality agreements and other measures to protect its
technology and proposed products. The Company's failure to obtain patent
protection or otherwise protect its proprietary technology or proposed
products may have a material adverse effect on the Company's competitive
position and business prospects.
The Company has eleven pending patent applications in the United States as
well as foreign counterparts of these applications. The Company has received
Notices of Allowance in the United States with respect to three patent
applications. The patent application process takes several years and entails
considerable expense. In addition to its own patent applications, the Company
has acquired exclusive worldwide licenses to patent applications from The
Regents. There is no assurance that additional patents will issue from these
applications or, if patents do issue, that the claims allowed will be
sufficient to protect the Company's technology.
A number of the gene sequences that the Company and its corporate partners
are investigating or may use in its products are or may become patented by
others. As a result, the Company or its corporate partners may be required to
obtain licenses to such gene sequences or other technology in order to use or
market such products. In addition, some of the products based on the Company's
gene delivery systems may require the use of multiple proprietary
technologies. Consequently, the Company or its corporate partners may be
required to make cumulative royalty payments to several third parties. Such
cumulative royalties could reduce amounts paid to the Company or be
commercially prohibitive. In connection with the Company's efforts to obtain
rights to such gene sequences or other proprietary technology, the Company may
find it necessary to convey rights to its technology to others. There can be
no assurance that the Company or its corporate partners will be able to obtain
any required licenses on commercially reasonable terms or at all.
The patent positions of pharmaceutical and biotechnology firms are often
uncertain and involve complex legal and factual questions. Further, the
breadth of claims allowed in biotechnology patents is unpredictable. Patent
applications in the United States are maintained in secrecy until a patent
issues, and the Company cannot be certain that others have not filed patent
applications for technology covered by the Company's pending applications or
that the Company was the first to invent the technology that is the subject of
such patent application. Competitors may have filed applications for, or may
have received patents and may obtain additional patents and proprietary rights
relating to, compounds, products or processes that block or compete with those
of the Company. While the Company is aware of patent applications filed and
patents issued to third parties relating to genes, gene delivery technologies
and gene-based therapeutics, there can be no assurance that any such patent
applications or patents will not have a material adverse effect on products
the Company or its corporate partners
34
<PAGE>
are developing or may seek to develop in the future. There can be no assurance
that third parties will not assert patent or other intellectual property
infringement claims against the Company with respect to its products or
technology or other matters.
Patent litigation is widespread in the biotechnology industry. Litigation
may be necessary to defend against or assert claims of infringement, to
enforce patents issued to the Company, to protect trade secrets or know-how
owned or licensed by the Company, or to determine the scope and validity of
the proprietary rights of third parties. Although no third party has asserted
that the Company is infringing such third party's patent rights or other
intellectual property, there can be no assurance that litigation asserting
such claims will not be initiated, that the Company would prevail in any such
litigation, or that the Company would be able to obtain any necessary licenses
on reasonable terms, if at all. Any such claims against the Company, with or
without merit, as well as claims initiated by the Company against third
parties, can be time-consuming and expensive to defend or prosecute and to
resolve. If other companies prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings to determine priority of invention,
which could result in substantial cost to the Company even if the outcome is
favorable to the Company.
The Company also relies on proprietary information and trade secrets,
including its proprietary database of preclinical in vivo experiments, to
develop and maintain its competitive position. There can be no assurance that
third parties will not independently develop equivalent proprietary
information or techniques, will not gain access to the Company's trade secrets
or disclose such technology to the public, or that the Company can maintain
and protect unpatented proprietary technology. The Company typically requires
its employees, consultants, collaborators, advisors and corporate partners to
execute confidentiality agreements upon commencement of employment or other
relationships with the Company. There can be no assurance, however, that these
agreements will provide meaningful protection or adequate remedies for the
Company's technology in the event of unauthorized use or disclosure of such
information, that the parties to such agreements will not breach such
agreements or that the Company's trade secrets will not otherwise become known
or be discovered independently by its competitors.
MANUFACTURING AND COMMERCIALIZATION
The Company's focused commercialization strategy is based on entering
corporate partnerships with pharmaceutical and biotechnology companies whereby
the Company will primarily pursue preclinical development of gene-based
therapeutics, and the Company's partners will be responsible for clinical
trials, sales, marketing, and large-scale clinical and commercial
manufacturing. Under the terms of the Glaxo Wellcome Agreement, Pfizer
Agreement and Lilly Agreement, the Company's corporate partners have received
exclusive rights for large-scale, clinical and commercial manufacturing of the
gene-based therapeutics for use in the areas covered by these agreements.
The Company has demonstrated that its DNA plasmids, DNA:lipid complexes and
formulations can be produced at pilot scale and believes that commercial
quantities of material may be prepared using conventional fermentation and
purification processes. The Company currently operates a pilot manufacturing
facility and has produced DNA plasmids at a contract manufacturer at the 1,000
liter scale. The lipid components of Megabios' gene delivery systems can be
synthesized using readily scalable, organic synthesis procedures. To date, the
Company has obtained access to lipid manufacturing through arrangements with
contract manufacturers. Preparation of DNA:lipid complexes is carried out at
the Company's pilot manufacturing facility using proprietary processes.
The Company has supplied clinical-grade material to Glaxo Wellcome for use
in a Phase I/II clinical trial of a gene-based therapeutic to treat cystic
fibrosis. Glaxo Wellcome is in the process of scaling up its production
capabilities using the Company's proprietary processes and methods to meet
clinical requirements. Under the Pfizer Agreement and the Lilly Agreement,
Megabios is obligated to provide material used in preclinical testing and may
supply material for clinical trials.
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Megabios does not currently operate manufacturing facilities for commercial
production of its gene delivery systems. The Company has no experience in, and
currently lacks the resources and capability to, manufacture or market any of
its products on a commercial scale. Accordingly, the Company will be dependent
initially on corporate partners, licensees or other third parties for
commercial-scale manufacturing of its products. Successful large-scale
manufacturing of gene-based therapeutics has not been demonstrated by any
third parties. There can be no assurance that the Company will be able to
reach satisfactory agreements with its partners or that its corporate partners
will be able to develop adequate manufacturing capabilities for production of
commercial-scale quantities of gene-based therapeutics.
Under the terms of the Glaxo Wellcome Agreement, Pfizer Agreement and Lilly
Agreement, the corporate partners have received exclusive rights to market and
sell the Company's gene-based therapeutics that are developed pursuant to
these corporate partnerships. The Company is highly dependent upon each of its
corporate partnerships with Glaxo Wellcome, Pfizer and Lilly. The Company
cannot control whether Glaxo Wellcome, Pfizer or Lilly will devote sufficient
resources to the commercialization of the Company's potential products on a
timely basis, and such resources could vary due to factors unrelated to the
Company's products. If such corporate partners fail to conduct these
activities in a timely manner or at all, the commercialization of the
Company's products could be delayed or terminated. There can be no assurance
that any of these corporate partnerships will result in successfully
manufactured or commercialized products and the receipt by the Company of
related royalty revenues. Failure of the Company's corporate partners to
manufacture successfully the potential products for large-scale clinical
trials or commercial use, or to commercialize successfully the potential
products, would have a material adverse effect on the Company's business,
financial condition and results of operations.
GOVERNMENT REGULATION
The production and marketing of the Company's products and its research and
development activities are subject to extensive regulation for safety,
efficacy and quality by numerous governmental authorities in the United States
and other countries. In the United States, pharmaceutical products are subject
to rigorous regulation by the FDA. The Company believes that the commercial
uses of its products will be regulated as biologics by the FDA and comparable
foreign regulatory bodies. Biologics are regulated under certain provisions of
the Public Health Service Act and the Federal Food, Drug, and Cosmetic Act.
These laws and the regulations promulgated thereunder govern, among other
things, testing, manufacturing, safety, efficacy, labeling, storage, record
keeping, and the promotion, marketing and distribution of biological products.
At the FDA, the Center for Biologics Evaluation and Research is responsible
for the regulation of biological products and has handled FDA's regulation of
most gene-based therapeutics to date. Gene-based therapy, however, is a
relatively new technology and the regulatory requirements governing gene-based
therapeutics are uncertain. The Company is not aware of any gene-based
therapeutics that have received marketing approval from the FDA or any
comparable foreign authorities.
The necessary steps before a new biological product may be marketed in the
United States include: (i) preclinical laboratory tests and in vivo
preclinical studies; (ii) the submission to the FDA of an IND for clinical
testing, which must become effective before clinical trials commence; (iii)
under certain circumstances, approval by a special advisory committee convened
to review IND's involving gene-based therapeutics; (iv) adequate and well-
controlled clinical trials to establish the safety and efficacy of the
product; (v) the submission to the FDA of a product license application and
establishment license application ("PLA/ELA") and (vi) FDA approval of the
PLA/ELA prior to any commercial sale or shipment of the biologic. The FDA has
eliminated the requirement of a separate ELA for certain categories of
biotechnology products, including, for example, therapeutic recombinant DNA-
derived products. At this time, however, it is unclear whether these new
regulations would apply to gene-based therapeutics. Furthermore, the FDA has
announced its intention ultimately to review all new biologic products under a
single biologics license application. However, it is impossible to predict
when this procedure will be adopted.
Manufacturing facilities in the United States are subject to periodic
inspection by the FDA and state authorities, and must comply with GMP.
Manufacturers of biologics also must comply with FDA general
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biological product standards and also may be subject to state regulation.
Failure to comply with GMP or other applicable regulatory requirements may
result in withdrawal of marketing approval, criminal prosecution, civil
penalties, recall or seizure of products, warning letters, total or partial
suspension of production, FDA refusal to review pending marketing approval
applications or supplements to approved applications, or injunctions, as well
as other legal or regulatory action against the Company or its corporate
partners.
Preclinical tests include laboratory evaluation of the product, as well as
animal studies to assess the potential safety and efficacy of the product.
Preclinical safety tests must be conducted by laboratories that comply with
FDA regulations regarding Good Laboratory Practices ("GLP"). The results of
the preclinical tests, together with manufacturing information and analytical
data, are submitted to the FDA as a part of an IND, which must become
effective before clinical trials may commence. The IND will automatically
become effective 30 days after receipt by the FDA unless the FDA indicates
prior to the end of the 30-day period that the proposed protocol raises
concerns that must be resolved before the FDA will allow the trials to proceed
as outlined in the IND. In such case, there can be no assurance that such
resolution will be achieved in a timely fashion, if at all. In addition, the
FDA may impose a clinical hold on an ongoing clinical trial, in which case the
study cannot recommence without FDA authorization under terms sanctioned by
the agency. There be no assurance that the Company's corporate partners will
not encounter problems in clinical trials that cause the Company's corporate
partners or the FDA to delay, suspend or terminate such trials.
Clinical trials involve the administration of the investigational product to
healthy volunteers or to patients, under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with Good
Clinical Practices under protocols that detail the objectives of the trial,
inclusion and exclusion criteria, the parameters to be used to monitor safety,
and the efficacy criteria to be evaluated. Each protocol must be submitted to
the FDA as part of the IND. Further, each clinical trial must be reviewed and
approved by an independent IRB at the academic or medical institution at which
the trial will be conducted. The IRB will consider, among other things,
ethical factors and the safety of human subjects. The IRB may require changes
in a protocol, and there can be no assurance that submission of an IND will
permit a study to be initiated or completed.
Clinical trials are conducted in three sequential phases, but the phases may
overlap. In Phase I, the initial introduction of the product into healthy
human subjects or patients, the drug is tested to assess safety, metabolism,
pharmacokinetics and pharmacological actions associated with increasing doses.
Phase II usually involves studies in a limited patient population to (i)
determine the efficacy of the potential product for specific, targeted
indications, (ii) determine dosage tolerance and optimal dosage and (iii)
further identify possible adverse effects and safety risks. If a compound is
found to be effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to evaluate further clinical
efficacy and to test further for safety within a broader patient population at
geographically dispersed clinical sites. There can be no assurance that Phase
I, Phase II or Phase III testing will be completed successfully within any
specific time period, if at all, with respect to any of the Company's or its
corporate partners' products subject to such testing. In addition, after
marketing approval is granted, the FDA may require post-marketing clinical
studies which typically entail extensive patient monitoring and may result in
restricted marketing of the product for an extended period of time.
The results of the pharmaceutical development, preclinical studies and
clinical trials are submitted to the FDA in the form of a PLA/ELA for approval
of the manufacture, marketing and commercial shipment of the biological
product. The testing and approval process is likely to require substantial
time, effort and financial and human resources, and there can be no assurance
that any approval will be granted on a timely basis, if at all or that any
product developed by the Company and its corporate partners will prove safe
and effective in clinical trials or will meet all the applicable regulatory
requirements necessary to receive marketing approval from the FDA or the
comparable regulatory body of other countries. Data obtained from preclinical
studies and clinical trials are subject to interpretations that could delay,
limit or prevent regulatory approval. The FDA may deny the PLA/ELA if
applicable regulatory criteria are not satisfied, require additional testing
or information, or require postmarketing testing and surveillance to monitor
the safety or efficacy of a product. Moreover, if regulatory
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approval of a biological product is granted, such approval may entail
limitations on the indicated uses for which it may be marketed. Finally,
product approvals may be withdrawn if compliance with regulatory standards is
not maintained or if problems occur following initial marketing. Among the
conditions for PLA/ELA approval is the requirement that the prospective
manufacturer's quality control and manufacturing procedures conform to the
appropriate FDA GMP regulations, which must be followed at all times. In
complying with standards set forth in these regulations, manufacturers must
continue to expend time, financial resources and effort in the area of
production and quality control to ensure full compliance.
For clinical investigation and marketing outside the United States, the
Company and its corporate partners may be subject to FDA as well as regulatory
requirements of other countries. The FDA regulates the export of biological
products, whether for clinical investigation or commercial sale. In Europe,
the approval process for the commencement of clinical trials varies from
country to country. The regulatory approval process in other countries
includes requirements similar to those associated with FDA approval set forth
above. Approval by the FDA does not ensure approval by the regulatory
authorities of other countries.
The Company's research and development processes involve the controlled use
of hazardous materials, chemicals and radioactive materials, and produce waste
products. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and waste products. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated completely.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could exceed the resources of the
Company. Although the Company believes that it is in compliance in all
material respects with applicable environmental laws and regulations, there
can be no assurance that it will not be required to incur significant costs to
comply with environmental laws and regulations in the future, or that any the
operations, business or assets of the Company will not be materially adversely
affected by current or future environmental laws or regulations.
COMPETITION
Gene delivery and gene-based therapy are relatively new, rapidly evolving
areas of science in which significant and unexpected technological advances
are likely. Rapid technological development could result in the Company's
products or technologies becoming obsolete before the Company recovers a
significant portion of its related research, development and capital
expenditures. The Company is aware of several pharmaceutical and biotechnology
companies which are exploring the field of gene-based therapy, are actively
engaged in research and development in areas related to gene-based therapy, or
have commenced clinical trials of gene-based therapeutics. Many of these
companies are addressing diseases which have been targeted by the Company or
its corporate partners. Megabios also may experience competition from
companies that have acquired or may acquire gene-based technology from
universities and other research institutions. As competitors develop their
technologies, they may develop proprietary positions in certain aspects of
gene delivery and gene-based therapeutics that may materially and adversely
affect Megabios. In addition, the Company faces and will continue to face
competition from other companies for corporate partnerships with
pharmaceutical and biotechnology companies, for establishing relationships
with academic and research institutions, and for licenses to proprietary
technology, including intellectual property related to gene delivery systems.
Corporate partners may also elect to internally develop gene-based
therapeutics which compete with the Company's products. In addition, many
other companies are developing non-gene-based therapies to treat these same
diseases.
Most of the Company's competitors and potential competitors have
substantially greater product development capabilities and financial,
scientific, manufacturing, managerial and human resources than the Company.
There can be no assurance that research and development by others will not
render the Company's delivery systems or the products developed by corporate
partners using the Company's delivery systems obsolete or non-competitive or
that any product developed by the Company or its corporate partners will be
preferred to
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any existing or newly developed technologies. In addition, there can be no
assurance that the Company's competitors will not develop safer, more
effective or less costly gene delivery systems, gene-based therapeutics or
non-gene based therapies, achieve superior patent protection or obtain
regulatory approval or product commercialization earlier than the Company, any
of which could have a material adverse effect on the Company's business,
financial condition or results of operations.
PRODUCT LIABILITY INSURANCE
The manufacture and sale of human therapeutic products involve an inherent
risk of product liability claims and associated adverse publicity. The Company
currently has only limited product liability insurance, and there can be no
assurance that it will be able to maintain existing or obtain additional
product liability insurance on acceptable terms or with adequate coverage
against potential liabilities. Such insurance is expensive, difficult to
obtain and may not be available in the future on acceptable terms, or at all.
An inability to obtain sufficient insurance coverage on reasonable terms or to
otherwise protect against potential product liability claims could prevent or
inhibit the commercialization of products by the Company. A product liability
claim brought against the Company in excess of its insurance coverage, if any,
or a product withdrawal, could have a material adverse effect upon the
Company's business, financial condition and results of operations.
EMPLOYEES
As of June 30, 1997, Megabios employed 64 individuals full-time, including
17 who hold doctoral degrees. Of the Company's total work force, 54 employees
are engaged in or directly support research and development activities, and 10
are engaged in business development, finance and administrative activities.
The Company's employees are not represented by a collective bargaining
agreement. The Company believes its relationships with its employees are good.
FACILITIES
The Company currently leases approximately 45,300 square feet in Burlingame,
California, of which approximately 34,700 square feet is occupied or under
construction (the "Facility"). The Facility has been built to the Company's
specifications to accommodate the Company's laboratory, support and
administrative needs and includes a pilot manufacturing facility designed to
supply material required for preclinical research and development. The term of
the lease for the 34,700 square feet in use expires in 2004, at which time the
Company has the option to renew the lease, Approximately 10,600 square feet of
the Facility is not currently occupied by the Company and is expected to be
built-out for use as a manufacturing facility. The term of the lease for this
portion of the facility expires in 2007, at which time the Company has the
option to renew the lease. Megabios believes that the Facility and its
expansion will be adequate to meet the Company's needs for the foreseeable
future.
SCIENTIFIC ADVISORY BOARD
Megabios' Scientific Advisory Board ("SAB") consists of academic and
industry experts in the fields of gene-based therapeutics, molecular biology,
drug delivery, immunology and infectious diseases. The Company meets with the
members of the SAB on an ad hoc basis to discuss research and development
strategies, and certain members communicate with the Company's scientists
periodically to discuss the details of specific projects. All SAB members own
shares or have been granted options to acquire Common Stock of the Company.
Each SAB member has entered into a consulting agreement specifying the terms
and scope of the advisory relationship with the Company, which provides that
the SAB member will not consult or otherwise provide services to any other
Company engaged in the development of gene-based therapeutics without the
prior consent of Megabios. The Company does not believe that termination of
any individual consulting agreement would materially affect its business. All
of the SAB members are employed by employers other than the Company and may
have other commitments and consulting advisory contracts with other entities
which may compete for such member's time and with their obligations to the
Company.
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Abul K. Abbas, M.B.B.S., has served as Head of the Immunology Research
Division in the Department of Pathology at Brigham and Women's Hospital, and
Professor of Pathology at Harvard Medical School since July 1991. He is a
member of the American Association of Pathologists and the American
Association of Immunologists. Dr. Abbas received his medical degree from the
All-India Institute of Medical Sciences, New Delhi, India.
Donald E. Ganem, M.D., has served as Investigator, Howard Hughes Medical
Institute since September 1994 and Professor, University of California, San
Francisco since July 1990. He is a member of the American Academy of
Microbiology, the American Society for Virology and the Infectious Diseases
Society of America. Dr. Ganem received his M.D. from Harvard University.
Raju Kucherlapati, Ph.D., has served as the Lola and Saul Kramer Professor
and Chairman of the Department of Molecular Genetics at Albert Einstein
College of Medicine since 1989. He was a founder and serves on the Board of
Directors of both Cell Genesys, Inc. ("Cell Genesys") and Millennium
Pharmaceuticals, Inc.. Dr. Kucherlapati received his Ph.D. from the University
of Illinois and did post-doctoral training at Yale University. Dr.
Kucherlapati also serves on the Board of Directors of the Company.
Robert S. Langer, Sc.D., has served as the Kenneth J. Germeshausen Professor
of Chemical and Biomedical Engineering at the Massachusetts Institute of
Technology ("MIT") since July 1988. He is a member of the Institute of
Medicine, the National Academy of Engineering and the National Academy of
Sciences. Dr. Langer received his Sc.D. in Chemical Engineering from MIT. He
also serves as a consultant to the Company.
Stuart H. Orkin, M.D., has served as the Leland Fikes Professor of Pediatric
Medicine at Harvard University since June 1987 and Investigator, Howard Hughes
Medical Institute since March 1986. From 1989 to 1990, he was the President of
The American Society of Clinical Investigation. He is a member of the National
Academy of Sciences, the American Academy of Arts and Sciences, and the
American Society of Human Genetics. Dr. Orkin received his M.D. from Harvard
University.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company and their
ages as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Executive Officers
Benjamin F. McGraw, III, 48 Chairman, Chief Executive Officer and President
Pharm.D................
Patrick G. Enright...... 35 Chief Financial Officer and Vice President
Rodney Pearlman, Ph.D... 46 Vice President, Research and Development
Key Employees
Simba Gill, Ph.D........ 33 Vice President, Business Development
Beatrice Langton-
Webster, Ph.D.......... 39 Senior Director, Life Sciences
Lee B. Bussey, Ph.D..... 44 Director, Bioprocessing
Helen Jenkins........... 34 Director, Project Development
Ralph Niven, Ph.D., M.R.
Pharm. ................ 37 Director, Pharmaceutics and Delivery
Robert I. Grove, Ph.D... 49 Principal Scientist, Cardiovascular
Jackie Papkoff, Ph.D.... 41 Principal Scientist, Oncology
Directors
Frank J. Caufield(1).... 57 Director
Edward L. Erickson...... 50 Director
A. Grant Heidrich(2).... 44 Director
Russell C. Hirsch, M.D.,
Ph.D.(1)............... 34 Director
Raju Kucherlapati,
Ph.D.(2)............... 54 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Benjamin F. McGraw, III, Pharm.D., joined the Company as President, Chief
Executive Officer and director in September 1994 and became Chairman of the
Board of Directors in February 1997. From April 1993 to September 1994, Dr.
McGraw was Corporate Vice President for Corporate Development for Allergan,
Inc., a pharmaceutical company. From November 1990 to April 1993, he served as
President of MedTech Trends, Inc., an investment advisory company. From
November 1991 to April 1993, Dr. McGraw was President of Carerra Capital
Management, Inc., an investment company, where he was the fund manager for a
limited partnership that invested in health care companies. From July 1989 to
November 1990, Dr. McGraw was Vice President, Development at Marion Merrell
Dow, Inc., a pharmaceutical company. From November 1987 to July 1989, he was
Vice President, Development at Marion Laboratories, Inc., a pharmaceutical
company. Dr. McGraw received his Doctor of Pharmacy from the University of
Tennessee Center for the Health Sciences.
Patrick G. Enright joined the Company as Chief Financial Officer and Vice
President in March 1995. From September 1993 to June 1994, Mr. Enright was
Senior Vice President of Finance and Business Development for Boehringer
Mannheim Therapeutics ("Boehringer Mannheim"), a pharmaceutical company and a
subsidiary of Corange Ltd. From September 1989 to September 1993, Mr. Enright
was employed at PaineWebber Incorporated, an investment banking firm, where he
became a Vice President in January 1992. From June 1984 to August 1989, he was
employed by Sandoz Corporation, a pharmaceutical company. Mr. Enright received
his M.B.A. from The Wharton School of Business at the University of
Pennsylvania and his B.S. in Biological Sciences from Stanford University.
Rodney Pearlman, Ph.D., has served as Vice President, Research and
Development since January 1995. From January 1988 to December 1994, Dr.
Pearlman was Director of Pharmaceutical Research and Development
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at Genentech, Inc. ("Genentech"), a biotechnology company. At Genentech, he
was a Project Team Leader for Human Growth Hormone from March 1992 to June
1994. From September 1987 to December 1994, Dr. Pearlman was a senior
scientist at Genentech. Dr. Pearlman joined Genentech as a scientist in
September 1984. Prior to joining Genentech, he was an Assistant Professor of
Pharmaceutics at the University of Texas at Austin. From 1978 to 1981, Dr.
Pearlman was a Senior Scientist at Lilly. Dr. Pearlman received his Ph.D. in
Pharmaceutical Chemistry from the University of Kansas.
Simba Gill, Ph.D., joined the Company as Director, Business Development in
November 1995 and has served as Vice President, Business Development since
March 1997. From January 1995 to October 1995, Dr. Gill was Director of
Business Development at Systemix, Inc. ("Systemix"), a biotechnology company.
From September 1994 to December 1994, he was an independent consultant to
Systemix. From April 1991 to September 1994, Dr. Gill held various positions
at Boehringer Mannheim including Global Product Manager for Erythropoietin,
Global Business Development Manager focusing on Genomics and Gene Therapy and
Director of New Diagnostics Business Development. Dr. Gill received his Ph.D.
in Molecular Immunology from King's College, London University and his M.B.A.
from INSEAD, Fontainebleau, France.
Beatrice Langton-Webster, Ph.D., joined the Company as Director, Life
Sciences in November 1996 and has served as Senior Director, Life Sciences
since March 1997. From June 1992 to November 1996, Dr. Langton-Webster was the
Head of the Oncology Strategic Research Unit at Berlex Biosciences, a
subsidiary of Schering AG, a pharmaceutical company. From September 1985 to
October 1990, Dr. Langton-Webster was a Senior Research Scientist at Triton
Biosciences, a biotechnology company. Dr. Langton-Webster received her Ph.D.
in Medical Microbiology and Immunology from the University of California at
Davis.
Lee B. Bussey, Ph.D., has served as Director, Bioprocessing since June 1994.
From August 1990 to June 1994, Dr. Bussey was the Technical Manager of
Bioprocessing for Pel-Freez Biologicals, a biotechnology company. Dr. Bussey
received his Ph.D. in Microbiology from the University of California at Davis.
Helen Jenkins joined the Company as Project Manager in July 1994 and has
served as Director, Project Development since April 1996. From May 1993 to
June 1994, she was Product Manager at Glycomed Incorporated, a biotechnology
company. From August 1990 to May 1993, Ms. Jenkins served as a Project
Coordinator and a Senior Project Coordinator at Genentech. Ms. Jenkins
received her B.S. in Biochemistry from the California Polytechnic State
University at San Luis Obispo and her M.A. in Cellular and Molecular Biology
from San Francisco State University.
Ralph Niven, Ph.D., M.R. Pharm., joined Megabios in January 1996 as a Senior
Scientist and has served as Director, Pharmaceutics and Delivery since October
1996. From July 1991 to December 1995, Dr. Niven was a Research Scientist at
Amgen Inc., a biopharmaceutical company. Dr. Niven received his Ph.D. in
Pharmaceutical Sciences from the University of Kentucky.
Robert I. Grove, Ph.D., joined the Company as Principal Scientist,
Cardiovascular in March 1997. From November 1993 to March 1997, Dr. Grove was
Senior Scientific Investigator/Assistant Director and Group leader of the
Hypercholesterolemia team in the Gene Therapy Department of Immune Response
Corporation, a biotechnology company. From January 1985 to November 1993, he
served as Senior Research Investigator in the preclinical Cardiovascular
Research Growth Regulators, and Autoimmunity and Transplantation Departments
of Bristol-Myers Squibb, a pharmaceutical company. Dr. Grove received his
Ph.D. in biochemistry from the University of South Florida.
Jackie Papkoff, Ph.D., joined the Company as Senior Scientist in February
1995 and has served as Principal Scientist, Oncology since November 1996. From
July 1993 to February 1995, Dr. Papkoff was a Senior Scientist at Sugen, Inc.,
a biotechnology company. From January 1993 to June 1993, she served as Group
Leader of the Tumor Biology Department and from January 1987 to January 1993,
Dr. Papkoff served as a Staff Researcher in the Biochemistry Department of
Syntex Research, a pharmaceutical company. Dr. Papkoff received her Ph.D. in
Biology from the University of California at San Diego.
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Frank J. Caufield has served as a director of the Company since November
1992. Since 1978 he has held the position of partner of Kleiner Perkins
Caufield & Byers, a venture capital partnership. He serves on the Board of
Directors of Raster Graphics, Inc. and America Online, Inc. He received his
M.B.A. from the Harvard Business School and his B.S. in Engineering from the
United States Military Academy.
Edward L. Erickson has served as a director of the Company since July 1995.
Since June 1993, he has served as the President, Chief Executive Officer and a
director of DepoTech Corporation, a biopharmaceutical company in the field of
drug delivery. From 1991 to 1993, Mr. Erickson was the President, Chief
Executive Officer and a director of Cholestech Corporation, a medical products
company. Prior to joining Cholestech Corporation, he held senior management
positions with two international, publicly-traded biomedical companies, The
Ares-Serono Group and Amersham International plc. Mr. Erickson received his
M.B.A. from the Harvard Business School and his B.S. and M.S. degrees in
Mathematics from the Illinois Institute of Technology.
A. Grant Heidrich, III, has served as a director of the Company since August
1993. Mr. Heidrich joined Mayfield Fund ("Mayfield"), a venture capital firm,
in 1982 and has been a general partner or managing member of several venture
capital funds affiliated with Mayfield since 1983. Mr. Heidrich serves on the
Board of Directors of Millennium Pharmaceuticals, Inc. Mr. Heidrich received
his M.B.A. from Columbia University Graduate School of Business and his B.A.
in Human Biology from Stanford University.
Russell C. Hirsch, M.D., Ph.D., has served as a director of the Company
since August 1993. He joined Mayfield 1992, and has been a managing member of
several venture capital funds affiliated with Mayfield since 1995. From 1984
to 1992, Dr. Hirsch conducted research in the laboratories of Nobel Laureate
Harold Varmus, M.D., and Don Ganem, M.D., at the University of California, San
Francisco. Dr. Hirsch received his M.D. and Ph.D. in Biochemistry from the
University of California, San Francisco.
Raju Kucherlapati, Ph.D., has served as a director of the Company since
March 1995 and also serves on the Company's Scientific Advisory Board. Dr.
Kucherlapati has served as the Lola and Saul Kramer Professor and Chairman of
the Department of Molecular Genetics at Albert Einstein College of Medicine
since 1989. He was a founder of and serves on the Board of Directors of both
Cell Genesys and Millennium Pharmaceuticals, Inc. Dr. Kucherlapati received
his Ph.D. from the University of Illinois.
BOARD COMPOSITION
The Company currently has authorized six directors. In accordance with the
terms of the Company's Restated Certificate of Incorporation, effective upon
the closing of this offering, the terms of office of the Board of Directors
will be divided into three classes: Class I, whose term will expire at the
annual meeting of stockholders to be held in 1998; Class II, whose term will
expire at the annual meeting of stockholders to be held in 1999; and Class
III, whose term will expire at the annual meeting of stockholders to be held
in 2000. The Class I directors are Benjamin F. McGraw, III and Frank J.
Caufield, the Class II directors are A. Grant Heidrich, III and Edward L.
Erickson, and the Class III directors are Raju Kucherlapati and Russell C.
Hirsch. At each annual meeting of stockholders after the initial
classification, the successors to directors whose term will then expire will
be elected to serve from the time of election and qualification until the
third annual meeting following election. In addition, the Company's Restated
Certificate of Incorporation provides that the authorized number of directors
may be changed only by resolution of the Board of Directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the Board
of Directors may have the effect of delaying or preventing changes in control
or management of the Company. Although directors of the Company may be removed
for cause by the affirmative vote of the holders of a majority of the Common
Stock, the Company's Restated Certificate of Incorporation provides that
holders of two-thirds of the Common Stock must vote to approve the removal of
a director without cause.
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BOARD COMMITTEES
The Audit Committee of the Board of Directors reviews the internal
accounting procedures of the Company and consults with and reviews the
services provided by the Company's independent auditors. The Compensation
Committee of the Board of Directors reviews and recommends to the Board of
Directors the compensation and benefits of all officers of the Company and
reviews general policy relating to compensation and benefits of employees of
the Company. The Compensation Committee also administers the issuance of stock
options and other awards under the Company's stock plans.
DIRECTOR COMPENSATION
The Company does not currently provide cash compensation to directors for
services in such capacity, but directors may be reimbursed for certain
expenses in connection with attendance at Board and Committee meetings. In
January 1995, the Board granted an option to Dr. Kucherlapati to purchase
13,333 shares of Common Stock at an exercise price of $0.30 per share. In
September 1995, the Board granted an option to Mr. Erickson to purchase 13,333
shares of Common Stock at an exercise price of $0.30 per share. The Company
intends to consider compensating non-employee directors in the future. In
February 1997, for his service as a member of the Company's SAB, the Board
granted an option to Dr. Kucherlapati to purchase an additional 13,333 shares
of Common Stock at an exercise price of $1.50 per share.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded or paid by the
Company during the fiscal year ended June 30, 1997 to its President and Chief
Executive Officer and the Company's other executive officers who earned more
than $100,000 during the fiscal year ended June 30, 1997 (collectively, the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL
COMPENSATION(1) SECURITIES ALL OTHER
------------------ UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) ($)(2)
- --------------------------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Benjamin F. McGraw, III, $258,174 $25,000 73,333 $509
Pharm.D. ........................
Chairman, Chief Executive Officer
and President
Patrick G. Enright................ 166,539 16,000 30,000 329
Chief Financial Officer and Vice
President
Rodney Pearlman, Ph.D. ........... 169,904 16,500 25,000 335
Vice President, Research and
Development
</TABLE>
- --------
(1) In accordance with Securities and Exchange Commission ("Commission")
rules, other annual compensation in the form of perquisites and other
personal benefits has been omitted where the aggregate amount of such
perquisites and other personal benefits constitutes less than the lesser
of $50,000 or 10% of the total annual salary and bonus for the Named
Executive Officer for the fiscal year.
(2) Represents insurance premiums paid by the Company with respect to group
life insurance for the benefit of the Named Executive Officer.
44
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended June 30, 1997, to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
POTENTIAL REALIZABLE
PERCENTAGE OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM(4)
OPTIONS FISCAL YEAR PRICE EXPIRATION -----------------------
NAME GRANTED (#)(1) (%)(2) ($/SH)(3) DATE 5% ($) 10% ($)
---- -------------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Benjamin F. McGraw, III, 73,333 18.9% $1.50 02/28/07 $ 1,324,394 $ 2,169,199
Pharm.D. ..............
Chairman, Chief
Executive
Officer and President
Patrick G. Enright...... 30,000 7.7 1.50 02/28/07 541,800 887,400
Chief Financial Officer
and Vice President
Rodney Pearlman, Ph.D. . 25,000 6.4 1.50 02/28/07 451,400 739,500
Vice President,
Research and
Development
</TABLE>
- --------
(1) Twenty-five percent of such options granted vest one year from the vesting
commencement date with remaining options vesting at a rate of 1/36th per
month over three years. Options may be exercised immediately pursuant to
early exercise provisions contained in option agreements. Any shares
issued pursuant to such early exercise provisions are subject to
repurchase upon termination of employment. Such repurchase option
terminates at the rate of twenty five percent after one year from the
vesting commencement date and thereafter at a rate of 1/36th per month
over three years. The options expire 10 years from the date of grant, or
earlier upon termination of employment.
(2) Based on an aggregate of 388,680 options granted to employees, consultants
and directors of the Company during fiscal year ended June 30, 1997,
including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
the Company's securities that the actual stock price appreciation over the
10-year term will be at the assumed 5% or 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates
over the option term, no value will be realized from the option grants
made to the executive officers. The potential realizable value is
calculated by assuming that the assumed initial public offering price of
$12.00 per share appreciates at the indicted rate for the entire term of
the option and that the option is exercised at the exercise price and sold
on the last day of its term at the appreciated price.
45
<PAGE>
AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND JUNE 30, 1997 OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options
during the fiscal year ended June 30, 1997 and the number and value of
securities underlying unexercised options held by the Named Executive Officers
at June 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
JUNE 30, 1997(#)(1) JUNE 30, 1997($)(2)
---------------------- --------------------
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#)(1) REALIZED($)(2) UNEXERCISABLE UNEXERCISABLE
---- -------------- -------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Benjamin F. McGraw, III, -- -- 73,333/0 $769,997/0
Pharm.D. ..............
Chairman, Chief
Executive Officer
and President
Patrick G. Enright...... -- -- 30,000/0 315,000/0
Chief Financial Officer
and Vice President
Rodney Pearlman, Ph.D... 29,166 $341,242 25,000/0 262,500/0
Vice President,
Research and
Development
</TABLE>
- --------
(1) Options may be exercised immediately pursuant to early exercise provisions
contained in option agreements. Any shares issued pursuant to such early
exercise provisions are subject to repurchase at the original exercise
price paid per share upon termination of employment. Such repurchase
option terminates at the rate of twenty five percent after one year from
the vesting commencement date and thereafter at a rate of 1/36th per month
over three years.
(2) Value realized and value of unexercised in-the-money options is based on a
value of $12.00 per share of the Company's Common Stock, the assumed
initial public offering price, even though at the time of grant the fair
market value of the Common Stock was determined by the Board of Directors
to be $0.30 to $1.50 per share. Amounts reflected are based on the assumed
value minus the exercise price multiplied by the number of shares acquired
on exercise and do not indicate that the optionee sold such stock.
EMPLOYMENT AGREEMENTS
In August 1994, the Company entered into an employment agreement with Dr.
McGraw providing for an annual compensation of $250,000, an option to purchase
up to 250,000 shares of Common Stock at $0.30 per share subject to a four-year
vesting schedule, a signing bonus of $65,000 payable in quarterly
installments, certain relocation expenses and a severance payment equal to
twelve months salary in the event of termination without cause.
In February 1995, the Company entered into an employment agreement with Mr.
Enright providing for an annual compensation of $160,000, an option to
purchase up to 91,666 shares of Common Stock at an exercise price of $0.30 per
share subject to a four-year vesting schedule, a $10,000 signing bonus and
payment of certain relocation expenses.
In November 1994, the Company entered into an employment agreement with Dr.
Pearlman providing for an annual compensation of $165,000, an option to
purchase up to 83,333 shares of Common Stock at an exercise price of $0.30 per
share subject to a four-year vesting schedule and a $30,000 bonus payable in
quarterly installments during 1995.
In January 1996, the Board of Directors approved the Change of Control
Policy for the protection of the Company's executive officers. In the event of
a merger in which the Company is not the surviving entity or a transaction or
series of transactions in which more than 50% of the Company's voting power is
transferred or
46
<PAGE>
the sale of all or substantially all the assets of the Company (each a "Change
of Control"), an executive officer will continue to receive salary and
benefits for twelve months from the date of his or her termination unless such
termination is for cause (or voluntary termination of his or her employment
for good cause). Further, in the event of a Change of Control, all outstanding
stock options of each executive officer shall automatically accelerate by the
greater of twelve months or the number of full months during which the officer
has been employed by the Company. However, the Board of Directors of the
Company may provide that options be assumed by the acquiror, remain
outstanding or provide for a replacement benefit equal in value.
STOCK PLANS
Equity Incentive Plan. The Company's 1997 Equity Incentive Plan (the
"Incentive Plan") was adopted by the Board of Directors in July 1997 as an
amendment and restatement of the Company's 1993 Stock Option Plan (the "1993
Plan"). There are currently 2,100,000 shares of Common Stock authorized for
issuance under the Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options under
the Internal Revenue Code of 1986, as amended (the "Code"), to employees
(including officers and employee-directors) and nonstatutory stock options,
restricted stock purchase awards and stock bonuses to employees, directors and
consultants. The Incentive Plan is administered by the Board of Directors or a
committee appointed by the Board which determines recipients and types of
awards to be granted, including the exercise price, number of shares subject
to the award and the exercisability thereof.
The terms of stock options granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, provided that the exercise price
for an incentive stock option cannot be less than 100% of the fair market
value of the Common Stock on the date of the option grant and the exercise
price for a nonstatutory stock option cannot be less than 85% of the fair
market value of the Common Stock on the date of option grant. Options granted
under the Incentive Plan vest at the rate specified in the option agreement.
No stock option may be transferred by the optionee other than by will or the
laws of descent or distribution, provided that a nonstatutory stock option may
be transferable if provided in the option agreement, and provided further that
an optionee may designate a beneficiary who may exercise the option following
the optionee's death. An optionee whose relationship with the Company or any
related corporation ceases for any reason (other than by death or permanent
and total disability) may exercise options in the three-month period following
such cessation (unless such options terminate or expire sooner or later by
their terms). Options may be exercised for up to twelve months after an
optionee's relationship with the Company and its affiliates ceases due to
death or disability (unless such options expire sooner or later by their
terms).
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant, and the term of the
option does not exceed five years from the date of grant. The aggregate fair
market value, determined at the time of grant, of the shares of Common Stock
with respect to which incentive stock options are exercisable for the first
time by an optionee during any calendar year (under all such plans of the
Company and its affiliates) may not exceed $100,000. Upon the expiration of
the transition rule extending the effective date of code section 162(m) for
newly public companies no person shall be eligible to receive options covering
more than 500,000 shares in any calendar year.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full (or vested in the case of restricted
stock awards) shall again become available for the grant of awards under the
Incentive Plan.
The Board of Directors has the authority to reprice outstanding options and
to offer optionees the opportunity to replace outstanding options with new
options for the same or a different number of shares.
47
<PAGE>
Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a vesting schedule and at a price determined by the Board of Directors.
Restricted stock purchases must be at a price equal to at least 85% of the
stock's fair market value on the award date, but stock bonuses may be awarded
in consideration of past services without a purchase payment. Rights under a
stock bonus or restricted stock bonus agreement may not be transferred other
than by will, the laws of descent and distribution or a domestic relations
order while the stock awarded pursuant to such an agreement remains subject to
the agreement.
Upon a change in control of the Company, the vesting of options held by
executive officers will accelerate by the greater of 12 months or the number
of months of the executive officer's employment, unless the Board of Directors
finds that it is in the best interest of the Company's stockholders and the
optionees to provide otherwise. If such a finding is made, the options shall
either remain outstanding or be assumed by the acquiror (with the optionee
being entitled to receive the same consideration as was received by the
Company's stockholders in the change of control transaction) or the Board of
Directors and/or the acquiror shall adopt a replacement benefit which shall
(at a minimum) provide value to the executive officer on the vesting dates of
the non-accelerated options substantially equal to the value the executive
officer would have received if the shares had participated in all steps of the
transaction. With respect to optionees who are not executive officers, upon a
change in control any options shall remain outstanding, be assumed by the
acquiror or be substituted with similar options. In the event the acquiror
refuses to assume, substitute or continue any options, then such options shall
be terminated if not exercised prior to the change of control. For purposes of
this Plan, "Change in Control" means: any consolidation or merger of the
Company with or into any other entity or person, or any other corporate
reorganization, in which the Company is not the continuing or surviving
entity, or any transaction or series of related transactions by the Company in
which in excess of 50% of the Company's voting power is transferred, or any
sale, lease, license or other disposition of all or substantially all of the
assets of the Company.
As of June 30, 1997, 878,251 shares of Common Stock had been issued upon the
exercise of options granted under the 1993 Plan and the Incentive Plan (39,547
of which had been repurchased and of which were subject to repurchase),
options to purchase 479,638 shares of Common Stock at a weighted average
exercise price of $1.23 were outstanding and 121,657 shares remained available
for future grant. The Incentive Plan will terminate in July 2007 unless sooner
terminated by the Board of Directors. As of June 30, 1997, no stock bonuses or
restricted stock have been granted under the Incentive Plan.
Employee Stock Purchase Plan. In July 1997, the Company's Board of Directors
approved the Employee Stock Purchase Plan (the "Purchase Plan") covering an
aggregate of 200,000 shares of Common Stock. The Purchase Plan is intended to
qualify as an employee stock purchase plan within the meaning of Section 423
of the Code. Under the Purchase Plan, the Board of Directors may authorize
participation by eligible employees, including officers, in periodic offerings
following the adoption of the Purchase Plan. The offering period for any
offering will be no more than 27 months.
Employees are eligible to participate if they are employed by the Company or
an affiliate of the Company designated by the Board of Directors and are
employed at least 20 hours per week and five months per year. Employees who
participate in an offering can have up to 15% of their earnings withheld
pursuant to the Purchase Plan and applied, on specified dates determined by
the Board of Directors, to the purchase of shares of Common Stock. The price
of Common Stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the Common Stock on the commencement date of
each offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company.
In the event of certain changes of control, the Company and the Board of
Directors has discretion to provide that each right to purchase Common Stock
will be assumed or an equivalent right substituted by the successor
corporation, or the Board may shorten the offering period and provide for all
sums collected by payroll deductions to be applied to purchase stock
immediately prior to the change in control. The Purchase Plan will terminate
at the Board's discretion.
48
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and
other agents to the fullest extent permitted by Delaware law. The Company is
also empowered under its Bylaws to enter into indemnification contracts with
its directors and officers and to purchase insurance on behalf of any person
it is required to permitted to indemnify. Pursuant to this provision, the
Company expects to enter into indemnification agreements with each of its
directors and executive officers.
The Company has obtained officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters
arising under the Securities Act. In addition, the Company's Restated
Certificate of Incorporation provides that, to the fullest extent permitted by
Delaware law, the Company's directors will not be liable for monetary damages
for breach of the directors' fiduciary duty of care to the Company and its
stockholders. This provision in the Restated Certificate of Incorporation does
not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as an injunction or other forms of non-monetary relief would
remain available under Delaware law. Under current Delaware law, a director's
liability to the Company or its stockholders may not be limited with respect
to any breach of the director's duty of loyalty to the Company or its
stockholders, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, for improper transactions
between the director and the Company and for improper distributions to
stockholders and loans to directors and officers. This provision also does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
49
<PAGE>
CERTAIN TRANSACTIONS
In August 1994, Mayfield VII, Mayfield Associates Fund II, William L. Brown,
a former director and a 5% stockholder of the Company, and Frank J. Caufield,
a director of the Company, extended bridge loans to the Company in an
aggregate principal amount of $250,000. Mr. Heidrich, a director of the
Company, is a member of of Mayfield Fund, the general partner of Mayfield VII
and Mayfield Associates Fund II. The loans accrued interest at 5.8% per annum.
The outstanding principal balance and accrued interest of the loans
automatically converted into 141,623 shares of Series C Preferred Stock upon
the first closing of the Company's sale of Series C Preferred Stock in
September 1994.
The Company has entered into indemnification agreements with its directors
and executive officers for the indemnification of and advancement of expenses
to such persons to the full extent permitted by law. The Company also intends
to execute such agreements with its future directors and executive officers.
The Company believes that the foregoing transactions were in its best
interest. As a matter of policy the transactions were, and all future
transactions between the Company and any of its officers, directors or
principal stockholders will be, approved by a majority of the independent and
disinterested members of the Board of Directors, will be on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties and will be in connection with bona fide business purposes of the
Company.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of July 15, 1997 and as adjusted to
reflect the sale of the Common Stock being offered hereby by: (i) each
stockholder who is known by the Company to own beneficially more than 5% of
the Common Stock; (ii) each Named Executive Officer of the Company; (iii) each
director of the Company and (iv) all directors and executive officers of the
Company as a group. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
SHARES -----------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
---------------- ------------ ---------- ----------
<S> <C> <C> <C>
Entities affiliated with Mayfield Fund(2). 1,287,668 13.2% 10.5%
2800 Sand Hill Road
Menlo Park, CA 94025
Lombard Odier & Cie(3).................... 693,332 7.1% 5.7%
11 Rue de la Corraterie
1211 Genevall
Switzerland
Entities affiliated with
Institutional Venture Partners(4)........ 640,955 6.6% 5.2%
3000 Sand Hill Road
Suite Z-290
Menlo Park, CA 94025
Entities affiliated with
Burr, Egan, Deleage & Co(5).............. 581,665 6.0% 4.8%
One Embarcadero Center, #4050
San Francisco, CA 94111
William L. Brown.......................... 531,817 5.5% 4.3%
Two Embarcadero Center, #1660
San Francisco, CA 94111
Frank J. Caufield......................... 495,468 5.0% 4.1%
Four Embarcadero Center, #3520
San Francisco, CA 94111
Benjamin F. McGraw III, Pharm.D.(6)....... 406,666 4.1% 3.3%
Patrick G. Enright(7)..................... 144,499 1.5% 1.1%
Rodney Pearlman, Ph.D.(8)................. 137,499 1.4% 1.1%
Edward Erickson(9)........................ 13,333 * *
A. Grant Heidrich(2)...................... 1,287,668 13.2% 10.5%
Russell C. Hirsch, M.D., Ph.D............. 0 * *
Raju Kucherlapati(10)..................... 26,666 * *
All directors and executive officers as a
group (10 persons)(11)................... 2,511,799 25.4% 20.3%
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of the Company's Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Beneficial ownership also includes shares of stock
51
<PAGE>
subject to options and warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of the date of this table.
Percentage of beneficial ownership is based on 9,725,939 shares of Common
Stock outstanding as of July 15, 1997 and 12,225,939 shares of Common
Stock outstanding after completion of this offering.
(2) Includes 1,226,505 shares held by Mayfield VII and 61,163 shares held by
Mayfield Associates Fund II. Mr. Heidrich is a General Partner of
Mayfield Fund, the general partner of Mayfield Associates Fund II and
Mayfield VII. Mr. Heidrich disclaims beneficial ownership of all such
shares held by Mayfield VII or Mayfield Associates Fund II, except to the
extent of his proportionate pecuniary interest therein.
(3) Shares are held in the name of Ryco & Co, as nominee for Lombard Odier &
Cie.
(4) Includes 628,138 shares held by Institutional Venture Partners V and
12,817 held by Institutional Venture Management V.
(5) Includes 575,616 shares held by Alta V Limited Partnership and 6,049
shares held by Customs House Partners. The principals of Burr, Egan,
Deleage & Co. are general partners of Alta V Management Partners, L.P.
(which is a general partner of Alta V Limited Partnership), and Customs
House Partners. The principals of Burr, Egan, Deleage & Co. disclaim
beneficial ownership of all such shares held by the foregoing funds,
except to the extent of their proportionate pecuniary interests therein.
(6) Includes 300,000 shares Dr. McGraw acquired pursuant to the exercise of
stock options, 92,708 of which will be subject to repurchase by the
Company as of September 13, 1997. Also includes 73,333 shares Dr. McGraw
has the right to acquire pursuant to an option exercisable within 60
days, all of which will be subject to repurchase by the Company at such
date, if issued.
(7) Includes 2,000 shares held by Enright Capital Advisors, an investment
partnership of which Mr. Enright is a partner. Mr. Enright disclaims
beneficial ownership of all such shares owned by the foregoing
partnership, except to the extent of his proportionate pecuniary interest
therein. Includes 112,499 shares Mr. Enright acquired pursuant to the
exercise of stock options, 46,961 of which will be subject to repurchase
by the Company as of September 13, 1997. Also includes 30,000 shares Mr.
Enright has the right to acquire pursuant to an option exercisable within
60 days, all of which will be subject to repurchase by the Company at
such date, if issued.
(8) Includes 112,499 shares Dr. Pearlman acquired pursuant to the exercise of
stock options, 45,398 of which will be subject to repurchase by the
Company as of September 13, 1997. Also includes 25,000 shares Dr.
Pearlman has the right to acquire pursuant to options exercisable within
60 days, all of which will be subject to repurchase by the Company at
such date, if issued.
(9) Includes 13,333 shares Mr. Erickson acquired pursuant to the exercise of
stock options, 6,389 of which will be subject to repurchase by the
Company as of September 13, 1997.
(10) Includes 26,666 shares Dr. Kucherlapati has the right to acquire pursuant
to options exercisable within 60 days, 16,666 of which will be subject to
repurchase by the Company at such date, if issued.
(11) Includes 1,287,668 shares held by entities affiliated with certain
directors of the Company as described in footnote 2 above and 154,999
shares subject to options exercisable within 60 days.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of the
Company will consist of 30,000,000 shares of Common Stock, $.001 par value,
and 10,000,000 shares of Preferred Stock, $.001 par value.
COMMON STOCK
As of June 30, 1997, there were 1,567,727 shares of Common Stock outstanding
held of record by approximately 64 stockholders. There will be 12,225,939
shares of Common Stock outstanding after giving effect to the sale of
2,500,000 shares of Common Stock offered by the Company hereby and after
giving effect to the conversion of all shares of Preferred Stock into an
aggregate of 8,154,779 shares of Common Stock.
The 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. The holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, holders of the Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities. Holders of Common Stock have no
preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to
the Common Stock. All outstanding shares of Common Stock are, and all shares
of Common Stock to be outstanding upon completion of this offering will be,
fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of Preferred Stock, $.001 par
value, in one or more series and to fix the rights, preferences, privileges
and restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and
the number of shares constituting any series or the designation of such
series, without any further vote or action by stockholders. The issuance of
Preferred Stock could adversely affect the voting power of holders of Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plan
to issue any shares of Preferred Stock.
WARRANTS
As of June 30, 1997, the Company had outstanding warrants to purchase 84,009
shares of Common Stock at an exercise price of $3.88 per share. The warrants
expire at various times from the day prior to the effectiveness of this
initial public offering to five years following the closing of this initial
public offering. Each warrant contains provisions for the adjustment of the
exercise price and the aggregate number of shares issuable upon the exercise
of the warrant under certain circumstances, including stock dividends, stock
splits, reorganizations, reclassification, consolidations and certain dilutive
sales of the securities for which the warrant is exercisable below the then
existing exercise price. Each warrant may be exercised, without the payment of
cash, for the number of shares of Common Stock purchasable, at the current
market value of the Common Stock, by the difference between the aggregate
exercise price of the warrant and the value, at the current market price per
share of Common Stock of the aggregate number of shares purchasable under the
warrant.
REGISTRATION RIGHTS
Following this offering, holders (or their permitted transferees)
("Holders") of 8,154,779 shares of Common Stock (assuming the conversion of
all outstanding Preferred Stock (including the Series F Preferred) upon the
closing of this offering) and warrants to purchase 84,009 shares of Common
Stock will be entitled to certain rights with respect to the registration of
their shares under the Securities Act. Under the terms of that certain Amended
and Restated Investor Rights Agreement dated May 23, 1997 (the "Investor
Rights Agreement"), if the Company proposes to register any of its securities
under the Securities Act, either for its own account or the account of others,
the Holders are entitled to notice of such registration and are entitled to
53
<PAGE>
include their shares of Common Stock; provided, among other conditions, that
the underwriters of any offering have the right to limit the number of such
shares included in such registration or exclude such shares entirely. The
Holders may also require the Company, at the Company's expense, to register
all or a portion of their shares of Common Stock on form S-3 when such form
becomes available to the Company, subject to certain conditions and
limitations. In addition, the Holders may also require the Company, beginning
180 days after the date of this Prospectus, on not more than two occasions, to
file a registration statement under the Securities Act at the Company's
expense with respect to their shares of Common Stock, and the Company is
required to use its best efforts to effect such registration, subject to
certain conditions and limitations. In addition, one holder of 484,697 shares
of Common Stock (assuming the conversion of all outstanding Preferred Stock
upon the closing of this offering) has the right for the first registration
only after May 30, 2001, to include its shares of Common Stock in connection
with a firm underwritten public offering.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware Law,
an anti-takeover law. In general, the statute 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 approved in a prescribed manner. For purposes of
Section 203, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder,
and an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The Company's Certificate of Incorporation and Bylaws also require that,
effective upon the closing of this offering, any action required or permitted
to be taken by stockholders of the Company must be effected at a duly called
annual or special meeting of the stockholders and may not be effected by a
consent in writing. In addition, special meetings of the stockholders of the
Company may be called only by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer of the Company or by any person or persons
holding shares representing at least 10% of the outstanding capital stock. The
Company's Certificate of Incorporation also provides for a classified Board
and specifies that the authorized number of directors may be changed only by
resolution of the Board of Directors. See "Management--Board Composition."
These provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
First National Bank of Boston has been appointed as the transfer agent and
registrar for the Company's Common Stock.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Further sales of substantial amounts of Common Stock in
the open market may adversely affect the market price of the Common Stock
offered hereby.
Upon completion of this offering, based on the number of shares outstanding
as of July 15, 1997, the Company will have outstanding an aggregate of
12,247,569 shares of Common Stock assuming (i) the issuance by the Company of
2,500,000 shares of Common Stock offered hereby, (ii) the issuance of 21,630
shares of Common Stock relating to an outstanding warrant to purchase Common
Stock that expires upon this Offering and no issuance of 62,379 shares of
Common Stock relating to other outstanding warrants, (iii) no exercise of
exercisable vested options to purchase 472,772 shares of Common Stock, and
(iv) no exercise of the Underwriters' over-allotment option to purchase
375,000 shares of Common Stock. Of these shares, 2,500,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, except for shares held by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act (whose
sales would be subject to certain limitations and restrictions described
below) and the regulations promulgated thereunder.
The remaining 9,725,939 shares held by officers, directors, employees,
consultants and other stockholders of the Company were sold by the Company in
reliance on exemptions from registration requirements of the Securities Act
and are "restricted" securities within the meaning of Rule 144 under the
Securities Act. As a result, on the date of this prospectus, approximately
22,645 shares, other than the 2,500,000 shares offered hereby, will be
eligible for sale pursuant to subsection (k) of Rule 144 promulgated under the
Securities Act. An additional 8,012,315 shares and 275,081 shares issuable
upon exercise of outstanding vested options will be eligible for sale 180 days
after the date of this Prospectus upon expiration of the lock-up agreements
described below and in compliance with certain limitations set forth in the
Securities Act. An additional 1,452,372 shares held by existing shareholders
will become eligible for sale at various times over a period of less than one
year. The remaining 238,607 shares currently held by existing shareholders
will be subject to rights of repurchase in favor of the Company that expire at
various dates through May 2001 pursuant to monthly vesting.
Each officer, director and certain stockholders of the Company have agreed
that for a period of 180 days after the date of this Prospectus, they will
not, directly or indirectly, offer, sell, contract to sell, grant any option
to sell or otherwise dispose of, directly or indirectly, any shares of Common
Stock or securities convertible into or exchangeable for, or any rights to
purchase or acquire, Common Stock, without the prior written consent of the
Company or Montgomery Securities, as applicable. Montgomery Securities or the
Company, as applicable, at any time without notice, may release all or any
portion of the securities subject to the 180-day lock-up agreement. The
Company has agreed with Montgomery Securities not to release any stockholder
from such lock-up agreement between the stockholder and the Company without
the prior written consent of Montgomery Securities.
In general, under rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or person (or
persons whose shares are aggregated) who has beneficially owned Restricted
Shares that were not acquired from the Company or an affiliate of the Company
within the previous one year, will be entitled to sell in any three-month
period a number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of the Company's Common Stock (approximately 122,475
shares immediately after this offering) or (ii) the average weekly trading
volume of the Company's Common Stock in the Nasdaq National Market during the
four calendar weeks immediately preceding the date on which notice of the sale
is filed with the Securities and Exchange Commission. Sales pursuant to Rule
144 are subject to certain requirements relating to manner of sale, notice and
availability of current public information about the Company. A person (or
person whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the 90 days immediately preceding
the sale and who beneficially owns Restricted Shares is entitled to sell such
shares pursuant to Rule 144(k) without regard to the limitations described
above; provided that at least two years have elapsed since the later of the
date the shares were acquired from the Company or from an affiliate of the
Company.
55
<PAGE>
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits affiliates and
non-affiliates to sell their Rule 701 shares without having to comply with
Rule 144's holding period restrictions, in each case commencing 90 days after
the date of this Prospectus. In addition, non-affiliates may sell Rule 701
shares without complying with public information, volume and notice provisions
of Rule 144.
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the
Incentive Plan and the Purchase Plan, thus permitting the resale of such
shares by non-affiliates in the public market without restriction under the
Securities Act. Such registration statement will become effective immediately
upon filing.
As of the date of this Prospectus, warrants to purchase an aggregate of
62,379 shares of Common Stock were outstanding, all of which are subject to
the 180-day lock-up.
In addition, after this offering, the holders of approximately 8,154,779
shares will be entitled to certain rights with respect to registration of such
shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by
affiliates of the Company) immediately upon the effectiveness of such
registration. See "Description of Capital Stock--Registration Rights."
56
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities and
Hambrecht & Quist LLC (the "Representatives"), have severally agreed, subject
to the terms and conditions set forth in the Underwriting Agreement (the
"Underwriting Agreement") by and between the Company and the Underwriters, to
purchase from the Company the aggregate number of shares of Common Stock
indicated below opposite their respective names at the initial public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions precedent, and that the Underwriters are
committed to purchase all of such shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Montgomery Securities..............................................
Hambrecht & Quist LLC..............................................
---------
Total............................................................ 2,500,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow selected dealers
a concession of not more than $ per share, and the Underwriters may allow,
and such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the initial public offering, the offering price
and other selling terms may be changed by the Representatives. The Common
Stock is offered subject to receipt and acceptance by the Underwriters, and to
certain other conditions, including the right to reject orders in whole or in
part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 375,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 2,500,000 shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise
such option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with the initial
public offering.
The Representatives have advised the Company that the Underwriters do not
expect to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may
be required to make in respect thereof.
For a period of 180 days after the effectiveness of the Registration
Statement, without the prior written consent of Montgomery Securities and/or
the Company, as applicable, the Company and holders of 9,562,429 shares of
Common Stock including the Company's directors and executive officers have
agreed not to offer, sell
57
<PAGE>
or contract to sell, grant any option to purchase, make any short sale, pledge
or otherwise dispose of, directly or indirectly, any shares of Common Stock or
securities exchangeable or exercisable for or convertible into shares of, or
any other rights to purchase or acquire Common Stock of the Company other than
issuances pursuant to existing employee compensation plans and transfers into
trusts for the benefit of the original holder or members of the original
holder's immediate family.
Prior to the initial public offering, there has been no public market for
the Common Stock of the Company. Consequently, the initial public offering
price for the Common Stock will be negotiated between the Company and the
Representatives. Among the factors to be considered in determining the initial
public offering price of the Common Stock will be prevailing market and
economic conditions, market valuations of other companies engaged in
activities similar to the Company, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, the Company's management and other factors deemed relevant.
The Representatives, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act. Over-
allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of the
Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when
the Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Common stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
58
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cooley Godward LLP ("Cooley Godward"), Palo Alto, California.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP. As of the date of this Prospectus, certain members of Cooley Godward own
an aggregate of 11,587 shares of Common Stock of the Company.
EXPERTS
The financial statements of Megabios Corp. as of June 30, 1995 and 1996, and
for each of the three years in the period ended June 30, 1996 appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The statements in this Prospectus under the captions "Risk Factors--
Uncertainty of Patent Position and Proprietary Rights" and "Business--Patents
and Proprietary Technology" have been reviewed and approved by McDonnell,
Boehnen, Hulbert, Berghoff Ltd., special patent counsel for the Company, as
experts in such matters, and are included herein in reliance upon such review
and approval.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Commission, Washington, D.C. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
thereto. A copy of the Registration Statement may be inspected by anyone
without charge at the Commission's principal office in Washington, D.C. and
copies of all or any part thereof may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, upon payment of certain fees prescribed by the
Commission. In addition, the Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission through the Electronic Data Gathering, Analysis, and Retrieval
system.
59
<PAGE>
MEGABIOS CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Financial Statements
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statement of Shareholders' Equity......................................... F-5
Statements of Cash Flows.................................................. F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Megabios Corp.
We have audited the accompanying balance sheets of Megabios Corp. as of June
30, 1995 and 1996, and the related statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Megabios Corp. as of June
30, 1995 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
July 1, 1996, except for Note 11,as to which the date is , 1997
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion of
the 1-for-3 reverse stock split described in Note 11 to the financial
statements.
Palo Alto, California
July 31, 1997
F-2
<PAGE>
MEGABIOS CORP.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
JUNE 30, EQUITY AT
----------------- MARCH 31, MARCH 31,
1995 1996 1997 1997
------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 282 $ 5,253 $ 2,595
Short-term investments.......... -- -- 9,731
Other receivables............... 102 16 254
Prepaid expenses and other
current assets................. 188 275 323
------- -------- --------
Total current assets............ 572 5,544 12,903
Property and equipment, net....... 4,081 4,091 3,814
Other receivables................. 42 35 29
Deposits and other assets......... 274 286 318
------- -------- --------
$ 4,969 $ 9,956 $ 17,064
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQ-
UITY
Current liabilities:
Accounts payable................ $ 181 $ 148 $ 181
Accrued compensation............ 115 133 207
Other accrued liabilities....... 18 95 30
Deferred revenue................ 250 531 531
Current portion of long-term
debt........................... 881 1,069 1,247
------- -------- --------
Total current liabilities... 1,445 1,976 2,196
Long-term debt.................... 1,305 1,894 1,613
Commitments
Shareholders' equity:
Preferred stock, no par value,
issuable in series; 10,000,000
shares authorized; 3,441,514,
5,754,094 and 7,087,427
convertible shares issued and
outstanding at June 30, 1995
and 1996, and March 31, 1997,
respectively; aggregate
liquidation preference of
$27,201 and $37,201 at June 30
and March 31, 1997,
respectively (no shares
outstanding pro forma)......... 10,342 20,905 30,790 $ --
Common stock, no par value,
13,333,333 shares authorized;
682,115, 1,364,836 and
1,496,373 shares issued and
outstanding at June 30, 1995
and 1996, and March 31, 1997,
respectively (8,317,795 shares
pro forma)..................... 237 442 1,141 31,931
Deferred compensation........... -- -- (554) (554)
Accumulated deficit............. (8,360) (15,261) (18,122) (18,122)
------- -------- -------- --------
Total shareholders' equity.. 2,219 6,086 13,255 $ 13,255
------- -------- -------- ========
$ 4,969 $ 9,956 $ 17,064
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
MEGABIOS CORP.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Collaborative research and
development revenue.............. $ 500 $ 1,157 $ 1,890 $ 750 $ 4,586
Operating expenses:
Research and development........ 1,922 4,691 6,487 4,596 6,080
General and administrative...... 796 1,811 2,169 1,548 1,498
------- ------- ------- ------- -------
Total operating expenses...... 2,718 6,502 8,656 6,144 7,578
------- ------- ------- ------- -------
Loss from operations.............. (2,218) (5,345) (6,766) (5,394) (2,992)
Interest income................... 81 56 230 177 419
Interest expense.................. (16) (140) (365) (279) (288)
------- ------- ------- ------- -------
Net loss.......................... $(2,153) $(5,429) $(6,901) $(5,496) $(2,861)
======= ======= ======= ======= =======
Pro forma net loss per share...... $ (0.94) $ (0.33)
======= =======
Shares used in computing pro forma
net loss per share............... 7,339 8,566
======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
MEGABIOS CORP.
STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE TOTAL
----------------- ----------------- FROM DEFERRED ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS COMPENSATION DEFICIT EQUITY
--------- ------- --------- ------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30,
1993................... -- $ - 499,914 $ 90 $(13) $ -- $ (778) $ (701)
Issuance of common
stock.................. -- -- 114,034 127 -- -- -- 127
Conversion of notes
payable of $1,050 plus
accrued interest of $36
into Series A
convertible preferred
stock, net of issuance
costs of $4............ 1,029,222 1,082 -- -- -- -- -- 1,082
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $32........... 1,055,750 4,068 -- -- -- -- -- 4,068
Prepayment of notes
receivable from
shareholders........... -- -- -- -- 13 -- -- 13
Net loss................ -- -- -- -- -- -- (2,153) (2,153)
--------- ------- --------- ------ ---- ----- -------- -------
Balances at June 30,
1994................... 2,084,972 5,150 613,948 217 -- -- (2,931) 2,436
Exercise of stock
options................ -- -- 68,167 20 -- -- -- 20
Issuance of Series C
convertible preferred
stock, net of issuance
costs of $76........... 1,292,095 4,942 -- -- -- -- -- 4,942
Conversion of notes
payable of $250 into
Series C convertible
preferred stock........ 64,447 250 -- -- -- -- -- 250
Net loss................ -- -- -- -- -- (5,429) (5,429)
--------- ------- --------- ------ ---- ----- -------- -------
Balances at June 30,
1995................... 3,441,514 10,342 682,115 237 -- -- (8,360) 2,219
Issuance of Series C
convertible preferred
stock, net of issuance
costs of $36........... 1,827,883 7,063 -- -- -- -- -- 7,063
Issuance of Series D
convertible preferred
stock.................. 484,697 3,500 -- -- -- -- -- 3,500
Exercise of stock
options................ -- -- 693,555 208 -- -- -- 208
Repurchase of common
stock from employee.... -- -- (7,500) (3) -- -- -- (3)
Net loss................ -- -- -- -- -- -- (6,901) (6,901)
--------- ------- --------- ------ ---- ----- -------- -------
Balance at June 30,
1996................... 5,754,094 20,905 1,368,170 442 -- -- (15,261) 6,086
Issuance of Series E
convertible preferred
stock, net of issuance
costs of $15
(unaudited)............ 1,333,333 9,985 -- -- -- -- -- 9,985
Issuance of common stock
in lieu of cash payment
of commissions
(unaudited)............ -- (100) 66,667 100 -- -- -- -
Exercise of stock
options (unaudited).... -- -- 93,992 32 -- -- -- 32
Repurchase of common
stock from employees
(unaudited)............ -- -- (32,456) (13) -- -- -- (13)
Deferred compensation
related to grant of
certain stock options
(unaudited)............ -- -- -- 580 -- (580) -- --
Amortization of deferred
compensation
(unaudited)............ -- -- -- -- -- 26 -- 26
Net loss (unaudited).... -- -- -- -- -- -- (2,861) (2,861)
--------- ------- --------- ------ ---- ----- -------- -------
Balance at March 31,
1997 (unaudited)....... 7,087,427 $30,790 1,496,373 $1,141 $ -- $(554) $(18,122) $13,255
========= ======= ========= ====== ==== ===== ======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
MEGABIOS CORP.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss......................... $(2,153) $(5,429) $(6,901) $(5,496) $(2,861)
Adjustments to reconcile net loss
to net cash used in operations:
Depreciation and amortization... 52 732 1,101 805 968
Conversion of accrued interest
into related notes payable..... 5 -- -- -- --
Changes in operating assets and
liabilities:
Other receivables.............. 16 (85) 93 90 (232)
Prepaid expenses and other
assets........................ (330) 163 (87) (27) (48)
Deferred revenue............... -- 250 281 (250) -
Accounts payable............... 481 (334) (33) (66) 33
Accrued liabilities............ 854 (736) 95 22 9
------- ------- ------- ------- -------
Net cash used in operating
activities................... (1,075) (5,439) (5,451) (4,922) (2,131)
------- ------- ------- ------- -------
Cash flow from investing
activities
Purchase of property and
equipment....................... (2,035) (2,829) (1,111) (822) (652)
Deposits and other assets........ (105) (210) (12) (5) (32)
Purchases of short-term
investments..................... -- -- -- -- (9,744)
------- ------- ------- ------- -------
Net cash used in investing
activities................... (2,140) (3,039) (1,123) (817) (10,428)
------- ------- ------- ------- -------
Cash flows from financing
activities
Proceeds from issuance of notes
payable -....................... -- 250 -- 250 -
Proceeds from issuance of long-
term debt....................... 538 1,894 1,683 740 729
Payments on long-term debt....... (15) (232) (906) (645) (832)
Proceeds from issuance of
convertible preferred stock, net
of issuance costs............... 4,064 4,942 10,563 7,063 9,985
Proceeds from issuance of common
stock, net of purchases......... 127 20 205 21 19
Payment of notes receivable from
shareholders.................... 13 -- -- -- --
------- ------- ------- ------- -------
Net cash provided by financing
activities................... 4,727 6,874 11,545 7,429 9,901
------- ------- ------- ------- -------
Net increase (decrease) in cash
and cash equivalents............. 1,512 (1,604) 4,971 1,690 (2,658)
Cash and cash equivalents, begin-
ning of period................... 374 1,886 282 282 5,253
------- ------- ------- ------- -------
Cash and cash equivalents, end of
period........................... $ 1,886 $ 282 $ 5,253 $ 1,972 $ 2,595
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest paid..................... $ 17 $ 158 $ 357 $ 273 $ 287
======= ======= ======= ======= =======
Schedule of noncash transactions
Conversion of notes payable and
related accrued interest into
convertible preferred stock..... $ 1,086 $ 250 $ -- $ 250 $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
MEGABIOS CORP.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Megabios Corp. ("Megabios" or the "Company") develops proprietary gene
delivery systems and provides preclinical development expertise to create
gene-based therapeutics for the treatment or prevention of genetic and
acquired diseases. The Company has developed several in vivo, non-viral gene
delivery systems to address a number of potential therapeutic applications
using a variety of therapeutic genes. The Company's clinical development and
commercialization strategy is to enter into collaborative research and
development agreements or "corporate partnerships" with pharmaceutical and
biotechnology companies.
Through June 30, 1995, the Company was in the development stage. During
fiscal 1996, the Company recognized significant revenues associated with its
collaborative agreements and expects to receive significant revenues under
these agreements in the future. Consequently, the Company is no longer
considered to be in the development stage. The Company will require additional
financial resources to complete development and commercialization of its
products. Management plans to continue to finance the Company primarily
through issuances of equity securities, research and development collaboration
arrangements and debt financing. If the financing arrangements contemplated by
management are not consummated, the Company may have to seek other sources of
capital or reevaluate its operating plans.
Interim Financial Information
The financial information at, and subsequent to, March 31, 1997 and for the
nine months ended March 31, 1996 and 1997 is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) which the
Company considers necessary for a fair presentation of the financial position
at March 31, 1997 and of the operating results and cash flows for the nine-
month periods. Results of the 1997 period are not necessarily indicative of
results expected for the entire year.
Revenue Recognition
Revenues related to collaborative research agreements with the Company's
corporate partners are recognized over the related funding periods for each
contract. The Company is required to perform research and development
activities as specified in each respective agreement on a best-efforts basis.
The Company is reimbursed based on the costs associated with the research and
development activities, and revenues are recorded as earned in accordance with
the agreement. Deferred revenue may result when the Company does not incur the
required level of effort during a specific period in comparison to funds
received under the respective contracts. Milestone payments, if any, will be
recognized pursuant to collaborative agreements upon the achievement of
specified milestones, such as the filing of Investigational New Drug
Applications, commencement of clinical trials or receipt of regulatory
approvals. No milestone payments have been recognized to date.
Research and Development Expenses
Research and development expenses consist of costs incurred for independent
and collaborative research and development. These costs include direct and
research-related overhead expenses. Research and development expenses under
the collaborative research agreements approximate the revenue recognized under
such agreements.
F-7
<PAGE>
MEGABIOS CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities from
date of purchase of 90 days or less. At June 30, 1996 and March 31, 1997, the
Company had approximately $5,022,000 and $2,579,000 in a money market mutual
fund which invests in various U.S. government securities including Treasury
bills, notes and bonds. This amount is included in cash and cash equivalents.
The Company has not recognized any gains or losses on the sale of cash
equivalents and any unrecognized gains and losses at June 30, 1996 and March
31, 1997 are not material. The Company had no such investments at June 30,
1995.
Depreciation and Amortization
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets (generally five years). Leasehold
improvements are amortized over five years which is the lease term and the
estimated useful life of the assets.
Accounting for Stock-Based Compensation
The Company accounts for its stock option plan in accordance with the
provisions of the Accounting Principles Board's Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." In 1995, the Financial Accounting
Standards Board released the Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS 123 provides
an alternative to APB 25 and is effective for the Company's fiscal year ended
June 30, 1997. The Company is continuing to account for its stock option plan
in accordance with the provisions of APB 25. Accordingly, SFAS 123 is not
expected to have any material impact on the Company's financial position or
results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Net Loss Per Share
Except as noted below, net loss per share is computed using the weighted
average number of common shares outstanding. Common equivalent shares are
excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletins, common and common equivalent shares (stock options, warrants and
convertible preferred stock) issued during the period commencing 12 months
prior to the initial filing of a proposed public offering at prices below the
assumed public offering price have been included in the calculation as if they
were outstanding for all periods presented (using the treasury stock method
for stock options and warrants and the if-converted method of preferred
stock). Per share information calculated on the above noted basis is as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss per share................ $ (0.95) $ (2.36) $ (2.78) $ (2.31) $ (0.93)
======= ======= ======= ======= =======
Shares used in calculating net
loss per share (in thousands).... 2,270 2,304 2,478 2,383 3,078
======= ======= ======= ======= =======
</TABLE>
Pro forma net loss per share has been computed as described above and also
gives effect, pursuant to SEC policy, to common equivalent shares from
convertible preferred stock issued more than 12 months prior to the
F-8
<PAGE>
MEGABIOS CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
initial filing of the proposed initial public offering (using the if-converted
method) from the original date of issuance.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share"
("EPS"). SFAS 128 requires that Company's present two measures of earnings per
share, basic and diluted. Basic earnings per share is computed by dividing
income available to common shareholders by the weighted-average number of
common shares outstanding for the period while diluted EPS reflects the
potential dilution of securities that could share in the earnings of the
Company. SFAS 128 is effective for interim and annual periods ending after
December 31, 1997. The Company does not believe the adoption of SFAS 128 will
have a material impact on its loss per share calculations.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair value.
Investments
The Company determines fair values based on quoted market values.
Long- and Short-Term Debt
The carrying amounts of the Company's borrowings under its term loan and
equipment financing agreements approximate their fair value. The fair values
of the Company's long-term debt are estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
2. COLLABORATIVE AGREEMENTS
Glaxo Wellcome plc
In April 1994, the Company entered into a five-year collaborative agreement
with Glaxo Wellcome plc ("Glaxo") to develop a gene-based therapeutic for the
treatment of cystic fibrosis. (In May 1996, the agreement was amended such
that it expired as of April 1, 1997.) The agreement provides for quarterly
nonrefundable research and development fees. The Company has completed all of
its obligations under the Glaxo agreement and will receive future payments, if
any, only through the achievement of a certain clinical milestone and the
payment of royalties. Revenue for research and development is recorded as
earned in accordance with the agreement. Revenue recognized under agreement
with Glaxo was $1,157,000, $1,625,000, $750,000 and $1,971,000 for the years
ended June 30, 1995 and 1996 and for the nine months ended March 31, 1996 and
1997, respectively. These amounts represent 100%, 86%, 100% and 43% of total
collaborative research and development funding recognized by the Company
during the years ended June 30, 1995 and 1996 and for the nine months ended
March 31, 1996 and 1997, respectively.
F-9
<PAGE>
MEGABIOS CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
Pfizer, Inc.
In May 1996, the Company entered into a four-year collaborative research
agreement, as well as a license and royalty agreement, with Pfizer, Inc.
("Pfizer") to develop a gene-based therapeutic for the treatment of solid
tumors via angiogenesis inhibition. Under the terms of the collaborative
research agreement, the Company is conducting research and preclinical
development activities and will receive funding for such activities through at
least June 1998. However, Pfizer can, at its option, terminate the program
after June 1998 upon six months notice to the Company. The agreements also
provide for royalty and milestone payments to the Company upon the occurrence
of specified events as set forth in the agreements. Pfizer will be responsible
for worldwide clinical development and regulatory functions, and Pfizer has
worldwide marketing rights to any resulting products. Revenue recognized under
the collaborative research agreement with Pfizer was $265,000 (14% of total
revenues) and $2,454,000 (54% of total revenues) for the year ended June 30,
1996 and for the nine months ended March 31, 1997, respectively. Deferred
revenue of $531,000 as of March 31, 1997 represents payment for research to be
performed in the following quarter.
In May 1996, in connection with the above agreements, Pfizer purchased
484,697 shares of the Company's Series D preferred stock for $7.221 per share.
Furthermore, should Pfizer decide to extend the research term beyond two
years, it will be required, prior to January 1998 to commit to purchase within
60 days $10,000,000 of the Company's common stock at a premium to the then
current market value.
3. SPONSORED UNIVERSITY RESEARCH
The Company has entered into several research agreements with universities.
These agreements are generally cancelable by either party upon written notice
and may be extended by mutual consent of both parties. Research and
development expenses are recognized as the related services are performed,
generally ratably over the period of service. Expenses under these agreements
were approximately $685,000, $865,000 and $1,100,000 for the years ended June
30, 1994, 1995 and 1996, respectively, and $826,000 and $458,000 for the nine-
month periods ended March 31, 1996 and 1997, respectively.
4. INVESTMENTS
Short-term investments consist of corporate paper and medium-term notes with
remaining maturities at the date of purchase of greater than 90 days but less
than one year.
The Company accounts for marketable investments in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," ("Statement 115"). Under Statement 115,
management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet
date. To date, all marketable securities have been classified as held to
maturity and are carried at amortized cost. The amortized cost of debt
securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income. The cost of securities sold is based on the specific identification
method. Interest earned on securities are included in interest income.
A summary of the Company's investments at March 31, 1997 follows (in
thousands).
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Short-term investments:
Commercial paper.................... $ 493 $ -- $ -- $ 493
Medium-term notes................... 9,238 -- (18) 9,220
------ ---- ---- ------
$9,731 $ -- $(18) $9,713
====== ==== ==== ======
</TABLE>
F-10
<PAGE>
MEGABIOS CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
The Company held no such investments at June 30, 1996 or 1995. There have
been no realized gains or losses on short-term investments.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------- MARCH 31,
1995 1996 1997
------ ------- ---------
<S> <C> <C> <C>
Machinery and equipment........................... $1,518 $ 2,493 $ 2,975
Furniture and fixtures............................ 194 250 381
Leasehold improvements............................ 3,150 3,230 3,269
------ ------- -------
4,862 5,973 6,625
Less accumulated depreciation and amortization.... (781) (1,882) (2,811)
------ ------- -------
Property and equipment, net....................... $4,081 $ 4,091 $ 3,814
====== ======= =======
</TABLE>
6. LONG-TERM DEBT
Term Loan
In 1995, the Company established a line of credit for $1,500,000 with a
commercial bank. As of June 30, 1995, the Company had drawn down $510,000
under the line of credit. In July and August 1995, the Company drew down the
remaining $990,000 available line of credit, and in accordance with the terms
of the agreement, the Company elected to convert the entire balance to a term
loan bearing interest at prime plus 2% due in 36 equal monthly installments
(10.25% at June 30, 1996 and March 31, 1997). The loan is secured by all
tangible personal property, accounts receivable and funds on deposit, other
than the assets securing the equipment financing. As a condition of the term
loan, the Company must maintain a minimum net worth of $3,000,000 and is
prohibited from paying dividends. In conjunction with this financing
arrangement, the Company issued the bank a warrant to purchase 24,141 shares
of the Company's Series C convertible preferred stock at $3.8835 per share.
Equipment Financing
In December 1993, the Company entered into an equipment financing agreement
for up to $2,300,000 with a financing company. As of June 30, 1996 and March
31, 1997, the Company had financed $1,922,000 in equipment purchases under
this agreement structured as loans. The equipment loans are to be repaid over
42 months at interest rates ranging from 13.8% to 16.2% and are secured by the
related equipment. In conjunction with the original agreement, the Company
issued the financing company a warrant to purchase 21,629 shares of Company's
Series B convertible preferred stock at $3.8835 per share (see Note 9).
In May 1996, the Company entered into an equipment financing agreement for
up to $2,700,000 with another financing company. As of June 30, 1996 and March
31, 1997, the Company had financed $693,000 and $1,423,000, respectively, in
equipment purchases under this agreement structured as loans. The equipment
loans are to be repaid over 48 months at interest rates ranging from 15.2% to
16.2% and are secured by the related equipment. In conjunction with this
equipment financing agreement, the Company issued a warrant to purchase 38,239
shares of Series C convertible preferred stock at $3.8835 per share.
F-11
<PAGE>
MEGABIOS CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
Following is a schedule of future minimum principal payments under the term
loan and equipment financing arrangements at March 31, 1997 (in thousands):
<TABLE>
<S> <C>
Period ended June 30,
1997................................................................ $ 306
Year ended June 30,
1998................................................................ 1,211
1999................................................................ 582
2000................................................................ 493
2001................................................................ 268
------
$2,860
======
</TABLE>
7. FACILITY LEASE
The Company leases its facility under operating leases. These leases expire
in November 2004 and October 2007 with renewal options at the end of the
initial terms of the leases. Minimal annual rental commitments under the
operating leases at March 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
Period ended June 30,
1997................................................................ $ 55
Year ended June 30,
1998................................................................ 459
1999................................................................ 496
2000................................................................ 521
2001 and thereafter................................................. 3,162
------
$4,693
======
</TABLE>
Rent expense for the years ended June 30, 1994, 1995 and 1996 and for the
nine months ended March 31, 1996 and 1997 was approximately $59,000, $221,000,
$273,000, $188,000 and $211,000, respectively.
8. RELATED PARTY TRANSACTIONS
The Company has issued loans to certain employees, of which $46,000 and
$29,300 was outstanding at June 30, 1996 and March 31, 1997 ($53,000 as of
June 30, 1995). These loans, classified as other receivables on the balance
sheet, bear interest at approximately 4.8% to 6.0% per annum.
F-12
<PAGE>
MEGABIOS CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
9. SHAREHOLDERS' EQUITY
Convertible Preferred Stock
The following table describes information with respect to the various series
of convertible preferred stock outstanding as of March 31, 1997:
<TABLE>
<CAPTION>
SHARES AGGREGATE
SHARES ISSUED AND ISSUANCE PRICE LIQUIDATION
AUTHORIZED OUTSTANDING PER SHARE PREFERENCE
---------- ----------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Series A................ 1,029,222 1,029,222 $1.0554 $ 1,050
Series B................ 1,089,083 1,055,750 $3.8835 4,100
Series C................ 3,700,000 3,184,425 $3.8835 18,551
Series D................ 2,515,028 484,697 $7.2210 3,500
Series E................ 1,333,333 1,333,333 $ 7.50 10,000
Undesignated............ 333,334 -- -- --
---------- --------- -------
Total................... 10,000,000 7,087,427 $37,201
========== ========= =======
</TABLE>
Series A, B, C, D and E convertible preferred shareholders are entitled to
noncumulative annual dividends, when and if declared by the board of
directors, of $0.0612, $0.2331, $0.2331, $0.2331 and $0.2331 per share,
respectively, payable in preference to common stock dividends. No dividends
have been declared or paid by the Company.
Series A, B, C, D and E convertible preferred shares have a liquidation
preference of $1.0203, $3.8835, $5.8254, $7.2210 and $7.50 per share,
respectively, plus all declared but unpaid dividends. Upon liquidation, after
payment of the full liquidation preference has been made to the Series A, B,
C, D and E shareholders, the remaining assets of the Company, if any, shall be
distributed ratably among the common shareholders and Series C convertible
preferred shareholders.
Each share of convertible preferred stock votes equally with shares of
common stock on an "if-converted" basis.
Preferred stock is convertible at any time at the option of the shareholder.
Each share of Series A convertible preferred stock is convertible into 0.74161
shares of common stock plus any accumulated and unpaid dividends. Each share
of Series B, C, D and E convertible stock is convertible into one share of
common stock plus any accumulated and unpaid dividends. The conversion ratios
are subject to adjustment based upon certain events including the issuance of
additional shares of common stock. Each share of Series A, B, C, D and E
convertible preferred stock automatically converts into common stock at the
then effective conversion rate in the event of an underwritten public offering
of the Company's common stock at an offering price of not less than $7.50 per
share and with aggregate net proceeds to the Company, after deduction of
underwriting commissions and expenses, of at least $7,500,000.
In December 1996, in connection with the Series E preferred stock financing,
the board of directors approved the issuance of 66,667 shares common stock at
$1.50 per share in lieu of cash payment of commissions to certain financial
advisors. The common stock was issued in February 1997.
Common Stock Repurchase Rights
The Company has common stock repurchase agreements with four employees
pursuant to which the Company has the right to repurchase shares of common
stock at the original issuance price in the event the
F-13
<PAGE>
MEGABIOS CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
individual ceases to be a consultant or employee of the Company. Such
repurchase rights lapse generally over four years. An aggregate of 5,604
shares are subject to repurchase at an aggregate repurchase price of $5,000 as
of March 31, 1997.
Warrants
In connection with the equipment financing agreement entered into in
December 1993, the Company issued a warrant to purchase 21,629 shares of
Series B convertible preferred stock at $3.8835 per share. The warrant expires
at the earlier of six years from the date of issuance or in the event of an
initial public offering of minimum proceeds of $7,500,000, or a merger of the
Company. The warrant is exercisable immediately.
The Company issued a warrant to purchase 28,969 shares of Series C
convertible stock at $3.8835 per share to the commercial bank providing the
line of credit to the Company. In accordance with the terms of the warrant,
the number of shares subject to the warrant was reduced from 28,969 to 24,141
in July 1995. The warrant provided for a reduction in the number of shares
upon securing a commitment of at least $7,000,000 in sales of Series C
preferred stock. The warrant is exercisable immediately and expires at the
earlier of June 1, 2000, or in the event of a merger or sale of substantially
all of the assets of the Company.
In connection with the equipment financing agreement in May 1996, the
Company issued a warrant to purchase 38,239 shares of Series C convertible
preferred stock at $3.8835 per share. The warrant is exercisable immediately
and expires at the earlier of ten years from the date of issuance or five
years after an initial public offering of the Company's common stock.
Stock Option Plan
On October 14, 1993, the board of directors approved a stock option plan. As
of March 31, 1997, the Company had reserved 1,440,000 shares of common stock
for issuance under the plan. Under the plan, incentive stock options may be
granted to employees, and nonstatutory stock options may be granted to
employees, directors, and consultants. Options granted expire no later than
ten years from the date of grant. The options may be exercised immediately
upon grant, however, the shares issuable upon exercise of the options are
subject to repurchase by the Company. An aggregate of 378,341 shares are
subject to repurchase at an aggregate repurchase price of $118,000 as of March
31, 1997. Such repurchase rights will lapse at a minimum rate of 20% per annum
and over a period of time not to exceed five years from the date the option
was granted.
In October 1994, the Company offered all option holders with per share
exercise prices above $0.30, the fair value on the date of the offer, the
opportunity to reprice their options to the fair value as determined by the
board of directors on the date of the offer. The new unvested options have a
vesting period three months longer than the original vesting terms under the
previous option. In response to the offer, options on 143,555 shares were
returned by employees and canceled, and a similar number of new options were
regranted with an exercise price of $0.30 per share.
F-14
<PAGE>
MEGABIOS CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
Activity under the plan was as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
SHARES ----------------------------
AVAILABLE NUMBER OF PRICE
FOR GRANT SHARES PER SHARE
--------- ------------ --------------
<S> <C> <C> <C>
Authorization of shares for issuance.... 333,333 -- --
Options granted....................... (112,000) 112,000 $1.11
Options exercised..................... -- -- --
Options canceled...................... -- -- --
-------- -----------
Balance at June 30, 1994................ 221,333 112,000 $1.11
Additional authorization.............. 433,333 -- --
Options granted....................... 666,777 (666,777) $0.30-$1.11
Options exercised..................... -- (68,167) $0.30
Options canceled...................... 153,889 (153,889) $1.11
-------- -----------
Balance at June 30, 1995................ 141,778 556,721 $0.30-$1.11
Additional authorization.............. 320,000 -- --
Options granted....................... (387,789) 387,789 $0.30-$1.50
Options exercised..................... -- (693,554) $0.30
Options canceled...................... 16,584 (16,584) $0.30
Options underlying shares repurchased. 7,500 -- $0.30
-------- -----------
Balance at June 30, 1996................ 98,073 234,372 $0.30-$1.50
Additional authorization.............. 353,333 -- --
Options granted....................... (311,666) 311,666 $1.50
Options exercised..................... -- (93,992) $0.30-$1.50
Options canceled...................... 19,542 (19,542) $0.30
Options underlying shares repurchased. 28,518 -- $0.30
-------- -----------
Balance at March 31, 1997............... 187,800 432,504 $0.30-$1.50
======== ===========
</TABLE>
In December 1996, the Company increased the shares reserved for issuance
under the stock option plan to 1,440,000 shares.
Through the nine months ended March 31, 1997, options to purchase 306,000
shares of common stock were granted at $1.50 per share. Deferred compensation
of $580,000 was recorded on these options based on the deemed fair value of
the common stock at the dates of grant at prices ranging from $1.50 to $3.75
per share, respectively. In April 1997, the company granted options to
purchase a total of 76,700 shares at an exercise price of $1.50 per share and
additional deferred compensation of approximately $173,000 is expected to be
recorded based on the deemed fair value of common stock of $3.75 per share.
The deferred compensation is being amortized to expense over the vesting
period of the options, generally four years. The Company recognized expense of
$26,000 in the nine-month period ended March 31, 1997 related to these
options.
F-15
<PAGE>
MEGABIOS CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
Common Stock Reserved for Future Issuance
At March 31, 1997, the Company had reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock......................... 6,821,486
1993 Stock Option Plan............................................ 686,971
Exercise of Series B convertible preferred stock purchase warrants
convertible into common shares................................... 21,629
Exercise of Series C convertible preferred stock purchase warrants
convertible into common shares................................... 62,380
---------
7,592,466
=========
</TABLE>
10. INCOME TAXES
As of June 30, 1996, the Company had federal net operating loss
carryforwards and federal research credit carryforwards of approximately
$12,062,000 and $252,000, respectively. The net operating loss and credit
carryforwards will expire at various dates beginning in 2007 through 2011, if
not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
Significant components of the Company's deferred tax assets and liabilities
for federal income taxes as of June 30 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Net operating loss carryforwards........................... $ 2,365 $ 4,101
Research and development credits........................... 220 429
Capitalized research and development....................... 632 775
Other, net................................................. 90 771
------- -------
Net deferred tax assets.................................... 3,307 6,076
Valuation allowance........................................ (3,307) (6,076)
------- -------
$ -- $ --
======= =======
</TABLE>
The net valuation allowance increased by $953,000 and $2,077,000 during the
years ended June 30, 1994 and 1995, respectively.
11. SUBSEQUENT EVENTS
In May 1997, the Company entered into a two-year collaborative research
agreement with Eli Lilly and Company ("Lilly") to develop gene-based
therapeutics using BRCA1, a gene which has been identified as a putative tumor
suppressor. The agreement provides for research and development funding fees
as well as funding to support manufacturing and process development efforts.
Lilly has the option to extend the initial term of the agreement by up to two
years. However, after 21 months from the commencement date of the
collaborative research agreement, Lilly can, at its option, extend the
collaborative research agreement upon three-months advance notice to the
Company. The agreement provides for certain royalty and milestone payments to
the Company upon the occurrence of specified events as set forth in the
agreement. Lilly will be responsible for basic research, worldwide clinical
development and regulatory functions, as well as commercial manufacturing and
sales and marketing.
F-16
<PAGE>
MEGABIOS CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
In conjunction with the Lilly agreement, Lilly purchased 285,714 shares of
Series F convertible preferred stock at $10.50 per share.
In May 1997, the Company amended its articles of incorporation to increase
the number of shares authorized to issue to 15,000,000 shares of common stock
and 11,333,333 shares of preferred stock.
In May and June 1997, the Company issued 1,333,333 shares of convertible
Series F preferred stock at $10.50 per share to current and new investors. The
Series F preferred stock contains a liquidation preference of $10.50 per
share. Each share of Series F is convertible into one share of common stock
plus accumulated and unpaid dividends. Series F shareholders are entitled to
noncumulative annual dividends of $0.2331 per share. In connection with the
Series F preferred stock financing, the Company issued 52,380 shares of common
stock at $1.50 per share share in lieu of a cash payment for commissions to
certain financial advisors. The common stock was issued in May 1997.
In July 1997, the board of directors authorized management of the Company to
file a registration statement with the SEC permitting the Company to sell up
to 2,875,000 shares of Common Stock to the public (the "Offering"). If the
Offering is completed under the terms currently contemplated, 8,420,760 shares
of outstanding Series A, B, C, D, E and F convertible preferred stock will
convert into 8,154,779 shares of common stock. In conjunction with the
Offering, the board of directors authorized, subject to shareholder approval,
the reincorporation of the Company into Delaware. In connection with the
reincorporation the Company will adopt an Amended and Restated Certificate of
Incorporation which provides that the Company will be authorized to issue
10,000,000 shares of $0.001 par value preferred stock and 30,000,000 shares of
$0.001 par value common stock.
In addition, in connection of the Offering, the board of directors approved,
subject to shareholder approval, a one-for-three reverse stock split covering
each class and series of the Company's capital stock, options and warrants.
All share and per share amounts, as well as the dividend and liquidation
preferences for Series A, B, C, D, E and F convertible preferred stock,
included in the accompanying financial statements have been retroactively
adjusted to reflect the reverse stock split.
In July 1997, the board of directors also adopted, subject to shareholder
approval, the Company's 1997 Equity Incentive Plan (the "Incentive Plan") as
an amendment and restatement of the Company's 1993 stock option plan. There
are currently 2,100,000 shares of common stock authorized for issuance under
the Incentive Plan. Also in July 1997, the board of directors adopted, subject
to shareholder approval, the Company's Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 200,000 shares of common stock.
Under the Purchase Plan, the board of directors may authorize participation by
eligible employees, including officers, in periodic offerings following the
adoption of the Purchase Plan.
Unaudited pro forma shareholders' equity, as adjusted for the assumed
conversion of the Series A, B, C, D and E convertible preferred stock, is set
forth on the accompanying balance sheet.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities other than the shares of Common Stock to which it relates, or an
offer to, or a solicitation of, any person in any jurisdiction where such an
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
an implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as
of any time subsequent to the date hereof.
--------------------
TABLE OF CONTENTS
--------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Financial Data................................................... 19
Management's Discussion And Analysis of Financial Condition And Results of
Operations............................................................... 20
Business.................................................................. 24
Management................................................................ 41
Certain Transactions...................................................... 50
Principal Stockholders.................................................... 51
Description Of Capital Stock.............................................. 53
Shares Eligible For Future Sale........................................... 55
Underwriting.............................................................. 57
Legal Matters............................................................. 59
Experts................................................................... 59
Additional Information.................................................... 59
Index To Financial Statements............................................. F-1
</TABLE>
--------------------
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,500,000 SHARES
[MEGABIOS LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MONTGOMERY SECURITIES
HAMBRECHT & QUIST
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in
connection with the distribution of the Common Stock being registered. All
amounts are estimated, except the SEC Registration Fee, the NASD Filing Fee
and the Nasdaq National Market Filing Fee:
<TABLE>
<S> <C>
SEC Registration Fee............................................... 11,325
NASD Filing Fee.................................................... 4,240
Nasdaq National Market Filing Fee.................................. 48,065
Blue Sky Fees and Expenses......................................... 5,000
Accounting Fees.................................................... 125,000
Legal Fees and Expenses............................................ 250,000
Transfer Agent and Registrar Fees.................................. 15,000
Printing and Engraving............................................. 125,000
Miscellaneous...................................................... 16,370
--------
Total............................................................ $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation provides that directors of the
Registrant shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
to the fullest extent permitted by the General Corporation Law of the State of
Delaware. The Registrant's Bylaws provide for indemnification of officers and
directors to the full extent and in the manner permitted by Delaware law.
Section 145 of the Delaware General Corporation Law makes provision for such
indemnification in terms sufficiently broad to cover officers and directors
under certain circumstances for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act").
The Registrant intends to enter into indemnification agreements with each
director and certain officers which provide indemnification under certain
circumstances for acts and omissions which may not be covered by any
directors' and officers' liability insurance.
The form of Underwriting Agreement, filed as Exhibit 1.1 to the Registration
Statement, provides for indemnification of the Registrant and its controlling
persons against certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since April 1, 1994, the Company has sold and issued the following
unregistered securities (share and dollar amounts do not reflect the 1 for 3
reverse stock split assumed elsewhere in this registration statement).
(1) Since inception to June 30, 1997, the Registrant has granted stock
incentive stock options and nonstatutory stock options to employees, directors
and consultants under its 1993 Stock Option Plan covering an aggregate of
4,664,795 shares of the Registrant's Common Stock, at an average exercise
price of $0.225 per share. Options to purchase 591,127 shares of Common Stock
have been canceled or have lapsed without being exercised, and 118,643 shares
of Common Stock have been repurchased by the Registrant.
(2) In May 1994, the Registrant issued a warrant exercisable for 64,890
shares of Series B Preferred Stock, convertible into 64,890 shares of Common
Stock, at an exercise price of $1.2945 per share to an accredited investor.
II-1
<PAGE>
(3) Between September 1994 and October 1995, the Registrant issued and sold
9,553,274 shares of Series C Preferred Stock, convertible into 9,553,274
shares of Common Stock, to a total of 37 accredited investors, including one
officer, for cash in the aggregate amount of $12,366,711.
(4) In June 1995, the Registrant issued a warrant exercisable for 115,875
shares, which number was subsequently adjusted to 72,422 shares by agreement
of the parties, of Series C Preferred Stock, convertible into 72,422 shares of
Common Stock, at an exercise price of $1.2945 per share to an accredited
investor.
(5) In April 1996, the Registrant issued a warrant exercisable for 114,716
shares of Series C Preferred Stock, convertible into 114,716 shares of Common
Stock, at an exercise price of $1.2945 per share to an accredited investor.
(6) In May 1996, the Registrant issued and sold 1,454,092 shares of Series D
Preferred Stock, convertible into 1,454,092 shares of Common Stock, to an
accredited investor for cash in the amount of $3,500,000.
(7) In October 1996, the Registrant issued and sold 4,000,000 shares of
Series E Preferred Stock, convertible into 4,000,000 shares of Common Stock to
24 investors for cash in the aggregate amount of $10,000,000. In connection
with the private placement, the Registrant issued 200,000 shares of Common
Stock to the placement agents equal in value to the aggregate amount of
$100,000.
(8) In May and June 1997, the Registrant issued and sold 3,999,998 shares of
Series F Preferred Stock, convertible into 3,999,998 shares of Common Stock to
13 accredited investors, for cash in the aggregate amount $14,000,000. In
connection with the private placement, the Registrant issued 157,142 shares of
Common Stock to the placement agents equal in value to the aggregate amount of
$78,571.
The sales and issuances of securities in the transactions described in
paragraph (1) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation, as provided by Rule
701.
The sales and issuances of securities in the transactions described in
paragraphs (2) through (8) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2), Regulation D or Regulation
S promulgated thereunder. The purchasers in each case represented their
intention to acquire the securities for investment only and not with a view to
the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
received either received adequate information about the Registrant or had
access, through employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<C> <S>
1.1+ Underwriting Agreement
3.1 Fifth Amended and Restated Articles of Incorporation of the Registrant
as filed May 14, 1997
3.2 Certificate of Correction of Fifth Amended and Restated Articles of
Incorporation as filed July 25, 1997
3.3 Bylaws of the Registrant
3.4+ Certificate of Incorporation to be effective upon closing of the
offering
3.5+ Bylaws of the Registrant to be effective upon the closing of the
offering
4.1+ Specimen Common Stock Certificate
5.1 Opinion of Cooley Godward LLP as to legality of the Common Stock
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.1+ 1997 Equity Incentive Plan
10.2+ Form of Incentive Stock Option Grant
10.3+ Form of Non-Incentive Stock Option Grant
10.4+ 1997 Employee Stock Purchase Plan
10.5+ 1997 Employee Stock Purchase Offering
10.6+ Form of Indemnification Agreement between the Registrant and its
directors and executive officers
10.7 Amended and Restated Investor Rights Agreement, dated as of May 23,
1997 among the Registrant and the investors named therein
10.8 Letter Agreement between the Registrant and Benjamin F. McGraw, III
10.9 Letter Agreement between the Registrant and Patrick G. Enright
10.10 Letter Agreement between the Registrant and Rodney Pearlman
10.11 Lease Agreement between the Registrant and Provident Life and
Accident Insurance Company ("Provident"), dated December 21, 1993
10.12 First Amendment to Lease Agreement between the Registrant and SFO
Associates LLC (successor in interest to Provident)
10.13 Lease Agreement between the Registrant and SFO Associates LLC, dated
March 18, 1997
10.14 Credit Agreement between the Registrant and Imperial Bank, dated as
of August 31, 1995
10.15 Lease Agreement between the Registrant and LMSI, dated May 13, 1994,
as amended as of May 13, 1994
10.16 Senior Loan and Security Agreement No. L0016 between the Registrant
and Phoenix Leasing Incorporated, dated as of April 22, 1996
10.17* Research and License Agreement between the Registrant and
GlaxoWellcome Group Limited, dated April 11, 1994, as amended as of
May 31, 1996
10.18* Collaborative Research Agreement between the Registrant and Pfizer
Inc., dated May 31, 1996
10.19* License and Royalty Agreement between Registrant and Pfizer, dated
June 1, 1996
10.20 Stock Purchase Agreement between Registrant and Pfizer, dated May 30,
1996
10.21* Exclusive License Agreement between the Registrant and the Regents of
the University of California, dated May 9, 1996 as amended May 15,
1997
10.22* Research and License Agreement between the Registrant and Eli Lilly
and Company, effective May 23, 1997
10.23 Preferred Stock Warrant issued to Lease Management Services, Inc.,
dated May 13, 1994
10.24 Preferred Stock Warrant issued to Imperial Bank, dated June 1, 1995
10.25 Series C Preferred Stock Warrant issued to Phoenix Leasing
Incorporated, dated April 30, 1996
11.1 Statement re computation of net loss per share
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page II-6)
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)
23.3 Consent of McDonnell, Boehnen, Hulbert, Berghoff, Ltd.
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
+ To be filed by amendment.
* Confidential treatment being sought for portions of this document.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
A. The 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.
B. 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 in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
C. The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in 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 purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, MEGABIOS
CORPORATION HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF, BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN
CARLOS, COUNTY OF SAN MATEO, STATE OF CALIFORNIA, ON JULY 31, 1997.
Megabios Corporation
/s/ Benjamin F. McGraw III
By: _________________________________
BENJAMIN F. MCGRAW III, PHARM.D.
CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS BENJAMIN F. MCGRAW, III AND PATRICK G. ENRIGHT,
AND EACH OF THEM, HIS ATTORNEYS-IN-FACT, EACH WITH THE POWER OF SUBSTITUTION,
FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN
ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS
REGISTRATION STATEMENT, AND TO SIGN ANY REGISTRATION STATEMENT FOR THE SAME
OFFERING COVERED BY THIS REGISTRATION STATEMENT THAT IS TO BE EFFECTIVE UPON
FILING PURSUANT TO RULE 462(b) PROMULGATED UNDER THE SECURITIES ACT OF 1933,
AND ALL POST-EFFECTIVE AMENDMENTS THERETO, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO IN ALL DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES
AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND
EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT
AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS
FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY
RATIFYING AND CONFIRMING ALL THAT SUCH ATTORNEYS-IN-FACT AND AGENTS OR ANY OF
THEM, OR HIS OR THEIR SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO
BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Benjamin F. McGraw III Chairman, Chief July 31, 1997
- ------------------------------------- Executive Officer
BENJAMIN F. MCGRAW III, PHARM.D. and President
(Principal
Executive Officer)
/s/ Patrick G. Enright Chief Financial July 31, 1997
- ------------------------------------- Officer and Vice
PATRICK G. ENRIGHT President
(Principal
Financial and
Accounting Officer)
/s/ Frank J. Caufield Director July 31, 1997
- -------------------------------------
FRANK J. CAUFIELD
/s/ Edward L. Erickson Director July 31, 1997
- -------------------------------------
EDWARD L. ERICKSON
/s/ A. Grant Heidrich Director July 31, 1997
- -------------------------------------
A. GRANT HEIDRICH
/s/ Russell C. Hirsch Director July 31, 1997
- -------------------------------------
RUSSELL C. HIRSCH, M.D., PH.D.
/s/ Raju Kucherlapati Director July 31, 1997
- -------------------------------------
RAJU KUCHERLAPATI, PH.D.
II-5
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions '"Selected
Financial Data" and "Experts" and to the use of our report dated July 1, 1996
except for Note 11, as to which the date is , 1997, in the Registration
Statement (Form S-1) and related Prospectus of Megabios Corporation for the
registration of 2,875,000 shares of its common stock.
ERNST & YOUNG LLP
Palo Alto, California
- -------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion
of the one-for-three reverse stock split described in Note 11 to the financial
statements.
/s/ Ernst & Young LLP
Palo Alto, California
July 31, 1997
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
1.1+ Underwriting Agreement
3.1 Fifth Amended and Restated Articles of Incorporation of
the Registrant as filed May 14, 1997
3.2 Certificate of Correction of Fifth Amended and Restated
Articles of Incorporation as filed July 25, 1997
3.3 Bylaws of the Registrant
3.4+ Certificate of Incorporation to be effective upon closing
of the offering
3.5+ Bylaws of the Registrant to be effective upon the closing
of the offering
4.1+ Specimen Common Stock Certificate
5.1 Opinion of Cooley Godward llp as to legality of the
Common Stock
10.1+ 1997 Equity Incentive Plan
10.2+ Form of Incentive Stock Option Grant
10.3+ Form of Non-Incentive Stock Option Grant
10.4+ 1997 Employee Stock Purchase Plan
10.5+ 1997 Employee Stock Purchase Offering
10.6+ Form of Indemnification Agreement between the Registrant
and its directors and executive officers
10.7 Amended and Restated Investor Rights Agreement, dated as
of May 23, 1997 among the Registrant and the investors
named therein
10.8 Letter Agreement between the Registrant and Benjamin F.
McGraw, III
10.9 Letter Agreement between the Registrant and Patrick G.
Enright
10.10 Letter Agreement between the Registrant and Rodney
Pearlman
10.11 Lease Agreement between the Registrant and Provident Life
and Accident Insurance Company ("Provident"), dated
December 21, 1993
10.12 First Amendment to Lease Agreement between the Registrant
and SFO Associates LLC (successor in interest to
Provident)
10.13 Lease Agreement between the Registrant and SFO Associates
LLC, dated March 18, 1997
10.14 Credit Agreement between the Registrant and Imperial
Bank, dated as of August 31, 1995
10.15 Lease Agreement between the Registrant and LMSI, dated
May 13, 1994, as amended as of May 13, 1994
10.16 Senior Loan and Security Agreement No. L0016 between the
Registrant and Phoenix Leasing Incorporated, dated as of
April 22, 1996
10.17* Research and License Agreement between the Registrant and
GlaxoWellcome Group Limited, dated April 11, 1994, as
amended as of May 31, 1996
10.18* Collaborative Research Agreement between the Registrant
and Pfizer Inc., dated May 31, 1996
10.19* License and Royalty Agreement between Registrant and
Pfizer, dated June 1, 1996
10.20 Stock Purchase Agreement between Registrant and Pfizer,
dated May 30, 1996
10.21* Exclusive License Agreement between the Registrant and
the Regents of the University of California, dated May 9,
1996 as amended May 15, 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
10.22* Research and License Agreement between the Registrant and
Eli Lilly and Company, effective May 23, 1997
10.23 Preferred Stock Warrant issued to Lease Management
Services, Inc., dated May 13, 1994
10.24 Preferred Stock Warrant issued to Imperial Bank, dated
June 1, 1995
10.25 Series C Preferred Stock Warrant issued to Phoenix
Leasing Incorporated, dated April 30, 1996
11.1 Statement re computation of net loss per share
23.1 Consent of Ernst & Young LLP, Independent Auditors (see
page II-6)
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)
23.3 Consent of McDonnell, Boehnen, Hulbert, Berghoff, Ltd.
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
+ To be filed by amendment.
* Confidential treatment being sought for portions of this document.
<PAGE>
EXHIBIT 3.1
FIFTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
MEGABIOS CORP.
A CALIFORNIA CORPORATION
Benjamin F. McGraw, III and Alan C. Mendelson certify as follows:
1. They are the duly elected and acting President and Secretary, respectively,
of MEGABIOS Corp., a California corporation (the "Corporation").
2. The Articles of Incorporation of the Corporation are hereby amended and
restated in their entirety to read in full as follows:
ARTICLE I
The name of the Corporation is MEGABIOS Corp.
ARTICLE II
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
This Corporation is authorized to issue two classes of shares, which shall
respectively be designated as "Preferred Stock" and "Common Stock." The total
number of shares of Common Stock the Corporation is authorized to issue is Forty
Million (45,000,000), and the total number of shares of Preferred Stock the
Corporation is authorized to issue is Thirty Million (34,000,000).
The shares of Preferred Stock authorized by these Articles of Incorporation
may be issued from time to time in one or more series. Subject to the
provisions of Section 6 of Article III, the Board of Directors is authorized to
determine or alter any or all of the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock, and to fix, alter, or reduce the number of shares comprising any such
series (but not below the number of such shares then outstanding) and the
designation thereof, or any of them, and to provide for rights and terms of
redemption or conversion of the shares of any such series.
1
<PAGE>
1. TITLE OF SERIES AND NUMBER OF SHARES. The initial series of Preferred
Stock shall be designated "Series A Preferred Stock" (the "Series A Preferred")
and shall consist of Three Million Eighty-Seven Thousand Six Hundred and Sixty-
Six (3,087,666) shares. The second series of Preferred Stock shall be
designated "Series B Preferred Stock" (the "Series B Preferred") and shall
consist of Three Million Two Hundred Sixty-Seven Thousand Two Hundred and Fifty
(3,267,250) shares. The third series of Preferred Stock shall be designated
"Series C Preferred Stock" (the "Series C Preferred") and shall consist of
Eleven Million One Hundred Thousand (11,100,000) shares. The fourth series of
Preferred Stock shall be designated "Series D Preferred Stock" (the "Series D
Preferred") and shall consist of Seven Million Five Hundred Forty-Five Thousand
Eighty-Four (7,545,084) shares. The fifth series of Preferred Stock shall be
designated "Series E Preferred Stock" (the "Series E Preferred") and shall
consist of Four Million (4,000,000) shares. The sixth series of Preferred Stock
shall be designated "Series F Preferred Stock" (the "Series F Preferred") and
shall consist of Four Million (4,000,000) shares. As used herein, the term
"Series Preferred" shall refer collectively to the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred.
2. DIVIDENDS. The holders of outstanding Series Preferred shall be
entitled to receive in any fiscal year, when and as declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
in cash at an annual rate of $0.0204 per share of Series A Preferred and $0.0777
per share of Series B, Series C, Series D, Series E and Series F Preferred,
respectively. Such dividends may be payable quarterly or otherwise as the Board
of Directors may from time to time determine. The right to such dividends shall
not be cumulative and no right shall accrue to holders of Series Preferred by
reason of the fact that dividends on such shares were not declared in any prior
year, nor shall any undeclared or unpaid dividends bear or accrue interest.
Dividends other than dividends payable solely in Common Stock may be declared or
paid upon shares of Common Stock in any fiscal year of the Corporation only if
dividends at the annual rates set forth above shall have been paid or declared
and set apart upon all shares of Series Preferred for such fiscal year. No
dividend shall be declared or paid with respect to the Common Stock unless at
the same time an equivalent dividend is declared or paid with respect to the
Series Preferred, assuming the conversion of each of the series of the Series
Preferred into Common Stock at the then applicable Conversion Rate for each
series, as set forth in Section 4 below. The holders of the Preferred Stock
expressly waive their rights, if any, as described in California Corporations
Code Sections 502, 503 and 506 as they relate to the repurchase of shares of
Common Stock issued to or held by employees or directors of or consultants to
the Corporation or any of its subsidiaries upon termination of their employment
or services.
3. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation and until all preferential amounts owed to them under this Section
3(a) have been paid, the holders of the Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred, Series E Preferred and Series F
Preferred shall be entitled to receive, prior and in preference to any
distribution of any asset or property of the Corporation to the holders of
2
<PAGE>
Common Stock by reason of their ownership thereof, the amount of $0.3401 per
share for each share of Series A Preferred, $1.2945 per share for each share of
Series B Preferred, $1.9418 for each share of Series C Preferred, $2.407 for
each share of Series D Preferred, $2.50 for each share of Series E Preferred and
$3.50 for each share of Series F Preferred then held by them, plus an amount
equal to all declared but unpaid dividends on the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred, respectively, as of the liquidation date (each as adjusted for
stock splits, combinations and similar events with respect to the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred or Series F Preferred).
(b) After the payment of the full liquidation preference of the Series
A, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred and Series F Preferred as set forth in Section 3(a) above, the
remaining assets of the Corporation, if any, shall be distributed ratably among
the holders of Common Stock and Series C Preferred in proportion to the number
of shares held by them, assuming the conversion of the Series C Preferred into
Common Stock at the then applicable Series C Conversion Rate as set forth in
Section 4 below. If, upon any liquidation, distribution, or winding up of the
Corporation, the assets of the Corporation shall be insufficient to make payment
in full of such amounts to all holders of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred, then such assets shall be distributed among such holders ratably in
proportion to the full amounts to which they would otherwise be entitled.
(c) The following events shall be considered a liquidation under
Section 3(a) above:
(i) any consolidation or merger of the Corporation with or into
any other corporation or other entity or person, or any other corporate
reorganization in which the Corporation shall not be the continuing or surviving
entity of such consolidation, merger or reorganization or any transaction or
series of related transactions by the Corporation in which in excess of 50% of
the Corporation's voting power is transferred; or
(ii) a sale, lease, license or other disposition of all or
substantially all of the assets of the Corporation.
(d) FAIR MARKET VALUE. Any securities to be distributed pursuant to
this Section 3 shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
(1) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) days prior to the closing;
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(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever are
applicable) over the 30-day period ending three (3) days prior to the closing;
and
(3) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and a
majority-in-interest of the holders which would have been entitled to receive
such securities or the same type of securities.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in subparagraphs
3(d)(i)(1), (2) or (3) to reflect the approximate fair market value thereof, as
mutually determined by the Corporation and a majority-in-interest of the holders
which would be entitled to receive such securities or the same type of
securities.
4. CONVERSION. The holders of the Series Preferred shall have conversion
rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series Preferred shall be
convertible at the option of the holder thereof, at any time after the original
issue date, at the office of the Corporation or any transfer agent for the
Series Preferred. The number of shares of Common Stock to which a holder of
Series Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the applicable "Conversion Rate" then in effect (determined as
provided in Section 4(b) below) by the number of shares of Series Preferred
being converted by such holder.
(b) CONVERSION RATE. The conversion rate in effect at any time for
conversion of shares of Series A Preferred (the "Series A Conversion Rate")
shall be the quotient obtained by dividing $0.25222, plus any declared and
unpaid dividends, by the "Series A Conversion Price," calculated as provided in
Section 4(c) below. The conversion rate in effect at any time for conversion of
shares of Series B Preferred (the "Series B Conversion Rate") shall be the
quotient obtained by dividing $1.2945, plus any declared and unpaid dividends,
by the "Series B Conversion Price," calculated as provided in Section 4(c)
below. The conversion rate in effect at any time for conversion of shares of
Series C Preferred (the "Series C Conversion Rate") shall be the quotient
obtained by dividing $1.2945, plus any declared and unpaid dividends, by the
"Series C Conversion Price," calculated as provided in Section 4(c) below. The
conversion rate in effect at any time for conversion of shares of Series D
Preferred (the "Series D Conversion Rate") shall be the quotient obtained by
dividing $2.407, plus any declared and unpaid dividends, by the "Series D
Conversion Price," calculated as provided in Section 4(c) below. The conversion
rate in effect at any time for conversion of shares of Series E Preferred (the
"Series E Conversion Rate") shall be the quotient obtained by dividing $2.50,
plus any declared and unpaid dividends, by the "Series E Conversion Price,"
calculated as provided in Section 4(c) below. The conversion rate in effect at
any time for conversion of shares of Series F Preferred (the "Series F
Conversion Rate") shall be the quotient obtained by dividing $3.50,
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<PAGE>
plus any declared and unpaid dividends by the "Series F Conversion Price,"
calculated as provided in Section 4(c) below.
(c) CONVERSION PRICE. The conversion price for the Series A Preferred
(the "Series A Conversion Price") shall initially be $0.3401. The conversion
price for the Series B Preferred (the "Series B Conversion Price") shall
initially be $1.2945. The conversion price for the Series C Preferred (the
"Series C Conversion Price") shall initially be $1.2945. The conversion price
for the Series D Preferred (the "Series D Conversion Price") shall initially be
$2.407. The conversion price for the Series E Preferred (the "Series E
Conversion Price") shall initially be $2.50. The conversion price for the
Series F Preferred (the "Series F Preferred") shall initially be $3.50. The
initial Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price, Series D Conversion Price, Series E Conversion Price and
Series F Conversion Price shall each be adjusted from time to time in accordance
with this Section 4. All references herein to the Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price, Series D Conversion Price,
Series E Conversion Price or Series F Conversion Price shall mean the conversion
price as so adjusted.
(d) AUTOMATIC CONVERSION. Each share of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred or Series
F Preferred Stock shall automatically be converted into share(s) of Common Stock
based on the then effective Series A Conversion Rate, Series B Conversion Rate,
Series C Conversion Rate, Series D Conversion Rate, Series E Conversion Rate or
Series F Conversion Rate, respectively, immediately upon the closing of a firm
commitment underwritten offer and sale of Common Stock for the account of the
Corporation pursuant to an effective registration statement under the Securities
Act of 1933, as amended, at a public offering price per share not less than
$2.50 (as appropriately adjusted for stock splits and the like) and with
aggregate gross proceeds to the Corporation, after deduction of underwriters'
commissions and expenses, exceeding Seven Million Five Hundred Thousand Dollars
($7,500,000).
(e) MECHANICS OF CONVERSION. Before any holder of Series Preferred
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Series Preferred, and shall
give written notice to the Corporation at such office that he elects to convert
the same, and shall state therein the name or names which he wishes the
certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to each such holder of Series Preferred, as applicable, or to his nominee
or nominees, any certificate or certificates for the number of shares of Common
Stock to which he shall be entitled. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of the Series Preferred to be converted, and the person
or persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date. No fractional shares of Common Stock
shall be issued upon conversion of Series Preferred. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation
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<PAGE>
shall pay cash equal to such fraction multiplied by the then effective
conversion price for such series of Series Preferred.
(f) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this subsection 4(f),
the following definitions apply:
(A) "OPTIONS" shall mean rights, options, or warrants to
subscribe for, purchase or otherwise acquire either Additional Shares of Common
Stock or Convertible Securities, each as hereinafter defined.
(B) "ORIGINAL ISSUE DATE" shall mean the date on which a
share of Series B Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Additional Shares of Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to subsection 4(f)(ii), deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(1) upon conversion of shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred
or Series F Preferred;
(2) to officers, directors or employees of or
consultants, lessors or suppliers to the Corporation pursuant to any stock
purchase plan or arrangement, stock option plan, or other stock incentive plan
or agreement approved by the Board of Directors not to exceed 4,920,000 shares
(plus any shares repurchased by the Corporation after the Original Issue Date
from any officer, director or employee of or consultant to the Corporation
pursuant to any of the plans or arrangements referred to in this clause (2));
(3) by way of dividend or other distribution on the
Series Preferred or any event for which adjustment is made pursuant to Section
4(g) hereof; or
(4) by way of dividend or other distribution on shares
excluded from the definition of Additional Shares of Common Stock by the
forgoing clauses (1), (2), (3) or this clause (4).
(II) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders
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<PAGE>
of any class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefore, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to subsection 4(f)(iv) hereof) of such Additional Shares of
Common Stock would be less than the applicable Series A Conversion Price, Series
B Conversion Price, Series C Conversion Price, Series D Conversion Price, Series
E Conversion Price or Series F Conversion Price, respectively, in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be, and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(A) no further adjustments in the respective Conversion Prices
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation or in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
respective Conversion Prices computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of the
respective Conversion Prices shall affect Common Stock previously issued upon
conversion of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series E Preferred or Series F Preferred);
(C) Upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the respective Conversion Prices computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall upon such expiration, be
recomputed as if:
(1) in the case of Convertible Securities or Options for
Common Stock, the only Additional Shares of Common Stock issued were the shares
of Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged,
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<PAGE>
plus the additional consideration, if any, actually received by the Corporation
upon such conversion or exchange, and
(2) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued upon the exercise thereof
were issued at the time of issue of such Options and the consideration received
by the Corporation for the Additional Shares of Common Stock deemed to have been
then issued was the consideration actually received by the Corporation for the
issue of all such Options, whether or not exercised, plus the consideration
deemed to have been received by the Corporation (determined pursuant to
subsection 4(f)(iv)) upon the issue of the Convertible Securities with respect
to which such Options were actually exercised;
(D) no readjustment pursuant to clauses (B) or (C) above shall
have the effect of increasing the respective Conversion Prices to an amount
which exceeds the lower of (1) such Conversion Price on the original adjustment
date, or (2) such Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date;
(E) in the case of any Options which expire by their terms not
more than 30 days after the date of issue thereof, no adjustment of the
respective Conversion Prices shall be made (except as to shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred or Series F Preferred converted in such period), until the expiration
or exercise of all such Options, whereupon such adjustment shall be made in the
same manner provided in clause (C) above; and
(F) if any such record date shall have been fixed and such Options
or Convertible Securities are not issued on the date fixed thereof, the
adjustment previously made in the respective Conversion Prices which became
effective on such record date shall be canceled as of the close of business on
such record date, and shall instead be made on the actual date of issuance, if
any.
(iii) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES
OF COMMON STOCK. In the event the Corporation shall issue Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to subsection 4(f)(ii) hereof) without consideration or for a
consideration per share less than the respective Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price, Series D Conversion Price,
Series E Conversion Price or Series F Conversion Price in effect on the date of
and immediately prior to such issue, then in such event, such Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D
Conversion Price, Series E Conversion Price or Series F Conversion Price, as
applicable, shall be reduced concurrently with such issue in order to increase
the number of shares of Common Stock into which the applicable series of Series
Preferred is convertible to a price (calculated to the nearest hundredth of a
cent) determined by the following formula:
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<PAGE>
C
--
CP = CP x CS + CP
-------
CS + AS
-------
where:
<TABLE>
<S> <C>
CP = the respective Conversion Price in effect on the date of and
immediately prior to such issue.
CP = the Conversion Price as so adjusted.
CS = the number of shares of Common Stock outstanding immediately
prior to such issue, including shares issuable upon (i)
conversion of all outstanding Preferred Stock, (ii) exercise of
all outstanding options and warrants to purchase Common Stock,
(iii) exercise and conversion of all outstanding options or
warrants to purchase Preferred Stock, and (iv) immediately after
any Additional Shares of Common Stock are deemed issued pursuant
to Section 4(f)(ii) hereof, such additional shares of Common
Stock.
C = the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common Stock so issued, and
AS = the number of Additional Shares of Common Stock so issued.
</TABLE>
Notwithstanding the foregoing, the Conversion Price shall not be so reduced at
such time if the amount of such reduction would be an amount less than one
hundredth of a cent ($0.0001), but any such amount shall be carried forward and
deduction with respect thereof made at the time of and together with any
subsequent reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate one hundredth of a cent ($0.0001) or
more.
(iv) DETERMINATION OF CONSIDERATION. For purposes of this
subsection 4(f), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(1) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
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<PAGE>
(3) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to subsection 4(f)(ii) relating to Options and
Convertible Securities shall be determined by dividing:
(1) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(2) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(g) ADJUSTMENT OF CONVERSION PRICE FOR DIVIDENDS, DISTRIBUTIONS,
COMBINATIONS OR CONSOLIDATIONS.
(i) STOCK DIVIDENDS, DISTRIBUTIONS OR SUBDIVISIONS. In the
event the Corporation shall, at any time or from time to time after the date on
which shares of a given series of Series Preferred were first issued, issue
Common Stock in a stock dividend, stock distribution or subdivision, the
Conversion Price in effect for such series immediately prior to such stock
dividend, stock distribution or subdivision shall, concurrently with the
effectiveness of such stock dividend, stock distribution or subdivision, be
proportionately decreased.
(ii) COMBINATIONS OR CONSOLIDATIONS. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, at any time or from time to time after the date
on which shares of a given series of Series Preferred were first issued into a
lesser number of shares of Common Stock, the Conversion Price in effect for such
series immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(iii) OTHER DIVIDENDS OR DISTRIBUTIONS. If the Corporation at
any time or from time to time after the date on which shares of a given series
of Series Preferred were first issued makes, or fixes a record date for the
determination of holders of Common Stock
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<PAGE>
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then in each such event
provision shall be made so that the holders of such series of Series Preferred
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of other securities of the
Corporation which they would have received had their series of Series Preferred
been converted into Common Stock on the date of such event and had they
thereafter retained such securities through and including the conversion date,
subject to all other adjustments called for during such period under this
Section 4.
(iv) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time after the date on which shares
of a given series of Series Preferred were first issued, the Common Stock
issuable upon the conversion of such series of the Series Preferred is changed
into the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section 4
or in Section 3), in any such event each holder of such series of Series
Preferred shall have the right thereafter to convert such stock into the kind
and amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of Series Preferred
could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
(v) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time after the date on which shares of a
given series of Series Preferred were first issued, there is a capital
reorganization of the Common Stock (other than a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4 or in Section 3), as a part of such capital
reorganization, provision shall be made so that the holders of such series of
the Series Preferred shall thereafter be entitled to receive upon conversion of
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred, Series E Preferred or Series F Preferred, as applicable, the number
of shares of stock or other securities or property of the Corporation to which a
holder of the number of shares of Common Stock deliverable upon conversion would
have been entitled on such capital reorganization, subject to adjustment in
respect of such stock or securities by the terms thereof. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of Series Preferred
after the capital reorganization to the end that the provisions of this Section
4 (including adjustment of the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price, Series E Conversion
Price and Series F Conversion Price, respectively, then in effect and the number
of shares issuable upon conversion of the Series Preferred) shall be applicable
after that event and be as nearly equivalent as practicable.
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<PAGE>
(h) NO IMPAIRMENT. Without the consent of a majority of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred or Series F Preferred, the Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but it will
at all times in good faith assist in the carrying out of all of the provisions
of this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
Series E Preferred and Series F Preferred, respectively, against impairment.
(i) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price, Series E Conversion
Price or Series F Conversion Price pursuant to this Section 4, the Corporation,
at its expense, shall promptly compute such adjustment or readjustment and
furnish to each holder of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred or Series F Preferred, as
appropriate, a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
Series E Preferred or Series F Preferred, furnish or cause to be furnished to
each holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the applicable Conversion Price in effect at the time, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of shares of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
Series E Preferred or Series F Preferred.
(j) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of the record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each respective holder of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred, Series E Preferred or Series F
Preferred, at least twenty (20) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
(k) RESERVATION OF STOCK. The Corporation shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock
solely for the purpose of effecting the respective conversion of the shares of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
Series E Preferred or Series F Preferred, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the respective
conversion of all outstanding shares of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred, Series E Preferred or Series F
Preferred; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all the then
outstanding shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred or Series F Preferred, the
Corporation will
12
<PAGE>
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(l) NOTICES. Any notice required by the provisions of this Section 4 to
be given to the holders of shares of Series Preferred shall be deemed given upon
receipt. Notice may be deposited in the United States certified or registered
mail, first class postage prepaid, or by personal (courier) delivery and
addressed to each holder of record at his address appearing on the books of the
Corporation.
5. VOTING RIGHTS. Except as otherwise provided herein or as required by
law, the Series Preferred shall be voted with the shares of the Common Stock of
the Corporation and not as a separate class, at any annual or special meeting of
shareholders of the Corporation, and may act by written consent in the same
manner as the Common Stock, in either case upon the following basis: each holder
of shares of Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred, Series E Preferred or Series F Preferred, shall be entitled to such
number of votes as shall be equal to the whole number of shares of Common Stock
into which such holder's aggregate number of shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred
or Series F Preferred are convertible (pursuant to Section 4 hereof) immediately
after the close of business on the record date fixed for such meeting or the
effective date of such written consent.
6. RESTRICTIVE COVENANTS. In addition to any other rights provided by
law;
(a) So long as at least 1,000,000 shares of Series B Preferred or
Series C Preferred remain outstanding, the Corporation shall not, without
obtaining the vote or written consent of the holders of a majority of the
outstanding shares of the Series B Preferred and Series C Preferred (voting
together as a single class):
(i) Amend or repeal any provision of the Articles of Incorporation
or the Bylaws of the Corporation so as to affect adversely the rights, powers,
preferences, or other special rights or privileges of the Series B Preferred or
Series C Preferred;
(ii) Authorize or issue shares of any class or series of equity
securities of the Corporation having any preference or priority as to dividends
or assets superior to any such preference or priority of the Series B Preferred
or Series C Preferred; or
(iii) Increase the authorized number of shares of the Series B
Preferred or Series C Preferred; and
(b) So long as at least 1,000,000 shares of the Series A Preferred,
Series B Preferred and Series C Preferred remain outstanding, the Corporation
will not, without obtaining the vote or written consent of the holders of at
least a majority of the outstanding Series A Preferred, Series B Preferred and
Series C Preferred (voting together as a single class):
13
<PAGE>
(i) Authorize or issue shares of any class or series of equity
securities of the Corporation having any preference or priority as to dividends
or assets superior to or on a parity with any such preference or priority of the
Series A Preferred, Series B Preferred and Series C Preferred;
(ii) Pay or declare a dividend on, or repurchase or redeem, any
Common Stock (except for repurchases of Common Stock by the Corporation pursuant
to agreements which permit the Corporation to repurchase such shares upon
termination of employment or in exercise of the Corporation's right of first
refusal upon a proposed transfer);
(iii) Sell, lease or otherwise dispose of all or substantially all
of the assets, property or business of the Corporation, or merge or consolidate
the Corporation with any person, or permit any other person to merge into it, or
undertake any other reorganization, other than mergers, consolidations or
reorganizations in which the Corporation is the surviving corporation and, after
giving effect to the merger, consolidation, or reorganization, the holders of
the Corporation's outstanding capital stock immediately preceding such merger
own more than fifty percent (50%) of the outstanding capital stock of the
surviving corporation; or
(iv) Take action which results in the taxation of the holders of
shares of Series Preferred under Section 305 of the United States Internal
Revenue Code.
7. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of the
Corporation not expressly provided for to the contrary herein shall be vested in
the Common Stock.
ARTICLE IV
The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
This Corporation is also authorized, to the fullest extent permissible under
California law, to indemnify it agents (as defined in Section 317 of the
California Corporations Code), whether by bylaw, agreement or otherwise, for
breach of duty to this Corporation and its shareholders in excess of that
expressly permitted by Section 317 and to advance defense expenses to its agents
in connection with such matters as they are incurred, subject to the limits on
such excess indemnification set forth in Section 204 of the California
Corporations Code. If, after the effective date of this Article, California law
is amended in a manner which permits a corporation to limit the monetary or
other liability of its directors or to authorize indemnification of, or
advancement of such defense expenses to, its directors or other persons, in any
such case to a greater extent than is permitted on such effective date, the
references in this Article to "California law" shall to that extent be deemed to
refer to California law as so amended."
3. The foregoing amendment and restatement of the Articles of Incorporation of
the Corporation has been duly approved by the Board of Directors of the
Corporation.
4. The foregoing amendment and restatement of the Articles of Incorporation of
the Corporation has been duly approved by the required vote of the shareholders
of the Corporation
14
<PAGE>
in accordance with Sections 902 and 903 of the California Corporations Code.
The total number of outstanding shares of the Corporation entitled to vote is
4,496,557 shares of Common Stock, 3,087,666 shares of Series A Preferred Stock,
3,167,250 shares of Series B Preferred Stock, 9,553,274 shares of Series C
Preferred Stock, 1,454,092 shares of Series D Preferred Stock and 4,000,000
Series E Preferred Stock. The number of shares voting in favor of the amendment
and restatement equalled or exceeded the vote required. The percentage vote
required was more than fifty percent (50%) of the outstanding Common Stock, more
than fifty percent (50%) of the outstanding Series B Preferred Stock and Series
C Preferred Stock, more than fifty percent (50%) of the outstanding Series A
Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock voting
together as a single class, more than fifty percent (50%) of the outstanding
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, voting together as a
single class and more than fifty percent (50%) of the outstanding Common Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock voting together as a
single class.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
Executed this 12th day of May, 1997 at Burlingame, California.
/s/ Benjamin F. McGraw, III
------------------------------
Benjamin F. McGraw, III
President
/s/ Alan C. Mendelson
------------------------------
Alan C. Mendelson
Secretary
15
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF CORRECTION
OF
FIFTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MEGABIOS CORP.
Benjamin F. McGraw III and Alan C. Mendelson certify that:
1. They are the President and Secretary, respectively, of MEGABIOS Corp., a
California corporation.
2. The name of the corporation filing this certificate is MEGABIOS Corp. and
it is a California corporation.
3. The instrument being corrected is entitled "FIFTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF MEGABIOS CORP." and said instrument was filed in
the office of the Secretary of State of the State of California on May 12, 1997.
4. Article III of said FIFTH AMENDED AND RESTATED ARTICLES OF INCORPORATION,
as corrected, should read in its entirety as follows:
ARTICLE III
This Corporation is authorized to issue two classes of shares, which shall
respectively be designated as "Preferred Stock" and "Common Stock." The total
number of shares of Common Stock the Corporation is authorized to issue is Forty
Five Million (45,000,000), and the total number of shares of Preferred Stock the
Corporation is authorized to issue is Thirty Four Million (34,000,000).
The shares of Preferred Stock authorized by these Articles of Incorporation
may be issued from time to time in one or more series. Subject to the
provisions of Section 6 of Article III, the Board of Directors is authorized to
determine or alter any or all of the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock, and to fix, alter, or reduce the number of shares comprising any such
series (but not below the number of such shares then outstanding) and the
designation thereof, or any of them, and to provide for rights and terms of
redemption or conversion of the shares of any such series.
1.
<PAGE>
1. TITLE OF SERIES AND NUMBER OF SHARES. The initial series of Preferred
Stock shall be designated "Series A Preferred Stock" (the "Series A Preferred")
and shall consist of Three Million Eighty-Seven Thousand Six Hundred and Sixty-
Six (3,087,666) shares. The second series of Preferred Stock shall be
designated "Series B Preferred Stock" (the "Series B Preferred") and shall
consist of Three Million Two Hundred Sixty-Seven Thousand Two Hundred and Fifty
(3,267,250) shares. The third series of Preferred Stock shall be designated
"Series C Preferred Stock" (the "Series C Preferred") and shall consist of
Eleven Million One Hundred Thousand (11,100,000) shares. The fourth series of
Preferred Stock shall be designated "Series D Preferred Stock" (the "Series D
Preferred") and shall consist of Seven Million Five Hundred Forty-Five Thousand
Eighty-Four (7,545,084) shares. The fifth series of Preferred Stock shall be
designated "Series E Preferred Stock" (the "Series E Preferred") and shall
consist of Four Million (4,000,000) shares. The sixth series of Preferred Stock
shall be designated "Series F Preferred Stock" (the "Series F Preferred") and
shall consist of Four Million (4,000,000) shares. As used herein, the term
"Series Preferred" shall refer collectively to the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred.
2. DIVIDENDS. The holders of outstanding Series Preferred shall be
entitled to receive in any fiscal year, when and as declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
in cash at an annual rate of $0.0204 per share of Series A Preferred and $0.0777
per share of Series B, Series C, Series D, Series E and Series F Preferred,
respectively. Such dividends may be payable quarterly or otherwise as the Board
of Directors may from time to time determine. The right to such dividends shall
not be cumulative and no right shall accrue to holders of Series Preferred by
reason of the fact that dividends on such shares were not declared in any prior
year, nor shall any undeclared or unpaid dividends bear or accrue interest.
Dividends other than dividends payable solely in Common Stock may be declared or
paid upon shares of Common Stock in any fiscal year of the Corporation only if
dividends at the annual rates set forth above shall have been paid or declared
and set apart upon all shares of Series Preferred for such fiscal year. No
dividend shall be declared or paid with respect to the Common Stock unless at
the same time an equivalent dividend is declared or paid with respect to the
Series Preferred, assuming the conversion of each of the series of the Series
Preferred into Common Stock at the then applicable Conversion Rate for each
series, as set forth in Section 4 below. The holders of the Preferred Stock
expressly waive their rights, if any, as described in California Corporations
Code Sections 502, 503 and 506 as they relate to the repurchase of shares of
Common Stock issued to or held by employees or directors of or consultants to
the Corporation or any of its subsidiaries upon termination of their employment
or services.
2.
<PAGE>
3. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation and until all preferential amounts owed to them under this Section
3(a) have been paid, the holders of the Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred, Series E Preferred and Series F
Preferred shall be entitled to receive, prior and in preference to any
distribution of any asset or property of the Corporation to the holders of
Common Stock by reason of their ownership thereof, the amount of $0.3401 per
share for each share of Series A Preferred, $1.2945 per share for each share of
Series B Preferred, $1.9418 for each share of Series C Preferred, $2.407 for
each share of Series D Preferred, $2.50 for each share of Series E Preferred and
$3.50 for each share of Series F Preferred then held by them, plus an amount
equal to all declared but unpaid dividends on the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred, respectively, as of the liquidation date (each as adjusted for
stock splits, combinations and similar events with respect to the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred or Series F Preferred).
(b) After the payment of the full liquidation preference of the
Series A, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred and Series F Preferred as set forth in Section 3(a) above, the
remaining assets of the Corporation, if any, shall be distributed ratably among
the holders of Common Stock and Series C Preferred in proportion to the number
of shares held by them, assuming the conversion of the Series C Preferred into
Common Stock at the then applicable Series C Conversion Rate as set forth in
Section 4 below. If, upon any liquidation, distribution, or winding up of the
Corporation, the assets of the Corporation shall be insufficient to make payment
in full of such amounts to all holders of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred, then such assets shall be distributed among such holders ratably in
proportion to the full amounts to which they would otherwise be entitled.
(c) The following events shall be considered a liquidation under
Section 3(a) above:
(i) any consolidation or merger of the Corporation with or into
any other corporation or other entity or person, or any other corporate
reorganization in which the Corporation shall not be the continuing or surviving
entity of such consolidation, merger or reorganization or any transaction or
series of related transactions by the Corporation in which in excess of 50% of
the Corporation's voting power is transferred; or
(ii) a sale, lease, license or other disposition of all or
substantially all of the assets of the Corporation.
(d) FAIR MARKET VALUE. Any securities to be distributed pursuant to
this Section 3 shall be valued as follows:
3.
<PAGE>
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
(1) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever are
applicable) over the 30-day period ending three (3) days prior to the closing;
and
(3) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and a
majority-in-interest of the holders which would have been entitled to receive
such securities or the same type of securities.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in subparagraphs
3(d)(i)(1), (2) or (3) to reflect the approximate fair market value thereof, as
mutually determined by the Corporation and a majority-in-interest of the holders
which would be entitled to receive such securities or the same type of
securities.
4. CONVERSION. The holders of the Series Preferred shall have conversion
rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series Preferred shall be
convertible at the option of the holder thereof, at any time after the original
issue date, at the office of the Corporation or any transfer agent for the
Series Preferred. The number of shares of Common Stock to which a holder of
Series Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the applicable "Conversion Rate" then in effect (determined as
provided in Section 4(b) below) by the number of shares of Series Preferred
being converted by such holder.
(b) CONVERSION RATE. The conversion rate in effect at any time for
conversion of shares of Series A Preferred (the "Series A Conversion Rate")
shall be the quotient obtained by dividing $0.25222, plus any declared and
unpaid dividends, by the "Series A Conversion Price," calculated as provided in
Section 4(c) below. The conversion rate in effect at any time for conversion of
shares of Series B Preferred (the "Series B Conversion Rate") shall be the
quotient obtained by dividing $1.2945, plus any declared and unpaid dividends,
by the "Series B Conversion Price," calculated as provided in Section 4(c)
below. The conversion rate in effect at any time for conversion of shares of
Series C Preferred (the "Series C Conversion Rate") shall be the quotient
obtained by dividing $1.2945, plus any declared and unpaid dividends, by the
"Series C Conversion Price," calculated as provided in Section 4(c) below. The
conversion
4.
<PAGE>
rate in effect at any time for conversion of shares of Series D Preferred (the
"Series D Conversion Rate") shall be the quotient obtained by dividing $2.407,
plus any declared and unpaid dividends, by the "Series D Conversion Price,"
calculated as provided in Section 4(c) below. The conversion rate in effect at
any time for conversion of shares of Series E Preferred (the "Series E
Conversion Rate") shall be the quotient obtained by dividing $2.50, plus any
declared and unpaid dividends, by the "Series E Conversion Price," calculated as
provided in Section 4(c) below. The conversion rate in effect at any time for
conversion of shares of Series F Preferred (the "Series F Conversion Rate")
shall be the quotient obtained by dividing $3.50, plus any declared and unpaid
dividends by the "Series F Conversion Price," calculated as provided in Section
4(c) below.
(c) CONVERSION PRICE. The conversion price for the Series A Preferred
(the "Series A Conversion Price") shall initially be $0.3401. The conversion
price for the Series B Preferred (the "Series B Conversion Price") shall
initially be $1.2945. The conversion price for the Series C Preferred (the
"Series C Conversion Price") shall initially be $1.2945. The conversion price
for the Series D Preferred (the "Series D Conversion Price") shall initially be
$2.407. The conversion price for the Series E Preferred (the "Series E
Conversion Price") shall initially be $2.50. The conversion price for the Series
F Preferred (the "Series F Preferred") shall initially be $3.50. The initial
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price,
Series D Conversion Price, Series E Conversion Price and Series F Conversion
Price shall each be adjusted from time to time in accordance with this Section
4. All references herein to the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price, Series E Conversion
Price or Series F Conversion Price shall mean the conversion price as so
adjusted.
(d) AUTOMATIC CONVERSION. Each share of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred or Series
F Preferred Stock shall automatically be converted into share(s) of Common Stock
based on the then effective Series A Conversion Rate, Series B Conversion Rate,
Series C Conversion Rate, Series D Conversion Rate, Series E Conversion Rate or
Series F Conversion Rate, respectively, immediately upon the closing of a firm
commitment underwritten offer and sale of Common Stock for the account of the
Corporation pursuant to an effective registration statement under the Securities
Act of 1933, as amended, at a public offering price per share not less than
$2.50 (as appropriately adjusted for stock splits and the like) and with
aggregate gross proceeds to the Corporation, after deduction of underwriters'
commissions and expenses, exceeding Seven Million Five Hundred Thousand Dollars
($7,500,000).
(e) MECHANICS OF CONVERSION. Before any holder of Series Preferred
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Series Preferred, and shall
give written notice to the Corporation at such office that he elects to convert
the same, and shall state therein the name or names which he wishes the
certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to each such holder of
5.
<PAGE>
Series Preferred, as applicable, or to his nominee or nominees, any certificate
or certificates for the number of shares of Common Stock to which he shall be
entitled. Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the shares of the Series
Preferred to be converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date. No fractional shares of Common Stock shall be issued upon conversion of
Series Preferred. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the then effective conversion price for such series of Series
Preferred.
(f) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this subsection 4(f),
the following definitions apply:
(A) "OPTIONS" shall mean rights, options, or warrants to
subscribe for, purchase or otherwise acquire either Additional Shares of Common
Stock or Convertible Securities, each as hereinafter defined.
(B) "ORIGINAL ISSUE DATE" shall mean the date on which a
share of Series B Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Additional Shares of Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to subsection 4(f)(ii), deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(1) upon conversion of shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred
or Series F Preferred;
(2) to officers, directors or employees of or
consultants, lessors or suppliers to the Corporation pursuant to any stock
purchase plan or arrangement, stock option plan, or other stock incentive plan
or agreement approved by the Board of Directors not to exceed 4,920,000 shares
(plus any shares repurchased by the Corporation after the Original Issue Date
from any officer, director or employee of or consultant to the Corporation
pursuant to any of the plans or arrangements referred to in this clause (2));
6.
<PAGE>
(3) by way of dividend or other distribution on the
Series Preferred or any event for which adjustment is made pursuant to Section
4(g) hereof; or
(4) by way of dividend or other distribution on shares
excluded from the definition of Additional Shares of Common Stock by the
forgoing clauses (1), (2), (3) or this clause (4).
(ii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities then entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefore, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to subsection 4(f)(iv) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price,
Series D Conversion Price, Series E Conversion Price or Series F Conversion
Price, respectively, in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and provided further that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustments in the respective Conversion
Prices shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation or in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the respective Conversion Prices computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of the
respective Conversion Prices shall affect Common Stock previously issued upon
conversion of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series E Preferred or Series F Preferred);
(C) Upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the respective Conversion Prices computed upon the original
issue thereof (or upon the
7.
<PAGE>
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall upon such expiration, be recomputed as if:
(1) in the case of Convertible Securities or Options
for Common Stock, the only Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(2) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options and the consideration
received by the Corporation for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually received by the Corporation
for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Corporation (determined
pursuant to subsection 4(f)(iv)) upon the issue of the Convertible Securities
with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clauses (B) or (C) above
shall have the effect of increasing the respective Conversion Prices to an
amount which exceeds the lower of (1) such Conversion Price on the original
adjustment date, or (2) such Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date;
(E) in the case of any Options which expire by their terms
not more than 30 days after the date of issue thereof, no adjustment of the
respective Conversion Prices shall be made (except as to shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred or Series F Preferred converted in such period), until the expiration
or exercise of all such Options, whereupon such adjustment shall be made in the
same manner provided in clause (C) above; and
(F) if any such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date fixed thereof, the
adjustment previously made in the respective Conversion Prices which became
effective on such record date shall be canceled as of the close of business on
such record date, and shall instead be made on the actual date of issuance, if
any.
(iii) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. In the event the Corporation shall issue Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant
8.
<PAGE>
to subsection 4(f)(ii) hereof) without consideration or for a consideration per
share less than the respective Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price, Series E Conversion
Price or Series F Conversion Price in effect on the date of and immediately
prior to such issue, then in such event, such Series A Conversion Price, Series
B Conversion Price, Series C Conversion Price, Series D Conversion Price, Series
E Conversion Price or Series F Conversion Price, as applicable, shall be reduced
concurrently with such issue in order to increase the number of shares of Common
Stock into which the applicable series of Series Preferred is convertible to a
price (calculated to the nearest hundredth of a cent) determined by the
following formula:
C
---
CP' = CP x CS + CP
-------
CS + AS
where:
CP = the respective Conversion Price in effect on the date of and
immediately prior to such issue,
CP' = the Conversion Price as so adjusted,
CS = the number of shares of Common Stock outstanding immediately
prior to such issue, including shares issuable upon (i)
conversion of all outstanding Preferred Stock, (ii) exercise of
all outstanding options and warrants to purchase Common Stock,
(iii) exercise and conversion of all outstanding options or
warrants to purchase Preferred Stock, and (iv) immediately after
any Additional Shares of Common Stock are deemed issued pursuant
to Section 4(f)(ii) hereof, such additional shares of Common
Stock.
C = the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common Stock so issued, and
AS = the number of Additional Shares of Common Stock so issued.
Notwithstanding the foregoing, the Conversion Price shall not be so reduced at
such time if the amount of such reduction would be an amount less than one
hundredth of a cent ($0.0001), but any such amount shall be carried forward and
deduction with respect thereof made at the time of and together with any
subsequent reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate one hundredth of a cent ($0.0001) or
more.
(iv) DETERMINATION OF CONSIDERATION. For purposes of this
subsection 4(f), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
9.
<PAGE>
(A) CASH AND PROPERTY: Such consideration shall:
(1) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(3) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to subsection 4(f)(ii) relating to Options
and Convertible Securities shall be determined by dividing:
(1) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(2) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(g) ADJUSTMENT OF CONVERSION PRICE FOR DIVIDENDS, DISTRIBUTIONS,
COMBINATIONS OR CONSOLIDATIONS.
(i) STOCK DIVIDENDS, DISTRIBUTIONS OR SUBDIVISIONS. In the
event the Corporation shall, at any time or from time to time after the date on
which shares of a given series of Series Preferred were first issued, issue
Common Stock in a stock dividend, stock distribution or subdivision, the
Conversion Price in effect for such series immediately prior to such stock
dividend, stock distribution or subdivision shall, concurrently with the
effectiveness of such stock dividend, stock distribution or subdivision, be
proportionately decreased.
10.
<PAGE>
(ii) COMBINATIONS OR CONSOLIDATIONS. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, at any time or from time to time after the date
on which shares of a given series of Series Preferred were first issued into a
lesser number of shares of Common Stock, the Conversion Price in effect for such
series immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(iii) OTHER DIVIDENDS OR DISTRIBUTIONS. If the Corporation at
any time or from time to time after the date on which shares of a given series
of Series Preferred were first issued makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then in each such event provision shall be made so that the
holders of such series of Series Preferred shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of other securities of the Corporation which they would
have received had their series of Series Preferred been converted into Common
Stock on the date of such event and had they thereafter retained such securities
through and including the conversion date, subject to all other adjustments
called for during such period under this Section 4.
(iv) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time after the date on which shares
of a given series of Series Preferred were first issued, the Common Stock
issuable upon the conversion of such series of the Series Preferred is changed
into the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section 4
or in Section 3), in any such event each holder of such series of Series
Preferred shall have the right thereafter to convert such stock into the kind
and amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of Series Preferred
could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
(v) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time after the date on which shares of a
given series of Series Preferred were first issued, there is a capital
reorganization of the Common Stock (other than a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4 or in Section 3), as a part of such capital
reorganization, provision shall be made so that the holders of such series of
the Series Preferred shall thereafter be entitled to receive upon conversion of
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred, Series E Preferred or Series F Preferred, as applicable, the number
of shares of stock or other securities or property of the Corporation to
11.
<PAGE>
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, subject to
adjustment in respect of such stock or securities by the terms thereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of Series
Preferred after the capital reorganization to the end that the provisions of
this Section 4 (including adjustment of the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price, Series E
Conversion Price and Series F Conversion Price, respectively, then in effect and
the number of shares issuable upon conversion of the Series Preferred) shall be
applicable after that event and be as nearly equivalent as practicable.
(h) NO IMPAIRMENT. Without the consent of a majority of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred or Series F Preferred, the Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but it will
at all times in good faith assist in the carrying out of all of the provisions
of this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
Series E Preferred and Series F Preferred, respectively, against impairment.
(i) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price, Series E Conversion
Price or Series F Conversion Price pursuant to this Section 4, the Corporation,
at its expense, shall promptly compute such adjustment or readjustment and
furnish to each holder of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred or Series F Preferred, as
appropriate, a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
Series E Preferred or Series F Preferred, furnish or cause to be furnished to
each holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the applicable Conversion Price in effect at the time, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of shares of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
Series E Preferred or Series F Preferred.
(j) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of the record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each respective holder of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred, Series E Preferred or Series F
Preferred, at
12.
<PAGE>
least twenty (20) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend or distribution.
(k) RESERVATION OF STOCK. The Corporation shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock
solely for the purpose of effecting the respective conversion of the shares of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
Series E Preferred or Series F Preferred, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the respective
conversion of all outstanding shares of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred, Series E Preferred or Series F
Preferred; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all the then
outstanding shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred or Series F Preferred, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(l) NOTICES. Any notice required by the provisions of this Section 4
to be given to the holders of shares of Series Preferred shall be deemed given
upon receipt. Notice may be deposited in the United States certified or
registered mail, first class postage prepaid, or by personal (courier) delivery
and addressed to each holder of record at his address appearing on the books of
the Corporation.
5. VOTING RIGHTS. Except as otherwise provided herein or as required by
law, the Series Preferred shall be voted with the shares of the Common Stock of
the Corporation and not as a separate class, at any annual or special meeting of
shareholders of the Corporation, and may act by written consent in the same
manner as the Common Stock, in either case upon the following basis: each holder
of shares of Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred, Series E Preferred or Series F Preferred, shall be entitled to such
number of votes as shall be equal to the whole number of shares of Common Stock
into which such holder's aggregate number of shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred
or Series F Preferred are convertible (pursuant to Section 4 hereof) immediately
after the close of business on the record date fixed for such meeting or the
effective date of such written consent.
6. RESTRICTIVE COVENANTS. In addition to any other rights provided by
law;
(a) So long as at least 1,000,000 shares of Series B Preferred or
Series C Preferred remain outstanding, the Corporation shall not, without
obtaining the vote or written consent of the holders of a majority of the
outstanding shares of the Series B Preferred and Series C Preferred (voting
together as a single class):
13.
<PAGE>
(i) Amend or repeal any provision of the Articles of
Incorporation or the Bylaws of the Corporation so as to affect adversely the
rights, powers, preferences, or other special rights or privileges of the Series
B Preferred or Series C Preferred;
(ii) Authorize or issue shares of any class or series of equity
securities of the Corporation having any preference or priority as to dividends
or assets superior to any such preference or priority of the Series B Preferred
or Series C Preferred; or
(iii) Increase the authorized number of shares of the Series B
Preferred or Series C Preferred; and
(b) So long as at least 1,000,000 shares of the Series A Preferred,
Series B Preferred and Series C Preferred remain outstanding, the Corporation
will not, without obtaining the vote or written consent of the holders of at
least a majority of the outstanding Series A Preferred, Series B Preferred and
Series C Preferred (voting together as a single class):
(i) Authorize or issue shares of any class or series of equity
securities of the Corporation having any preference or priority as to dividends
or assets superior to or on a parity with any such preference or priority of the
Series A Preferred, Series B Preferred and Series C Preferred;
(ii) Pay or declare a dividend on, or repurchase or redeem, any
Common Stock (except for repurchases of Common Stock by the Corporation pursuant
to agreements which permit the Corporation to repurchase such shares upon
termination of employment or in exercise of the Corporation's right of first
refusal upon a proposed transfer);
(iii) Sell, lease or otherwise dispose of all or substantially
all of the assets, property or business of the Corporation, or merge or
consolidate the Corporation with any person, or permit any other person to merge
into it, or undertake any other reorganization, other than mergers,
consolidations or reorganizations in which the Corporation is the surviving
corporation and, after giving effect to the merger, consolidation, or
reorganization, the holders of the Corporation's outstanding capital stock
immediately preceding such merger own more than fifty percent (50%) of the
outstanding capital stock of the surviving corporation; or
(iv) Take action which results in the taxation of the holders of
shares of Series Preferred under Section 305 of the United States Internal
Revenue Code.
7. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of the
Corporation not expressly provided for to the contrary herein shall be vested in
the Common Stock.
5. Said FIFTH AMENDED AND RESTATED ARTICLES OF INCORPORATION when corrected as
herein specified, will conform in wording to the wording of the FIFTH AMENDED
14.
<PAGE>
AND RESTATED ARTICLES OF INCORPORATION in the resolutions adopted by the Board
of Directors and Shareholders approving the FIFTH AMENDED AND RESTATED ARTICLES
OF INCORPORATION.
Each of the undersigned declares under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of his own knowledge and that this declaration was executed on July
25, 1997.
/s/ Benjamin F. McGraw
----------------------------------------
Benjamin F. McGraw, III
Title: President
/s/ Alan C. Mendelson
----------------------------------------
Alan C. Mendelson
Title: Secretary
15.
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
MEGABIOS CORP.
(A CALIFORNIA CORPORATION)
ADOPTED AUGUST 4, 1993
AMENDED BY THE BOARD OF DIRECTORS ON JULY 11, 1995
APPROVED BY THE SHAREHOLDERS ON JULY 19, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE I Offices.................................................... 1
Section 1. Principal Office........................................... 1
Section 2. Other Offices.............................................. 1
ARTICLE II Corporate Seal............................................. 1
Section 3. Corporate Seal............................................. 1
ARTICLE III Shareholders' Meetings and Voting Rights................... 1
Section 4. Place of Meetings.......................................... 1
Section 5. Annual Meetings............................................ 2
Section 6. Postponement of Annual Meeting............................. 2
Section 7. Special Meetings........................................... 2
Section 8. Notice of Meetings......................................... 2
Section 9. Manner of Giving Notice.................................... 3
Section 10. Quorum and Transaction of Business......................... 4
Section 11. Adjournment and Notice of Adjourned Meetings............... 4
Section 12. Waiver of Notice, Consent to Meeting or Approval of Minutes 5
Section 13. Action by Written Consent Without a Meeting................ 5
Section 14. Voting..................................................... 6
Section 15. Persons Entitled to Vote or Consent........................ 7
Section 16. Proxies.................................................... 7
Section 17. Inspectors of Election..................................... 7
ARTICLE IV Board of Directors......................................... 8
Section 18. Powers..................................................... 8
Section 19. Number of Directors........................................ 9
Section 20. Election Of Directors, Term, Qualifications................ 9
Section 21. Resignations............................................... 9
Section 22. Removal.................................................... 9
Section 23. Vacancies.................................................. 10
Section 24. Regular Meetings........................................... 10
Section 25. Participation by Telephone................................. 10
Section 26. Special Meetings........................................... 10
Section 27. Notice of Meetings......................................... 10
Section 28. Place of Meetings.......................................... 11
Section 29. Action by Written Consent Without a Meeting................ 11
Section 30. Quorum and Transaction of Business......................... 11
Section 31. Adjournment................................................ 11
Section 32. Organization............................................... 11
Section 33. Compensation............................................... 11
Section 34. Committees................................................. 11
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE V Officers................................................... 12
Section 35. Officers................................................... 12
Section 36. Appointment................................................ 13
Section 37. Inability to Act........................................... 13
Section 38. Resignations............................................... 13
Section 39. Removal.................................................... 13
Section 40. Vacancies.................................................. 13
Section 41. Chairman of the Board...................................... 13
Section 42. President.................................................. 13
Section 43. Vice Presidents............................................ 14
Section 44. Secretary.................................................. 14
Section 45. Chief Financial Officer.................................... 15
Section 46. Compensation............................................... 15
ARTICLE VI Contracts, Loans, Bank Accounts, Checks and Drafts......... 16
Section 47. Execution of Contracts and Other Instruments............... 16
Section 48. Loans...................................................... 16
Section 49. Bank Accounts.............................................. 16
Section 50. Checks, Drafts, Etc........................................ 16
ARTICLE VII Certificates for Shares and Their Transfer................. 17
Section 51. Certificate for Shares..................................... 17
Section 52. Transfer on the Books...................................... 17
Section 53. Lost, Destroyed and Stolen Certificates.................... 17
Section 54. Issuance, Transfer and Registration of Shares.............. 18
ARTICLE VIII Inspection of Corporate Records............................ 18
Section 55. Inspection by Directors.................................... 18
Section 56. Inspection by Shareholders................................. 18
Section 57. Written Form............................................... 19
ARTICLE IX Miscellaneous.............................................. 19
Section 58. Fiscal Year................................................ 19
Section 59. Annual Report.............................................. 19
Section 60. Record Date................................................ 20
Section 61. Bylaw Amendments........................................... 20
Section 62. Construction and Definition................................ 21
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE X Indemnification............................................ 21
Section 63. Indemnification of Directors, Officers, Employees And Other
Agents..................................................... 21
ARTICLE XI Right of First Refusal..................................... 25
Section 64. Right of First Refusal..................................... 25
ARTICLE XII Loans to Officers and Others............................... 27
Section 65. Certain Corporate Loans and Guaranties..................... 27
iii.
</TABLE>
<PAGE>
BYLAWS
OF
MEGABIOS CORP.
(A CALIFORNIA CORPORATION)
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal executive office of the
corporation shall be located at such place as the Board of Directors may from
time to time authorize. If the principal executive office is located outside
this state, and the corporation has one or more business offices in this state,
the Board of Directors shall fix and designate a principal business office in
the State of California.
SECTION 2. OTHER OFFICES. Additional offices of the corporation shall be
located at such place or places, within or outside the State of California, as
the Board of Directors may from time to time authorize.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. If the Board of Directors adopts a corporate
seal such seal shall have inscribed thereon the name of the corporation and the
state and date of its incorporation. If and when a seal is adopted by the Board
of Directors, such seal may be engraved, lithographed, printed, stamped,
impressed upon, or affixed to any contract, conveyance, certificate for shares,
or other instrument executed by the corporation.
ARTICLE III
SHAREHOLDERS' MEETINGS AND VOTING RIGHTS
SECTION 4. PLACE OF MEETINGS. Meetings of shareholders shall be held at
the principal executive office of the corporation, or at any other place, within
or outside the State of California, which may be fixed either by the Board of
Directors or by the written consent of all persons entitled to vote at such
meeting, given either before or after the meeting and filed with the Secretary
of the Corporation.
1.
<PAGE>
SECTION 5. ANNUAL MEETINGS. The annual meeting of the shareholders of the
corporation shall be held on any date and time which may from time to time be
designated by the Board of Directors. At such annual meeting directors shall be
elected and any other business may be transacted which may properly come before
the meeting.
SECTION 6. POSTPONEMENT OF ANNUAL MEETING. The Board of Directors and the
President shall each have authority to hold at an earlier date and/or time, or
to postpone to a later date and/or time, the annual meeting of shareholders.
SECTION 7. SPECIAL MEETINGS.
(a) Special meetings of the shareholders, for any purpose or purposes,
may be called by the Board of Directors, the Chairman of the Board of Directors,
the President, or the holders of shares entitled to cast not less than ten
percent (10%) of the votes at the meeting.
(b) Upon written request to the Chairman of the Board of Directors,
the President, any vice president or the Secretary of the corporation by any
person or persons (other than the Board of Directors) entitled to call a special
meeting of the shareholders, such officer forthwith shall cause notice to be
given to the shareholders entitled to vote, that a meeting will be held at a
time requested by the person or persons calling the meeting, such time to be not
less than thirty-five (35) nor more than sixty (60) days after receipt of such
request. If such notice is not given within twenty (20) days after receipt of
such request, the person or persons calling the meeting may give notice thereof
in the manner provided by law or in these bylaws. Nothing contained in this
Section 7 shall be construed as limiting, fixing or affecting the time or date
when a meeting of shareholders called by action of the Board of Directors may be
held.
SECTION 8. NOTICE OF MEETINGS. Except as otherwise may be required by law
and subject to subsection 7(b) above, written notice of each meeting of
shareholders shall be given to each shareholder entitled to vote at that meeting
(see Section 15 below), by the Secretary, assistant secretary or other person
charged with that duty, not less than ten (10) (or, if sent by third class mail,
thirty (30)) nor more than sixty (60) days before such meeting.
Notice of any meeting of shareholders shall state the date, place and hour
of the meeting and,
(a) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transacted at such
meeting;
(b) in the case of an annual meeting, the general nature of matters
which the Board of Directors, at the time the notice is given, intends to
present for action by the shareholders;
2.
<PAGE>
(c) in the case of any meeting at which directors are to be elected,
the names of the nominees intended at the time of the notice to be presented by
management for election; and
(d) in the case of any meeting, if action is to be taken on any of the
following proposals, the general nature of such proposal:
(1) a proposal to approve a transaction within the provisions of
California Corporations Code, Section 310 (relating to certain transactions in
which a director has a direct or indirect financial interest);
(2) a proposal to approve a transaction within the provisions of
California Corporations Code, Section 902 (relating to amending the Articles of
Incorporation of the corporation);
(3) a proposal to approve a transaction within the provisions of
California Corporations Code, Sections 181 and 1201 (relating to
reorganization);
(4) a proposal to approve a transaction within the provisions of
California Corporations Code, Section 1900 (winding up and dissolution);
(5) a proposal to approve a plan of distribution within the
provisions of California Corporations Code, Section 2007 (relating to certain
plans providing for distribution not in accordance with the liquidation rights
of preferred shares, if any).
At a special meeting, notice of which has been given in accordance
with this Section, action may not be taken with respect to business, the general
nature of which has not been stated in such notice. At an annual meeting,
action may be taken with respect to business stated in the notice of such
meeting, given in accordance with this Section, and, subject to subsection 8(d)
above, with respect to any other business as may properly come before the
meeting.
SECTION 9. MANNER OF GIVING NOTICE. Notice of any meeting of shareholders
shall be given either personally or by first-class mail, or, if the corporation
has outstanding shares held of record by 500 or more persons (determined as
provided in California Corporations Code Section 605) on the record date for
such meeting, third-class mail, or telegraphic or other written communication,
addressed to the shareholder at the address of that shareholder appearing on the
books of the corporation or given by the shareholder to the corporation for the
purpose of notice. If no such address appears on the corporation's books or is
given, notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the
corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by telegram or other means of written
communication.
3.
<PAGE>
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices shall be deemed to have been duly given without further mailing
if these shall be available to the shareholder on written demand by the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice.
An affidavit of mailing of any notice or report in accordance with the
provisions of this Section 9, executed by the Secretary, Assistant Secretary or
any transfer agent, shall be prima facie evidence of the giving of the notice.
SECTION 10. QUORUM AND TRANSACTION OF BUSINESS.
(a) At any meeting of the shareholders, a majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum.
If a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and entitled to vote on any matter shall be the act
of the shareholders, unless the vote of a greater number or voting by classes is
required by law or by the Articles of Incorporation, and except as provided in
subsection (b) below.
(b) The shareholders present at a duly called or held meeting of the
shareholders at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, provided that any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
(c) In the absence of a quorum, no business other than adjournment may
be transacted, except as described in subsection (b) above.
SECTION 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of shareholders may be adjourned from time to time, whether or not a quorum is
present, by the affirmative vote of a majority of shares represented at such
meeting either in person or by proxy and entitled to vote at such meeting.
In the event any meeting is adjourned, it shall not be necessary to give
notice of the time and place of such adjourned meeting pursuant to Sections 8
and 9 of these bylaws; provided that if any of the following three events occur,
such notice must be given:
(a) announcement of the adjourned meeting's time and place is not made
at the original meeting which it continues or
(b) such meeting is adjourned for more than forty- five (45) days from
the date set for the original meeting or
(c) a new record date is fixed for the adjourned meeting.
4.
<PAGE>
At the adjourned meeting, the corporation may transact any business which
might have been transacted at the original meeting.
SECTION 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF MINUTES.
(a) Subject to subsection (b) of this Section, the transactions of any
meeting of shareholders, however called and noticed, and wherever held, shall be
as valid as though made at a meeting duly held after regular call and notice, if
a quorum is present either in person or by proxy, and if, either before or after
the meeting, each of the persons entitled to vote but not present in person or
by proxy signs a written waiver of notice or a consent to holding of the meeting
or an approval of the minutes thereof.
(b) A waiver of notice, consent to the holding of a meeting or
approval of the minutes thereof need not specify the business to be transacted
or transacted at nor the purpose of the meeting; provided that in the case of
proposals described in subsection (d) of Section 8 of these bylaws, the general
nature of such proposals must be described in any such waiver of notice and such
proposals can only be approved by waiver of notice, not by consent to holding of
the meeting or approval of the minutes.
(c) All waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
(d) A person's attendance at a meeting shall constitute waiver of
notice of and presence at such meeting, except when such person objects at the
beginning of the meeting to transaction of any business because the meeting is
not lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters which are required
by law or these bylaws to be in such notice (including those matters described
in subsection (d) of Section 8 of these bylaws), but are not so included if such
person expressly objects to consideration of such matter or matters at any time
during the meeting.
SECTION 13. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
which may be taken at any meeting of shareholders may be taken without a meeting
and without prior notice if written consents setting forth the action so taken
are signed by the holders of the outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors; provided
that any vacancy on the Board of Directors (other than a vacancy created by
removal) which has not been filled by the board of directors may be filled by
the written consent of a majority of outstanding shares entitled to vote for the
election of directors.
Any written consent may be revoked pursuant to California Corporations Code
Section 603(c) prior to the time that written consents of the number of shares
required to
5.
<PAGE>
authorize the proposed action have been filed with the Secretary. Such
revocation must be in writing and will be effective upon its receipt by the
Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of any corporate action approved by the shareholders without a meeting to
those shareholders entitled to vote on such matters who have not consented
thereto in writing. This notice shall be given in the manner specified in
Section 9 of these bylaws. In the case of approval of (i) a transaction within
the provisions of California Corporations Code, Section 310 (relating to certain
transactions in which a director has an interest), (ii) a transaction within the
provisions of California Corporations Code, Section 317 (relating to
indemnification of agents of the corporation), (iii) a transaction within the
provisions of California Corporations Code, Sections 181 and 1201 (relating to
reorganization), and (iv) a plan of distribution within the provisions of
California Corporations Code, Section 2007 (relating to certain plans providing
for distribution not in accordance with the liquidation rights of preferred
shares, if any), the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
SECTION 14. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 15
of these bylaws, subject to the provisions of Sections 702 through 704 of the
California Corporations Code (relating to voting shares held by a fiduciary, in
the name of a corporation, or in joint ownership). Voting at any meeting of
shareholders need not be by ballot; provided, however, that elections for
directors must be by ballot if balloting is demanded by a shareholder at the
meeting and before the voting begins.
Every person entitled to vote at an election for directors may cumulate the
votes to which such person is entitled, i.e., such person may cast a total
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which such person's shares are entitled, and may cast said
total number of votes for one or more candidates in such proportions as such
person thinks fit; provided, however, no shareholder shall be entitled to so
cumulate such shareholder's votes unless the candidates for which such
shareholder is voting have been placed in nomination prior to the voting and a
shareholder has given notice at the meeting, prior to the vote, of an intention
to cumulate votes. In any election of directors, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Except as may be otherwise provided in the Articles of Incorporation or by
law, and subject to the foregoing provisions regarding the cumulation of votes,
each shareholder shall be entitled to one vote for each share held.
Any shareholder may vote part of such shareholder's shares in favor of a
proposal and refrain from voting the remaining shares or vote them against the
proposal, other than elections to office, but, if the shareholder fails to
specify the number of shares such shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is with respect
to all shares such shareholder is entitled to vote.
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No shareholder approval, other than unanimous approval of those entitled to
vote, will be valid as to proposals described in subsection 8(d) of these bylaws
unless the general nature of such business was stated in the notice of meeting
or in any written waiver of notice.
SECTION 15. PERSONS ENTITLED TO VOTE OR CONSENT. The Board of Directors
may fix a record date pursuant to Section 60 of these bylaws to determine which
shareholders are entitled to notice of and to vote at a meeting or consent to
corporate actions, as provided in Sections 13 and 14 of these bylaws. Only
persons in whose name shares otherwise entitled to vote stand on the stock
records of the corporation on such date shall be entitled to vote or consent.
If no record date is fixed:
(a) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day notice is given or, if notice is waived, at
the close of business on the business day next preceding the day on which the
meeting is held;
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors has been taken, shall be the day on which the first
written consent is given;
(c) The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto, or the sixtieth (60th) day prior to the
date of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting;
provided, however, that the Board of Directors shall fix a new record date if
the meeting is adjourned for more than forty-five (45) days from the date set
for the original meeting.
Shares of the corporation held by its subsidiary or subsidiaries (as
defined in California Corporations Code, Section 189(b)) are not entitled to
vote in any matter.
SECTION 16. PROXIES. Every person entitled to vote or execute consents
may do so either in person or by one or more agents authorized to act by a
written proxy executed by the person or such person's duly authorized agent and
filed with the Secretary of the corporation; provided that no such proxy shall
be valid after the expiration of eleven (11) months from the date of its
execution unless otherwise provided in the proxy. The manner of execution,
suspension, revocation, exercise and effect of proxies is governed by law.
SECTION 17. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Directors may appoint any persons, other than nominees for office,
to act as inspectors of
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election at the meeting or its adjournment. If no inspectors of election are so
appointed, the chairman of the meeting may, and on the request of any
shareholder or a shareholder's proxy shall, appoint inspectors of election at
the meeting. The number of inspectors shall be either one (1) or three (3). If
inspectors are appointed at a meeting on the request of one or more shareholders
or proxies, the majority of shares represented in person or proxy shall
determine whether one (1) or three (3) inspectors are to be appointed. If any
person appointed as inspector fails to appear or fails or refuses to act, the
chairman of the meeting may, and upon the request of any shareholder or a
shareholder's proxy shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 18. POWERS. Subject to the provisions of law or any limitations
in the Articles of Incorporation or these bylaws, as to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised, by or under the direction of the Board of Directors. The Board of
Directors may delegate the management of the day-to-day operation of the
business of the corporation to a management company or other person, provided
that the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board of
Directors.
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SECTION 19. NUMBER OF DIRECTORS. The authorized number of directors of
the corporation shall be not less than a minimum of five (5) nor more than a
maximum of nine (9) and the number of directors presently authorized is eight
(8). The exact number of directors shall be set within these limits from time
to time (a) by approval of the Board of Directors, or (b) by the affirmative
vote of a majority of the shares represented and voting at a duly held meeting
at which a quorum is present (which shares voting affirmatively also constitute
at least a majority of the required quorum) or by the written consent of
shareholders pursuant to Section 13 hereinabove.
Any amendment of these bylaws changing the maximum or minimum number of
directors may be adopted only by the affirmative vote of a majority of the
outstanding shares entitled to vote; provided, an amendment reducing the minimum
number of directors to less than five (5), cannot be adopted if votes cast
against its adoption at a meeting or the shares not consenting to it in the case
of action by written consent are equal to more than 16-2/3 percent of the
outstanding shares entitled to vote.
No reduction of the authorized number of directors shall remove any
director prior to the expiration of such director's term of office.
SECTION 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The directors
shall be elected at each annual meeting of shareholders to hold office until the
next annual meeting. Each director, including a director elected or appointed
to fill a vacancy, shall hold office either until the expiration of the term for
which elected or appointed and until a successor has been elected and qualified,
or until his death, resignation or removal. Directors need not be shareholders
of the corporation.
SECTION 21. RESIGNATIONS. Any director of the corporation may resign
effective upon giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation. If
the resignation specifies effectiveness at a future time, a successor may be
elected pursuant to Section 23 of these bylaws to take office on the date that
the resignation becomes effective.
SECTION 22. REMOVAL. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or who has been convicted of a felony.
The entire Board of Directors or any individual director may be removed
from office without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote on such removal; provided, however, that
unless the entire Board is removed, no individual director may be removed when
the votes cast against such director's removal, or not consenting in writing to
such removal, would be sufficient to elect that director if voted cumulatively
at an election at which the same total number of votes cast were cast (or, if
such action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
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SECTION 23. VACANCIES. A vacancy or vacancies on the Board of Directors
shall be deemed to exist in case of the death, resignation or removal of any
director, or upon increase in the authorized number of directors or if
shareholders fail to elect the full authorized number of directors at an annual
meeting of shareholders or if, for whatever reason, there are fewer directors on
the Board of Directors, than the full number authorized. Such vacancy or
vacancies, other than a vacancy created by the removal of a director, may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director. A vacancy created by the removal of a director
may be filled only by the affirmative vote of a majority of the shares
represented and voting at a duly held meeting at which a quorum is present
(which shares voting affirmatively also constitute at least a majority of the
required quorum) or by the written consent of shareholders pursuant to Section
13 hereinabove. The shareholders may elect a director at any time to fill any
vacancy not filled by the directors. Any such election by written consent,
other than to fill a vacancy created by removal, requires the consent of a
majority of the outstanding shares entitled to vote. Any such election by
written consent to fill a vacancy created by removal requires the consent of all
of the outstanding shares entitled to vote.
SECTION 24. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times, places and dates as fixed in these bylaws
or by the Board of Directors; provided, however, that if the date for such a
meeting falls on a legal holiday, then the meeting shall be held at the same
time on the next succeeding full business day. Regular meetings of the Board of
Directors held pursuant to this Section 24 may be held without notice.
SECTION 25. PARTICIPATION BY TELEPHONE. Members of the Board of
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Such participation constitutes presence in person
at such meeting.
SECTION 26. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose may be called by the Chairman of the Board or the
President or any vice president or the Secretary of the corporation or any two
(2) directors.
SECTION 27. NOTICE OF MEETINGS. Notice of the date, time and place of
all meetings of the Board of Directors, other than regular meetings held
pursuant to Section 24 above shall be delivered personally, orally or in
writing, or by telephone or telegraph to each director, at least forty-eight
(48) hours before the meeting, or sent in writing to each director by first-
class mail, charges prepaid, at least four (4) days before the meeting. Such
notice may be given by the Secretary of the corporation or by the person or
persons who called a meeting. Such notice need not specify the purpose of the
meeting. Notice of any meeting of the Board of Directors need not be given to
any director who signs a waiver of notice of such meeting, or a consent to
holding the meeting or an approval of the minutes thereof, either before or
after the meeting, or who attends the meeting without protesting prior thereto
or at its commencement such director's lack of notice. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
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SECTION 28. PLACE OF MEETINGS. Meetings of the Board of Directors may be
held at any place within or without the state which has been designated in the
notice of the meeting or, if not stated in the notice or there is no notice,
designated in the bylaws or by resolution of the Board of Directors.
SECTION 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
required or permitted to be taken by the Board of Directors may be taken without
a meeting, if all members of the Board of Directors individually or collectively
consent in writing to such action. Such written consent or consents shall be
filed with the minutes of the proceedings of the Board of Directors. Such
action by written consent shall have the same force and effect as a unanimous
vote of such directors.
SECTION 30. QUORUM AND TRANSACTION OF BUSINESS. A majority of the
authorized number of directors shall constitute a quorum for the transaction of
business. Every act or decision done or made by a majority of the authorized
number of directors present at a meeting duly held at which a quorum is present
shall be the act of the Board of Directors, unless the law, the Articles of
Incorporation or these bylaws specifically require a greater number. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding withdrawal of directors, if any action taken is approved by at
least a majority of the number of directors constituting a quorum for such
meeting. In the absence of a quorum at any meeting of the Board of Directors, a
majority of the directors present may adjourn the meeting, as provided in
Section 31 of these bylaws.
SECTION 31. ADJOURNMENT. Any meeting of the Board of Directors, whether
or not a quorum is present, may be adjourned to another time and place by the
affirmative vote of a majority of the directors present. If the meeting is
adjourned for more than twenty-four (24) hours, notice of such adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
SECTION 32. ORGANIZATION. The Chairman of the Board shall preside at
every meeting of the Board of Directors, if present. If there is no Chairman of
the Board or if the Chairman is not present, a Chairman chosen by a majority of
the directors present shall act as chairman. The Secretary of the corporation
or, in the absence of the Secretary, any person appointed by the Chairman shall
act as secretary of the meeting.
SECTION 33. COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board of Directors.
SECTION 34. COMMITTEES. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at the
pleasure of the Board of Directors. The Board of Directors, by a vote of the
majority of authorized directors, may designate one or more directors as
alternate members of any committee, to replace any absent member at any meeting
of such committee. Any such committee shall have authority to act in the manner
and to the extent provided in the resolution of the Board of Directors, and may
have
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all the authority of the Board of Directors in the management of the business
and affairs of the corporation, except with respect to:
(a) the approval of any action for which shareholders' approval or
approval of the outstanding shares also is required by the California
Corporations Code;
(b) the filling of vacancies on the Board of Directors or any of its
committees;
(c) the fixing of compensation of directors for serving on the Board
of Directors or any of its committees;
(d) the adoption, amendment or repeal of these bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) a distribution to shareholders, except at a rate or in a periodic
amount or within a price range determined by the Board of Directors; or
(g) the appointment of other committees of the Board of Directors or
the members thereof.
Any committee may from time to time provide by resolution for regular
meetings at specified times and places. If the date of such a meeting falls on
a legal holiday, then the meeting shall be held at the same time on the next
succeeding full business day. No notice of such a meeting need be given. Such
regular meetings need not be held if the committee shall so determine at any
time before or after the time when such meeting would otherwise have taken
place. Special meetings may be called at any time in the same manner and by the
same persons as stated in Sections 26 and 27 of these bylaws for meetings of the
Board of Directors. The provisions of Sections 25, 28, 29, 30, 31 and 32 of
these bylaws shall apply to committees, committee members and committee meetings
as if the words "committee" and "committee member" were substituted for the word
"Board of Directors", and "director", respectively, throughout such sections.
ARTICLE V
OFFICERS
SECTION 35. OFFICERS. The corporation shall have a Chairman of the
Board or a President or both, a Secretary, a Chief Financial Officer and such
other officers with such titles and duties as the Board of Directors may
determine. Any two or more offices may be held by the same person.
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SECTION 36. APPOINTMENT. All officers shall be chosen and appointed by
the Board of Directors; provided, however, the Board of Directors may empower
the chief executive officer of the corporation to appoint such officers, other
than Chairman of the Board, President, Secretary or Chief Financial Officer, as
the business of the corporation may require. All officers shall serve at the
pleasure of the Board of Directors, subject to the rights, if any, of an officer
under a contract of employment.
SECTION 37. INABILITY TO ACT. In the case of absence or inability to
act of any officer of the corporation or of any person authorized by these
bylaws to act in such officer's place, the Board of Directors may from time to
time delegate the powers or duties of such officer to any other officer, or any
director or other person whom it may select, for such period of time as the
Board of Directors deems necessary.
SECTION 38. RESIGNATIONS. Any officer may resign at any time upon
written notice to the corporation, without prejudice to the rights, if any, of
the corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the President, the Secretary or the Board of Directors, unless a different time
is specified in the notice for effectiveness of such resignation. The
acceptance of any such resignation shall not be necessary to make it effective
unless otherwise specified in such notice.
SECTION 39. REMOVAL. Any officer may be removed from office at any
time, with or without cause, but subject to the rights, if any, of such officer
under any contract of employment, by the Board of Directors or by any committee
to whom such power of removal has been duly delegated, or, with regard to any
officer who has been appointed by the chief executive officer pursuant to
Section 36 above, by the chief executive officer or any other officer upon whom
such power of removal may be conferred by the Board of Directors.
SECTION 40. VACANCIES. A vacancy occurring in any office for any cause
may be filled by the Board of Directors, in the manner prescribed by this
Article of the bylaws for initial appointment to such office.
SECTION 41. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there
be such an officer, shall, if present, preside at all meetings of the Board of
Directors and shall exercise and perform such other powers and duties as may be
assigned from time to time by the Board of Directors or prescribed by these
bylaws. If no President is appointed, the Chairman of the Board is the general
manager and chief executive officer of the corporation, and shall exercise all
powers of the President described in Section 42 below.
SECTION 42. PRESIDENT. Subject to such powers, if any, as may be given
by the Board of Directors to the Chairman of the Board, if there be such an
officer, the President shall be the general manager and chief executive officer
of the corporation and shall have general supervision, direction, and control
over the business and affairs of the corporation, subject to the control of the
Board of Directors. The President may sign and execute, in the name of the
corporation, any instrument authorized by the Board of Directors, except when
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the signing and execution thereof shall have been expressly delegated by the
Board of Directors or by these bylaws to some other officer or agent of the
corporation. The President shall have all the general powers and duties of
management usually vested in the president of a corporation, and shall have such
other powers and duties as may be prescribed from time to time by the Board of
Directors or these bylaws. The President shall have discretion to prescribe the
duties of other officers and employees of the corporation in a manner not
inconsistent with the provisions of these bylaws and the directions of the Board
of Directors.
SECTION 43. VICE PRESIDENTS. In the absence or disability of the
President, in the event of a vacancy in the office of President, or in the event
such officer refuses to act, the Vice President shall perform all the duties of
the President and, when so acting, shall have all the powers of, and be subject
to all the restrictions on, the President. If at any such time the corporation
has more than one vice president, the duties and powers of the President shall
pass to each vice president in order of such vice president's rank as fixed by
the Board of Directors or, if the vice presidents are not so ranked, to the vice
president designated by the Board of Directors. The vice presidents shall have
such other powers and perform such other duties as may be prescribed for them
from time to time by the Board of Directors or pursuant to Sections 35 and 36 of
these bylaws or otherwise pursuant to these bylaws.
SECTION 44. SECRETARY. The Secretary shall:
(a) Keep, or cause to be kept, minutes of all meetings of the
corporation's shareholders, Board of Directors, and committees of the Board of
Directors, if any. Such minutes shall be kept in written form.
(b) Keep, or cause to be kept, at the principal executive office of
the corporation, or at the office of its transfer agent or registrar, if any, a
record of the corpora tion's shareholders, showing the names and addresses of
all shareholders, and the number and classes of shares held by each. Such
records shall be kept in written form or any other form capable of being
converted into written form.
(c) Keep, or cause to be kept, at the principal executive office of
the corporation, or if the principal executive office is not in California, at
its principal business office in California, an original or copy of these
bylaws, as amended.
(d) Give, or cause to be given, notice of all meetings of
shareholders, directors and committees of the Board of Directors, as required by
law or by these bylaws.
(e) Keep the seal of the corporation, if any, in safe custody.
(f) Exercise such powers and perform such duties as are usually vested
in the office of secretary of a corporation, and exercise such other powers and
perform such other duties as may be prescribed from time to time by the Board of
Directors or these bylaws.
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If any assistant secretaries are appointed, the assistant secretary, or one
of the assistant secretaries in the order of their rank as fixed by the Board of
Directors or, if they are not so ranked, the assistant secretary designated by
the Board of Directors, in the absence or disability of the Secretary or in the
event of such officer's refusal to act or if a vacancy exists in the office of
Secretary, shall perform the duties and exercise the powers of the Secretary and
discharge such duties as may be assigned from time to time pursuant to these
bylaws or by the Board of Directors.
SECTION 45. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall:
(a) Be responsible for all functions and duties of the treasurer of
the corporation.
(b) Keep and maintain, or cause to be kept and maintained, adequate
and correct books and records of account for the corporation.
(c) Receive or be responsible for receipt of all monies due and
payable to the corporation from any source whatsoever; have charge and custody
of, and be responsible for, all monies and other valuables of the corporation
and be responsible for deposit of all such monies in the name and to the credit
of the corporation with such depositaries as may be designated by the Board of
Directors or a duly appointed and authorized committee of the Board of
Directors.
(d) Disburse or be responsible for the disbursement of the funds of
the corporation as may be ordered by the Board of Directors or a duly appointed
and authorized committee of the Board of Directors.
(e) Render to the chief executive officer and the Board of Directors a
statement of the financial condition of the corporation if called upon to do so.
(f) Exercise such powers and perform such duties as are usually vested
in the office of chief financial officer of a corporation, and exercise such
other powers and perform such other duties as may be prescribed by the Board of
Directors or these bylaws.
If any assistant financial officer is appointed, the assistant financial
officer, or one of the assistant financial officers, if there are more than one,
in the order of their rank as fixed by the Board of Directors or, if they are
not so ranked, the assistant financial officer designated by the Board of
Directors, shall, in the absence or disability of the Chief Financial Officer or
in the event of such officer's refusal to act, perform the duties and exercise
the powers of the Chief Financial Officer, and shall have such powers and
discharge such duties as may be assigned from time to time pursuant to these
bylaws or by the Board of Directors.
SECTION 46. COMPENSATION. The compensation of the officers shall be
fixed from time to time by the Board of Directors, and no officer shall be
prevented from receiving such compensation by reason of the fact that such
officer is also a director of the corporation.
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ARTICLE VI
CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS
SECTION 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS. Except as
these bylaws may otherwise provide, the Board of Directors or its duly appointed
and authorized committee may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authorization may be general or
confined to specific instances. Except as so authorized or otherwise expressly
provided in these bylaws, no officer, agent, or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or in any amount.
SECTION 48. LOANS. No loans shall be contracted on behalf of the
corporation and no negotiable paper shall be issued in its name, unless and
except as authorized by the Board of Directors or its duly appointed and
authorized committee. When so authorized by the Board of Directors or such
committee, any officer or agent of the corporation may effect loans and advances
at any time for the corporation from any bank, trust company, or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the corporation and, when authorized as aforesaid,
may mortgage, pledge, hypothecate or transfer any and all stocks, securities and
other property, real or personal, at any time held by the corporation, and to
that end endorse, assign and deliver the same as security for the payment of any
and all loans, advances, indebtedness, and liabilities of the corporation. Such
authorization may be general or confined to specific instances.
SECTION 49. BANK ACCOUNTS. The Board of Directors or its duly appointed
and authorized committee from time to time may authorize the opening and keeping
of general and/or special bank accounts with such banks, trust companies, or
other depositaries as may be selected by the Board of Directors, its duly
appointed and authorized committee or by any officer or officers, agent or
agents, of the corporation to whom such power may be delegated from time to time
by the Board of Directors. The Board of Directors or its duly appointed and
authorized committee may make such rules and regulations with respect to said
bank accounts, not inconsistent with the provisions of these bylaws, as are
deemed advisable.
SECTION 50. CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for the payment of money, notes, acceptances or other evidences of indebtedness
issued in the name of the corporation shall be signed by such officer or
officers, agent or agents, of the corporation, and in such manner, as shall be
determined from time to time by resolution of the Board of Directors or its duly
appointed and authorized committee. Endorsements for deposit to the credit of
the corporation in any of its duly authorized depositaries may be made, without
counter-signature, by the President or any vice president or the Chief Financial
Officer or any assistant financial officer or by any other officer or agent of
the corporation to whom the Board of Directors or its duly appointed and
authorized committee,
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by resolution, shall have delegated such power or by hand-stamped impression in
the name of the corporation.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 51. CERTIFICATE FOR SHARES. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or a
Vice President and by the Chief Financial Officer or an assistant financial
officer or by the Secretary or an assistant secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all
of the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
In the event that the corporation shall issue any shares as only partly
paid, the certificate issued to represent such partly paid shares shall have
stated thereon the total consideration to be paid for such shares and the amount
paid thereon.
SECTION 52. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or
transfer agent (if any) of the corporation of a certificate for shares of the
corporation duly endorsed, with reasonable assurance that the endorsement is
genuine and effective, or accompanied by proper evidence of succession,
assignment or authority to transfer and upon compliance with applicable federal
and state securities laws and if the corporation has no statutory duty to
inquire into adverse claims or has discharged any such duty and if any
applicable law relating to the collection of taxes has been complied with, it
shall be the duty of the corporation, by its Secretary or transfer agent, to
cancel the old certificate, to issue a new certificate to the person entitled
thereto and to record the transaction on the books of the corporation.
SECTION 53. LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of any
certificate for shares of the corporation alleged to have been lost, destroyed
or stolen shall notify the corporation by making a written affidavit or
affirmation of such fact. Upon receipt of said affidavit or affirmation the
Board of Directors, or its duly appointed and authorized committee or any
officer or officers authorized by the Board so to do, may order the issuance of
a new certificate for shares in the place of any certificate previously issued
by the corporation and which is alleged to have been lost, destroyed or stolen.
However, the Board of Directors or such authorized committee, officer or
officers may require the owner of the allegedly lost, destroyed or stolen
certificate, or such owner's legal representative, to give the corporation a
bond or other adequate security sufficient to indemnify the corporation and its
transfer agent and/or registrar, if any, against any claim that may be made
against it or them on account of such allegedly lost, destroyed or stolen
certificate or the replacement thereof. Said bond or other security shall be in
such amount, on such terms and conditions
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and, in the case of a bond, with such surety or sureties as may be acceptable to
the Board of Directors or to its duly appointed and authorized committee or any
officer or officers authorized by the Board of Directors to determine the
sufficiency thereof. The requirement of a bond or other security may be waived
in particular cases at the discretion of the Board of Directors or its duly
appointed and authorized committee or any officer or officers authorized by the
Board of Directors so to do.
SECTION 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The Board of
Directors may make such rules and regulations, not inconsistent with law or with
these bylaws, as it may deem advisable concerning the issuance, transfer and
registration of certificates for shares of the capital stock of the corporation.
The Board of Directors may appoint a transfer agent or registrar of transfers,
or both, and may require all certificates for shares of the corporation to bear
the signature of either or both.
ARTICLE VIII
INSPECTION OF CORPORATE RECORDS
SECTION 55. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect and copy all books, records,
and documents of every kind of the corporation and any of its subsidiaries and
to inspect the physical properties of the corporation and any of its
subsidiaries. Such inspection may be made by the director in person or by agent
or attorney, and the right of inspection includes the right to copy and make
extracts.
SECTION 56. INSPECTION BY SHAREHOLDERS.
(a) INSPECTION OF CORPORATE RECORDS.
(1) A shareholder or shareholders holding at least five (5%)
percent in the aggregate of the outstanding voting shares of the corporation or
who hold at least one percent of such voting shares and have filed a Schedule
14B with the United States Securities and Exchange Commission relating to the
election of directors of the corporation shall have an absolute right to do
either or both of the following:
(i) Inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours upon five (5) business
days' prior written demand upon the corporation; or
(ii) Obtain from the transfer agent, if any, for the
corporation, upon five business days' prior written demand and upon the tender
of its usual charges for such a list (the amount of which charges shall be
stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record date
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for which it has been compiled or as of a date specified by the shareholder
subsequent to the date of demand.
(2) The record of shareholders shall also be open to inspection and
copying by any shareholder or holder of a voting trust certificate at any time
during usual business hours upon written demand on the corporation, for a
purpose reasonably related to such holder's interest as a shareholder or holder
of a voting trust certificate.
(3) The accounting books and records and minutes of proceedings of the
shareholders and the Board of Directors and of any committees of the Board of
Directors of the corporation and of each of its subsidiaries shall be open to
inspection, copying and making extracts upon written demand on the corporation
of any shareholder or holder of a voting trust certificate at any reasonable
time during usual business hours, for a purpose reasonably related to such
holder's interests as a shareholder or as a holder of such voting trust
certificate.
(4) Any inspection, copying, and making of extracts under this
subsection (a) may be done in person or by agent or attorney.
(b) INSPECTION OF BYLAWS. The original or a copy of these bylaws
shall be kept as provided in Section 44 of these bylaws and shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is not in California, and the
corporation has no principal business office in the state of California, a
current copy of these bylaws shall be furnished to any shareholder upon written
request.
SECTION 57. WRITTEN FORM. If any record subject to inspection pursuant
to Section 56 above is not maintained in written form, a request for inspection
is not complied with unless and until the corporation at its expense makes such
record available in written form.
ARTICLE IX
MISCELLANEOUS
SECTION 58. FISCAL YEAR. Unless otherwise fixed by resolution of the
Board of Directors, the fiscal year of the corporation shall end on the 30th day
of April in each calendar year.
SECTION 59. ANNUAL REPORT.
(a) Subject to the provisions of Section 59(b) below, the Board of
Directors shall cause an annual report to be sent to each shareholder of the
corporation in the manner provided in Section 9 of these bylaws not later than
one hundred twenty (120) days after the close of the corporation's fiscal year.
Such report shall include a balance sheet as of the end
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of such fiscal year and an income statement and statement of changes in
financial position for such fiscal year, accompanied by any report thereon of
independent accountants or, if there is no such report, the certificate of an
authorized officer of the corporation that such statements were prepared without
audit from the books and records of the corporation. When there are more than
100 shareholders of record of the corporation's shares, as determined by Section
605 of the California Corporations Code, additional information as required by
Section 1501(b) of the California Corporations Code shall also be contained in
such report, provided that if the corporation has a class of securities
registered under Section 12 of the United States Securities Exchange Act of
1934, that Act shall take precedence. Such report shall be sent to shareholders
at least fifteen (15) (or, if sent by third-class mail, thirty-five (35)) days
prior to the next annual meeting of shareholders after the end of the fiscal
year to which it relates.
(b) If and so long as there are fewer than 100 holders of record of
the corporation's shares, the requirement of sending of an annual report to the
shareholders of the corporation is hereby expressly waived.
SECTION 60. RECORD DATE. The Board of Directors may fix a time in the
future as a record date for the determination of the shareholders entitled to
notice of or to vote at any meeting or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or entitled to exercise any rights in respect of any other lawful action. The
record date so fixed shall not be more than sixty (60) days nor less than ten
(10) days prior to the date of the meeting nor more than sixty (60) days prior
to any other action or event for the purpose of which it is fixed. If no record
date is fixed, the provisions of Section 15 of these bylaws shall apply with
respect to notice of meetings, votes, and consents and the record date for
determining shareholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolutions relating
thereto, or the sixtieth (60th) day prior to the date of such other action or
event, whichever is later.
Only shareholders of record at the close of business on the record date
shall be entitled to notice and to vote or to receive the dividend, distribution
or allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the Articles of Incorporation,
by agreement or by law.
SECTION 61. BYLAW AMENDMENTS. Except as otherwise provided by law or
Section 19 of these bylaws, these bylaws may be amended or repealed by the Board
of Directors or by the affirmative vote of a majority of the outstanding shares
entitled to vote, including, if applicable, the affirmative vote of a majority
of the outstanding shares of each class or series entitled by law or the
Articles of Incorporation to vote as a class or series on the amendment or
repeal or adoption of any bylaw or bylaws; provided, however, after issuance of
shares, a bylaw specifying or changing a fixed number of directors or the
maximum or minimum number or changing from a fixed to a variable board or vice
versa may only be adopted by approval of the outstanding shares as provided
herein.
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SECTION 62. CONSTRUCTION AND DEFINITION. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions
contained in the California Corporations Code shall govern the construction of
these bylaws.
Without limiting the foregoing, "shall" is mandatory and "may" is
permissive.
ARTICLE X
INDEMNIFICATION
SECTION 63. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify
its directors and executive officers to the fullest extent not prohibited by the
California General Corporation Law; provided, however, that the corporation may
-------- -------
limit the extent of such indemnification by individual contracts with its
directors and executive officers; and, provided, further, that the corporation
-------- -------
shall not be required to indemnify any director or executive officer in
connection with any proceeding (or part thereof) initiated by such person or any
proceeding by such person against the corporation or its directors, officers,
employees or other agents unless (i) such indemnification is expressly required
to be made by law, (ii) the proceeding was authorized by the board of directors
of the corporation or (iii) such indemnification is provided by the corporation,
in its sole discretion, pursuant to the powers vested in the corporation under
the California General Corporation Law.
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall
have the power to indemnify its other officers, employees and other agents as
set forth in the California General Corporation Law.
(c) DETERMINATION BY THE CORPORATION. Promptly after receipt of a
request for indemnification hereunder (and in any event within 90 days thereof)
a reasonable, good faith determination as to whether indemnification of the
director or executive officer is proper under the circumstances because such
director or executive officer has met the applicable standard of care shall be
made by:
(1) a majority vote of a quorum consisting of directors who are
not parties to such proceeding;
(2) if such quorum is not obtainable, by independent legal
counsel in a written opinion; or
(3) approval or ratification by the affirmative vote of a
majority of the shares of this corporation represented and voting at a duly held
meeting at which a quorum is present (which shares voting affirmatively also
constitute at least a majority of the required quorum) or by written consent of
a majority of the outstanding shares entitled to
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vote; where in each case the shares owned by the person to be indemnified shall
not be considered entitled to vote thereon.
(d) GOOD FAITH.
(1) For purposes of any determination under this bylaw, a
director or executive officer shall be deemed to have acted in good faith and in
a manner he reasonably believed to be in the best interests of the corporation
and its shareholders, and, with respect to any criminal action or proceeding, to
have had no reasonable cause to believe that his conduct was unlawful, if his
action is based on information, opinions, reports and statements, including
financial statements and other financial data, in each case prepared or
presented by:
(i) one or more officers or employees of the corporation
whom the director or executive officer believed to be reliable and competent in
the matters presented;
(ii) counsel, independent accountants or other persons as
to matters which the director or executive officer believed to be within such
person's professional competence; and
(iii) with respect to a director, a committee of the
Board upon which such director does not serve, as to matters within such
committee's designated authority, which committee the director believes to merit
confidence; so long as, in each case, the director or executive officer acts
without knowledge that would cause such reliance to be unwarranted.
(2) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in the best interests of the
corporation and its shareholders or that he had reasonable cause to believe that
his conduct was unlawful.
(3) The provisions of this paragraph (d) shall not be deemed to
be exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the
California General Corporation Law.
(e) EXPENSES. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it shall be determined ultimately that such person is not entitled to
be indemnified under this bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (f) of this bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made by the Board of Directors by a
majority vote of a quorum consisting of
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directors who were not parties to the proceeding (or, if no such quorum exists,
by independent legal counsel in a written opinion) that the facts known to the
decision making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in the best interests of the corporation and its
shareholders.
(f) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in the forum in
which the proceeding is or was pending or, if such forum is not available or a
determination is made that such forum is not convenient, in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the California General Corporation Law
for the corporation to indemnify the claimant for the amount claimed. Neither
the failure of the corporation (including its board of directors, independent
legal counsel or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the California General Corporation Law, nor an actual determination by
the corporation (including its board of directors, independent legal counsel or
its shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(g) NON-EXCLUSIVITY OF RIGHTS. To the fullest extent permitted by the
corporation's Articles of Incorporation and the California General Corporation
Law, the rights conferred on any person by this bylaw shall not be exclusive of
any other right which such person may have or hereafter acquire under any
statute, provision of the Articles of Incorporation, bylaws, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding office.
The corporation is specifically authorized to enter into individual contracts
with any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent permitted by the California
General Corporation Law and the corporation's Articles of Incorporation.
(h) SURVIVAL OF RIGHTS. The rights conferred on any person by this
bylaw shall continue as to a person who has ceased to be a director or executive
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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(i) INSURANCE. The corporation, upon approval by the board of
directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this bylaw.
(j) AMENDMENTS. Any repeal or modification of this bylaw shall only
be prospective and shall not affect the rights under this bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(k) EMPLOYEE BENEFIT PLANS. The corporation shall indemnify the
directors and officers of the corporation who serve at the request of the
corporation as trustees, investment managers or other fiduciaries of employee
benefit plans to the fullest extent permitted by the California General
Corporation Law.
(l) SAVING CLAUSE. If this bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the fullest extent permitted by any applicable portion of this bylaw that shall
not have been invalidated, or by any other applicable law.
(m) CERTAIN DEFINITIONS. For the purposes of this bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding, including expenses of
establishing a right to indemnification under this bylaw or any applicable law.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "officer," "employee," or "agent"
of the corporation shall include, without limitation, situations where such
person is or was
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serving at the request of the corporation as a director, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
ARTICLE XI
RIGHT OF FIRST REFUSAL
SECTION 64. RIGHT OF FIRST REFUSAL. No shareholder shall sell,
assign, pledge, or in any manner transfer any of the shares of Common Stock of
the corporation or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets the
requirements hereinafter set forth in this bylaw:
(a) If the shareholder desires to sell or otherwise transfer any of
his shares of Common Stock, then the shareholder shall first give written notice
thereof to the corporation. The notice shall name the proposed transferee and
state the number of shares to be transferred, the proposed consideration, and
all other terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of the
shares specified in the notice at the price and upon the terms set forth in such
notice; provided, however, that, with the consent of the shareholder, the
corporation shall have the option to purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift, property settlement or other transfer in which the proposed
transferee is not paying the full price for the shares, and that is not
otherwise exempted from the provisions of this Section 64, the price shall be
deemed to be the fair market value of the stock at such time as determined in
good faith by the Board of Directors. In the event the corporation elects to
purchase all of the shares or, with consent of the shareholder, a lesser portion
of the shares, it shall give written notice to the transferring shareholder of
its election and settlement for said shares shall be made as provided below in
paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to
acquire any of the shares of the transferring shareholder as specified in said
transferring shareholder's notice, the Secretary of the corporation shall so
notify the transferring shareholder and settlement thereof shall be made in cash
within thirty (30) days after the Secretary of the corporation receives said
transferring shareholder's notice; provided that if the terms of payment set
forth in said transferring shareholder's notice were other than cash against
delivery, the corporation and/or its assignee(s) shall pay for said shares on
the same terms and conditions set forth in said transferring shareholder's
notice.
(e) In the event the corporation and/or its assignees(s) do not elect
to acquire all of the shares specified in the transferring shareholder's notice,
said transferring shareholder may, within the sixty-day period following the
expiration of the option rights
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granted to the corporation and/or its assignees(s) herein, transfer the shares
specified in said transferring shareholder's notice which were not acquired by
the corporation and/or its assignees(s) as specified in said transferring
shareholder's notice. All shares so sold by said transferring shareholder shall
continue to be subject to the provisions of this bylaw in the same manner as
before said transfer.
(f) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this bylaw:
(1) A shareholder's transfer of any or all shares held either
during such shareholder's lifetime or on death by will or intestacy to such
shareholder's immediate family or to any custodian or trustee for the account of
such shareholder or such shareholder's immediate family. "Immediate family" as
used herein shall mean spouse, lineal descendant, father, mother, brother, or
sister of the shareholder making such transfer.
(2) A shareholder's bona fide pledge or mortgage of any shares
with a commercial lending institution, provided that any subsequent transfer of
said shares by said institution shall be conducted in the manner set forth in
this bylaw.
(3) A shareholder's transfer of any or all of such shareholder's
shares to the corporation or to any other shareholder of the corporation.
(4) A shareholder's transfer of any or all of such shareholder's
shares to a person who, at the time of such transfer, is an officer or director
of the corporation.
(5) A corporate shareholder's transfer of any or all of its shares
pursuant to and in accordance with the terms of any merger, consolidation,
reclassification of shares or capital reorganization of the corporate
shareholder, or pursuant to a sale of all or substantially all of the stock or
assets of a corporate shareholder.
(6) A corporate shareholder's transfer of any or all of its
shares to any or all of its shareholders.
(7) A transfer by a shareholder which is a limited or general
partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this bylaw, and there
shall be no further transfer of such stock except in accord with this bylaw.
(g) The provisions of this bylaw may be waived with respect to any
transfer either by the corporation, upon duly authorized action of its Board of
Directors, or by the shareholders, upon the express written consent of the
owners of a majority of the voting power of the corporation (excluding the votes
represented by those shares to be transferred by the transferring shareholder).
This bylaw may be amended or repealed either
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by a duly authorized action of the Board of Directors or by the shareholders,
upon the express written consent of the owners of a majority of the voting power
of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of securities
of the corporation shall be null and void unless the terms, conditions, and
provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on either of
the following dates, whichever shall first occur:
(1) On July 31, 2003; or
(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the corporation
shall bear on their face the following legend so long as the foregoing right of
first refusal remains in effect:
"The shares represented by this certificate are subject to a right of
first refusal option in favor of the corporation and/or its assignee(s), as
provided in the bylaws of the corporation."
ARTICLE XII
LOANS TO OFFICERS AND OTHERS
SECTION 65. CERTAIN CORPORATE LOANS AND GUARANTIES. If the
corporation has outstanding shares held of record by 100 or more persons on the
date of approval by the Board of Directors, the corporation may make loans of
money or property to, or guarantee the obligations of, any officer of the
corporation or its parent or any subsidiary, whether or not a director of the
corporation or its parent or any subsidiary, or adopt an employee benefit plan
or plans authorizing such loans or guaranties, upon the approval of the Board of
Directors alone, by a vote sufficient without counting the vote of any
interested director or directors, if the Board of Directors determines that such
a loan or guaranty or plan may reasonably be expected to benefit the
corporation. Notwithstanding the foregoing, the corporation shall have the
power to make loans permitted by the California Corporations Code.
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EXHIBIT 5.1
[LETTERHEAD OF COOLEY GODWARD LLP]
July 31, 1997
Megabios Corp.
863A Mitten Rd.
Burlingame, California 94010
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Megabios Corp. (the "Company") of a Registration Statement on
Form S-1 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission"), covering an underwritten public offering of up to
2,875,000 shares of Common Stock (the "Common Stock").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Fifth Amended and
Restated Articles of Incorporation, as amended, and Bylaws, as amended, and the
originals or copies certified to our satisfaction of such records, documents,
certificates, memoranda and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below, (ii) assumed
that the Restated Certificate of Incorporation, as set forth in Exhibit 3.4 of
the Registration Statement, shall have been duly approved and filed with the
office of the Delaware Secretary of State and (iii) that the shares of Common
Stock will be sold by the Underwriters at a price established by the Pricing
Committee of the Board of Directors of the Company.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included on the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By /s/ Alan C. Mendelson
----------------------
Alan C. Mendelson
<PAGE>
EXHIBIT 10.7
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MEGABIOS CORP.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
MAY 23, 1997
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<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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I. GENERAL
<C> <S> <C>
1.1 Definitions.................................... 1
II. REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 Restrictions on Transfer....................... 3
2.2 Demand Registration............................ 4
2.3 Piggyback Registrations........................ 5
2.4 Form S-3 Registration.......................... 6
2.5 Expenses of Registration....................... 7
2.6 Obligations of the Company..................... 7
2.7 Termination of Registration Rights............. 8
2.8 Delay of Registration.......................... 8
2.9 Indemnification................................ 8
2.10 Assignment of Registration Rights.............. 10
2.11 Amendment of Registration Rights............... 11
2.12 Limitation on Subsequent Registration Rights... 11
2.13 "Market Stand-Off" Agreement................... 11
III. COVENANTS OF THE COMPANY
3.1 Basic Financial Information and Reporting...... 11
3.2 Inspection Rights.............................. 12
3.3 Confidentiality of Records..................... 12
3.4 Proprietary Information........................ 12
3.5 Right of First Refusal......................... 12
3.6 Reservation of Common Stock.................... 14
3.7 Termination of Covenants....................... 15
IV. MISCELLANEOUS
4.1 Governing Law.................................. 15
4.2 Survival....................................... 15
4.3 Successors and Assigns......................... 15
4.4 Separability................................... 15
4.5 Amendment and Waiver........................... 15
4.6 Delays or Omissions............................ 15
4.7 Notices........................................ 16
4.8 Attorneys' Fees................................ 16
4.9 Titles and Subtitles........................... 16
4.10 Counterparts................................... 16
</TABLE>
<PAGE>
TABLE OF CONTENTS
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(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SCHEDULES
Schedule A: Shareholders
Schedule B: Regulation S Purchasers
Schedule C: U.S. Purchasers
</TABLE>
<PAGE>
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (the "Agreement") is
entered into as of May 23, 1997, by and among MEGABIOS Corp., a California
corporation (the "Company"), and the holders of the Company's Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series E Preferred
Stock identified on Schedule A hereto (collectively, the "Shareholders"), and
the purchasers of the Company's Series F Preferred Stock identified on Schedule
B or Schedule C hereto (purchasers identified on Schedule B or Schedule C are
collectively referred to herein as the "Purchasers").
WHEREAS, the Shareholders possess registration rights, information rights
and other rights pursuant to an Amended and Restated Investors' Rights Agreement
dated as of October 7, 1996 between the Company and the Shareholders (the "Prior
Agreement");
WHEREAS, the Shareholders desire to terminate the Prior Agreement and to
accept the rights created pursuant hereto in lieu of the rights granted to them
under the Prior Agreement; and
WHEREAS, the Purchasers are parties to the Series F Preferred Stock
Purchase Agreement, dated as of the date hereof, by and among the Company and
the Purchasers (the "Purchase Agreement"), pursuant to which certain of the
Company's and the Purchasers' obligations are conditioned upon the execution and
delivery by the Purchasers and the Company of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
considerations and releases contained herein, the Shareholders agree that the
Prior Agreement is amended and restated in its entirety by this Agreement, and
the parties hereto further agree as follows:
I. GENERAL
-------
1.1 Definitions. As used in this Agreement the following terms shall have
-----------
the following respective meanings:
"Holder" means any person owning of record Registrable Securities that have
not been sold to the public or any assignee of record of such Registrable
Securities in accordance with Section 2.10 hereof.
"Investors" means collectively the Purchasers and the Shareholders and
"Investor" means any one of them.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, as defined below, and the declaration or ordering of
effectiveness of such registration statement or document.
<PAGE>
"Registrable Securities" means (i) shares of Common Stock of the Company
issued or issuable upon conversion of the Shares, as defined below; and (ii) any
shares of Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, such above-described securities. Notwithstanding the foregoing,
Registrable Securities shall not include any securities sold by a person to the
public either pursuant to a registration statement or Rule 144 or sold in a
private transaction in which the transferror's rights under Article II of this
Agreement are not assigned.
"Registrable Securities then outstanding" means the number of shares
determined by calculating the total number of shares of the Common Stock of the
Company that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
"Registration Expenses" means all expenses incurred by the Company in
complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements not to exceed Twenty
Thousand Dollars ($20,000) of a single special counsel for the Holders, blue sky
fees and expenses and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
"Regulation S" means Rules 902 through 904 as promulgated by the Commission
under the Securities Act, as such rules may be amended from time to time, or any
similar successor rules that may be promulgated by the Commission.
"Regulation S Purchasers" means collectively the Purchasers listed on
Schedule B hereto and "Regulation S Purchaser" means any one of them.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Expenses" means all underwriting discounts and selling commissions
applicable to the sale of Registrable Securities.
"Shares" means shares of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock of the Company.
"Form S-3" means such form under the Securities Act as in effect on the date
hereof or any successor registration form under the Securities Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
<PAGE>
"SEC" or "Commission" means the Securities and Exchange Commission.
"U.S. Purchasers" means collectively the Purchasers listed on Schedule C
hereto and "U.S. Purchaser" means any one of them.
II. REGISTRATION; RESTRICTIONS ON TRANSFER
--------------------------------------
2.1 Restrictions on Transfer.
------------------------
(a) Each Holder agrees not to make any disposition of all or any
portion of the Registrable Securities (or the Common Stock issuable upon the
conversion thereof) unless and until the transferee has agreed in writing for
the benefit of the Company to be bound by this Section 2.1, provided and to the
extent such Section is then applicable and:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (B) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and (ii)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by a Holder which is (A) a partnership to its partners in
accordance with partnership interests, or (B) to the Holder's family member or
trust for the benefit of an individual Holder, provided the transferee will be
subject to the terms of this Section 2.1 to the same extent as if he were an
original Holder hereunder.
(b) Each certificate representing Shares or Registrable Securities
shall (unless otherwise permitted by the provisions of the Agreement) be stamped
or otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws or as
provided elsewhere in the Agreement and except that the Regulation S legend
shall be applied only to those securities issued to Regulation S Purchasers):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
<PAGE>
UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON OTHER WRITTEN
EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED PURSUANT
TO REGULATION S OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE THEREWITH.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Each Regulation S Purchaser is aware that the Company will, and
the Company agrees that Company shall, to the extent required by Regulation S,
refuse to register any transfer of the Shares purchased by such Regulation S
Purchaser that is not made in accordance with Regulation S.
(e) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 Demand Registration.
-------------------
2.2.1 Subject to the conditions of this Section 2.2, if the Company
shall receive at any time a written request from the Holders of more than thirty
percent (30%) of the Registrable Securities then outstanding (the "Initiating
Holders") that the Company file a registration statement under the Securities
Act covering the registration of Registrable Securities, then the Company shall,
within thirty (30) days of the receipt thereof, give written notice of such
request to all Holders, and subject to the limitations of Section 2.2.2, shall
use its best efforts to effect, as soon as practicable, the registration under
the Securities Act of all Registrable Securities that the Holders request to be
registered.
2.2.2 If the Initiating Holders 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 2.2
and the Company shall include such information in the written notice referred to
in Section 2.2.1. In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting
<PAGE>
(unless otherwise mutually agreed by a majority in interest of the Initiating
Holders and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders (which underwriter or underwriters shall be reasonably acceptable to the
Company). Notwithstanding any other provision of this Section 2.2, if the
underwriter advises the Company in writing that marketing factors require a
limitation of the number of securities to be underwritten (including Registrable
Securities) then the Company shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares that may be included in the underwriting shall be allocated to the
Holders of such Registrable Securities on a pro rata basis based on the number
of Registrable Securities held by all such Holders (including the Initiating
Holders). Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from the registration.
2.2.3 The Company shall not be obligated to effect more than two (2)
registrations pursuant to this Section 2.2.
2.2.4 The Company shall not be required to effect a registration
pursuant to this Section 2.2 during the period starting with the date of filing
of, and ending on the date one hundred eighty (180) days following the effective
date of the registration statement pertaining to the initial public offering of
the Company's common stock (the "Initial Offering"), provided that the Company
is making reasonable and good faith efforts to cause such registration statement
to become effective. In addition, the Company shall not be required to effect a
registration pursuant to this Section 2.2 if within thirty (30) days of receipt
of a written request from Initiating Holders pursuant to Section 2.2.1, the
Company gives notice to the Holders of the Company's intention to make its
Initial Offering within ninety (90) days.
2.2.5 Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 2.2, a
certificate signed by the Chairman of the Board stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than ninety (90) days after receipt of the request of
the Initiating Holders; provided that such right to delay a request shall be
exercised by the Company no more than once in any one-year period.
2.3 Piggyback Registrations. The Company shall notify all Holders of
-----------------------
Registrable Securities in writing at least thirty (30) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans and corporate reorganizations) and will afford each such Holder an
opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within fifteen (15)
<PAGE>
days after receipt of the above-described notice from the Company, so notify the
Company in writing. Such notice shall state the intended method of disposition
of the Registrable Securities by such Holder. If a Holder decides not to include
all of its Registrable Securities in any registration statement thereafter filed
by the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
2.3.1 Underwriting. If the registration statement under which the
------------
Company gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 2.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of the
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company; second, to the Holders on a pro rata basis based on the total
number of Registrable Securities held by the Holders; and third, to any
shareholder of the Company (other than a Holder) on a pro rata basis. No such
reduction shall reduce the securities being offered by the Company for its own
account to be included in the registration and underwriting, except that in no
event shall the amount of securities of the selling Holders included in the
registration be reduced below twenty-five percent (25%) of the total amount of
securities included in such registration, unless such offering is the Initial
Offering and such registration does not include shares of any other selling
shareholders, in which event any or all of the Registrable Securities of the
Holders may be excluded in accordance with the immediately preceding sentence.
In no event will shares of any other selling shareholder be included in such
registration which would reduce the number of shares which may be included by
Holders without the written consent of Holders of not less than a majority of
the Registrable Securities proposed to be sold in the offering.
2.4 Form S-3 Registration. In case the Company shall receive from any
---------------------
Holder or Holders of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
2.4.1 promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders of Registrable
Securities; and
2.4.2 as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
<PAGE>
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.4: (i) if
Form S-3 is not available for such offering by the Holders, (ii) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public of less than
$500,000, (iii) if the Company shall furnish to the Holders a certificate signed
by the Chairman of the Board of Directors of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than ninety (90) days after receipt of the request of the
Holder or Holders under this Section 2.4, provided that the Company may exercise
such right only once in each 12-month period, or (iv) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
2.4.3 Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders.
2.5 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
Section 2.2 or any registration under Section 2.3 or Section 2.4 herein shall be
borne by the Company. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the securities so
registered pro rata on the basis of the number of shares so registered. The
Company shall not, however, be required to pay for expenses of any registration
proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been
subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is
based upon material adverse information concerning the Company of which the
Initiating Holders were not aware at the time of such request or (b) for
registration proceedings begun pursuant to Section 2.2, the Holders of a
majority of Registrable Securities agree to forfeit their right to one requested
registration pursuant to Section 2.2 (in which event such right shall be
forfeited by all Holders). If the Holders are required to pay the Registration
Expenses, such expenses shall be borne by the holders of securities (including
Registrable Securities) requesting such registration in proportion to the number
of shares for which registration was requested.
2.6 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities, the Company shall use its best
efforts, as expeditiously as reasonably possible, to:
2.6.1 Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become
<PAGE>
effective, and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective for
up to one hundred eighty (180) days.
2.6.2 Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
2.6.3 Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
2.6.4 Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
2.6.5 In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
2.6.6 Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
2.6.7 Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
<PAGE>
2.7 Termination of Registration Rights. All registration rights granted
----------------------------------
under this Article II shall terminate and be of no further force and effect
seven (7) years after the closing of the Company's Initial Offering.
2.8 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Article II.
2.9 Indemnification. In the event any Registrable Securities are included
---------------
in a registration statement under Sections 2.2, 2.3 or 2.4:
2.9.1 To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers and directors of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended, (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law in connection with the offering covered
by such registration statement; and the Company will reimburse each such Holder,
partner, officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, as incurred;
provided however, that the indemnity agreement contained in this Section 2.9.1
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder, partner,
officer, director, underwriter or controlling person of such Holder.
2.9.2 To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or
<PAGE>
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, or partner,
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder under an instrument
duly executed by such Holder and stated to be specifically for use in connection
with such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, or partner, officer, director
or controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action if it is judicially
determined that there was such a Violation; provided, however, that the
indemnity agreement contained in this Section 2.9.2 shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.9 exceed the gross proceeds from the offering
received by such Holder.
2.9.3 Promptly after receipt by an indemnified party under this
Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.9.
2.9.4 If the indemnification provided for in this Section 2.9 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged
<PAGE>
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
2.9.5 The foregoing indemnity agreements of the Company and Holders
are subject to the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the
benefit of any person if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
2.9.6 The obligations of the Company and Holders under this Section
2.9 shall survive the completion of any offering of Registrable Securities in a
registration statement, and otherwise.
2.10 Assignment of Registration Rights. The rights to cause the Company to
---------------------------------
register Registrable Securities pursuant to this Article II may be assigned by a
Holder to a transferee or assignee of Registrable Securities which is a (i)
subsidiary, parent, general partner or limited partner of a Holder or (ii) which
acquires at least fifty thousand (50,000) shares of Registrable Securities (as
adjusted for stock splits and combinations); provided, however, that the
transferee shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned.
2.11 Amendment of Registration Rights. Any provision of this Article II
--------------------------------
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least a majority of the
Registrable Securities. Any amendment or waiver effected in accordance with
this Section 2.11 shall be binding upon each Holder and the Company. By
acceptance of any benefits under this Article II, Holders of Registrable
Securities hereby agree to be bound by the provisions hereunder.
2.12 Limitation on Subsequent Registration Rights. After the date of this
--------------------------------------------
Agreement, the Company shall not, without the prior written consent of the
Holders of a majority of the Registrable Securities, enter into any agreement
with any holder or prospective holder of any securities of the Company that
would permit such holder to require that the Company register any securities
held by such holder.
2.13 "Market Stand-Off" Agreement. The Company (or a representative of the
----------------------------
underwriters) may, in connection with the first underwritten registration of the
offering of any securities of the Company under the Act, require that a Holder
not sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not
<PAGE>
to exceed one hundred eighty (180) days) following the effective date (the
"Effective Date") of the registration statement of the Company filed under the
Act as may be requested by the Company or the representative of the
underwriters. For purposes of this restriction a Holder will be deemed to own
securities which (i) are owned directly or indirectly by such Holder, including
securities held for such Holder's benefit by nominees, custodians, brokers or
pledgees; (ii) may be acquired by such Holder within sixty (60) days of the
Effective Date; (iii) are owned directly or indirectly, by or for such Holder's
brothers or sisters (whether by whole or half blood) spouse, ancestors and
lineal descendants; or (iv) are owned, directly or indirectly, by or for a
corporation, partnership, estate or trust of which such Holder is a shareholder,
partner or beneficiary, but only to the extent of such Holder's proportionate
interest therein as a shareholder, partner or beneficiary thereof. Such Holder
further agrees that the Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restrictions until the end of
such period.
III. COVENANTS OF THE COMPANY.
------------------------
3.1 Basic Financial Information and Reporting.
-----------------------------------------
3.1.1 The Company will maintain true books and records of account in
which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied, and will set
aside on its books all such proper accruals and reserves as shall be required
under generally accepted accounting principles consistently applied.
3.1.2 As soon as practicable after the end of each fiscal year of the
Company, and in any event within 120 days thereafter, the Company will furnish
each Investor a consolidated balance sheet of the Company, as at the end of such
fiscal year, and a consolidated statement of income and a consolidated statement
of cash flows of the Company, for such year, all prepared in accordance with
generally accepted accounting principles and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail. Such financial statements shall be accompanied by a report and opinion
thereon by independent public accountants of national standing selected by the
Company's Board of Directors.
3.1.3 So long as an Investor (with its affiliates) shall own not less
than one hundred thousand (100,000) shares of Registrable Securities (a "Major
Investor"), the Company will furnish each such Major Investor (i) at least
thirty (30) days prior to the beginning of each fiscal year an annual budget and
operating plans for such fiscal year; and (ii) as soon as practicable after the
end of each month, and in any event within twenty (20) days thereafter, a
consolidated balance sheet of the Company as of the end of each such month, and
a consolidated statement of income and a consolidated statement of cash flows of
the Company for such month and for the current fiscal year to date, including a
comparison to plan figures for such period, prepared in accordance with
generally accepted accounting principles, with the exception that no notes need
be attached to such statements and year-end audit adjustments may not have been
made.
<PAGE>
3.2 Inspection Rights. Each Major Investor shall have the right to visit
-----------------
and inspect any of the properties of the Company or any of its subsidiaries, and
to discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, all at such reasonable times and as often as may
be reasonably requested; provided, however, that the Company shall not be
obligated under this Section 3.2 with respect to a competitor of the Company or
with respect to information which the Board of Directors determines in good
faith is confidential and should not, therefore, be disclosed.
3.3 Confidentiality of Records. Each Investor agrees to use, and to use
--------------------------
its best efforts to insure that its authorized representatives use, the same
degree of care as such Investor uses to protect its own confidential information
to keep confidential any information furnished to it which the Company
identifies as being confidential or proprietary (so long as such information is
not in the public domain), except that such Investor may disclose such
proprietary or confidential information to any partner, subsidiary or parent of
such Investor for the purpose of evaluating its investment in the Company as
long as such partner, subsidiary or parent is advised of the confidentiality
provisions of this Section 3.3.
3.4 Proprietary Information. The Company shall require all employees of
-----------------------
and consultants to the Company who have access to proprietary information of the
Company to enter into agreements in the Company's standard form providing for
the protection of proprietary information and inventions.
3.5 Right of First Refusal. Subject to the provisions of this Section
----------------------
3.5, the Company hereby grants to each Holder holding at least 50,000 shares of
Registrable Securities, unless waived pursuant to Section 3.5.6 below, the right
of first refusal to purchase its pro rata share of New Securities (as defined
below) that the Company may, from time to time, propose to sell and issue. For
purposes of this Section 3.5, the Registrable Securities held by all affiliated
entities and individuals shall be aggregated for purposes of determining whether
the above 50,000 share threshold is met, and all such affiliated entities and
individuals shall be treated as a single Holder. Each Holder's pro rata share,
for purposes of this right of first refusal, is the ratio of (X) the number of
shares of Registrable Securities then owned to (Y) the total number of shares of
Common Stock of the Company outstanding immediately prior to the issuance of the
New Securities, assuming full conversion of all shares of outstanding Preferred
Stock of the Company and exercise of all outstanding options and warrants to
purchase securities of the Company. This right of first refusal shall be
subject to the following provisions:
3.5.1 "New Securities" shall mean any offering by the Company of any
Common Stock or Preferred Stock of the Company, whether now authorized or not,
and rights, options, or warrants to purchase said Common Stock or Preferred
Stock, and securities of any type whatsoever that are, or may become,
convertible into said Common Stock or Preferred Stock; provided, however, that
"New Securities" does not include (i) securities issuable upon conversion of the
Preferred Stock; (ii) securities offered to the public pursuant to a
registration statement filed under the Securities Act; (iii) securities issued
pursuant to the acquisition of another corporation by the Company by merger,
purchase of substantially all of the assets, or other reorganization whereby the
<PAGE>
Company owns more than 50% of the voting power of such corporation; (iv) shares
of the Company's Common Stock (or related options) issued or issuable at any
time to employees, directors or consultants of the Company, or any subsidiary,
pursuant to any employee stock offering, plan, or arrangement approved by the
Board of Directors; (v) shares of the Company's Common Stock or Preferred Stock
issued in connection with any stock split, stock dividend, or recapitalization
by the Company; (vi) securities issued in connection with equipment lease
financings or other financings with commercial lenders; and (vii) shares of the
Company's Common Stock or Preferred Stock issued in connection with strategic
transactions involving the Company and other entities, including (A) joint
ventures, manufacturing, marketing or distribution arrangements or (B)
technology transfer or development arrangements; provided that such strategic
transactions and the issuance of shares therein, has been approved by all
members of the Company's Board of Directors.
3.5.2 In the event that the Company proposes to undertake an issuance
of New Securities, it shall give each Holder written notice of its intention,
describing the type of New Securities, the price, and the general terms upon
which the Company proposes to issue the same ("New Securities Notice"). Each
Holder shall have 10 business days from the date of mailing of any New
Securities Notice to agree to purchase its pro rata share of such New Securities
for the price and upon the general terms specified in the New Securities Notice
by giving written notice to the Company and stating therein the quantity of New
Securities to be purchased.
3.5.3 In the event that the Holders fail to exercise in full the
right of first refusal within said 10 business day period, the Company shall
have 120 days thereafter to sell (or enter into an agreement pursuant to which
the sale of New Securities covered thereby shall be closed, if at all, within 30
days from the date of said agreement) the New Securities respecting which the
Holders' rights were not exercised at a price and upon general terms materially
no more favorable to the purchasers thereof than specified in the New Securities
Notice. In the event the Company has not sold the New Securities within said
120 day period (or sold and issued New Securities in accordance with the
foregoing within 120 days from the date of said agreement), the Company shall
not thereafter issue or sell any New Securities without first offering such
securities to the Holders in the manner provided above; provided however, that
in the event that within a 60 day period from the date of mailing of the New
Securities Notice, the Company changes the price or any other material terms
specified in the New Securities Notice upon which the New Securities are to be
issued, the Company shall offer the New Securities at such amended terms to the
Holders in the manner provided in Section 3.5.4 below.
3.5.4 In the event that within a 60 day period from the date of
mailing of the New Securities Notice, the Company changes the price or any other
material terms specified in the New Securities Notice upon which the New
Securities are to be issued, the Company shall give each Holder written notice
describing such changes ("Notice of Change"). Each Holder shall have 5 business
days from the date of mailing of any Notice of Change to purchase its pro rata
share of such New Securities for the price and upon the general terms specified
in the New Securities Notice, as amended by the Notice of Change, by giving
written notice to the Company and stating therein the quantity of New Securities
to be purchased. In the event that the Holders fail to exercise
<PAGE>
in full the right of first refusal within said 5 business day period, the
Company shall have 120 days thereafter to sell (or enter into an agreement
pursuant to which the sale of New Securities covered thereby shall be closed, if
at all, within 30 days from the date of said agreement) the New Securities
respecting which the Holders' rights were not exercised at a price and upon
general terms materially no more favorable to the purchasers thereof than
specified in the New Securities Notice, as amended by the Notice of Change. In
the event the Company has not sold the New Securities within said 120 day period
(or sold and issued New Securities in accordance with the foregoing within 120
days from the date of said agreement), the Company shall not thereafter issue or
sell any New Securities without first offering such securities to the Holders in
the manner provided in Sections 3.5.2 and 3.5.3 above, or if applicable, this
Section 3.5.4.
3.5.5 Notwithstanding anything to the contrary contained or implied
herein, in the event that the Company changes the price or any other material
terms specified in the New Securities Notice after 60 days from the date of
mailing of the New Securities Notice, the provisions of Sections 3.5.2 and 3.5.3
above shall govern and the provisions of Section 3.5.4 above shall not apply.
<PAGE>
3.5.6 Notwithstanding anything to the contrary contained or implied
herein, the right of first refusal granted herein may be waived or amended by
the vote of Holders holding at least a majority of the outstanding Registrable
Securities; provided however, that any such waiver or amendment shall not be
effective as to any Holder holding more than 500,000 shares of Registrable
Securities unless such Holder also consents to such a waiver or amendment.
3.5.7 The provisions of this Section 3.5 may only be amended or
modified upon the written consent of (i) the Company, (ii) the holders of at
least a majority of the Registrable Securities, and (iii) all Holders holding
more than 500,000 shares of Registrable Securities.
3.6 Reservation of Common Stock. The Company will at all times reserve
---------------------------
and keep available, solely for issuance and delivery upon the conversion of the
Preferred Stock, all Common Stock issuable from time to time upon such
conversion.
3.7 Termination of Covenants. All covenants of the Company contained in
------------------------
Article III of this Agreement shall expire and terminate as to each Investor on
the Effective Date of the Company's first firm commitment underwritten public
offering registered under the Securities Act.
IV. MISCELLANEOUS.
-------------
4.1 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
4.2 Survival. The representations, warranties, covenants, and agreements
--------
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
4.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
<PAGE>
4.4 Separability. In case any provision of the Agreement shall be
------------
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
4.5 Amendment and Waiver.
--------------------
4.5.1 Except for Section 3.5 which may only be amended or modified as
provided in Section 3.5.7, and except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of at least a majority of the Registrable Securities.
4.5.2 Except for any obligations and rights arising under Section 3.5
which may only be waived as provided in Section 3.5.6, and except as otherwise
expressly provided, the obligations of the Company and the rights of the Holders
under this Agreement may be waived only with the written consent of the holders
of a majority of the Registrable Securities.
4.6 Delays or Omissions. It is agreed that no delay or omission to
-------------------
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
4.7 Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature pages hereof
or at such other address as such party may designate by ten (10) days advance
written notice to the other parties hereto.
4.8 Attorneys' Fees. In the event that any dispute among the parties to
---------------
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
<PAGE>
4.9 Titles and Subtitles. The titles of the sections and subsections of
--------------------
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
4.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.
COMPANY: INVESTOR:
MEGABIOS Corp: ELI LILLY AND COMPANY
By: By: /s/ Edwin W. Miller
------------------------ --------------------------
Edwin W. Miller
Title: Title: Vice President and Treasurer
------------------------ --------------------------
Address: 863A Mitten Road Address: Lilly Corporate Center
Burlingame, CA 94010 Indianapolis, IN 46285
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
28
<PAGE>
UEBERSEEK AG
By:___________________________________
Title:________________________________
Address: Limmatquai 2
8024 Zurich
Switzerland
LOMBARD, ODIER & CIE
PAR PROCURATION
By: /s/ Rene Favre /s/ Alain Walthert
-----------------------------------
FAVRE Rene WALTHERT Alain
Title: Fonde de pouvoir Mandataire commercial
--------------------------------
Address: 11 Rue de la Corraterier
1211 Geneva
Switzerland
CREDIT SUISSE ZURICH
By:___________________________________
Title:________________________________
Address: c/o Swisspartners Investment Network AG
Am Schanzengraben 23
Postfach 970
CH-8039 Zurich
Switzerland
29
<PAGE>
BANCA DEL GOTTARDO
By: /s/ ^^
-----------------------------------
Title: MEMBER OF MEMBER OF THE
--------------------------------
MANAGEMENT EXECUTIVE BOARD
Address: Viale S. Franscini 8
6900 Lugano
Switzerland
BSI-BANCA DELLA SVIZZERA ITALIANA
By:___________________________________
Title:________________________________
Address: Via Peri 23
6900 Lugano
Switzerland
BANCA UNIONE DI CREDITO
By:___________________________________
Title:________________________________
Address: Via Balestra 4
P. Dante 7
6900 Lugano
Switzerland
CANTRADE PRIVAT BANK AG
By:___________________________________
Title:________________________________
Address: Morgartenstrasse, 1
P.O. Box 1332
CH-8038 Zurich
Switzerland
31
<PAGE>
BANCA DEL GOTTARDO
By:___________________________________
Title:________________________________
Address: Viale S. Franscini 8
6900 Lugano
Switzerland
BSI-BANCA DELLA SVIZZERA ITALIANA
By: BS-BANCA DELLA SVIZZERA ITALIANA
-----------------------------------
Title: Vice President Vice President
--------------------------------
Address: Via Peri 23
6900 Lugano
Switzerland
BANCA UNIONE DI CREDITO
By:___________________________________
Title:________________________________
Address: Via Balestra 4
P. Dante 7
6900 Lugano
Switzerland
CANTRADE PRIVAT BANK AG
By:___________________________________
Title:________________________________
Address: Morgartenstrasse, 1
P.O. Box 1332
CH-8038 Zurich
Switzerland
31
<PAGE>
BANCA DEL GOTTARDO
By:___________________________________
Title:________________________________
Address: Viale S. Franscini 8
6900 Lugano
Switzerland
BSI-BANCA DELLA SVIZZERA ITALIANA
By:___________________________________
Title:________________________________
Address: Via Peri 23
6900 Lugano
Switzerland
BANCA UNIOINE DI CREDITO
/s/ G. Gatti /s/ V. Vellano
By: G. GATTI V. VELLANO
-----------------------------------
Title: ASSISTANT MANAGER JOINT GENERAL MANAGER
--------------------------------
Address: Via Balestra 4
P. Dante 7
6900 Lugano
Switzerland
CANTRADE PRIVAT BANK AG
By:___________________________________
Title:________________________________
Address: Morgartenstrasse, 1
P.O. Box 1332
CH-8038 Zurich
Switzerland
31
<PAGE>
CBG COMPAGNIE BANCAIRE GENEVE
By: /s/ M. Streuli B. Friedli
-----------------------------------
M. Streuli B. Friedli
Title:________________________________
Vice President First Vice President
Address: Avenue de Rumine 20
Case Postale 220
CH-1001 Lausanne
Switzerland
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
32
<PAGE>
SWISSPARTNERS INVESTMENT NETWORK AG
By: Marcel Wieduwilt /s/ Marcel Wieduwilt
-----------------------------------
Title: First Vice President
--------------------------------
Address: Am Schanzengraben, 23
Postfach 970
CH-8039 Zurich
Switzerland
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
33
<PAGE>
CAT CAPITAL MARKET COMPANY LIMITED
Proxy for ABN Amro Bank
By: /s/ ^^ /s/ ^^
-----------------------------------
Title: DIRECTOR DIRECTOR
--------------------------------
Address: Room 704-5 7th Floor
Wheelock House
20 Pedder Street
Central
Hong Kong
BANQUE CANTONALE VAUDOISE
By:___________________________________
Title:________________________________
Address: C.P. 300
1001 Lausanne
Switzerland
CREDIT SUISSE, PRIVATE BANKING
By:___________________________________
Title:________________________________
Address: Paradeplatz 8
8021 Zurich
Switzerland
33
<PAGE>
CAT CAPITAL MARKET COMPANY LIMITED
Proxy for ABN Amro Bank
By:___________________________________
Title:________________________________
Address: Room 704-5 7th Floor
Wheelock House
20 Pedder Street
Central
Hong Kong
BANQUE CANTONALE VAUDOISE
By: /s/ D. Descombes /s/ M. Schwitzguebel
-----------------------------------
D. DESCOMBES M. SCHWITZGUEBEL
Title: Director Director-adjoint
--------------------------------
Address: C.P. 300
1001 Lausanne
Switzerland
CREDIT SUISSE, PRIVATE BANKING
By:___________________________________
Title:________________________________
Address: Paradeplatz 8
8021 Zurich
Switzerland
33
<PAGE>
FIDURHONE S.A.
D. Vollenweider J.-P. Diserens
By: /s/ D. Vollenweider /s/ J.P. Diserens
-----------------------------------
Title: Directors
--------------------------------
Address: Rue Muzy 8
Case Rive 3262
CH-1211 Geneve
Switzerland
GILL FAMILY
By:___________________________________
Title:________________________________
P.O. Box 6296
Sharjah
United Arab Emirates
34
<PAGE>
P.C. FREY UND PARTNER AG
By: /s/ PETER C. FREY
-----------------------------------
Title: President and CEO
--------------------------------
Geissbuehlstrasse 5
CH 8704 Herrliberg / Zurich
Switzerland
5/14/97 P.C. FREY UND PARTNER AG
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
35
<PAGE>
PETER RICHNER
By: /s/ Peter Richner
-----------------------------------
Title:
--------------------------------
Scheideggstrasse 59
8002 Zurich
Switzerland
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
35
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
William L. Brown 1,029,222 -- 173,812 __
Ross Hall Corp.
Two Embarcadero Center
Suite 1660
San Francisco, CA 94111
Frank J. Caufield 1,029,222 -- 135,187 __
c/o Kleiner Perkins Caulfield & Byers
Four Embarcadero Center
Suite 3520
San Francisco, CA 94111
Jerome H. Debs, II 1,029,222 -- -- __
c/o Bodri Capital Management
525 University Avenue
Suite 1322
Palo Alto, CA 94301
Mayfield VII -- 1,844,344 1,835,175 __
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: Grant Heidrich
Mayfield Associates Fund II -- 86,906 96,588 __
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: Grant Heidrich
Institutional Venture Partners V -- 946,313 938,105 __
3000 Sand Hill Road
Suite 2-290
Menlo Park, CA 94025
Attn: Samuel D. Colella
Institutional Venture Mgmt. V -- 19,312 19,144 __
3000 Sand Hill Road
Suite 2-290
Menlo Park, CA 94025
Attn: Samuel D. Colella
Falcon Technology Partners L.P. -- 193,125 155,816 __
600 Dorset Road
Devon, PA 19333
Stanford University -- 77,250 54,311 24,417
c/o Stanford Management Company
2770 Sand Hill Road
Menlo Park, CA 94025
Attn: Carol Gilmer
Technology Funding Venture -- -- 903,824 __
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
Partners V, an Aggressive Growth Fund,
L.P.
2000 Alameda de las Pulgas
San Mateo, CA 94403
Technology Funding Medical -- -- 301,275 __
Partners I, L.P.
2000 Alameda de las Pulgas
San Mateo, CA 94403
CV Sofinnova Ventures -- -- 282,646 __
Partners III
One Market Plaza
Steuart Tower, Suite 2630
San Francisco, CA 94105
Attn: Alix Marduel, M.D.
Sofinnova Ventures III L.P. -- -- 319,984 --
One Market Plaza
Steuart Tower, Suite 2630
San Francisco, CA 94105
Attn: Alix Marduel, M.D.
GC&H Investments -- -- 34,762 --
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attn: Jeanne Meyer
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
Benjamin F. McGraw, III -- -- 100,000 --
c/o MEGABIOS Corp.
863A Mitten Road
Burlingame, CA 94010
George A. Schapiro -- -- 38,625 --
3880 Ralston Avenue
Hillsborough, CA 94010
Dean Witter Reynolds/ -- -- 42,487 --
FBO George A. Schapiro Money Purchase
Plan
dtd 12/20/91
3880 Ralston Avenue
Hillsborough, CA 94010
Prudential Securities -- -- 19,313 --
c/o George A. Schapiro IRA Rollover
dtd 09/15/92
3880 Ralston Avenue
Hillsborough, CA 94010
L. Mark Wine -- -- 58,613 --
8601 Carlynn Drive
Bethesda, MD 20817
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
Alta V Limited Partnership -- -- 1,528,930 197,920
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Anita Kemp Usufruct FBO Barbara A. -- -- 19,313 --
Kuehn
c/o Cowen & Co.
53 State Street, 26th Floor
Boston, MA 02109
A.R. Arulpragasam -- -- 38,625 --
195 Church Street, 9th Floor
New Haven, CT 06510
Beechvale, Inc. -- -- 19,313 --
c/o Cowen & Co.
Two International Place
Boston, MA 02110
Attn: Hans Vitzhum
Charter Ventures II, L.P. -- -- 386,250 --
525 University Avenue
Suite 1500
Palo Alto, CA 94301
Attn: A. Barr Dolan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
Customs House Partners -- -- 16,068 2,080
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Attn: Jean Deleage
Glenn Doshay -- -- 77,250 14,337
6279 Via Campo Verde
Rancho Santa Fe, CA 92067-5910
Diana Edwards -- -- 38,625 --
1435 Bay Street, #31
San Francisco, CA 94123
Clay L. Floren -- -- 15,449 --
c/o Douglas C. Floren
Ardsley Partners
648 Steamboat Road
Greenwich, CT 06830
David S. Floren -- -- 15,449 --
c/o Douglas C. Floren
Ardsley Partners
648 Steamboat Road
Greenwich, CT 06830
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
Douglas C. Floren -- -- 772,499 --
Ardsley Partners
648 Steamboat Road
Greenwich, CT 06830
Lennart S. Floren -- -- 38,625 --
c/o Douglas C. Floren
Ardsley Partners
648 Steamboat Road
Greenwich, CT 06830
Jennifer Floren -- -- 15,449 --
c/o Douglas C. Floren
Ardsley Partners
648 Steamboat Road
Greenwich, CT 06830
Melissa Floren -- -- 15,449 --
c/o Douglas C. Floren
Ardsley Partners
648 Steamboat Road
Greenwich, CT 06830
Phillip Gross -- -- 19,313 --
c/o Harvard Management Corporation
600 Atlantic Avenue, 15th Floor
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
Boston, MA 02110
Malcolm McDonald -- -- 19,313 --
c/o Cowen & Co.
Two International Place
28th Floor
Boston, MA 02110
George G. Montgomery, Jr. -- -- 38,625 --
c/o Hambrecht & Quist
One Bush Street, 18th Floor
San Francisco, CA 94104
Steven Nakovich -- -- 50,000 --
c/o Bear Stearns & Co.
Three First National
Chicago, IL 60602
Old Blue & Green Associates -- -- 19,313 --
c/o Cowen & Co.
Financial Square
New York, NY 10005
Attn: Gerald P. Kaminsky
Arthur Pancoe -- -- 50,000 --
c/o Bear Stearns & Co.
Three First National
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
Chicago, IL 60602
Robert Sackman & Sylvia Sackman, as -- -- 78,250 14,337
Trustees of the Sackman Family Trust
c/o Robert Sackman
US Venture Partners
2180 Sandhill Road
Menlo Park, CA 94025
Ziff Asset Management, L.P. -- -- 772,449 143,372
c/o Goldman, Sachs & Co.
Custody Department
Attn: Robin Harris
85 Broad Street, 9th Floor
New York, NY 10004
ABN Amro Bank -- -- -- 965,000
c/o CAT Capital Market Company
Room 704-5 7th Floor
Wheelock House
20 Pedder Street
Central
Hong Kong
Uberseebank AG -- -- -- 195,000
c/o CAT Capital Market Company
Room 704-5 7th Floor
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
Wheelock House
20 Pedder Street
Central
Hong Kong
Ryco & Co. -- -- -- 1,800,000
c/o Chase Manhattan Bank
a/c State Street Bank Trust
4 New York Plaza
Ground Floor
New York, NY 10005
(Lombard Odier & Cie
11 rue de la Corraterie
1211 Geneva 11
Switzerland)
Credit Suisse Zurich -- -- -- 100,000
c/o Swisspartners Investment Network AG
AM Schanzengraben 23
Postfach 970
CH-8039 Zurich
Switzerland
Experta Zurich -- -- -- 500,000
c/o Swisspartners Investment Network AG
AM Schanzengraben 23
Postfach 970
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
CH-8039 Zurich
Switzerland
Bernhard Schurmann -- -- -- 60,000
Hehlstrasse 40
CH-8135 Langnau
Switzerland
Dan Georg Bronner -- -- -- 60,000
c/o Bernhard Schurmann
Hehlstrasse 40
CH-8135 Langnau
Switzerland
BSI-Banca della Svizzera Italiana -- -- -- 210,000
Via Peri 23
6900 Lugano
Switzerland
attn: De Angelis Antonio
Credit Suisse, Private Banking -- -- -- 120,000
Paradeplatz 8
8021 Zurich
Switzerland
attn: M. Ferrazzini/Mr. Wurgler
Kantonalbank Schwyz -- -- -- 10,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
Postfach
CH-6431 Schwyz
Switzerland
attn: Bruno Hicklin WSH
Banque Cantonale Vaudoise -- -- -- 47,480
C.P. 300
1001 Lausanne
Switzerland
attn: D. Descombes
Banca Unione di Credito -- -- -- 40,000
Via Balestra 4
P. Dante 7
6900 Lugano
Switzerland
attn: G. Gatti
Banca del Gottardo -- -- -- 110,000
Viale S. Franscini 8
6900 Lugano
Switzerland
attn: H. Gugolz/C. Poli
CBG Compagnie Bancaire Geneve -- -- -- 20,000
Avenue de Rumine 20
Case Postale 220
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
CH-1001 Lausanne
Switzerland
attn: M. Streuli/B. Friedli
Fidurhone S.A. -- -- -- 20,000
Rue Muzy 8
Case Rive 3262
CH-1211 Geneva
Switzerland
attn: D. Vollenweider
Gill Family -- -- -- 56,057
P.O. Box 6296
Sharjah
United Arab Emirates
attn: Dr. Bhagwant Gill
Blanche W. Wine -- -- -- 4,000
c/o L. Mark Wine
c/o Kirkland & Ellis
655 15th Street NW
Suite 1200
Washington, D.C. 20005
Enright Capital Advisors -- -- -- 6,000
1365 Westridge Road
Portola Valley, CA 94028
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address No. of Shares of No. of Shares of No. of Shares of No. of Shares of
Series A Series B Series C Series E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
<S> <C> <C> <C> <C>
attn: Patrick Enright
</TABLE>
<PAGE>
EX 10.8
[LETTERHEAD OF MAYFIELD FUND]
PERSONAL AND CONFIDENTIAL
August 29, 1994
Mr. Benjamin F. McGraw III
3621 Seabreeze Lane
Corona Del Mar, CA 926254648
Re: Offer of Employment
Dear Ben:
On behalf of the Board of Directors of MEGABIOS Corporation I am pleased to
offer you the position of President and Chief Executive Officer of MEGABIOS
Corporation and a position on the Board of Directors. The offer of employment is
made with the following terms and conditions:
1. Positions and Duties: As President and Chief Executive Officer and a member
--------------------
of the Board of Directors, you will be expected to exert your full-Lime
best efforts to promote and protect the business interests of the Company.
Specifically, your responsibilities will be to manage the operations of the
Company; to build and maintain an outstanding and harmonious working team
of both scientific and business employees; to secure, promote and maintain
the appropriate financing and capital structure of the Company; to manage
and direct the strategic development of the Company's business plan and its
implementation; and to oversee the overall scientific affairs of the
Company. You will report directly to the Board of Directors.
2. Salary; Your base salary will be $250,000.00 per year.
------
3. Stock Options: Through the Company Incentive Stock Option Plan, you will
-------------
receive options to acquire an aggregate 750,000 shares of common stock of
the Company at a price per share to be determined by the Board of
Directors. These options will vest over a four-year period at the rate of
twenty-five percent (187,500 shares) annually for the first year and on a
quarterly basis (46,875 shares per quarter) thereafter.
<PAGE>
Mr. Benjamin F. McGraw III
August 29, 1994
Page 2
4. Benefits: You will be entitled to receive all employee benefits currently
--------
provided to senior management at MEGABIOS Corporation including medical,
dental, and life insurance so long as and to the extent these benefits
exist, provided that you are otherwise eligible and insurable in accordance
with the terms of such plan.
5. Signing Bonus: During your first year of full-tie employment, you will
-------------
receive in aggregate a one time bonus of $65,000 payable in the amounts of
$16,250 at the end of each of the next four quarters.
6. Temporary Housing: As an inducement to you to immediately establish a
-----------------
permanent residence in the Bay Area, the Company will pay your temporary
housing expenses at a rate not to exceed $2,300 per month until you have
permanently relocated. The housing allowance will terminate at the sooner
of your relocation or 12 months from the start of your employment.
7. Reimbursement: The Company will reimburse you for the expenses of
-------------
relocating your family and household belongings to the San Francisco Bay
Area.
8. Severance: Should your employment be terminated by the Company other than
---------
for cause, your salary compensation and benefits, but not the vesting of
your options, shall continue until the sooner of your assumption of other
full-time employment or twelve months. Any interim consulting income during
this period will be deducted from your salary continuation.
9. Restrictive Covenants: You agree that for a period of one year following
---------------------
the termination of your employment you will not directly or indirectly
solicit the services of any MEGABIOS Corporation employee for another
activity, or otherwise induce or attempt to induce such employee to leave
the employ of MEGABIOS Corporation.
10. Start Date: Your full-time employment will begin at any time, but in no
----------
event later than September 15, 1994.
<PAGE>
Mr. Benjamin F. McGraw III
August 29, 1994
Page 3
We request that you indicate your acceptance of the terms of the foregoing offer
of employment by signing the enclosed copy of this letter and returning it to
me. This offer will remain in effect until September 2, 1994.
Sincerely yours,
/s/ Grant Heidrich
A. Grant Heidrich Director
Director
I accept MEGABIOS Corporation's offer of employment subject to the terms and
conditions stated herein and will commence my full-time employment no later than
September 15, 1994.
/s/ Benjamin F. McGraw, III 08/30/94
- --------------------------- ----------------------------
Benjamin F. McGraw, III Date
<PAGE>
[LETTERHEAD OF MEGABIOS CORP.]
Exhibit 10.9
February 27, 1995
Patrick G. Enright
444 East 82nd Street
Apartment 10s
New York, New York 10028
Dear Patrick,
This letter is an offer from Megabios Corporation (the "Company") to you for the
position of Vice President, Finance & Business Development, reporting to me. The
offer consists of the following.
1) Annual salary of $160,000.
2) Incentive stock option grant: 275,000 options, each entitling you to
purchase one share of the Company's common stock. The exercise price of
this option is set by the Board of Directors based on the price at which
equity was most recently sold. The option will vest over a four-year period
beginning with the effective date of your employment.
3) You will be enrolled in the Company's corporate health care plan and
entitled to all the corporate benefits for the vice-president level
position.
4) You will receive a $10,000 signing bonus.
5) The Company will reimburse you for the expenses of relocating you and your
household belongings to the San Francisco Bay area and temporary housing
expenses for up to 60 days.
6) The effective date of your employment will be no later than March 13, 1995.
This offer will remain in effect until March 7, 1995. Please acknowledge your
acceptance by signing below and returning this letter to me.
Patrick, with you coming, we will now have a team that can really build value.
This is a wonderful opportunity for all of us.
Sincerely,
/s/ Benjamin F. McGraw, III
Benjamin F. McGraw, III
President & Chief Executive Officer
Accepted:
/s/ Patrick G. Enright
- --------------------------------
Patrick G. Enright
<PAGE>
EXHIBIT 10.10
[LETTERHEAD OF MEGABIOS CORP.]
November 18, 1994
Rodney Pearlman, Ph.D.
PO Box 2108
El Granada, CA 94018
Dear Rodney:
This letter is an offer from MEGABIOS Corp. (the "Company") to you for the
position of Vice President, Research & Development, reporting to me. The offer
consists of the following:
(1) Annual Salary: $165,000
(2) Incentive Stock Option Grant: 250,000 options, each entitling you to
purchase one share of the Company's common stock. The exercise price
of this option is set by the Board of Directors based on the price at
which equity was most recently sold. The option will vest over a
four-year period beginning with the effective date of your
employment.
(3) You will be enrolled in the Company's corporate health care plan and
entitled to all the corporate benefits for the Vice President level
position.
(4) You will receive a $7,500 bonus at the end of each of the four
quarters of 1995.
(5) The effective date of your employment will be no later than January
3, 1995.
This offer will remain in effect until December 1, 1994. Please
acknowledge your acceptance by signing below and returning this letter to me in
the envelope provided.
Rodney, we are very excited about working with you, and think we can
build a lot of value with you. Should you have any questions about this offer
or any part of it, please do not hesitate to discuss them with me.
Sincerely yours,
/s/ Benjamin F. McGraw, III
Benjamin F. McGraw, III Pharm.D.
President and Chief Executive Officer
Accepted:
/s/ Rodney Pearlman
- --------------------------
Rodney Pearlman, Ph.D.
<PAGE>
EXHIBIT 10.11
- -------------------------------------------------------------------------------
LEASE
By and Between
PROVIDENT LIFE AND ACCIDENT
INSURANCE COMPANY,
a Tennessee corporation,
Landlord
and
MEGABIOS CORP.,
a California corporation,
Tenant
December 21, 1993
Pertaining to
Premises Located at
863 Mitten Road
Burlingame, California
- -------------------------------------------------------------------------------
<PAGE>
SUMMARY OF PRINCIPAL LEASE TERMS
(Notwithstanding this Summary,
the Express Terms of the Lease
Shall be Controlling over this Summary)
A. PARTIES
-------
1. Landlord: PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY, a
Tennessee corporation
2. Tenant: MEGABIOS CORP., a California corporation
B. BASIC LEASE PROVISIONS
----------------------
1. Premises: All of Building A and Portion of Building C at
((Sec.)1) 863 Mitten Burlingame, California
2. Rental Area: Twenty four thousand one hundred thirteen (24,113)
(Initial Estimate) rentable square feet
((Sec.)6(a))
3. Initial Term: Approximately five (5) years
((Sec.)3(a))
4. Targeted
Commencement Date: On or before November 1, 1994
((Sec.)3(c))
5. Basic Rent (Per
Rentable Square
Foot Per Month): Commencement Date through Month 30 = $0.68557
((Sec.)5) Month 31 through End of Initial Term = $0.76057
6. Tenant's Percentage
Share of Direct
Expenses: Fifteen and eighty-three hundredths percent
((Sec.)6(a)) (15.83%)
7. Base Year for
Direct Expenses: 1994
((Sec.)6(c))
8. Option Term: One five (5) year Option Term
((Sec.)3(b))
9. Option Term Basic
Rent: Commencement of Option Term
through Month 30 = $0.78557
(Per Rentable
Square Foot) Month 31 through End of Option Term = $0.81057
((Sec.)3(b))
10. Space Subject to
Option to Lease: All additional space in Building C during
((Sec.)1(c)) Initial Term
11. Semiannual Option
to Lease
Consideration: First Lease Year: None
((Sec.)1(c)(4)) Second Lease Year: $0.20 Per Rentable Square
Foot of Option Space
Third Lease Year: $0.40 Per Rentable Square
Foot of Option Space
Fourth Lease Year: $0.60 Per Rentable Square
Foot of Option Space
Fifth Lease Year: $0.80 Per Rentable Square
Foot of Option Space
-i-
<PAGE>
12. Space Subject to
Right of First
Refusal: All Space in 863 Mitten (which includes 866 Malcolm)
((Sec.)1(d))
13. Address for Notices:
((Sec.)34)
LANDLORD: Provident Life and Accident Insurance Company
Corporate Properties
One Fountain Square
Chattanooga, TN 37492
Attn: Mr. Robert A. Reno
Facsimile No.: (615) 755-1448
Telephone No.: (615) 755-3334
Copy to: E.S. Merriman & Sons
One Post Street, Suite 3200
San Francisco, CA 94104
Attn: Mr. Dwight L. Merriman, Jr.
Facsimile No.: (415) 397-1646
Telephone No.: (415) 397-2200
TENANT: MEGABIOS Corp.
Two Embarcadero Center, Suite 410
San Francisco, CA 94111
Attn: Mr. William L. Brown, Vice President
Facsimile No.: (415) 434-1392
Telephone No.: (415) 434-1377
Copy to: Heller, Ehrman, White, & McAuliffe
333 Bush Street, 30th Floor
San Francisco, CA 94104
Attn: K. William Neuman, Esq.
Facsimile No.: (415) 772-6268
Telephone No.: (415) 772-6064
-ii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Premises
1. (a) Premises.................................................... 1
(b) Equipment License........................................... 1
(c) Option to Lease Additional Space............................ 2
(1) Option Notice.......................................... 2
(2) Leasing of Additional Space............................ 3
(3) Prerequisite to Exercise of Option..................... 4
(4) Option Consideration................................... 4
(5) Termination of Options................................. 4
(d) Right of First Refusal to Lease............................. 5
(1) Offer Notice........................................... 5
(2) Exercise of Right...................................... 5
(3) Lindlord's Contribution................................ 6
(4) Prerequisite to Exercise of Right...................... 7
(5) Existing FAA Space..................................... 7
Purpose
2. Purpose.......................................................... 7
Term
3. Term............................................................. 7
(a) Initial Term................................................ 7
(b) Option to Extend Initial Term............................... 7
(c) Commencement Date........................................... 8
Possession
4. Possession....................................................... 8
(a) Delay in Possession......................................... 8
(b) Early Possession............................................ 9
Rent
5. Rent............................................................. 10
Additional Rent
6. (a) Additional Rent............................................. 12
(b) Tax Increases and Assessments............................... 13
(c) Direct Expense Increases.................................... 13
Security
7. Security......................................................... 16
Uses Prohibited
8. Uses Prohibited.................................................. 17
Compliance with Law
9. Compliance with Law.............................................. 17
Alterations
10. Alterations...................................................... 18
Repairs
11. (a) Tenant's Repairs............................................ 18
(b) Landlord's Repairs.......................................... 19
Abandonment
12. Abandonment...................................................... 19
Liens
13. Liens............................................................ 19
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Assignment and Subletting
14. Assignment and Subletting........................................ 19
Indemnification
15. Indemnification.................................................. 21
Insurance
16. (a) Tenant's Insurance.......................................... 22
(1) Liability Insurance................................... 22
(2) Tenants Property Insurance............................ 22
(3) Worker's Compensation Insurance....................... 23
(4) Business Interruption/Extra Expense Insurance......... 23
(5) Other Coverage........................................ 23
(6) Insurance Criteria.................................... 23
(7) Evidence of Coverage.................................. 23
(b) Landlord's Insurance........................................ 23
(c) Assumption of Risk/Walvers of Subrogation/
Minimization of Duplication of Insurance
Coverage/Limitations on Liability and Damages............... 24
(1) Purpose............................................... 24
(i) Property Insurance.............................. 24
(ii) Damage to Business and Loss of Rents............ 25
(iii) Injury and Death to Individuals................. 25
(iv) Limitation of Liability and Damages............. 25
(d) Allocation of Insured Risks/Subrogation..................... 26
Utilities
17. Utilities........................................................ 26
Personal Property and Other Taxes
18. Personal Property and Other Taxes................................ 26
Rules and Regulations
19. Rules and Regulations............................................ 26
Holding Over
20. Holding Over..................................................... 27
Subordination
21. Subordination.................................................... 27
Entry by Landlord
22. Entry by Landlord................................................ 28
Insolvency or Bankruptcy
23. Insolvency or Bankruptcy......................................... 28
Default
24. Default.......................................................... 28
Destruction or Damage
25. Destruction or Damage............................................ 29
Eminent Domain
26. Eminent Domain................................................... 31
</TABLE>
-iv-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Clauses, Plats and Riders
27. Clauses, Plats and Riders........................................ 31
Sale by Landlord
28. Sale by Landlord................................................. 31
Estoppel Certificates
29. Estoppel Certificates............................................ 31
Right or Landlord to Perform
30. Right of Landlord to Perform..................................... 32
Attorneys' Fees
31. Attorneys' Fees.................................................. 32
Surrender of Premises
32. Surrender of Premises............................................ 32
Waiver
33. Waiver........................................................... 32
Notices
34. Notices.......................................................... 33
Leasehold Mortgage
35. Leasehold Mortgage............................................... 33
(a) Leasehold Mortgage Authorized............................... 33
(b) Notice to Landlord.......................................... 34
(c) Definitions................................................. 34
(i) "Institutional Investor".............................. 34
(ii) "Leasehold Mortgage".................................. 34
(iii) "Leasehold Mortgagee"................................. 34
(iv) "Leasehold Mortgage Purchaser"........................ 34
(d) Consent of Leasehold Mortgagee Required..................... 35
(e) Default Notice.............................................. 35
(f) Notice to Leasehold Mortgagee............................... 35
(g) Procedure on Default........................................ 36
(h) New Lease................................................... 37
(i) Casualty Loss............................................... 38
(j) Legal Proceedings........................................... 38
(k) Security Deposit............................................ 38
(l) Erroneous Payments.......................................... 38
(m) Sublease Rentals............................................ 39
(n) Equipment Mortgages Authorized.............................. 39
(o) Notices..................................................... 39
(p) Leasehold and Equipment Mortgagee Benefitted................ 40
</TABLE>
-v-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Defined Terms and Marginal Headings
36. Defined Terms and Marginal Headings.............................. 40
Time and Applicable Law
37. Time and Applicable Law.......................................... 40
Successors
38. Successors....................................................... 40
Entire Agreement
39. Entire Agreement................................................. 40
Late Charge
40. Late Charge...................................................... 40
No Discrimination
41. No Discrimination................................................ 40
Additional Provisions
42. Additional Provisions............................................ 41
Existing Tenant
43. Existing Tenant.................................................. 41
Landlord's Work
44. Landlord's Work.................................................. 43
Tenant Improvements
45. (a) Tenant Improvement Plans.................................... 45
(1) Tenant's Designer...................................... 45
(2) Space Plans............................................ 45
(3) Engineering Plans...................................... 45
(4) Construction Documents................................. 45
(b) Permits and Approvals....................................... 46
(c) Seismic Upgrade............................................. 47
(d) Construction................................................ 48
(e) Tenant Construction Allowance............................... 49
(1) Basic Allowance........................................ 49
(2) Tenant Improvement Account............................. 49
(f) Change Orders............................................... 50
(g) Construction Materials...................................... 51
(h) Prompt Construction/General Responsibility for Costs........ 51
(i) Reasonable Diligence........................................ 51
Construction-Related Definitions
46. Construction-Related Definitions................................. 51
Hazardous Materials
47. Hazardous Materials.............................................. 52
Parking
48. Parking.......................................................... 55
Signs
49. Signs............................................................ 56
</TABLE>
-vi-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> Broker <C>
50. Broker........................................................... 56
Other Documents; Cooperation of Parties
51. Other Documents; Cooperation of Parties.......................... 56
Counterparts
52. Counterparts..................................................... 56
Recording
53. Recording........................................................ 56
Authorization
54. Authorization.................................................... 56
Separability
55. Separability..................................................... 57
Covenants and Conditions
56. Covenants and Conditions......................................... 57
Quiet Enjoyment
57. Quiet Enjoyment.................................................. 57
Cumulative Remedies
58. Cumulative Remedies.............................................. 57
Reasonable Approval Standard
59. Reasonable Approval Standard..................................... 57
EXHIBITS
Exhibit A. Site Plan.............................................. 59
Exhibit A-1. Equipment Area........................... 63
Exhibit A-2. Reserved Parking - Existing Tenant
Vacated.................................. 61
Exhibit A-3. Reserved Parking - Existing Tenant
Remains.................................. 62
Exhibit A-4. Approved Signage Locations............... 63
Exhibit B. Commencement Date Memorandum........................... 64
Exhibit C. Direct Expenses........................................ 65
Exhibit D. Rules and Regulations.................................. 66
</TABLE>
-vii-
<PAGE>
LEASE
Parties This Lease is made as of the 21st day of December, 1993, between
PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY, a Tennessee
corporation, as "Landlord," and MEGABIOS CORP., a California
corporation, as "Tenant."
WITNESSETH:
Premises 1. (a) Premises. Landlord hereby leases to Tenant and Tenant
--------
hereby hires from Landlord those certain premises ("Premises")
shown as the shaded portions of the site plan attached as Exhibit
-------
A (the "Site Plan"), which Premises consist of: (i) subject to
-
the provisions of paragraph 43, all of the rentable space within
Building A as shown on the Site Plan commonly known by the street
address of 863 Mitten Road, Burlingame, California ("Building
A"); and (ii) a portion of the rentable space within the adjacent
Building C as shown on the Site Plan commonly known by the street
address of 863 Mitten Road, Burlingame, California ("Building
C"), with the aggregate space being rented in Building A and
Building C being approximately 24,113 rentable square feet.
Building A and Building C are collectively referred to in this
Lease as the "Building." The Building is part of two connected
buildings containing a total of approximately 94,274 rentable
square feet of space commonly known as 863 Mitten Road and 866
Malcolm Road, Burlingame, California (collectively "863 Mitten").
863 Mitten, the four (4) other buildings shown on the Site Plan,
the real property on which 863 Mitten and those other buildings
are located ("Property"), and all other improvements and common
areas located on the Property, are collectively referred to
herein as the "Project."
The parties agree that the rentable area of the Premises set
forth above are their best estimates as of the date of this
Lease, and that the rentable area of the Premises, and the rent
(as defined in paragraph 5(b)) and all other amounts calculated
by reference to rentable area shall be recalculated as provided
in paragraph 5(e) upon completion of the Tenant Improvements (as
defined in paragraph 45) or any other change to the Premises.
l. (b) Equipment License. In addition, Tenant shall have a
-----------------
license (i) to use a portion of the Property, which portion shall
be adjacent to the Premises on the east side of the Building,
shall be approximately 800 gross square feet of space including
two (2) adjacent parking stalls and the existing landscaped area
shown on Exhibit A-l (the "Equipment Area"), (ii) to use and
-----------
erect (as part of the First Phase (as defined in paragraph 45(h))
an outdoor platform on the roof of 863 Mitten on which to install
mechanical equipment (the "Roof Platform"), which Roof Platform
shall not exceed 600 square feet in size and the location of such
platform, which must be over the Premises, shall be designed by
Tenant and shall be subject to Landlord's approval as part of
Landlord's approval of Tenant's Space Plans (as defined in
paragraph 45(a)(2)) and Construction Documents (as defined in
paragraph 45(a)(4)), each for the purpose of installing,
maintaining and operating thereon certain mechanical equipment
necessary for Tenant's use of the Premises, on the following
terms and conditions:
(1) Tenant shall deliver notice to Landlord requesting
Landlord's consent to the installation of such equipment.
Tenant's notice shall describe: the equipment to be installed;
Tenant's proposed location for the equipment; whether or not the
equipment emits noise, vibrations, fumes, pollutants,
contaminants or other
<PAGE>
substances; any applicable laws regarding Hazardous Materials (as
defined in paragraph 47), permits, licenses, consents or
approvals applicable to the installation, operation, use,
maintenance or removal of the equipment; and Tenant's proposal to
screen view of the equipment and to minimize any noise,
vibrations, fumes, pollutants, contaminants or other substances
emitted from the equipment. Tenant shall also provide any other
information reasonably requested by Landlord.
(2) Landlord shall not unreasonably withhold its consent to
Tenant's request; provided, however, Landlord shall not be
required to consent to the installation, use or operation of any
storage tanks, drums, barrels, wells, clarifiers or other
containers to be installed below the surface of the ground, but
Landlord shall not unreasonably withhold its consent to any in-
ground sumps or pits or above-ground storage tanks provided that
Tenant shall be obligated to comply with all applicable Hazardous
Materials laws and to remove the same upon expiration or
termination of the Lease Term (as defined in paragraph 3(b)). In
addition, Landlord may condition its consent on Tenant's
compliance with any reasonable requirements of Landlord
including, without limitation, changes to Tenant's proposal
outlined in its notice to Landlord as Landlord may reasonably
require.
(3) If Landlord consents to Tenant's request, Tenant shall
install, use, operate, maintain and remove the equipment in
compliance with all applicable laws and any conditions imposed by
Landlord in granting its consent. Notwithstanding any provision
to the contrary in this Lease, Tenant's license pursuant to this
paragraph 1(b) shall be personal to Tenant, and may not be
assigned, sublet or transferred to any other person or entity
except in conjunction with any assignment of this Lease or
subletting of all or a portion of the Premises.
(4) Upon the expiration or earlier termination of this Lease,
the license granted under this paragraph 1(b) shall automatically
terminate.
1. (c) Option to Lease Additional Space. Subject to the terms
--------------------------------
and conditions of this paragraph 1(c), Tenant shall have the
following option to lease additional space in Building C during
the Initial Term (as defined in paragraph 3(a)):
(1) Option Notice. If Tenant desires to lease additional
-------------
space in Building C during the Initial Term of this Lease
pursuant to this paragraph 1(c), Tenant shall provide Landlord
with written notice thereof ("Option Notice") no less than (30)
days before Tenant desires to have such additional space
delivered to Tenant, which notice shall identify the Increment
(as defined below) that Tenant desires to lease and the
Additional Space Delivery Date (as defined below). An "Increment"
of space is a separately demised and discrete unit of space
consisting of at least 1,000 contiguous rentable square feet
within Building C, accessible to a corridor or adjacent to the
Premises and capable of being leased as a unit in compliance with
all applicable laws, rectangular in shape, which does not include
a disproportionate amount of space on either the east or south
walls of the space subject to Tenant's option, and which, if
Tenant's option as to any remaining space in Building C
terminates, would result in such remaining space being reasonably
suitable to lease to other tenants, including reasonable access
to the existing bathrooms in Building C; provided that the exact
size and location of which, within the aforementioned parameters,
shall be in Tenant's reasonable discretion. In addition, no
Increment shall include the
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<PAGE>
existing bathrooms in Building C, unless Tenant will then be
leasing all of Building C. The Option Notice shall include (a)
the date on which Tenant desires that Landlord deliver to Tenant
the Increment for Tenant's exclusive use and occupancy for the
purpose of commencement by Tenant of tenant improvements (the
"Additional Space Delivery Date"), which date shall be no less
than thirty (30) days after the date of delivery of Tenant's
notice; and (b) a computation of rentable square feet within such
space (which shall be equal to the actual usable floor area
thereof multiplied by the load factor to be used by Landlord
pursuant to the provisions of paragraph 5(e) ("Adjusted Load
Factor").
(2) Leasing of Additional Space. If Tenant duly exercises
---------------------------
an option to lease additional space, Landlord shall deliver
possession of the Increment to Tenant on the date specified in
the Option Notice for that Increment. On the date of delivery of
that Increment to Tenant for Tenant's exclusive use and occupancy
that Increment shall become subject to this Lease and shall be
leased to Tenant upon the same terms and conditions as set forth
herein for the then-remaining portion of the Initial Term, except
that each Increment shall be delivered by Landlord to Tenant in
its present "as-is" condition and, except as set forth below,
Landlord shall have no obligation to perform or to pay for any
alterations or improvements therein to prepare the same for
Tenant's occupancy. Notwithstanding the foregoing: (a) Landlord
shall be responsible for removing, at its sole cost and expense,
any Hazardous Materials present or used in or on the floor,
walls, ceiling or other items in the interior area of that
Increment before Landlord delivers possession thereof to Tenant,
with any such removal to be performed in compliance with all
applicable Hazardous Materials laws; (b) Landlord shall pay to
Tenant a tenant improvement allowance (an "Increment Allowance")
of ten dollars ($10.00) per rentable square foot of the Increment
multiplied by a fraction, the numerator of which is the number of
days remaining in the Initial Term as of the date Tenant will
begin rent for the Increment, and the denominator of which is the
number of days in the Initial Term; and (c) Landlord may perform
any seismic work or any other work necessary to cause any
Increment to comply with any applicable laws, ordinances or
codes. Landlord will make payments to Tenant from the Increment
Allowance only in progress payments not more frequently than once
per month, and shall only make payments equal to the amount
Tenant has theretofore accrued as an obligation to Contractor or
subcontractors, and only after receipt by Landlord of conditional
mechanics' lien releases (which mechanics' lien releases shall,
at Landlord's option, be executed by subcontractors, labor
suppliers and materialmen, as reasonably determined by Landlord,
in addition to Contractor). Landlord may withhold the last
fifteen percent (15%) of the Increment Allowance until the lien-
free expiration of the time for the filing of any mechanics'
liens claimed or which might be filed on account of any work
ordered by Tenant or Contractor or any subcontractor of Tenant,
or if any liens are filed, the subsequent receipt of
unconditional lien releases executed by all applicable
contractors (and as reasonably required by Landlord, from any
laborers, mechanics, materialmen, suppliers and design
professionals) who performed tenant improvement work for the
Increment leased pursuant to Tenant's exercise of that particular
option. Tenant may use an Increment Allowance only for the
particular Increment leased pursuant to Tenant's exercise of that
particular option or for associated improvements or alterations
to the immediately adjoining space leased by Tenant which
reasonably relate to integrating the Increment with the adjoining
space.
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<PAGE>
The commencement date of the rental obligations as to any
Increment shall begin upon the earlier of (i) the substantial
completion of the tenant's alterations and improvements
associated with such Increment (including any alterations or
improvements to the adjoining space which reasonably relate to
integrating the Increment with the immediately adjoining space)
as certified to Landlord by Tenant's architect, or, if
applicable, the date all such alterations or improvements would
have been substantially complete but for Tenant Delay (as defined
in paragraph 46(b)), (ii) Tenant's occupancy of the Increment for
the conducting of business therein or (iii) one hundred twenty
(120) days after the Additional Space Delivery Date.
(3) Prerequisite to Exercise of Option. Notwithstanding
----------------------------------
anything in this paragraph 1(c) to the contrary, if at the time
of Tenant's exercise of its option to lease any additional space,
Tenant is in default under this Lease (beyond any applicable cure
period), Tenant shall have no right at that time to lease such
additional space and Tenant's attempt to exercise the option to
lease such additional space shall be null and void.
(4) Option Consideration. As consideration for Tenant's
--------------------
options to lease additional space pursuant to this paragraph
1(c), Tenant shall pay to Landlord, on the first day of the
thirteenth full calendar month of the Initial Term and on each
day which is six (6) months thereafter, without prior demand,
offset or deduction, the following amounts:
A. During the twelve (12) month period commencing on the
first day of the thirteenth full calendar month of the Initial
Term, Tenant shall pay to Landlord twenty cents ($0.20) per
rentable square foot of additional space in Building C per month;
B. During the twelve (12) month period commencing on the
first day of the twenty-fifth full calendar month of the Initial
Term, Tenant shall pay to Landlord forty cents ($0.40) per
rentable square foot of additional space in Building C per month;
C. During the twelve (12) month period commencing on the
first day of the thirty-seventh full calendar month of the
Initial Term, Tenant shall pay to Landlord sixty cents ($0.60)
per rentable square foot of additional space in Building C per
month; and
D. During the twelve (12) month period commencing on the
first day of the forty-ninth full calendar month of the Initial
Term, Tenant shall pay to Landlord eighty cents ($0.80) per
rentable square foot of additional space in Building C per month.
Landlord shall be entitled to retain all option consideration
paid by Tenant, which shall be non-refundable to Tenant under all
circumstances, and which shall not be applicable to any other
rent payable under this Lease, except as expressly provided in
paragraph 1(c) (5).
(5) Termination of Options. If Tenant fails to pay any
----------------------
option consideration pursuant to paragraph 1(c) (4) within five
(5) business days after written notice from Landlord that such
consideration is due, all of Tenant's options to lease additional
space pursuant to this paragraph 1(c) shall automatically
terminate and be of no further force (and Tenant shall in such
event of termination of the options to lease, be relieved of any
obligation to make any further payments of option consideration
regardless of their scheduled payment date). However, Tenant may
at any time terminate its option as to
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<PAGE>
any or all of the additional space then subject to Tenant's option by delivering
written notice to Landlord identifying the additional space as to which the
option is terminated, in which event the option consideration shall be reduced
to an amount equal to the applicable rate set forth in paragraph 1(c)(4)
multiplied by the remaining rentable square feet of additional space which duly
remains subject to Tenant's option. If any lease of additional space commences
within the six-month period following any scheduled date of payment of option
consideration for that space (and Tenant paid that option consideration for that
space), Tenant shall be entitled to a pro rata credit against the rent for such
additional space equal in amount to (i) the option consideration paid for that
six-month period allocable to the additional space as to which the lease is so
commencing multiplied by (ii) the percentage of the six-month option period
which will remain after the commencement date of the lease as to such additional
space. In all events, Tenant's option to lease additional space shall
automatically terminate on the last day of the Initial Term. Tenant shall pay
the applicable option consideration until the earlier of (i) the date Tenant
gives notice of exercise of an option as to an Increment pursuant to this
paragraph 1(c), (ii) the date Landlord receives Tenant's notice terminating its
option to lease any or all of the additional space pursuant to this paragraph
1(c), or (iii) the termination of Tenant's options to lease due to its failure
to pay any option consideration within the five business day notice period
provided above. Notwithstanding the occurrence of an event described in clauses
(i) or (ii) above as to only a portion of the available space, Tenant shall
continue to pay applicable option consideration with respect to all remaining
available space.
l. (d) Right of First Refusal to Lease. Subject to the terms and conditions
-------------------------------
of this paragraph 1(d), Tenant shall have the following right of first refusal
to lease additional space in 863 Mitten (other than the additional space in
Building C during any period that such additional space instead remains subject
to the option to lease pursuant to paragraph 1(c) above) during the Lease Term:
(1) Offer Notice. Within ten (10) days after Landlord receives a bona
------------
fide, arm's length, written offer to lease any such space from a third party
which Landlord would accept, Landlord shall deliver to Tenant written notice
("Offer Notice") of the material terms of that offer. Tenant shall exercise its
right of first refusal to lease that additional space, if at all, by complying
with the provisions of paragraph l(d)(2).
(2) Exercise of Right. Tenant shall exercise its right of first refusal
-----------------
to lease all (but not less than all) of the space identified in the Offer Notice
on the terms set forth therein by delivering to Landlord written notice within
five (5) business days after that Offer Notice has been delivered by Landlord to
Tenant. If Tenant does not give to Landlord Tenant's written notice
unconditionally accepting to lease the space identified, and on the terms set
forth, in the Offer Notice within the 5-business day period, Tenant shall be
conclusively deemed to have rejected that Offer Notice, and Landlord shall
thereupon be free to lease that space to any third party on the same terms set
forth in that Offer Notice or on such other terms as Landlord and any third
party may in good faith negotiations agree, provided (i) such other terms are
not materially more favorable to such third party than the terms offered to
Tenant and (ii) Landlord enters into such a lease of that additional space
within one hundred twenty (120) days after that Offer Notice is
-5-
<PAGE>
delivered to Tenant. If Tenant unconditionally accepts the Offer Notice, then
Tenant shall sign and deliver to Landlord a new lease covering the additional
space substantially in the form of this Lease but reflecting the economic terms
of the Offer Notice (except as expressly modified by this paragraph 1(d)) within
ten (10) business days after Tenant receives that new lease from Landlord.
(3) Landlord's Contribution. If Tenant duly exercises a right of first
-----------------------
refusal to lease additional space and the initial lease term for such space is
five (5) years or longer, Landlord shall contribute an amount equal to ten
dollars ($10.00) per rentable square foot of such additional space for Tenant's
alterations and improvements to such space (and for any associated alterations
or improvements to any adjoining space leased by Tenant which reasonably relate
to integrating the additional space with the adjoining space). If Tenant duly
exercises a right of first refusal to lease additional space and the initial
lease term for such space is less than five (5) years, Landlord's contribution
shall be an amount equal to ten dollars ($10.00) per rentable square foot of
such additional space multiplied by a fraction, the numerator of which is the
initial lease term for such space, and the denominator of which is five (5)
years. Notwithstanding the foregoing, if an Offer Notice provides for a tenant
improvement allowance exceeding, or tenant improvements by Landlord the cost of
which exceed, ten dollars ($10.00) per rentable square foot, then Landlord's
contribution (the "Additional Allowance") with respect to the additional space
leased pursuant to that Offer Notice shall be calculated at the rate set forth
in that Offer Notice. Landlord will make payments to Tenant from the Additional
Allowance only in progress payments not more frequently than once per month, and
shall only make payments equal to the amount Tenant has theretofore accrued as
an obligation to Contractor or subcontractors, and only after receipt by
Landlord of conditional mechanics' lien releases (which mechanics' lien releases
shall, at Landlord's option, be executed by subcontractors, labor suppliers and
materialmen, as reasonably determined by Landlord, in addition to Contractor).
Landlord may withhold the last fifteen percent (15%) of the Additional Allowance
until the lien-free expiration of the time for the filing of any mechanics'
liens claimed or which might be filed on account of any work ordered by Tenant
or Contractor or any subcontractor of Tenant, or if any liens are filed, the
subsequent receipt of unconditional lien releases executed by all applicable
contractors (and as reasonably required by Landlord, from any laborers,
mechanics, materialmen, suppliers and design professionals) who performed tenant
improvement work for the additional space leased pursuant to Tenant's exercise
of that particular option. Tenant may use the Additional Allowance only for the
particular additional space leased pursuant to Tenant's exercise of that
particular right of first refusal or for associated improvements or alterations
to the immediately adjoining space.
The commencement date of the rental obligations as to any additional space shall
begin upon the earlier of (i) the substantial completion of the tenant's
alterations and improvements associated with such additional space (including
any alterations or improvements to the adjoining space which reasonably relate
to integrating the additional space with the immediately adjoining space) as
certified to Landlord by Tenant's architect or, if applicable, the date all such
alterations or improvements would have been substantially complete but for
Tenant Delay, (ii) Tenant's occupancy of the additional space for the conducting
of business therein, or (iii) one hundred
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<PAGE>
twenty (120) days after the delivery of the exclusive use and
occupancy of the additional space to Tenant for the purpose of
commencement by Tenant of its alterations and improvements (or such
longer period of time as may be provided for in the Offer Notice);
provided that the commencement date as so established hereinabove
shall not deny Tenant the right to any post-tenant occupancy free rent
period provided for in the Offer Notice. Landlord shall be responsible
for removing, at its sole cost and expense, any Hazardous Materials
present or used in or on the floor, walls, ceiling or other items in
the interior area of such additional space before Landlord delivers
possession thereof to Tenant, with any such removal to be performed in
compliance with all applicable Hazardous Materials laws.
(4) Prerequisite to Exercise of Right. Notwithstanding
---------------------------------
anything in this paragraph 1(c) to the contrary, if at the time of
Tenant's exercise of its right of first refusal to lease any
additional space, Tenant is in default under this Lease (beyond any
applicable cure period), Tenant's attempt to exercise the right of
first refusal to lease such additional space shall be null and void,
and in any such case Landlord shall have the right at that time to
lease such additional space to a third party for a term of Landlord's
sole discretion.
(5) Existing FAA Space. The Federal Aviation Administration
------------------
("FAA") currently leases approximately 8,000 square feet of usable
space in the northern portion of 863 Mitten commonly referred to as
"Building B" (the "FAA Space") pursuant to a lease which expires
August 31, 1996, and which by its terms does not provide for any
renewal option (the "FAA Lease"). Landlord, if it should desire to
renew the FAA Lease, may on or prior to August 31, 1996 by written
notification to Tenant of the same, renew or extend the term of the
FAA Lease for a term not to exceed one (1) year (through August 31,
1997), without Tenant having any right of first refusal as to the
same. Any renewal for a longer term or for additional space shall be
subject to Tenant's right of first refusal as provided in paragraph
1(d) above (excluding this paragraph l(d)(5)). If Tenant exercises any
right of first refusal to lease the FAA Space, Landlord may allow the
FAA nevertheless to continue to lease and stay in the FAA Space until
Tenant is ready to commence construction therein.
1. (e) Said letting and hiring is upon and subject to the terms,
covenants and conditions herein set forth and Tenant covenants as a
material part of the consideration for this Lease to keep and perform
each and all of said terms, covenants and conditions by it to be kept
and performed and that this Lease is made upon the condition of such
performance.
Purpose 2. The Premises shall be used for a laboratory and offices, and
storage and related uses incident thereto, including animal
facilities, and for no other use or purpose without the prior written
consent of Landlord.
Term 3. (a) Initial Term. The initial term of this Lease shall be for
------------
approximately five (5) years, commencing on the Commencement Date (as
defined in paragraph 3(c)) and ending on the last day of the sixtieth
(60th) full calendar month following the Commencement Date (the
"Initial Term").
3. (b) Option to Extend Initial Term. Provided that Tenant is not
-----------------------------
in default of any of the provisions of this Lease, at the time of the
exercise of the option to extend set forth in this paragraph 3(b),
Tenant may elect to
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<PAGE>
extend tne Initial Term for one (1) additional five (5) year
period ("Option Term") by delivering to Landlord at least one
hundred eighty (180) days, but not more than three hundred sixty-
five (365) days, before the end of the Initial Term a written
notice of that election ("Extension Notice"). Landlord's failure
to so receive an Extension Notice shall be deemed Tenant's
election not to extend the Initial Term, and Tenant shall
thereafter have no further right to extend the Initial Term. If
Tenant duly delivers its Extension Notice, the term of this Lease
shall thereupon be extended in accordance with Tenant's election,
and the Option Term shall begin on the day immediately following
the last day of the Initial Term. The Option Term shall be subject
to all the terms and conditions of this Lease, except that: (i)
the Basic Rent for the first thirty (30) months of the Option Term
shall be increased to seventy-eight and 557/1000 cents ($0.78557)
per rentable square foot of the Premises; (ii) the Basic Rent for
the last thirty (30) months of the Option Term shall be increased
to eighty-one and 57/1000 cents ($0.81057) per rentable square
foot of the Premises; and (iii) after Tenant exercises its Option
Term, Tenant shall have no further right to extend the Lease Term
(as defined below).
The Initial Term and the Option Term are collectively referred to
herein as the "Lease Term."
3. (c) Commencement Date. The Initial Term shall commence on the
-----------------
earlier of the following two dates to occur ("Commencement Date"):
(i) November 1, 1994; or (ii) one (1) month after the date of
substantial completion of the Tenant Improvements and issuance of
a certificate of occupancy as to the Premises (during which one
month period Tenant may occupy the Premises for the conducting of
its business upon otherwise complying with the insurance
requirements of this Lease without incurring any obligation to pay
Basic Rent or additional rent other than any utilities consumed by
Tenant during such period). For purposes of this Lease, the Tenant
Improvements (or any other construction work hereunder) shall be
deemed to have been substantially completed as of the date on
which Tenant's architect or engineer issues a certificate to
Landlord and Tenant stating that the Tenant Improvements (or such
other construction work) have been completed in accordance with
the Final Tenant Plans (or such other applicable plans) or, if
applicable, the date the Tenant Improvements (or such other
construction work) would have been substantially complete but for
Tenant Delay. The outside calendar date provided for the
Commencement Date of the Initial Term (or for the commencement of
rental obligations with respect to any additional space pursuant
to paragraphs 1(c) or 1(d) hereof), shall be extended for any
delays in the construction of the applicable tenant's alterations
and improvements caused by any Landlord Delay (as defined in
paragraph 46(c)). Upon determination of the actual Commencement
Date, the parties shall sign a commencement date memorandum in the
form attached hereto as Exhibit B, which shall become a part of
---------
this Lease. However, Tenant's failure to execute the commencement
date memorandum shall not affect the actual Commencement Date or
expiration date of this Lease. If the Commencement Date occurs on
the first day of a calendar month, then the Initial Term shall be
five (5) years. If the Commencement Date occurs on any day other
than the first day of a calendar month, then the Initial Term
shall be the period from the Commencement Date to the first day of
the first full calendar month thereafter, plus the following sixty
(60) full calendar months.
Possession 4. (a) Delay in Possession. If Landlord for any reason
-------------------
whatsoever, cannot deliver possession of the Premises, any
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<PAGE>
Increment or any additional space leased pursuant to paragraph 1(d) to Tenant at
the commencement of the applicable term, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom, but in that event there shall be a proportionate reduction
of rent covering the period between the commencement of the said term and the
time when Landlord can deliver possession. If possession of the Premises, any
Increment or any additional space leased pursuant to paragraph 1(d) is not
delivered to Tenant within six months from the scheduled commencement date, this
Lease shall, at the option of Tenant exercised by delivering notice to Landlord,
terminate as to that space. Landlord's failure to receive Tenant's termination
notice within ten (10) days after the last day of that 6-month period shall be
conclusively deemed Tenant's election not to terminate this Lease, and this
Lease shall remain in full force. No delay in delivery of possession shall
operate to extend the Lease Term.
4. (b) Early Possession. Before the Commencement Date, Tenant shall be
----------------
entitled to enter the Premises for the purposes of performing the Tenant
Improvements and any other work on the Premises which Tenant desires to perform
and which is in conformity with all the provisions of this Lease, provided that:
(i) Tenant's entry on and early possession of the Premises shall be conducted
in a manner so as not to materially interfere with Landlord's Work; (ii)
Tenant delivers to Landlord before entering on the Premises evidence of
liability insurance coverage required under this Lease; (iii) Tenant at all
times during Tenant's early possession keeps the Premises free of all
mechanic's, materialmen's and design professionals' liens arising from the work
being performed by Tenant and otherwise complies with the provisions of
paragraph 13; (iv) Tenant's early possession hereunder shall be subject to and
governed generally by all the applicable terms and conditions of this Lease, but
Tenant shall not be obligated to pay any Basic Rent or additional rent (with the
exception that Tenant or its contractors shall pay as additional rent the
reasonably allocable cost of any utilities used by Tenant in the Premises in
constructing the Tenant Improvements); and (v) in no event shall Tenant be
permitted to enter the Existing Premises (as defined in paragraph 43(a)) until
Existing Tenant (as defined in paragraph 43(a)) has vacated the Existing
Premises or granted its consent for such entry, with the exception that to the
extent permitted under the Existing Lease and applicable law, Tenant shall be
entitled to enter the Existing Premises to perform Tenant's responsibilities as
to the Seismic Work as provided in paragraph 45(c). Tenant's entering the
Premises is subject to prior compliance, at Tenant's sole expense (except as may
be otherwise expressly provided in this Lease), with all applicable laws
relating to Tenant's possession. However, under no circumstances shall the
provisions of this paragraph 4(b) permit Tenant to conduct business from all or
any part of the Premises. The consumption of electricity during any period of
construction activity by Tenant shall, if economically practicable, be
determined by separate metering and if not practicable, shall be estimated based
upon any increase in consumption of electricity during the period of any
construction over the average monthly consumption in such metered area during
the prior twelve month period (adjusted, however, for any increase or decrease
in tenant occupancy of such metered area). Tenant's contractors and
subcontractors shall be entitled during any period the option to lease
additional space (as provided in paragraph 1(c)) remains in effect, to occupy
any portion of Building C which is then subject to such option to lease
(excluding the Existing Space as defined in paragraph 43 during any period it is
occupied
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<PAGE>
by the Existing Tenant) for the purpose or planning or supervising any
construction activities or for the storage of tools, materials or
equipment associated with any such construction. In such event, such
contractors or subcontractors shall, or Tenant shall cause such
contractors or subcontractors to (i) keep the bathrooms in Building C
in a reasonable state of cleanliness in light of any use by such
contractors, subcontractors and their respective employees, and (ii)
when the construction activities are completed, or on any earlier date
that this Lease may terminate, vacate the space, leave the space in
broom clean condition, and repair any damage that may have been caused
to the space by any activities therein by any such contractors or
subcontractors. Tenant shall cause any such space so occupied to be
surrendered to Landlord in the condition required herein upon the
expiration or termination of the option to lease as to such space.
Landlord may, as a condition to allowing any contractor or
subcontractor to occupy any such space, require such party to satisfy
any reasonable requirements as to liability insurance and to enter into
an indemnity agreement as to such party's activities on the Project in
form reasonably acceptable to Landlord.
Rent 5. (a) On or before the first day of each calendar month during the
Lease Term Tenant shall pay to Landlord, as minimum monthly rent for
the Premises, the sum of $16,531.15 ("Basic Rent"). The Basic Rent for
any partial month shall be prorated at the rate of 1/30 of the Basic
Rent per day. Basic Rent shall be paid by Tenant to Landlord, in
advance, without prior demand, deduction or offset, in lawful money of
the United States of America to E.S. Merriman & Sons, One Post Street,
Suite 3200, San Francisco, CA 94014, Attn: Accounting Department, or
to such other person or at such other place as Landlord may from time
to time designate in writing.
5. (b) All charges and other amounts of any kind payable by Tenant to
Landlord pursuant to this Lease shall be deemed additional rent.
Landlord shall have the same remedies for default in the payment of
additional rent as for default in the payment of Basic Rent. Basic
Rent and additional rent are collectively sometimes hereinafter
referred to as "rent."
5. (c) All rent payable by Tenant to Landlord hereunder, if not
received by Landlord when due, shall bear interest from the due date
until paid at the publicly announced prime rate or reference rate
charged on such due date by the San Francisco Main Office of Bank of
America, NT & SA (or any successor bank) for short term, unsecured
loans to its most creditworthy borrowers, plus one percent (1%) per
annum, but in no event shall such interest exceed the maximum rate
permitted by law. Landlord's acceptance of any interest payments shall
not constitute a waiver of Tenant's default with respect to the overdue
amount or prevent Landlord from exercising any of the rights and
remedies available to Landlord under this Lease or by law.
5. (d) The parties agree that the Basic Rent set forth above is their
best estimate as of the date of this Lease. That estimate is based on:
(i) the estimated rentable area of the Premises set forth in paragraph
l; and (ii) an agreed initial monthly Basic Rent rate of sixty-eight
and 557/1000 cents ($0.68557) per rentable square foot. The rentable
area of the Premises, the rent and all other sums calculated based upon
the rentable area under this Lease shall be recalculated as provided in
paragraph 5(e) upon substantial completion of the Tenant Improvements.
(For informational purposes only, such rental rate equates to $0.525
per rentable square foot base rate plus $0.16057 per rentable square
foot for budgeted Direct Expenses (as
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defined in paragraph 6(c), which rental rate shall not be adjusted for any
changes in such budget or for any variances from the actual Direct Expenses for
the Base Year).
5. (e) Promptly following the date Landlord approves the Construction
Documents (as defined in paragraph 45(a)(4)), Landlord's architect shall
calculate the rentable area of the Premises (which, assuming the Existing Tenant
is relocated, would include all the usable area of Building A, and a portion of
the usable area of Building C, each as increased by the Adjusted Load Factor)
based upon the Building Owners and Managers Association International standard
method of floor measurement for office buildings except as modified herein,
which calculation shall be binding upon the parties absent demonstrated error in
the calculations. The Adjusted Load Factor shall not include as common areas
(but rather treat as usable areas) any portion of the common area washrooms,
washroom alcoves, telephone rooms, roof access points or any other "common
areas" in the Building which are located outside of the boundaries of the
Premises and which are by design, by practical useability or as a result of
their being a duplication of facilities already located within and included as
part of the usable square footage of the Premises (and provided Tenant does not
in fact make any material use of those facilities), more appropriately
considered as principally available to or supporting other tenants, or
prospective tenants, in the Building. The Adjusted Load Factor shall be
calculated in accordance with the following example:
(i) if the total rentable area in the Building is, as it is presently
understood to be, 71,193 square feet, of which the total usable area of space
rented or rentable to tenants in the Building as presently constructed equals
64,538 square feet, and the total common areas in the Building as presently
constructed equals 6,655 square feet; and
(ii) if of the 6,655 square feet of common areas as presently constructed,
(a) 1,806 square feet (relating to the existing bathrooms, bathroom alcoves,
telephone rooms and roof access points in Building A) will upon the Commencement
Date become a part of the usable square footage of the Premises (the "Eliminated
Common Areas"), (b) 3,327 square feet currently constitute washrooms, washroom
alcoves, telephone rooms, roof access points and other common areas in the
Building which are duplicative of such facilities located in the usable square
footage area of the Premises and which support principally other tenants or
prospective tenants of the Building (the "Other Tenant Common Areas"), and (c)
the remaining 1,522 square feet of common areas are for the benefit of all
present or prospective tenants of the Building (the "Remaining Common Areas");
and
(iii) if the usable area of the Premises upon the Commencement Date is
23,599 square feet (including Eliminated Common Areas); then
(iv) the "Adjusted Usable Area" of the Building in this example would be
69,671 square feet, calculated by deducting the Remaining Common Areas (1,522
square feet) from the total Rentable Area of the Building (71,193 square feet);
and the "Adjusted Load Factor" shall equal 2.18%, calculated by dividing the
Remaining Common Areas (1,522 square feet) by the Adjusted Usable Area of the
Building (69,671 square feet); and the rentable area of the Premises shall equal
24,113 square feet, calculated by adding the sum of (A) the usable area of the
Premises (23,599 square feet), and (B) the usable area of the
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Premises (23,599 square feet) multiplied by the Adjusted Load
Factor (2.18%).
Upon substantial completion of the Tenant Improvements, and at any
other time as may be necessary, if the as-built plans disclose a
different rentable area of the Premises, or if the rentable area
of the Premises, the Building, 863 Mitten or the Project changes
for any reason, then Landlord shall deliver to Tenant the
certification of Landlord's architect of such determination, which
determination shall be binding upon the parties absent
demonstrated error in the calculations. The certification of
Landlord's architect is to be addressed jointly to Landlord and to
Tenant certifying the rentable square footage of the Premises and
the manner of calculation of the same, which certificate is to
include the respective square footages for and manner of
calculation of the usable area of the Premises, the useable area
of all leasable space in the Building, the resulting Adjusted
Usable Area of the Building, the square footage area of the Other
Tenant Common Areas and the Remaining Common Areas, the rentable
area of the Building in its entirety and the Adjusted Load Factor.
If any recalculations will affect the sharing of any Direct
Expenses of the Project, such certificate shall clearly identify
the basis for the recalculation of the same. Within thirty (30)
days after any recalculation of the rentable area of the Premises,
the Building, 863 Mitten or the Project, Tenant shall pay to
Landlord all sums due under this Lease for the period from when
the basis for the recalculation was effective to the date of
such recalculation. If Tenant has overpaid rent, Landlord shall
credit the amount of such overpayment against the next
installments of Basic Rent becoming due under this Lease.
5. (f) Commencing on the first day of the thirty-first (31st)
full calendar month of the Initial Term, the monthly Basic Rent
shall be increased (by $0.075 per rentable square foot) to an
amount equal to the product of the rentable area of the Premises
multiplied by seventy-six and 57/1000 cents ($0.76057).
Additional
Rent 6. (a) Additional Rent. In addition to the Basic Rent provided
---------------
for in paragraph 5, Tenant shall pay to Landlord the sums set
forth in this paragraph 6. Tenant's percentage share of permitted
expenses applicable to the entire Project shall be calculated from
time to time by dividing the number of square feet of rentable
area in the Premises by the number of square feet of rentable area
in the Project (the "percentage share"). In the event the rentable
area of the Premises, the Building, 863 Mitten or the Project is
changed, the Tenant's percentage share shall be appropriately
adjusted. Rentable area of the Project and any building shall be
based upon the Building Owners and Managers Association
International standard method of floor measurement for office
buildings, and rentable area of the Premises (or of any Increment
of additional space leased pursuant to paragraph 1(c) or any right
of first refusal space leased pursuant to paragraph 1(d)) shall be
calculated in the manner provided in paragraph 5(e) hereof.
Landlord and Tenant hereby agree that as of the date hereof the
rentable area of the Building is 71,193 square feet, the rentable
area of 863 Mitten is 94,274 square feet, and the rentable area of
the Project is 152,297 square feet, and that based on Tenant's
current rough draft of its Space Plans, the usable area of the
Premises in the Building will be approximately 23,599 square feet
(including Eliminated Common Areas), the Adjusted Usable Area of
the Building will be 69,671 square feet (including Eliminated
Common Areas and Other Tenant Common Areas), the Remaining Common
Areas will be 1,522
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square feet, the Adjusted Load Factor in the Building will be 2.18%, the
rentable area of the Premises will be 24,113 square feet, and Tenant's
percentage share as to the Project will be 15 and 83/l00ths percent (15.83%).
6. (b) Tax Increases and Assessments. Subject to the limitations set forth
-----------------------------
herein, Direct Expenses shall incluade real property taxes and assessments or
other fees or charges in the nature of real property taxes or assessments
imposed by a governmental agency which may be levied on the Premises, 863 Mitten
and the Project, and personal property taxes levied on personal property of
Landlord used in the operation of the Project, including any increases therein,
either by way of increase in the rate or in the assessed valuation thereof. Real
and personal property taxes shall include, without limitation, taxes of every
kind and nature levied and assessed in lieu of or in substitution for existing
or additional real or personal property taxes on the Project as well as any form
of assessment, license, fee, levy or tax imposed by any authority having the
direct or indirect power to tax, including any city, county, state, or federal
government, or any school, agricultural, lighting, drainage, or other
improvement district, as against any legal or equitable interest of Landlord in
the Premises or in the Project, or as against Landlord's right to rent or other
income therefrom, or as against Landlord's business of leasing the Premises, but
expressly excluding any income franchise, state, sales or transfer taxes or
any taxes which may arise from the nature or structure of Landlord or any use
being made of the Project by Landlord or other tenants, or any increase in taxes
or assessments of whatever kind and nature caused by improvements or
installations made by any other tenant in the Project (or by Landlord for the
benefit of any such other tenant), or as a result of any failure of Landlord to
pay any amount when otherwise payable. Any assessments which Landlord may elect
to pay in installments, shall be so paid, and only the installments thereof
which are paid during and which relate to the Lease Term shall be included
as Direct Expenses. Tenant shall during and as it relates to the Lease Term,
separately pay one hundred percent (100%) of any increase in taxes or
assessments of whatsoever kind and nature (including, without limitation, all
personal property taxes) reasonably demonstrated by Landlord to have been
assessed solely as a result of any improvements or installations made by or on
behalf of Tenant to the Premises at any time during the Lease Term (excepting
any Mandatory Seismic Work described in paragraph 45(c)). In the event any taxes
or assessments so separately payable by Tenant are charged to or paid or payable
by Landlord, Tenant forthwith upon demand therefor, shall reimburse Landlord for
all amounts of such taxes or assessments chargeable against Tenant pursuant to
this paragraph 6(b) and paid by Landlord.
6. (c) Direct Expense Increases. Tenant shall pay to Landlord, at the times
------------------------
hereinafter set forth, an amount equal to Tenant's percentage share of any
aggregate increase in Direct Expenses for calendar year 1995 and each subsequent
calendar year during the Lease Term, reasonably and appropriately paid or
incurred by Landlord on account of certain expenses associated with the
operation or maintenance of the Project (as further specified herein) above the
greater of (i) the aggregate amount of such Direct Expenses paid or incurred by
Landlord during the calendar year 1994 or (ii) the aggregate budgeted amount for
such Direct Expenses for calendar year 1994 as reflected on Exhibit C. "Direct
---------
Expenses" as used herein shall mean only those certain categories of costs of
operation and maintenance as are identified on attached Exhibit C without one,
---------
two or three
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<PAGE>
stars (*), which aggregate budgeted amount of Direct Expenses for calendar year
1994 as reflected thereon equals $293,454.
The categories of Direct Expenses listed on Exhibit C shall be limited so as
---------
not to include any of the following items:
(i) wages, salaries, fees, and fringe benefits paid to administrative or
executive personnel or officers or partners of Landlord or its agents
unless such persons are employed at competitive rates as independent
contractors, and then only to the extent that the labor of such persons
are reasonably allocable to the operation or maintenance of the Project;
(ii) any charge for depreciation and any interest or other financing charge;
(iii) any taxes, other than those permitted as Direct Expenses pursuant to
paragraph 6(b) hereof;
(iv) all costs relating to activities for the solicitation, negotiation,
execution or enforcement of present or prospective leases of space in
the Project (except enforcement of this Lease against Tenant);
(v) all costs for which Tenant or any other tenant in the Project is being
or may be directly charged other than pursuant to a sharing in Direct
Expenses;
(vi) the costs of any alterations, additions, changes, replacements, and
other items (albeit classified by Landlord as maintenance or repairs)
that under generally accepted accounting principles are properly
classified as capital expenditures;
(vii) any Direct Expenses representing an amount paid (or reimbursed for
expenses) to any management agent, property manager or any other person
or entity that is in excess of what would reasonably and customarily be
expected to be paid for such services;
(viii) the cost of any work or service performed for or facilities or utilities
furnished to any tenant in the Project to a greater extent or in a
manner more favorable to such tenant than that performed for or
furnished to Tenant;
(ix) the cost of any improvements or alterations of space leased to other
tenants in the Project;
(x) the cost of overtime or other expense (including attorney's fees) to
Landlord because of its defaults or performing work expressly provided
in this Lease to be borne at Landlord's expense;
(xi) amounts paid (including interest and penalties) in order to comply with
or cure violations of statutes, laws, notices, or ordinances by Landlord
or any other tenant in the Project (except in the event and to the
extent caused by any act or omission of Tenant, including as a result
of any alterations or improvements made to the Premises by Tenant);
(xii) any expense attributable to alterations, improvements or repairs
required by any law, ordinance, rule or regulation, including any costs
of seismic work in the Project or any costs of management, abatement,
remediation or removal of any Hazardous Materials in
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the Project (except in the event and to the extent caused by any act or
omission of Tenant, including as a result of any alterations or
improvements made to the Premises by Tenant);
(xiii) any taxes assessed due to any improvements to other buildings other than
863 Mitten or to any tenant spaces (excluding improvements made by
Tenant) on any portion of the Project;
(xiv) all costs for which insurance or any other third party is obligated by
law or contract to reimburse Landlord to the extent Landlord either
actually receives such reimbursement or fails to exercise reasonable
efforts to obtain such reimbursement;
(xv) the cost of insurance premiums for any insurance in excess of levels and
coverages reasonably appropriate in light of the value and operations on
the Project, with the premiums, levels and coverages as they exist as of
the date hereof being hereby acknowledged to be reasonable (except in
the event and to the extent caused by any act or omission of Tenant),
but excluding any premiums associated with any insurance coverage of any
tenant improvements (including the Tenant Improvements); and
(xvi) all costs associated with the operation or maintenance (including
repair) of the Building or any other buildings constituting a part of
the Project if such cost or type of cost as it relates to the Premises
is identified under this Lease or on Exhibit C as a cost to be borne
---------
directly by Tenant hereunder.
In the event the Project is not fully occupied during any year or in the event
all of the Project is not provided with standard services during any year, an
adjustment shall be made by Landlord in computing Direct Expenses for such year
so that Direct Expenses shall be computed as though 95% of the Project had been
occupied and 95% of the Project had been provided with standard services during
such year (or such Direct Expenses shall be computed in accordance with actual
occupancy or actual provision of standard services if such respective amounts
shall exceed 95%); provided, however, that in no event shall the aggregate
amount of Direct Expenses collected by Landlord from all tenants in the Project
exceed the actual Direct Expenses for said year.
Detailed statements of the amount of Direct Expenses for the preceding calendar
year and the amount of such increase payable by Tenant shall be determined by
Landlord and shall be given to Tenant within ninety (90) days of the end of each
calendar year.
All amounts payable by Tenant as shown on said statement shall be paid by Tenant
ten (10) business days after receipt thereof, and any overpayment by Tenant
shall be credited against the next installment(s) of additional rent falling due
hereunder. Landlord may estimate the increase in Direct Expenses payable by
Tenant and require Tenant to pay one-twelfth (1/12th) of that amount together
with each payment of Basic Rent. If during any such year Landlord shall in good
faith revise its estimate of Tenant's proportionate share of Direct Expenses for
said year, Landlord shall promptly advise Tenant thereof and commencing on the
next date payment of additional charges are due that is at least ten (10)
business days thereafter, Tenant shall pay all additional charges based on such
revised estimate for the portion of the year already elapsed and shall commence
paying the additional
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charges based on such revised estimate for the remainder of such
year. The determination of Direct Expenses and their allocation
shall be in accordance with generally accepted accounting
principles applied on a consistent basis.
If, for any reason the Lease Term shall terminate on a day other
than the last day of a calendar year, the additional rent payable
by Tenant applicable to the calendar year in which such
termination shall occur shall be prorated on the basis which the
number of days from the commencement of such calendar year to and
including such date of termination bears to three hundred sixty-
five (365).
Tenant shall have the right, at Tenant's sole cost and expense, at
Landlord's office where books and records for the Project are
maintained, and upon reasonable notice to Landlord, to review or
audit any Direct Expenses and Landlord shall fully cooperate with
Tenant or Tenant's agents with respect to the same and shall
maintain reasonably detailed records of such expenses for at least
two (2) years after the submission of its year-end statement of
Direct Expenses for such calendar year to Tenant. If Tenant's
review or audit shall demonstrate any overpayment or underpayment
by Tenant, either Landlord shall, within ten (10) business days
after receiving reasonably detailed documentation of the same,
credit such amount so overpaid against the next installment(s) of
additional rent falling due hereunder, or Tenant shall pay to
Landlord, within that 10-business day period, the amount of such
underpayment.
Security 7. Simultaneously with the execution of this Lease, Tenant shall
deposit with Landlord the sum of $16,500.00, which shall be held
by Landlord as security for the faithful performance by Tenant of
all the terms, covenants and conditions of this Lease. At the end
of the Lease Term Tenant, upon delivering up the Premises to
Landlord, broom clean, and in the same condition as at the
Commencement Date, excepting reasonable wear and tear, damage
Tenant is not obligated to repair under this Lease and any
alterations, additions or improvements Tenant is not obligated to
remove under this Lease, said sum held as security shall be
returned to Tenant. No interest shall be payable thereon and
Landlord shall not be required to keep said sum in a separate
account. If Tenant fails to pay any rent or other charges due
hereunder, or otherwise defaults with respect to any provision of
this Lease, Landlord may at its option apply or retain all or any
portion of the deposit for the payment of any rent or other charge
in default or the payment of any other sum to which Landlord may
become obligated by Tenant's default, or to compensate Landlord
for any loss or damage which Landlord may suffer thereby. If
Landlord so uses or applies all or any portion of the deposit,
then within ten (10) business days after demand therefor Tenant
shall deposit cash with Landlord in an amount sufficient to
restore the deposit to the full amount thereof, and Tenant's
failure to do so shall be a material breach of this Lease.
Landlord's application or retention of the deposit shall not
constitute a waiver of Tenant's default to the extent that the
deposit does not fully compensate Landlord for all losses or
damages incurred by Landlord in connection with such default and
shall not prejudice any other rights or remedies available to
Landlord under this Lease or by law.
No security or guaranty which may now or hereafter be furnished
Landlord for the payment of the rent herein reserved or for
performance by Tenant of the other covenants or conditions of this
Lease shall in any way be a bar or defense to any action in
unlawful detainer, or
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ordinance or governmental rule, regulation or requirement shall be
conclusive of that fact as between Landlord and Tenant.
Alterations 10. Subject to the provisions of this paragraph 10, Tenant may,
without Landlord's prior consent, make alterations, additions or
improvements to the Premises (but not the Equipment Area or the
Roof Platform), at Tenant's expense, including, without
limitation, laboratory benchwork, cabinetry and laboratory
equipment so long as: (a) the cost thereof in any instance is in
good faith estimated to be less than $100,000; and (b) such
alterations, additions or improvements do not affect the
structural portions of 863 Mitten. Tenant shall not make or suffer
to be made any other alterations, additions or improvements to or
of the Premises or any part thereof (including the Equipment Area
and the Roof Platform) without the written consent of Landlord
first had and obtained. Any alterations, additions, or
improvements to or of the Premises, including without limitation
any fixed partitions and all carpeting, shall upon expiration of
the Lease Term become a part of the realty and belong to Landlord.
Movable furniture, equipment and trade fixtures shall remain the
property of Tenant. All alterations, additions or improvements to
the Premises by Tenant shall be made by Tenant at Tenant's sole
cost and expense. Any contractor or person selected by Tenant to
make any alteration, addition or improvement must first be
approved of in writing by Landlord if the alteration, addition or
improvement requires the approval of Landlord hereunder. Upon at
least thirty (30) days written notice before the expiration of the
term, or upon demand by Landlord upon earlier termination of the
term, Tenant, at its sole cost and expense, forthwith and with all
due diligence shall remove any alterations, additions or
improvements made by Tenant designated by Landlord to be removed,
and Tenant, forthwith and with all due diligence, at its sole cost
and expense, shall repair any damage to the Premises caused by
such removal; provided, however, Tenant shall not be obligated to
remove any demising or interior walls or washrooms. Tenant's
obligation to remove any alterations, additions, improvements,
fixtures and/or personal property and to repair any damage from
such removal shall survive the termination of this Lease.
Construction of any alterations, additions, or improvements (i)
shall be completed in accordance with drawings and specifications
approved in advance in writing by Landlord if such alteration,
addition or improvement requires Landlord's approval hereunder,
(ii) shall be carried out in a good and workmanlike manner, and
(iii) shall comply with all applicable requirements of govern-
mental authorities, and Tenant shall comply with paragraph 13, and
Tenant shall deliver as-built plans to Landlord promptly after
such work is substantially complete.
The provisions of this paragraph 10 shall not apply to the Tenant
Improvements, the construction of which is governed by paragraph
45.
Repairs 11. (a) Tenant's Repairs. Tenant accepts the Premises as being
----------------
in good, sanitary order, condition and repair. Except as provided
in paragraph 11(b) and the completion or performance of Landlord's
Work as provided in paragraph 44, Tenant, at Tenant's sole cost
and expense, shall keep the Premises, the Equipment Area, the Roof
Platform and all equipment installed thereon in good condition and
repair, damage thereto by fire, earthquake, act of God or the
elements and other causes beyond Tenant's reasonable control
excepted, Tenant hereby waiving all rights to make
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repairs at the expense or the Landlord as provided by law, statute
or ordinance now or hereafter in effect. Upon the expiration or
sooner termination of the Lease Term, Tenant shall surrender the
Premises to Landlord in the same condition as when received,
ordinary wear and tear and damage by fire, earthquake, act of God
or the elements and other causes beyond Tenant's reasonable
control excepted. It is specifically understood and agreed that
Landlord has no obligation and has made no promises to alter,
remodel, improve, repair, decorate or paint the Premises or any
part thereof and that no representations respecting the condition
of the Premises, the Building or the Project have been made by
Landlord to Tenant except as specifically set forth in this Lease,
including Landlord's Work as provided in paragraph 44 hereof.
11. (b) Landlord's Repairs. Landlord shall maintain and
------------------
repair the structural elements and the roof of 863 Mitten, the
public and common areas of 863 Mitten and of the Project
(including all parking areas, landscaping and trash collection
areas), and all utility lines, pipes and equipment (other than
Tenant's equipment installed pursuant to paragraph 1(b)) outside
of the Premises, as the same may exist from time to time, except
for wear and tear which is the result of a negligent or willful
act or omission of Tenant or its officers, directors,
shareholders, partners, agents, employees, contractors, invitees,
licensees, subtenants or assignees (collectively, "Tenant's
Employees"). Landlord shall have no obligation to make repairs
under this paragraph 11(b) until a reasonable time after receipt
of written notice of the need for such repairs.
Abandonment 12. Tenant shall not abandon the Premises at any time during the
Lease Term, and if Tenant shall abandon, the Premises or be
dispossessed by process of law, or otherwise, any personal
property belonging to Tenant and left on the Premises shall,
subject to the rights of any Leasehold Mortgagee or Equipment
Mortgagee as provided herein, be deemed to be abandoned, at the
option of Landlord.
Liens 13. Tenant shall keep the Premises and the Project free from any
liens arising out of any work performed, materials furnished or
obligations incurred by Tenant. Tenant shall in the event of the
filing of any such lien, post any bond required to release the
Premises therefrom. Should Tenant fail to remove any such lien
within ten (10) business days after notice to do so from Landlord,
Landlord may, in addition to any other remedies, record a bond
pursuant to California Civil Code Section 3143 and all amounts
incurred by Landlord in so doing shall become immediately due and
payable by Tenant to Landlord as additional rent. Landlord shall
have the right to post and keep posted on the Premises any notices
that may be provided by law or which Landlord may deem to be
proper for the protection of Landlord, the Premises and the
Project from such liens.
Assignment
and
Subletting 14. (a) Except as expressly permitted under the terms of this
Lease, Tenant shall not mortgage, pledge, hypothecate or encumber
this Lease or any interest therein. Tenant shall not assign this
Lease or sublet or suffer any other person (the agents and
servants of Tenant excepted) to occupy or use the Premises, or any
part thereof, or sublet any right or privilege appurtenant thereto
without the prior written consent of Landlord. Landlord's consent
to one assignment, subleasing or occupancy shall not be deemed to
be a consent to any subsequent assignment, subleasing or
occupancy.
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14. (b) Provided further and notwithstanding anything herein before set forth:
In the event that at any time or from time to time during the Lease Term, Tenant
desires to sublet all or any part of the Premises, Tenant shall notify the
Landlord in writing (the "Sublet Notice") of the terms of the proposed
subletting, and the area so proposed to be sublet. Tenant shall also deliver an
executed copy of such sublease to Landlord in order to obtain its consent as
required in paragraph 14(a) above. If Landlord consents to a sublease, then such
sublease shall be subject to and made upon the following terms:
(i) any such sublease shall be subject to the terms of this Lease and the
term thereof may not extend beyond the expiration of the Lease Term;
(ii) no subtenant shall have a right to further sublease its premises
without Landlord's prior written consent. If Tenant fails to consummate a
sublease with that proposed subtenant on the terms set forth in the Sublet
Notice within sixty (60) days after Tenant delivers that Sublet Notice, Tenant
shall be required to deliver a new Sublet Notice to Landlord and comply with the
terms and conditions set forth above before any further subletting shall be
permitted.
(iii) if Tenant sublets all or any portion of the Premises as permitted in
this paragraph 14 during the Initial Term, then Tenant shall be entitled to
retain all amounts paid by the subtenant under the sublease to Tenant in excess
of the amounts required to be paid by Tenant (including rental payments to
Landlord) under this Lease until Tenant is reimbursed in full (on a first
priority payment basis) for any leasing commissions paid by Tenant to any
brokers (with any such commissions not to exceed in the aggregate a then
customary brokerage fee for such a transaction) in connection with that
sublease. Tenant shall also be entitled to retain all additional amounts paid by
the subtenant under the sublease to Tenant in excess of the amounts required to
be paid by Tenant (including rental payments to Landlord) under this Lease and
the amount required to reimburse Tenant in full for any such leasing commissions
(the "Net Sublease Consideration"), except that if Tenant sublets all or any
portion of the Premises as permitted in this paragraph 14 during the Option
Term, or if a subtenant under a sublease which commenced during the Initial Term
remains in its Premises during the Option Term, then the following provisions
shall apply as regards the sharing of any Net Sublease Consideration accruing
with respect to the Option Term:
A. Tenant shall pay to Landlord fifty percent (50%) of any Net Sublease
Consideration thereafter accruing under the sublease when received by Tenant
pursuant to any such sublease until the earlier of (i) the expiration or earlier
termination of the Lease Term, or (ii) the date Landlord sells the Project; and
B. If Landlord sells the Project to an independent third party, Tenant
shall thereupon pay all Net Sublease Consideration thereafter accruing under the
sublease when received by Tenant to the party that acquired the Project from
Landlord and thereupon became the successor Landlord hereunder (or to any
successor Landlord thereafter).
14. (c) Regardless of Landlord's consent, no subletting nor assignment shall
release Tenant of Tenant's obligations or alter the primary liability of Tenant
to pay rent and perform other obligations of Tenant under this Lease.
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14. (d) In no event shall Tenant assign this Lease or sublet the
Premises or any portion thereof (i) to any then-existing tenant of
the Project or (ii) to any prospective tenant of the Project with
whom Landlord is engaged in active negotiations provided Landlord
so indicates the same to Tenant in writing promptly upon request
of Tenant as to the names of any prospective tenants with whom
Landlord is then involved in active negotiations.
14. (e) Tenant shall pay Landlord's reasonable costs incurred in
connection with Tenant's request to assign this Lease or sublet
the Premises, regardless whether or not the Landlord consents to
the proposed transfer; provided, however, in no event shall such
costs exceed $1,000.
14. (f) The issuance or transfer of any voting or nonvoting
stock of Tenant shall not constitute an assignment hereunder for
which any consent is required. Tenant may assign this Lease or
sublet the Premises or any portion thereof to any corporation
which controls, is controlled by or is under common control with
Tenant, or to any corporation resulting from merger or
consolidation with Tenant, or to any person or entity which
acquires all the assets as a going concern of the business of
Tenant that is being conducted on the Premises, without Landlord's
consent, but no assignment or subletting shall relieve the
original Tenant hereunder from its continuing liability for the
performance of the obligations of Tenant hereunder.
Indemnifica-
tion 15. Tenant agrees to indemnify and defend Landlord against and
save Landlord harmless from any and all claim, loss, cost,
liability, damage and expense, including without limitation
penalties, fines and reasonable attorneys' fees and costs
(collectively, "Claims"), incurred in connection with or arising
from: (1) any default by Tenant in the observance or performance
of any of the terms, covenants or conditions of this Lease on
Tenant's part to be observed or performed, or (2) the use or
occupancy or manner of the use or occupancy of the Premises by
Tenant or any other person or entity claiming through or under
Tenant, including without limitation, the presence, release,
removal, remediation, abatement, use, generation, storage,
transportation or disposal of any Hazardous Materials (excluding
the existence or migration of any Hazardous Materials that exist
on or about the Premises before the Commencement Date of this
Lease, or any Hazardous Materials used or installed on or about
the Project by any person other than Tenant), or (3) the
condition of the Premises or any occurrence or happening on the
Premises during the Lease Term, or (4) any wrongful or negligent
acts or omissions of Tenant or of Tenant's Employees or any such
person or entity, in, on or about the Premises, the Building or
the Project, either prior to the commencement of, during, or after
the expiration of the Lease Term, including without limitation any
wrongful or negligent acts or omissions in the making or
performing of any alterations. Tenant further agrees to indemnify,
defend and save harmless Landlord, Landlord's agents and the
lessors under any ground or underlying leases, from and against
any and all Claims by any persons by reason of injury to persons
or damage to property occasioned by any use, occupancy, condition,
occurrence, happening, act, omission or negligence referred to in
the preceding sentence. In the event any action or proceeding is
brought against Landlord for any claim against which Tenant is
obligated to indemnify Landlord hereunder, Tenant upon notice from
Landlord shall defend such action or proceeding at Tenant's sole
expense by counsel approved
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by Landlord, which approved shall not be unreasonably withheld.
Tenant's obligations under this paragraph 15 shall not include
any Claims arising from the negligence of Landlord or other
tenants of the Building, or from any breach by Landlord of its
obligations under this Lease. The provisions of this paragraph 15
shall survive the expiration or earlier termination of this Lease.
As used in this paragraph 15, the term "Landlord" shall include
its officers, directors, shareholders, partners, employees,
agents, representatives, affiliates, successors and assigns.
Insurance 16. (a) Tenant's Insurance. Tenant shall have the following
------------------
insurance obligations:
(1) Liability Insurance. Tenant shall obtain and keep in
-------------------
full force a policy or policies of commercial general liability
and property damage insurance (including but not limited to
automobile, personal injury, broad form contractual liability,
owner's (i.e. , Tenant's) contractors protective and broad form
property damage) under which Tenant is named as the insured and
Landlord, E.S. Merriman & Sons ("Landlord's Agent") and any ground
lessors and mortgagees (whose names shall have been furnished to
Tenant) are named as additional insureds and under which the
insurer agrees to indemnify and hold Landlord, Landlord's Agent
and all applicable ground lessors and mortgagees harmless from and
against all cost, expense and/or liability arising out of or based
upon the indemnification obligations of this Lease. The minimum
limits of liability shall be a combined single limit with respect
to each occurrence of not less than three million dollars
($3,000,000.00). The policy shall, if such is available on a
commercially reasonable basis, contain a cross liability
endorsement and shall be primary coverage for Tenant and Landlord
for any liability arising out of Tenant's and Tenant's Employees'
use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall provide that it is
primary insurance and not "excess over" or contributory. The
policy shall contain a severability of interest clause. Not more
frequently than once every three (3) years, if, in the opinion of
Landlord's lender or of the insurance consultant retained by
Landlord, the amount of public liability and property damage
insurance coverage at that time is not adequate, Tenant shall
increase the insurance coverage as required by either Landlords's
lender or Landlord's insurance consultant; provided however, that
in no event shall any such insurance coverage be increased in
excess of that which is from time to time being required by
comparable landlords of comparable tenants leasing comparable
amounts of space in other first-class buildings in the vicinity of
the Building.
(2) Tenant's Property Insurance. Tenant at its cost shall
---------------------------
maintain on all of its Tenant Improvements and on any alterations,
additions or improvements made by Tenant to the Premises and on
all of its personal property in, on, or about the Premises, an
"all risk" property policy including coverage for sprinkler
leakage and containing an agreed amount endorsement in an amount
not less than one hundred percent (100%) of the full replacement
cost valuation, under which Tenant is named as the insured and
Landlord, Landlord's agents and any ground lessors and mortgagees
(whose names shall have been furnished to Tenant) as well as any
Leasehold Mortgagee or Equipment Mortgagee as applicable, are
named as additional insureds, with any Leasehold Mortgagee or
Equipment Mortgagee, as applicable, to be named as loss payee.
Provided this Lease is not terminated as a result of such damage,
(i) the proceeds from any such policy covering personal property
shall be used as necessary by Tenant for the replacement of such
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personal property and (ii) the proceeds from any such policy covering Tenant
Improvements (and any alterations, additions or improvements) shall be made
available when and to the extent needed by Landlord to pay the costs incurred
for the repair and replacement of such Tenant Improvements (and any alterations,
additions or improvements). The "full replacement cost valuation" of the
personal property to be insured under this paragraph 16 shall be furnished to
the company issuing the insurance policy by Tenant at least once every year.
(3) Workers' Compensation Insurance. Tenant shall maintain Workers'
-------------------------------
Compensation insurance as required by law.
(4) Business Interruption/Extra Expense Insurance. Tenant shall maintain
---------------------------------------------
loss of income, business interruption and extra expense insurance in such
amounts as will reimburse Tenant for direct or indirect loss of earnings and
incurred costs attributable to the perils commonly covered by Tenant's property
insurance described above but in no event less than two hundred fifty thousand
dollars ($250,000). Such insurance will be carried with the same insurer that
issues the insurance for the personal property.
(5) Other Coverage. Tenant, at its cost, shall maintain such other
--------------
insurance as Landlord may reasonably require from time to time, provided that in
no event shall any such required other insurance be in excess of that which is
from time to time being required by comparable landlords of comparable tenants
leasing comparable amounts of space in other first-class buildings in the
vicinity of the Building.
(6) Insurance Criteria. All the insurance required to be maintained by
------------------
Tenant under this Lease shall:
(i) Be issued by insurance companies authorized to do business in the
state of California, with a financial rating of at least an A:XIII status for
any property insurance and B+:IX for any liability insurance as rated in the
most recent edition of Best's Insurance Reports;
(ii) Be issued as a primary policy;
(iii) Contain an endorsement requiring thirty (30) days' written notice
from the insurance company to both parties and to Landlord's lender before
cancellation or any material change in the coverage, scope, or amount of any
policy; and
(iv) With respect to property loss or damage, a waiver of subrogation
must be obtained, as required by paragraph 16(d).
(7) Evidence of Coverage. A duplicate original policy, or a certificate of
--------------------
the policy with a duplicate of the actual policy attached, shall be deposited
with Landlord on the Commencement Date, and on renewal of the policy a
certificate of insurance listing the insurance coverages required hereunder and
naming Landlord and any other interested parties as additional insured shall be
deposited with Landlord not less than seven (7) days before expiration of the
term of the policy.
16. (b) Landlord's Insurance. Landlord shall have the following obligations:
--------------------
Landlord shall maintain in effect at all times fire and hazard "all risk"
insurance covering one hundred percent (100%) of the full replacement cost
valuation of the
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Building, the Project and Landlord's personal property including its business
papers, furniture, fixtures and equipment, subject to commercially reasonable
deductibles, in the event of fire, lightning, windstorm, vandalism, malicious
mischief and all other risks normally covered by "all risk" policies in the
Burlingame area, but excluding coverage for any tenant improvements (including
the Tenant Improvements). Landlord shall also obtain and keep in full force (a)
a policy of commercial general liability and property damage insurance, (b) loss
of rent insurance and (c) workers' compensation insurance, all such insurance
being in amounts and with deductibles comparable to the insurance being carried
by landlords of other comparable first-class buildings in the vicinity of the
Building.
16. (c) Assumption of Risk/Waivers of Subrogation/Minimization of Duplication
---------------------------------------------------------------------
of Insurance Coverage/Limitations on Liability and Damages.
- ----------------------------------------------------------
(1) Purpose. The purpose of this provision is to allow Landlord and Tenant
-------
to allocate and assume certain risks to coincide with insurance coverages
required to be maintained pursuant to the terms of this Lease. Landlord and
Tenant recognize the benefit that each will receive from the waivers of
subrogation each is required to obtain pursuant to this paragraph 16(c) and
paragraph 16(d) and that there are significant advantages to each in connection
with minimizing duplication of insurance coverage. Landlord and Tenant further
agree to accept and place certain limitations on each other's respective
liabilities and responsibility for damages to coincide with required insurance
coverages.
(i) Property Insurance. Landlord agrees to insure in accordance with
------------------
paragraph 16(b) the Building, the Project and Landlord's personal property
including its business papers, furniture, fixtures, and equipment (collectively,
"Landlord's Property"). Accordingly, Landlord agrees that Tenant will have no
liability to Landlord in the event that Tenant damages or destroys, negligently
or otherwise, all or any part of Landlord's Property. Landlord will cause to be
placed in its insurance policies covering Landlord's Property a waiver of
subrogation so that its insurance company will not become subrogated to
Landlord's rights and will not be able to proceed against Tenant in connection
with any such damage or destruction.
Tenant agrees to insure in accordance with paragraph 16(a) the Tenant
Improvements (including any alterations, additions and improvements) and
Tenant's personal property including its business papers, furniture, fixtures,
and equipment (collectively, "Tenant's Property"). Accordingly, Tenant agrees
that Landlord will have no liability to Tenant in the event Landlord damages or
destroys, negligently or otherwise, all or any part of Tenant's Property. Tenant
will cause to be placed in its insurance policies covering Tenant's Property a
waiver of subrogation so that the insurance company will not become subrogated
to Tenant's rights and will not be able to proceed against Landlord in
connection with any such damage or destruction.
Tenant shall not be responsible or liable to Landlord for any damage or
destruction to Landlord's Property caused by Tenant's Employees, and Landlord
hereby releases Tenant from any Claims resulting from damage or destruction to
Landlord's Property caused directly or indirectly by Tenant and/or Tenant's
Employees; provided, however, nothing herein shall be deemed to release Tenant's
independent contractors from any such Claims Landlord may
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<PAGE>
have against Tenant's independent contractors. Likewise, Landlord shall not be
responsible or liable to Tenant for any damages or destruction to Tenant's
Property caused by Landlord's employees, agents, invitees, or contractors
(collectively, "Landlord's Associates"), and Tenant hereby releases Landlord
from any Claims resulting from damage or destruction to Tenant's Property caused
directly or indirectly by Landlord and/or Landlord's Associates; provided,
however, nothing herein shall be deemed to release Landlord's independent
contractors from any such Claims Tenant may have against Landlord's independent
contractors.
(ii) Damage to Business and Loss of Rents. Landlord shall carry
------------------------------------
continuation of rent insurance and Tenant shall be responsible for carrying
business interruption insurance (extra expense insurance) all in accordance with
this paragraph 16. Accordingly, in the event that Landlord's Property is damaged
or destroyed because of any act or conduct, negligent or otherwise, by Tenant
and/or by Tenant's Employees, Landlord shall have no rights against Tenant and
hereby releases Tenant from all Claims, including claims for loss of rent, by
Landlord directly or indirectly resulting from the damage or destruction of
Landlord's Property by the conduct of Tenant and/or by Tenant's Employees.
Likewise, in the event that Tenant's Property is damaged or destroyed because of
any act or conduct, negligent or otherwise, by Landlord and/or Landlord's
Associates, Tenant shall have no rights against Landlord and hereby releases
Landlord from all Claims by Tenant directly or indirectly resulting from the
damage or destruction of Tenant's Property by the conduct of Landlord and/or
Landlord's Associates; provided, however, nothing herein shall be deemed to
release Tenant's or Landlord's independent contractors from any liability to
Landlord and/or Tenant, and nothing herein shall affect paragraph 25(b) of this
Lease relating to abatement of rent.
(iii) Injury and Death to Individuals. Landlord and Tenant
-------------------------------
understand that waivers of subrogation do not apply to injury and death to
individuals. Landlord and Tenant shall each carry insurance, as provided by this
paragraph 16, in connection with injury and death to individuals. Landlord
hereby agrees to indemnify and hold harmless Tenant from any liability which
Tenant may otherwise have with respect to injury or death to individuals
occurring within the Project but outside the Premises except to the extent that
such injury or death is caused by the negligence of Tenant and/or Tenant's
Employees and is not covered by the insurance Landlord is required to carry
under this Lease. Likewise, Tenant agrees to defend and hold harmless Landlord
from any liability for injury or death to persons occurring within the Premises
except to the extent such injuries or death are caused by the negligence of
Landlord and/or Landlord's Associates and is not covered by the insurance Tenant
is required to carry under this Lease.
(iv) Limitation of Liability and Damages. Landlord agrees that in the
-----------------------------------
event of a default by Tenant under the Lease, Landlord will not have a right to
collect from Tenant a greater amount of rent than Landlord would have been able
to collect in the event that Tenant did not default under the Lease. Landlord
further agrees that it will use commercially reasonable efforts to mitigate its
damages in connection with any default by Tenant. Nothing herein shall be
construed to prevent Tenant or Landlord, if it is the prevailing party in
connection with any litigation, dispute, or controversy between Landlord and
Tenant, from collecting, and each agrees that under such circumstances the other
shall have a right to collect and
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<PAGE>
shall be awarded, (a) its reasonable attorneys' fees, costs, and
expenses incurred in connection with any such litigation, dispute,
or controversy and (b) interest, at the interest rate set forth in
paragraph 5(c), on any amounts not paid when due.
16. (d) Allocation of Insured Risks/Subrogation. Landlord and
---------------------------------------
Tenant release each other from any claims and demands of whatever
nature for damage, loss or injury to the Premises and/or the
Building and/or the Project, or to the other's property in, on or
about the Premises and the Building and the Project, that are
caused by or result from risks or perils insured against under any
property insurance policies required by the Lease to be carried by
Landlord and/or Tenant and in force at the time of any such
damage, loss or injury. Landlord and Tenant shall cause each
insurance policy obtained by them or either of them to provide
that the insurance company waives all right of recovery by way of
subrogation against either Landlord or Tenant in connection with
any damage covered by any such policy or policies. Neither
Landlord nor Tenant shall be liable to the other for any damage
caused by fire or any of the risks insured against under any
insurance policy required by the Lease. If an insurance policy
cannot be obtained with a waiver of subrogation, or is obtainable
only by the payment of an additional premium charge above that
charged by insurance companies issuing policies without waiver of
subrogation, the party undertaking to obtain the insurance shall
notify the other party of this fact. The other party shall have a
period of ten (10) days after receiving the notice either to place
the insurance with a company that is reasonably satisfactory to
the other party and that will carry the insurance with a waiver of
subrogation at no additional cost, or to agree to pay the
additional premium if such a policy is obtainable at additional
cost. If the insurance cannot be obtained or the party in whose
favor a waiver of subrogation is desired refuses to pay the
additional premium charged, the other party is relieved of the
obligation to obtain a waiver of subrogation with respect to the
particular insurance involved.
Utilities 17. Tenant, at its expense, shall install separate utility meters
at the Premises and any additional space which Tenant may lease
pursuant to paragraphs 1(c) and 1(d) for all utilities (excluding
water and sewer which is included as a Direct Expense) serving the
Premises and any such additional space, and Tenant shall pay,
directly to the party providing the same, all costs for all
utilities consumed in, on or about the Premises and any such
additional space leased by Tenant.
Personal
Property and
Other Taxes 18. Tenant shall pay, before delinquency, any and all taxes
levied or assessed and which become payable during the Lease Term
upon Tenant's equipment, furniture, fixtures, trade fixtures and
other personal property located in the Premises; and any and all
taxes or increases therein levied or assessed on Landlord or
Tenant by virtue of alterations, additions or improvements to the
Premises made by Tenant or Landlord at Tenant's request. In the
event said taxes are charged to or paid or payable by Landlord,
Tenant, forthwith upon demand therefor, shall reimburse Landlord
for all of such taxes paid by Landlord.
Rules and
Regulations 19. Tenant shall faithfully observe and comply with the rules and
regulations attached to this Lease as Exhibit D and all
---------
reasonable modifications of and additions thereto applicable to
all tenants of the Project from time to time put into effect by
Landlord of which Tenant shall have
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<PAGE>
notice, to the extent such rules and regulations and any
modifications and amendments are consistent with the terms and
intent of this Lease, and the size, location, purposes and uses of
the Premises contemplated by this Lease (which includes the
contemplated presence and use on the Premises of Hazardous
Materials and animals and Tenant having principal responsibility
for its own HVAC, janitorial services and Roof Platform).
Landlord shall not be responsible to Tenant for the nonperformance
by any other tenant or occupant of the Project of any of said
rules and regulations, but Landlord shall not enforce the same in
a discriminatory manner adverse to Tenant. Landlord shall not
unreasonably withhold its approval to any request of Tenant for an
express waiver by Landlord of any rule or regulation as they
relate to Tenant and the Premises.
Holding Over 20. If Tenant holds possession of the Premises after the Lease
Term, Tenant shall (at option of Landlord to be exercised by
Landlord's giving written notice to Tenant and not otherwise)
become a Tenant from month to month upon the terms and conditions
herein specified, so far as applicable, at a monthly rental of
110% of the Basic Rent in effect upon termination of this Lease,
plus all other rent specified herein, payable in advance, in
lawful money, and shall continue to be such Tenant until thirty
(30) days after Tenant shall have given to Landlord or Landlord
shall have given to Tenant a written notice of intent to terminate
such monthly tenancy. Unless Landlord exercises its option under
this paragraph 20, Tenant shall be a Tenant at sufferance only,
whether or not Landlord shall accept any rent from Tenant while
Tenant is so holding over.
Subordina- 21. Subject to the provisions of this paragraph 21 and the
tion provisions of this Lease relating to the rights of any Leasehold
Mortgagee, this Lease shall be subject and subordinate at all
times to all ground or underlying leases which may now exist or
hereafter be executed affecting the Building and/or the Project
and to the lien of any mortgages or deeds of trust in any amount
or amounts whatsoever now or hereafter placed on or against the
Building and/or the Project or on or against the Landlord's
interest or estate therein or on or against any ground or
underlying lease without the necessity of having further
instruments on the part of Tenant to effectuate such
subordination. Tenant covenants and agrees to execute and deliver,
upon demand, such further instruments evidencing such
subordination of this Lease to such ground or underlying leases
and to the lien of any such mortgages or deeds of trust as may be
required by Landlord. Notwithstanding any such subordination, in
the event of termination of any ground or underlying lease, or in
the event of foreclosure or exercise of any power of sale under
any mortgage or deed of trust superior to this Lease or to which
this Lease is subject or subordinate, upon the attornment of
Tenant (or if applicable, any Leasehold Mortgagee or Leasehold
Mortgage Purchaser) to the Lessor under such ground or underlying
lease or to the purchaser at any foreclosure sale or sale pursuant
to the exercise of any power of sale under any mortgage or deed of
trust, this Lease shall not terminate, and Tenant (or if
applicable, any Leasehold Mortgagee or Leasehold Mortgage
Purchaser) shall automatically be and become the tenant under the
terms of this Lease to said lessor under such ground or underlying
lease or to said purchaser, whichever is applicable, and any
subordination agreement requested of Tenant shall so provide.
Landlord's interest in any Tenant Improvements or any alterations,
additions or improvements made by Tenant shall be subordinate to
the interest of any Leasehold Mortgagee and Landlord's interest in
any equipment, fixtures, inventory, furniture, trade fixtures or
other personal property of Tenant shall
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be subordinate to the interest of any Leasehold Mortgagee
or Equipment Mortgagee.
Entry by
Landlord 22. Landlord reserves and shall have the right during business
hours upon reasonable prior notice (except in the event of an
emergency when no notice shall be required) to enter the Premises
to inspect the same, to supply any service to be provided by
Landlord to Tenant hereunder, to submit the Premises to
prospective purchasers or tenants, to post notices of
nonresponsibility, and to alter, improve or repair the Premises
and any portion of 863 Mitten without abatement of rent and may
for that purpose erect scaffolding and other necessary structures
where reasonably required by the character of the work to be
performed, always providing the entrance to 863 Mitten shall not
be blocked thereby and further providing that the business of
Tenant shall not be interfered with unreasonably. Tenant hereby
waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy of
quiet enjoyment of the Premises, and other loss occasioned by such
entry. For each of the aforesaid purposes, Landlord shall at all
times have and retain a key with which to unlock all of the doors,
in, upon and about the Premises excluding Tenant's vaults and
safes, and Landlord shall have the right to use any and all means
which Landlord may deem proper to open said doors in an emergency
in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord by any of said means, or otherwise,
shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into or a detainer of the Premises or
an eviction of Tenant from the Premises or any portion thereof.
Notwithstanding the foregoing, Tenant shall have the right to
reasonably restrict Landlord's access to any confidential
operations in the Premises.
Insolvency or
Bankruptcy 23. Either (a) the appointment of a receiver to take possession
of all or substantially all of the assets of Tenant, (b) an
assignment by Tenant for the benefit of creditors, or (c) any
action taken or suffered by Tenant under any insolvency,
bankruptcy or reorganization act shall constitute a breach of this
Lease by Tenant. Upon the happening of any such event this Lease
shall terminate five (5) days after written notice of termination
from Landlord to Tenant; provided, however, if an involuntary
bankruptcy petition is filed against Tenant, there shall be no
default under this Lease if that petition is dismissed within
sixty (60) days after it is filed. In no event shall this Lease be
assigned or assignable by reason of any voluntary or involuntary
bankruptcy proceedings nor shall any rights or privileges
hereunder be an asset of Tenant in any bankruptcy, insolvency or
reorganization proceedings.
Default 24. Tenant shall not be deemed to be in default under this Lease
until: (1) Tenant fails to pay rent or any other sum due under
this Lease within five (5) business days after Landlord's delivery
of written notice to Tenant of Tenant's failure to pay such sum
when due hereunder; or (ii) Tenant fails to perform any other
obligation of Tenant under this Lease within thirty (30) days
after Landlord's delivery of written notice to Tenant of Tenant's
failure to perform such obligation when due hereunder (provided,
however, the 30-day period shall be extended if Tenant cannot
reasonably cure that default within 30 days so long as Tenant
commences that cure within the 30-day period and diligently
prosecutes that cure to completion). In the event of any such
default by Tenant, then Landlord, besides any other rights and
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remedies of Landlord at law or equity, shall have the right either
to terminate Tenant's right to possession of the Premises and
thereby terminate this Lease or to have this Lease continue in
full force and effect with Tenant at all times having the right to
possession of the Premises. Such property so removed may be stored
in a public warehouse or elsewhere at the cost and for the account
of Tenant. Upon such termination Landlord, in addition to any
other rights and remedies (including rights and remedies under
Subparagraphs (1), (2) and (4) of Subdivision (a) of Section
1951.2 of the California Civil Code of any amendment thereto) ,
shall be entitled to recover from Tenant the worth at the time of
award of the amount by which the unpaid rent for the balance of
the term after the time of award exceeds the amount of such
rental loss that the Tenant proves could be reasonably avoided.
The worth at the time of award of the amount referred to in
Subparagraphs (1) and (2) of Subdivision (a) of Section 1951.2 of
the California Civil Code shall be computed by allowing interest
at the rate provided in paragraph 5(c). The worth at the time of
the award of the amount referred to in Subparagraph (3) of
Subdivision (a) of Section 1951.2 of the California Civil Code
shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the
award plus 1%.
Any proof by Tenant of the amount of rental loss that could be
reasonably avoided shall be made in the following manner: Landlord
and Tenant shall each select a licensed real estate broker in the
business of renting property of the same type and use as the
Premises and in the same geographic vicinity and such two real
estate brokers shall select a third licensed real estate broker
and the three licensed real estate brokers so selected shall
determine the amount of rental loss that could be reasonably
avoided for the balance of the term of this Lease after the time
of award. The decision of the majority of said licensed real
estate brokers shall be final and binding upon the parties hereto.
Should Landlord, following any breach or default of this Lease by
Tenant, elect to keep this Lease in full force and effect, with
Tenant retaining the right to possession of the Premises
(notwithstanding the fact the Tenant may have abandoned the
Premises), then Landlord, besides the rights and remedies
specified in Section 1951.4 of the California Civil Code, "(lessor
may continue lease in effect after lessee's breach and abandonment
and recover rent as it becomes due, if lessee has right to sublet
or assign, subject only to reasonable limitations)" and all other
rights and remedies Landlord may have at law or equity, shall have
the right to enforce all of Landlord's rights and remedies under
this Lease. Notwithstanding any such election to have this Lease
remain in full force and effect, Landlord may at any time
thereafter elect to terminate Tenant's right to possession of the
Premises and thereby terminate this Lease for any previous breach
or default which remains uncured, or for any subsequent breach or
default.
The remedies provided for hereinabove in this paragraph 24, shall,
in the event of the applicability of the liquidated damages
provision of paragraph 45(e) (2)B hereof to any such default, be
inapplicable to such default.
Destruction
or Damage 25. (a) In the event the Premises or a portion of the Building
or a portion of 863 Mitten is damaged by fire or other casualty,
then Landlord shall diligently repair and restore the same to
substantially the same condition as existing immediately prior to
such damage to the fullest
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<PAGE>
extent possible, subject to the provisions of this paragraph 25, provided that
if any repairs to the Premises can not reasonably be made within one hundred
eighty (180) days after issuance of a building permit therefor under the laws
and regulations of federal, state and local governmental authorities having
jurisdiction thereof, either Landlord or Tenant may by notice to the other given
within thirty (30) days after the date of such fire or other casualty, elect to
terminate this Lease as of a date specified in such notice. Landlord shall
notify Tenant, within twenty (20) days after the date of such fire or other
casualty, of the estimated period required for repairing any such damage to the
Premises and the estimated cost of repairing such damage. Notwithstanding the
foregoing: (i) if any such damage to the Premises shall occur during the final
year of the Lease Term (with all options to extend having then occurred or
expired or been waived without exercise) and the reasonably estimated cost of
repairing such damage exceeds ten percent (10%) of the full replacement value of
the Premises (including all Tenant Improvements, and any alterations, additions
or other improvements) , either Landlord or Tenant may instead elect to
terminate this Lease upon written notice given to the other within thirty (30)
days after the date of such fire or other casualty, in which event this Lease
shall terminate as of the termination date specified in such notice; and (ii) if
the reasonably estimated cost of repairing any damage to the Premises which is
not covered by any applicable insurance coverage exceeds twenty percent (20%) of
the full replacement value of the Premises (including all Tenant Improvements,
and any alterations, additions or other improvements), then Landlord may instead
elect to terminate this Lease upon written notice given to Tenant within thirty
(30) days after the date of such fire or other casualty, in which event this
Lease shall terminate as of the termination date specified in Landlord's notice.
25. (b) Where more than one party is entitled to and in fact gives any notice
of termination, the earlier of the termination dates specified in such notices
of termination shall be controlling. As to any notice of termination given by
Landlord which provides for a period of notice of termination shorter than
thirty (30) days, Tenant shall have the right by notice to Landlord to require
that such shorter notice period given by Landlord be extended to be a period of
thirty (30) days. In the event of the occurrence of any such damage, an
abatement of rent (both basic and additional rent) under this Lease shall be
allowed Tenant during the period and to the extent Tenant's use of the Premises
in the conduct of its business is materially affected by any damage to, or any
repairs being made to, the Premises or the Project.
25. (c) A total destruction of the Building automatically shall terminate this
Lease. Landlord and Tenant acknowledge that this Lease constitutes the entire
agreement of the parties regarding events of damage or destruction, and Tenant
waives the provisions of California Civil Code Sections 1932(2) and 1933(4) and
any similar statute now or hereafter in force.
25. (d) If the Premises are to be repaired under this paragraph 25, Landlord
shall repair at its cost any injury or damage to the Building and restore the
Premises to the condition existing upon substantial completion of the Tenant
Improvements, as such Tenant Improvements may be modified or supplemented by any
subsequent alterations, additions or improvements. Tenant shall make available
to Landlord the proceeds or any insurance to be maintained by Tenant thereon
pursuant to paragraph 16(a) (2) when and to the extent needed to pay the cost of
any such repairs or
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replacements by Landlord to the Tenant Improvements, as
such Tenant Improvements may have been modified or supplemented
by any subsequent alterations, additions or improvements, and
Tenant shall pay the cost of repairing or replacing all
Tenant's trade fixtures, furnishing, furniture, equipment and
other personal property.
Eminent Domain 26. If any part of the Premises shall be taken or appropriated
by any public or quasi-public authority under the power of
eminent domain, and such taking will substantially impair
Tenant's use of the Premises for more than 9O days, Tenant
shall have the right, at its option, to terminate this Lease as
of the date of such taking. If all of the Premises shall be so
taken, either party may terminate this Lease as of the date of
such taking. If a part of the Premises shall be so taken but
the Lease is not terminated, the rent thereafter to be paid by
Tenant shall be equitably reduced.
Clauses, Plats
and Riders 27. Clauses, plats and riders, if any, signed by Landlord and
Tenant and endorsed on or affixed to this Lease are a part
hereof, and in the event of variation or discrepancy the
duplicate original hereof, including such clauses, plats and
riders, if any, held by Landlord shall control.
Sale By
Landlord 28. In the event the original Landlord hereunder, or any
successor owner of the Building or the Project, shall sell or
convey the Building or the Project, all liabilities and
obligations on the part of the original Landlord, or such
successor owner, under this Lease, accruing thereafter shall
terminate, and thereupon all such liabilities and obligations
shall be binding upon the new owner. Tenant agrees to attorn to
such new owner. If any security be given by Tenant to secure
the faithful performance of all or any of the covenants at this
Lease on the part of Tenant, Landlord may transfer and/or
deliver the security, to the successor in interest of Landlord,
and thereupon Landlord shall be discharged from any further
liability in reference thereto. Except as set forth in this
paragraph 28, this Lease shall not be affected by any such sale
or conveyance.
Estoppel
Certificates 29. At any time and from time to time, within twenty (20) days
after request by either Landlord or Tenant (the "Requesting
Party"), the other party (the "Responding Party") shall
execute, acknowledge and deliver to the Requesting Party a
statement, in the form requested by the Requested Party,
certifying the Commencement Date of this Lease, stating that
this Lease is unmodified and in full force and effect (or if
there have been modifications, that this Lease is in full force
and effect as modified and the date and nature of such
modifications), stating the dates to which the rent has been
paid, stating that the Responding Party has no knowledge of any
uncured defaults by the Requesting Party under the Lease,
stating that the Responding Party has no knowledge of any
material noncompliance with any Hazardous Materials laws at the
Project (or if there is any such noncompliance, identifying all
known instances of such noncompliance), and setting forth such
other matters as may reasonably be requested by the Requesting
Party. Landlord and Tenant intend that any such statement
delivered pursuant to this paragraph 29 may be relied upon by
any mortgagee or the beneficiary of any deed of trust or by any
purchaser or prospective purchaser of the Building or by any
assignee of, sublessee under, Leasehold Mortgagee, Equipment
Mortgagee or other lender to or investor in Tenant. If the
Responding Party fails to so execute, acknowledge and deliver
any such certificate, then the Requesting Party
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may certify any of the foregoing matters, on which any such
person may rely, and the Responding Party shall be estopped
from denying the truth of such facts.
Right of Landlord
to Perform 30. All covenants and agreements to be kept or performed by
Tenant under any of the terms of this Lease shall be
performed by Tenant at Tenant's sole cost and expense and
without any abatement of rent. If Tenant shall fail to pay
any sum of money, other than rent, required to be paid by it
hereunder or shall fail to perform any other act on its part
to be performed hereunder, Landlord may, but shall not be
obligated to, and without waiving any default of Tenant or
releasing Tenant from any obligations of Tenant hereunder,
after expiration of the applicable notice and cure period
provided in paragraph 24, make any such payment or perform
any such other act on Tenant's part to be made or performed
as provided in this Lease. All sums so paid by the Landlord
and all necessary incidental costs, together with interest
thereon at the rate provided in paragraph 5(c) hereof from
the date of such payment by the Landlord, shall be paid to
Landlord forthwith on demand, and Landlord shall have (in
addition to any other right or remedy of Landlord) the same
rights and remedies in the event of nonpayment thereof by
Tenant as in the case of breach by Tenant in payment of rent.
Attorneys'
Fees 31. If as a result of any breach or default on the part of
either party under this Lease ("Defaulting Party"), the other
party uses the services of any attorney in order to secure
compliance with this Lease, the Defaulting Party shall
reimburse the other party upon demand for any and all
attorneys' fees and expenses incurred by the other party,
whether or not formal legal proceedings are instituted.
Should either party bring action against the other party, by
reason of or alleging the failure of the other party to
comply with any or all of its obligations hereunder, whether
for declaratory or other relief, then the party which
prevails in such action shall be entitled to its reasonable
attorneys' fees and expenses related to such action, in
addition to all other recovery or relief. A party shall be
deemed to have prevailed in any such action (without limiting
the generality of the foregoing) if such action is dismissed
upon the payment by the other party of the sums allegedly due
or the performance of obligations allegedly not compiled
with, or if such party obtains substantially the relief
sought by it in the action, irrespective of whether such
action is prosecuted to judgment. In addition, if either
party to this Lease becomes a party to or is involved in any
way in any action concerning this Lease or the Premises by
reason in whole or in part of any act, neglect, fault or
omission of any duty by the other party, its employees or
contractors, the party subjected to said involvement shall be
entitled to reimbursement for any and all reasonable
attorneys' fees and costs.
Surrender
of Premises 32. The voluntary or other surrender of this Lease by Tenant
or mutual cancellation thereof shall not work a merger and,
at the option of Landlord, shall terminate all or any
existing subleases or subtenancies, or at the option of
Landlord, may operate as an assignment to Landlord of any or
all such subleases or subtenancies.
Waiver 33. The waiver by Landlord or Tenant of performance of any
term, covenant or condition herein contained shall not be
deemed to be a waiver of such term, covenant or condition or
any subsequent breach of the same or any other term, covenant
or condition herein contained. The subsequent acceptance of
rent hereunder by Landlord shall not
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be deemed to be a waiver or any preceding breach by Tenant of any
term, covenant or condition of this Lease, other than the failure
of Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of
acceptance of such rent.
Notices 34. All notices, demands, approvals and other communications
provided for in this Lease shall be in writing and shall be
effective (a) when personally delivered (including courier or
other delivery services) to the recipient's address set forth
below; (b) upon receipt at the address provided after deposit in a
sealed envelope in the United States mail, postage prepaid, by
registered or certified mail, return receipt requested, addressed
to the recipient as set forth below; (c) one (1) business day
after deposit with a recognized overnight courier or delivery
service, addressed to the recipient as set forth below; or (d)
upon telephonic confirmation by any person in the office of the
addressee of receipt after transmission by facsimile to the
facsimile number of the recipient set forth below. If the date on
which any notice to be given hereunder falls on a Saturday, Sunday
or legal holiday, then such date shall automatically be extended
to the next business day immediately following such Saturday,
Sunday or legal holiday.
The addresses for notice are:
LANDLORD: Provident Life and Accident Insurance
Company
Corporate Properties
One Fountain Square
Chattanooga, TN 37492
Attn: Mr. Robert A. Reno
Facsimile No.: (615) 755-1448
Telephone No.: (615) 755-3334
Copy to: E.S. Merriman & Sons
One Post Street, Suite 3200
San Francisco, CA 94104
Attn: Mr. Dwight L. Merriman, Jr.
Facsimile No.: (415) 397-1646
Telephone No.: (415) 397-2200
TENANT: MEGABIOS Corp.
Two Embarcadero Center, Suite 410
San Francisco, CA 94111
Attn: Mr. William L. Brown, Vice President
Facsimile No.: (415) 434-1392
Telephone No.: (415) 434-1377
Copy to: Heller, Ehrman, White, & McAuliffe
333 Bush Street, 30th Floor
San Francisco, CA 94104
Attn: K. William Neuman, Esq
Facsimile No.: (415) 772-6268
Telephone No.: (415) 772-6064
Either party may, by written notice to the other given in the
manner set forth above, change its name, address, or its facsimile
or telephone numbers or may include additional parties such as any
fee mortgagee, Leasehold Mortgagee or Equipment Mortgagee.
Leasehold
Mortgage 35. (a) Leasehold Mortgage Authorized. On one or more
-----------------------------
occasions, in accordance with the requirements of this paragraph
35, Tenant may mortgage or otherwise encumber Tenant's leasehold
estate (a "Leasehold Mortgage") to an Institutional Investor (as
hereinafter defined) , under a Leasehold Mortgage and assign
Tenant's interest in this Lease as security for such Leasehold
Mortgage.
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35. (b) Notice to Landlord.
------------------
(1) Tenant shall keep Landlord reasonably informed as to any decision by Tenant
to enter into a Leasehold Mortgage. If Tenant shall mortgage Tenant's leasehold
estate to an Institutional Investor, and if either Tenant or the holder of such
Leasehold Mortgage shall provide Landlord with notice of such Leasehold Mortgage
together with a true copy of such Leasehold Mortgage and the name and address of
mortgagee thereunder (the "Leasehold Mortgagee"), Landlord and Tenant agree
that, following receipt of such notice by Landlord, the provisions of this
paragraph 35 shall apply in respect to such Leasehold Mortgage.
(2) In the event of any assignment of a Leasehold Mortgage or in the event of a
change of address of a Leasehold Mortgagee, notice of the new name or address of
the Leasehold Mortgagee shall be provided to Landlord.
(3) Landlord shall promptly upon receipt of the notice provided for by paragraph
(b) (1) above acknowledge in writing to the Leasehold Mortgagee receipt of such
communication as constituting the notice provided for by paragraph (b) (1)
above.
(4) Aften Landlord has received the notice provided for by paragraph (b) (1)
above, Tenant, upon being requested to do so by Landlord, shall with reasonable
promptness provide Landlord with copies of the note or other obligation secured
by such Leasehold Mortgage and of any other documents pertinent to the Leasehold
Mortgage as specified by Landlord. If requested to do so by Landlord, Tenant
shall thereafter also provide Landlord from time to time with a copy of each
amendment or other modification or supplement to such instruments, and any
assignments or conveyances of the Leasehold Mortgagee's interest.
(5) Tenant shall promptly provide Landlord with a copy of any notice of default
Tenant may receive from Leasehold Mortgagee with respect to the Leasehold
Mortgage.
35. (c) Definitions. The following terms are defined to .shall have the
-----------
following indicated meanings when used in this paragraph 35.
(i) The term "Institutional Investor" shall refer to a savings bank, savings and
loan association, commercial bank, trust company, credit union, insurance
company, college, university, venture capital fund or partnership, real estate
investment trust or pension fund. The term "Institutional Investor" shall also
include other lenders of substance which perform functions similar to any of the
foregoing, and which have assets in excess of fifty million dollars
($50,000,000) at the time the Leasehold Mortgage loan is made.
(ii) The term "Leasehold Mortgage" shall include a mortgage, a deed of trust, a
deed to secure debt, an assignment of rents, issues and profits from the
Premises, or other security instrument by which Tenant's leasehold estate is
mortgaged, conveyed, assigned, or otherwise transferred, to secure a debt or
other obligation.
(iii) The term "Leasehold Mortgagee" shall refer to a holder of a Leasehold
Mortgage in respect to which the notice provided for by paragraph (b) of this
paragraph 35 has been given and received and as to which the provisions of this
paragraph 35 are applicable.
(iv) The term "Leasehold Mortgage Purchaser" shall refer to the purchaser at
any sale of this Lease and of the leasehold estate hereby created in any
proceedings for the
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foreclosure of any Leasehold Mortgage, or the assignee or transferee of this
Lease and of the leasehold estate hereby created under any instrument of
assignment or transfer in lieu of the foreclosure of any Leasehold Mortgage.
35. (d) Consent of Leasehold Mortgagee Required. No cancellation, surrender
---------------------------------------
or modification of this Lease shall be effective as to any Leasehold Mortgagee
unless consented to in writing by such Leasehold Mortgagee.
35. (e) Default Notice. Landlord, upon providing Tenant any notice of (i)
--------------
default under this Lease, or (ii) termination of this Lease, shall at the same
time provide a copy of such notice to any Leasehold Mortgagee. No such notice
by Landlord to Tenant shall be deemed to have been duly given unless and until a
copy thereof has been so provided to the Leasehold Mortgagee. From and after
the date upon which such notice has been given to a Leasehold Mortgagee, such
Leasehold Mortgagee shall have the same period, after the giving of such notice
upon it, for remedying any default or acts or omissions which are the subject
matter of such notice or causing the same to be remedied, as is given Tenant
after the giving of such notice to Tenant, plus in each instance, the additional
periods of time specified in paragraphs (f) and (g) of this paragraph 35 to
remedy, commence remedying or cause to be remedied the defaults or acts or
omissions which are the subject matter of such notice specified in any such
notice. Landlord shall accept such performance by or at the instigation of such
Leasehold Mortgagee as if the same had been done by Tenant. Tenant authorizes
any Leasehold Mortgagee to take any such action at such Leasehold Mortgagee's
option and does hereby authorize entry upon the Premises by the Leasehold
Mortgagee for such purpose.
35. (f) Notice to Leasehold Mortgagee. Anything contained in this Lease to
-----------------------------
the contrary notwithstanding, if any default shall occur which entitles Landlord
to terminate this Lease while there exists a Leasehold Mortgage, Landlord shall
have no right to terminate this Lease unless, following the expiration of the
period of time given Tenant to cure such default or the act or omission which
gave rise to such default, Landlord shall notify the Leasehold Mortgagee of
Landlord's intent to so terminate this Lease ("Termination Notice") at least
20 days in advance of the proposed effective date of such termination if such
default is capable of being cured by the payment of money, and at least 30 days
in advance of the proposed effective date of such termination if such default is
not capable of being cured by the payment of money. The provisions of paragraph
(g) below of this paragraph 35 shall apply if, during such 20 or 30 day
Termination Notice period, any Leasehold Mortgagee shall:
(i) notify Landlord of such Leasehold Mortgagee's desire to nullify such
notice, and
(ii) pay or cause to be paid all rent, additional rent, and other payments
then due and in arrears as specified in the Termination Notice to such Leasehold
Mortgagee and which may become due during such 20 or 30-day period, and
(iii) comply or, in good faith, with reasonable diligence and continuity,
commence to comply with all nonmonetary requirements of this Lease then in
default and reasonably susceptible of being complied with by such Leasehold
Mortgagee; provided, however, that such Leasehold Mortgagee shall not be
required during such 30-day period to cure or commence to cure any default
consisting of Tenant's failure to satisfy and discharge
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<PAGE>
any lien, charge or encumbrance against the Tenant's interest in this Lease or
the Premises junior in priority to the lien of the Leasehold Mortgage held by
such Leasehold Mortgagee.
35. (g) Procedure on Default.
--------------------
(1) If Landlord shall elect to terminate this Lease by reason of any
default of Tenant, and a Leasehold Mortgagee shall have proceeded in the manner
provided for by paragraph (f) of this paragraph 35, the specified date for the
termination of this Lease as fixed by Landlord in its Termination Notice shall
be extended for a period of six months, provided that such Leasehold Mortgagee
shall, during such six month period:
(i) Pay or cause to be paid the rent, additional rent and other monetary
obligations of Tenant under this Lease as the same become due, and continue its
good faith efforts to perform all of Tenant's other obligations under this
Lease, excepting (A) obligations of Tenant to satisfy or otherwise discharge any
lien, charge or encumbrance against Tenant's interest in this Lease or the
Premises junior in priority to the lien of the Leasehold Mortgage held by such
Leasehold Mortgagee and (B) past nonmonetary obligations then in default and not
reasonably susceptible of being cured by such Leasehold Mortgagee; and
(ii) If not enjoined or stayed, take steps to acquire or sell Tenant's
interest in this Lease by foreclosure of the Leasehold Mortgage or other
appropriate means and prosecute the same to completion with due diligence .
(2) If at the end of such six (6) month period such Leasehold Mortgagee is
complying, and thereafter continues to comply with paragraph (g)(1), this
Lease shall not then terminate, and the time for completion by such Leasehold
Mortgagee of its proceedings shall continue so long as such Leasehold Mortgagee
is enjoined or stayed and thereafter for so long as such Leasehold Mortgagee
proceeds to complete steps to acquire or sell Tenant's interest in this Lease by
foreclosure of the Leasehold Mortgage or by other appropriate means with
reasonable diligence and continuity. Nothing in this paragraph (g) of this
paragraph 35, however, shall be construed to extend this Lease beyond the
original term thereof as extended by any options to extend the term of this
Lease properly exercised by Tenant or a Leasehold Mortgagee in accordance with
paragraph 35, nor to require a Leasehold Mortgagee to continue such foreclosure
proceedings after the default has been cured. If the default shall be cured and
the Leasehold Mortgagee shall discontinue such foreclosure proceedings, this
Lease shall continue in full force and effect as if Tenant had not defaulted
under this Lease.
(3) If a Leasehold Mortgagee is complying with paragraph (g)(1) of this
paragraph 35, upon the acquisition of Tenant's estate herein by such Leasehold
Mortgagee or its designee or any other Leasehold Mortgage Purchaser and the
discharge of any lien, charge or encumbrance against the Tenant's interest in
this Lease or the Premises which is junior in priority to the lien of the
Leasehold Mortgage held by such Leasehold Mortgagee and which the Tenant is
obligated to satisfy and discharge by reason of the terms of this Lease, this
Lease shall continue in full force and effect as if Tenant had not defaulted
under this Lease.
(4) For the purposes of this paragraph 35, the making of a Leasehold Mortgage
shall not be deemed to constitute an assignment or transfer of this Lease or of
the leasehold
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<PAGE>
estate hereby created, nor shall any Leasehold Mortgagee, as such, be deemed to
be an assignee or transferee of this Lease or of the leasehold estate hereby
created so as to require such Leasehold Mortgagee, as such, to assume the
performance of any of the terms, covenants or conditions on the part of the
Tenant to be performed hereunder, but a Leasehold Mortgage Purchaser shall be
deemed to be an assignee or transferee within the meaning of this paragraph 35,
and such Leasehold Mortgage Purchaser shall be deemed to have agreed to perform
all of the terms, covenants and conditions on the part of the Tenant to be
performed hereunder from and after the date of such purchase and assignment, but
only for so long as such Leasehold Mortgage Purchaser is the owner of the
Leasehold Estate.
(5) Any Leasehold Mortgage Purchaser may, upon acquiring Tenant's leasehold
estate hereunder, without further consent of Landlord, sell and assign such
leasehold estate on such terms and to such person or entity as assignee as are
acceptable to such Leasehold Mortgage Purchaser and thereafter be relieved of
all obligations under this Lease, provided that such assignee has delivered to
Landlord its written agreement to be bound by all of the provisions of this
Lease.
(6) Notwithstanding any other provisions of this Lease, any sale of this Lease
and of the leasehold estate hereby created in any proceedings for the
foreclosure of any Leasehold Mortgage, or the assignment or transfer of this
Lease and of the leasehold estate hereby created in lieu of the foreclosure of
any Leasehold Mortgage shall be deemed to be a permitted sale, transfer or
assignment of this Lease and of the leasehold estate hereby created.
35. (h) New Lease. In the event of the termination of this Lease as a result
---------
of Tenant's default, Landlord shall, in addition to providing the notices of
default and termination as required by paragraphs (e) and (f) above of this
paragraph 35, provide any Leasehold Mortgagee with written notice that the Lease
has been terminated, together with a statement of all sums which would at that
time be due under this Lease but for such termination, and of all other
defaults, if any, then known to Landlord. Landlord agrees, at the election of
any Leasehold Mortgagee, to enter into a new lease ("New Lease") of the Premises
with such Leasehold Mortgagee or its designee for the remainder of the term of
this Lease, effective as of the date of termination, at the rent and additional
rent, and upon the terms, covenants and conditions (including all options to
renew but excluding requirements which are not applicable or which have already
been fulfilled) of this Lease, provided:
(i) Such Leasehold Mortgagee shall make written request upon Landlord for such
New Lease within 10 business days after the date such Leasehold Mortgagee
receives Landlord's Notice of Termination of this Lease given pursuant to this
paragraph (h).
(ii) Such Leasehold Mortgagee or its designee shall pay or cause to be paid to
Landlord at the time of the execution and delivery of such New Lease, any and
all sums which would at the time of execution and delivery thereof be due
pursuant to this Lease but for such termination and, in addition thereto, all
reasonable expenses, including reasonable attorneys' fees, which Landlord shall
have incurred by reason of such termination and the execution and delivery of
the New Lease and which have not otherwise been received by Landlord from Tenant
or another party.
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(iii) Such Leasehold Mortgagee or its designee shall agree to remedy any of
Tenant's defaults of which said Leasehold Mortgagee was notified by Landlord's
Notice of Termination and which are reasonably susceptible of being so cured by
Leasehold Mortgagee or its designee.
(iv) Any New Lease made pursuant to this paragraph (h) shall have the same
right, title and interest in and to the Premises and the buildings and
improvements thereon as Tenant had under this Lease.
(v) The tenant under any such New Lease shall be liable to perform the
obligations imposed on the Tenant by such New Lease only during the period such
person has ownership of such Leasehold Estate.
Upon execution and delivery of the New Lease, Landlord, at the expense of the
new tenant thereunder, shall take such action as shall be necessary to cancel
and discharge this Lease and to remove Tenant named herein from the Premises.
Landlord agrees that, until the earlier to occur of (A) the execution and
delivery of the New Lease, or (B) the expiration of the 10 business day period
set forth in subparagraph (h) (i) above without the Leasehold Mortgagee's having
given notice of its request for the New Lease, Landlord shall not modify, amend
or terminate any sublease of any portion of the Premises and that, upon
execution and delivery of any New Lease, Landlord shall assign all of its right,
title and interest in and to all such subleases to the Leasehold Mortgagee or
the Leasehold Mortgage Purchaser. Any sums received by Landlord as rental under
any such subleases shall be credited against any monetary defaults under this
Lease.
35. (i) Casualty Loss. A standard mortgagee clause naming any Leasehold
-------------
Mortgagee may be added to any and all insurance policies required to be carried
by Tenant hereunder on the condition that the insurance proceeds are to be
applied in the manner specified in this Lease and the Leasehold Mortgage shall
so provide.
35. (j) Legal Proceedings. Landlord shall give Leasehold Mortgagee prompt
-----------------
notice of any arbitration or legal proceedings between Landlord and Tenant
involving obligations under this Lease. Leasehold Mortgagee shall have the
right to intervene in any such proceedings and be made a party to such
proceedings, and the parties hereto do hereby consent to such intervention. In
the event that any Leasehold Mortgagee shall not elect to intervene or become a
party to any such proceedings, Landlord shall give the Leasehold Mortgagee
notice of, and a copy of any award or decision made in any such proceedings,
which shall be binding on the Leasehold Mortgagee.
35. (k) Security Deposit. If any Leasehold Mortgagee or Leasehold Mortgage
----------------
Purchaser has acquired the leasehold estate of Tenant pursuant to foreclosure,
conveyance in lieu of foreclosure or other proceedings, or has entered into a
New Lease with Landlord in accordance with paragraph (h) of this paragraph 35,
such Leasehold Mortgagee or Leasehold Mortgage Purchaser shall succeed to the
rights of Tenant, if any, in and to the security deposit paid by Tenant to
Landlord pursuant to the terms of this Lease. In such event, Tenant shall no
longer have any rights to such security deposit and Landlord shall hold such
security deposit for and on behalf of such Leasehold Mortgagee or Leasehold
Mortgage Purchaser.
35. (1) Erroneous Payments. No payment made to Landlord by a Leasehold
------------------
Mortgagee shall constitute agreement that such payment was, in fact, due under
the terms of this Lease; and a Leasehold Mortgagee having made any payment
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to Landlord pursuant to Landlord's wrongful, improper or mistaken notice or
demand shall be entitled to the return of any such payment or portion thereof,
provided that such Leasehold Mortgagee shall have made demand therefor not later
than one year after the date of its payment.
35. (m) Sublease Rentals. Landlord consents to a provision in any Leasehold
----------------
Mortgage or otherwise for an assignment of rents from subleases of the Premises,
as additional security, to any Leasehold Mortgagee.
35. (n) Equipment Mortgages Authorized. On one or more occasions, Tenant may
------------------------------
lease, sell and leaseback, mortgage or otherwise encumber Tenant's interest in
any item or items of furniture, inventory, trade fixtures, equipment (including,
without limitation, any equipment which by its installation in the Premises has
become a fixture) or other personal property then or thereafter to be located or
installed in the Premises (collectively for purposes of this paragraph 35,
"Equipment Mortgage" and "Equipment", respectively) to any company engaged in
the business of selling or financing the same (including but not limited to the
manufacturer, distributor or retailer of any Equipment or any Institutional
Investor) under one or more Equipment Mortgages. If either Tenant or any
Equipment Mortgagee shall provide Landlord with notice of any Equipment
Mortgage, together with a true copy of such Equipment Mortgage and the name and
address of the Equipment Mortgagee, Landlord and Tenant agree that the following
shall apply to such Equipment Mortgage and the Equipment:
(i) Title to the Equipment shall be and remain in the name of either Tenant or
Equipment Mortgagee during the term of the Lease and not that of Landlord, and
as between Landlord and Equipment Mortgagee, shall not be deemed to constitute
real property and may be removed from the Premises by the Equipment Mortgagee at
any time during the term of the Lease in the event of a default by Tenant under
the terms of its Equipment Mortgage.
(ii) In the event of any assignment of an Equipment Mortgage, or in the event of
a change of address of an Equipment Mortgagee, notice of the new name or address
of the Equipment Mortgagee shall be provided to Landlord.
(iii) Landlord shall promptly notify the Equipment Mortgagee of any termination
or expiration of the term of this Lease, and afford any Equipment Mortgagee a
reasonable period of time after Equipment Mortgagee's receipt of such notice in
which Equipment Mortgagee may enter the premises to inspect and remove any
Equipment from the Premises which then remains subject to such Equipment
Mortgage.
(iv) Landlord shall upon request of Tenant, execute any document reasonably
requested of it to evidence in favor of any Equipment Mortgagee (A) the consent
of Landlord to any such Equipment Mortgage, (B) the waiver by Landlord of any
possible rights in or liens upon any such Equipment, and (C) the acknowledgment
by Landlord of the rights of such Equipment Mortgagee in and to such Equipment
(including the rights of Equipment Mortgagee to remove such Equipment upon
termination of this Lease).
35. (o) Notices. Notices from Landlord to any Leasehold Mortgagee or
-------
Equipment Mortgagee shall be mailed to the address furnished Landlord pursuant
to this paragraph 35, and those from the Leasehold Mortgagee or Equipment
Mortgagee to Landlord shall be mailed to the address designated pursuant to the
provisions of paragraph 34 hereof. Such notices, demands and requests shall be
given
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in the manner described in paragraph 34 and shall in all
respects be governed by the provisions of that paragraph.
35. (p) Leasehold and Eguinment Mortgagee Benefitted.
--------------------------------------------
The respective provisions of this paragraph 35 are for the
benefit of, and are to be enforceable by, any Leasehold
Mortgagee, Leasehold Mortgagee Purchaser or Equipment
Mortgagee.
Defined Terms
and Marginal
Headings 36. The words "Landlord" and "Tenant," as used herein shall
include the plural as well as the singular and words used in
masculine gender shall include the feminine and neuter. If
there be more than one Tenant, the obligations hereunder
imposed upon Tenant shall be joint and several. The marginal
headings and titles to the paragraphs of the Lease are not a
part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
Time and
Applicable
Law 37. Time is of the essence of this Lease and each and all of
its provisions. This Lease shall in all respects be governed
by the laws of the state in which the Premises are located.
Successors 38. Subject to the provisions of paragraphs 14 and 28 hereof,
the covenants and conditions herein contained shall be
binding upon and inure to the benefits of the heirs,
successors, executors, administrators and assigns of the
parties hereto.
Entire
Agreement 39. This Lease constitutes the entire agreement between
Landlord and Tenant and no promises or representations,
express or implied, either written or oral, not herein set
forth shall be binding upon or inure to the benefit of
Landlord or Tenant. This Lease shall not be modified by any
oral agreement, either express or implied, and all
modifications hereof shall be in writing and signed by both
Landlord and Tenant.
Late Charge 40. In the event Tenant shall fail to pay any rent or other
sums due hereunder within five (5) business days after
written notice from Landlord that such payment is past due,
then and in that event the amount so due and unpaid shall
bear a late charge equal to five percent (5%) of the amount
due together with interest accruing from the date due at the
interest rate provided in paragraph 5(c) hereof, which late
charge and interest shall be payable forthwith upon demand.
(The foregoing shall be in addition to any other right or
remedy of Landlord.)
No Discrimina-
tion 41. Tenant agrees for Tenant and Tenant's heirs, executors,
administrators, successors and assigns and all persons
claiming under or through Tenant, and this Lease is made and
accepted upon the following condition: that there shall be no
discrimination against or segregation of any person or group
of persons on account of race, color, creed, sex, religion,
marital status, ancestry or national origin (whether in the
use, occupancy, subleasing, transferring, tenure or enjoyment
of the Premises or otherwise) nor shall Tenant or any person
claiming through or under Tenant establish or permit any such
practice or practices of discrimination or segregation with
reference to or arising out of the use or occupancy of the
Premises by Tenant or any person claiming through or under
Tenant.
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Additional
Provisions 42. The exhibits and addenda listed below are incorporated by
reference in this Lease.
A. Site Plan
A-l. Equipment Area
A-2. Reserved Parking - Existing Tenant Vacated
A-3. Reserved Parking - Existing Tenant Remains
A-4. Approved Signage Locations
B. Commencement Date Memorandum
C. Direct Expenses
D. Rules and Regulations
Existing
Tenant 43. (a) Tenant acknowledges that approximately 3,317 rentable
square feet of Building A, as shown on the Site Plan ("Existing
Premises"), is currently occupied by Charles Hoster dba National
Glass Burlingame ("Existing Tenant") pursuant to that certain
Lease Agreement dated August 10, 1990 originally between B-S-K
Associates, as landlord, and Existing Tenant, as tenant ("Existing
Lease"). Tenant further acknowledges that Existing Tenant has
commenced a proceeding pursuant to Chapter 11 of the United States
Bankruptcy Code, case no. 93-31341 TC, in the United States
Bankruptcy Court for the Northern District of California
("Bankruptcy Court"). Tenant further acknowledges that Landlord
has commenced negotiations with Existing Tenant seeking Existing
Tenant's agreement to terminate the Existing Lease or to relocate
to a portion of the Project other than the Premises, but that
Existing Tenant has not agreed to do so and any such agreement is
currently subject to obtaining Bankruptcy Court approval. Landlord
shall expeditiously and diligently pursue all reasonable means to
cause the Existing Tenant's relocation, including immediately
proceeding with filing an appropriate motion in the Bankruptcy
Court for authority to relocate the Existing Tenant and to
discourage any further extension of the present period for
assumption or rejection of the Existing Lease.
43. (b) Notwithstanding any provision to the contrary in this
Lease, the Premises demised by this Lease shall not include the
Existing Premises unless and until either (i) Existing Tenant
rejects the Existing Lease and vacates the Existing Premises, (ii)
Existing Tenant voluntarily or involuntarily vacates the Existing
Premises without there being any legal requirement for obtaining
any court approval to surrender the Existing Premises to Landlord,
(iii) Landlord has obtained any required Bankruptcy Court approval
of any agreement between Landlord and Existing Tenant pursuant to
which Existing Tenant is to vacate the Existing Premises and
Existing Tenant vacates the Existing Premises, or (iv) Landlord
has obtained any required Bankruptcy Court order (or other order
of any court having jurisdiction over the matter) authorizing
Landlord to proceed with relocating the Existing Tenant (over
Tenant's objection or inaction) and Existing Tenant vacates the
Existing Premises. If any required final Bankruptcy Court approval
or order has not been obtained by January 14, 1994, then Tenant
shall have the right by notice to Landlord at any time thereafter
through the period ending the earlier of (a) April 20, 1994 or (b)
twenty (20) days after receipt of a final Bankruptcy Court
decision or order approving either (A) the rejection of the
Existing Lease or (B) the assumption of the Existing Lease (or any
replacement lease), and determining whether the Existing Tenant
will be required to relocate out of the Existing Premises (the
"Existing Tenant Decision Period"), to terminate this Lease or to
decide to proceed with design, construction and later occupancy
around the Existing Premises. In such later event, Tenant shall
notify Landlord whether it still desires to lease as soon as
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feasible the Existing Premises. The failure of Tenant to make any formal
election prior to the expiration of the Existing Tenant Decision Period, shall
be deemed to constitute the decision of Tenant to proceed with design,
construction and later occupancy around the Existing Premises, with Tenant still
desiring to lease as soon as feasible the Existing Premises. If Tenant does
still so desire to lease as soon as feasible the Existing Premises, then
Landlord shall have a continuing obligation to relocate the Existing Tenant as
quickly as possible and to seek appropriate Bankruptcy Court or other court
approval or orders for the same. If Tenant does not then desire to lease as soon
as feasible the Existing Premises, then (i) Tenant shall design its Tenant
Improvements around the unavailability of the Existing Premises, (ii) Tenant
shall be relieved of any obligation to lease the Existing Premises when it first
becomes available, (iii) Tenant shall be relieved of any obligation under clause
(4) of paragraph 43(b) to bear any portion of any costs to relocate the
Existing Tenant, (iv) Landlord shall be relieved of its continuing obligation to
relocate the Existing Tenant, (v) Tenant's right of first refusal under
paragraph 1(d) hereof shall apply to such Existing Premises (including any
attempted extension of the term of such Existing Lease; and (vi) Tenant shall
have the right during the Initial Term by written notice to Landlord to require
Landlord to renew its efforts to relocate the Existing Tenant as quickly as
possible whereupon Tenant shall be obligated to lease the Existing Premises
when it first becomes available upon the terms provided in this Lease and shall
be obligated pursuant to clause (4) of this paragraph 43(b) to bear a portion
of the costs thereafter incurred to relocate the Existing Tenant. In all events,
Landlord shall remain obligated promptly to perform any Mandatory Seismic Work
to be performed by Landlord under this Lease in the Existing Premises. Unless
and until Tenant may elect as provided above not to lease as soon as feasible
the Existing Premises (with the following covenants of Landlord and Tenant to be
reinstated in the event Tenant subsequently elects pursuant to clause (vi) above
to require Landlord to renew its efforts to relocate the Existing Tenant), the
following covenants shall be applicable with respect to Existing Tenant:
(1) Landlord shall use diligent efforts to expeditiously reach an agreement
with Existing Tenant to terminate the Existing Lease or to otherwise vacate the
Existing Premises. If such agreement involves relocating Existing Tenant to
another portion of the Project, then Landlord shall use its reasonable efforts
to minimize the costs which will be incurred in connection therewith.
(2) As soon as reasonably possible following Existing Tenant's agreement to
terminate the Existing Lease or to otherwise vacate the Existing Premises,
Landlord shall file (or Landlord shall cause Existing Tenant to file) promptly
any required motion with the Bankruptcy Court to obtain approval of such
agreement, and Landlord shall use diligent efforts to obtain such Bankruptcy
Court approval (unless Bankruptcy Court approval is then no longer required for
the same).
(3) If any required Bankruptcy Court or other court approval or order is
obtained, Landlord shall promptly commence such actions as may be reasonably
necessary to relocate Existing Tenant to another portion of the Project other
than the Premises or to terminate the Existing Lease, as the case may be.
(4) If Existing Tenant agrees to relocate to another portion of the Project
other than the Premises, and any
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<PAGE>
required Bankruptcy Court approval to that agreement is obtained,
then Tenant agrees to reimburse Landlord for one half (1/2) of all
reasonable out-of-pocket costs to Landlord of constructing the
tenant improvements to relocate the Existing Tenant; provided,
however, Tenant's share of such costs shall not exceed forty
thousand five hundred dollars ($40,500.00). Landlord and Tenant
shall concurrently pay all such costs upon receipt of invoices or
other reasonably satisfactory evidence of such costs. Tenant's
failure to pay any such amount when due shall have the same effect
as Tenant's failure to pay rent under this Lease; provided,
however, Landlord shall also have the right, at its option, to
deduct the amount that Tenant failed to pay from the Basic
Allowance.
Landlord's
Work 44. Provided that (i) Tenant is not in default under this Lease,
(ii) Landlord shall have approved the Construction Documents, and
(iii) the Mandatory Seismic Work (as defined in paragraph 45(c))
shall have been determined and Tenant shall have notified Landlord
whether or not Tenant will cause any of such Mandatory Seismic
Work to be performed pursuant to paragraph 45(c), then Landlord
shall commence and diligently prosecute to substantial completion
(but subject to Force Majeure Delay as defined in paragraph
46(a)), at its sole cost except as specifically provided in
paragraph 45(c), the following work (collectively, "Landlord's
Work"):
(a) demolish all existing improvements in the Premises including
the existing bathrooms in Building A (provided, however, (i)
Landlord shall not have any obligation to demolish any
improvements in the Existing Premises unless Existing Tenant has
vacated the Existing Premises as provided in paragraph 43(b)),
(ii) if Existing Tenant does not vacate but is to remain in the
Existing Premises at the Commencement Date, tire existing
bathrooms in Building A which service the Existing Premises shall
remain, and Landlord shall eliminate to the fullest extent
possible the corridor leading to the same and instead, if
possible, provide Existing Tenant alternative access to such
bathrooms through the Existing Premises (with any such remaining
bathrooms and corridors not to be deemed a common area for
purposes of calculating the Adjusted Load Factor) , and (iii) in
the event of the applicability of clause (ii) above, then upon
Existing Tenant later vacating the Existing Premises and Tenant
exercising any rights under this Lease as to leasing such Existing
Premises, Landlord shall be obligated to demolish the then
existing improvements in the Existing Premises and such bathrooms
and any remaining corridors serving the same).
(b) patch and paint the exterior of the Building as a result of
installation of the windows, doors and skylights referred to in
paragraphs 44(c), 44(d) and 44(e), respectively;
(c) install five (5) windows, each approximately ten (10) feet
long and six (6) feet high, in the exterior wall on the east side
of the Building in the locations proposed by Tenant and approved
by Landlord pursuant to paragraph 45;
(d) install one (1) roll-up door and one (1) double glass door in
the exterior wall on the east side of the Building in the
locations proposed by Tenant and approved by Landlord pursuant to
paragraph 45;
(e) install ten (10) skylights, each approximately six (6) feet
long and six (6) feet wide, in the roof of the Building in the
locations proposed by Tenant and approved by Landlord pursuant to
paragraph 45;
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<PAGE>
(f) enclose the Equipment Area and the area currently occupied by equipment on
the exterior of the east side of the Building with a concrete block wall or
poured concrete enclosure (which shall be covered with paint or a stucco-type
surface), or with a chainlink fence with redwood lathe, with such choice to be
at the sole discretion of Tenant, as approved by Landlord pursuant to paragraph
45;
(g) perform all Mandatory Seismic Work, except such work as Tenant may elect to
perform pursuant to paragraph 45(c), pursuant to that certain Seismic Evaluation
Report for 863 Mitten Road, Burlingame, California, dated August, 1993, prepared
by Kee Wong Engineering, Inc. ("Seismic Report");
(h) modify and install landscaping and an irrigation system in the landscaped
area to be located adjacent to the Equipment Area (however, not to exceed the
amount of $3,000 in additional out-of-pocket costs being incurred by Landlord
after the date of execution of this Lease); and
(i) repair any leaks in the roof that are discovered within the first twelve
(12) months of the Initial Term, unless such leak is demonstrated to have been
caused by Tenant's installation, use or occupancy of the Roof Platform or the
Premises, or by a penetration of the roof by Tenant during the construction of
Tenant Improvements.
All Landlord's Work shall be constructed in a good and workmanlike manner,
consistent with Tenant's Final Plans if applicable, pursuant to Landlord's
standard specifications for, and utilizing the same materials as those used
throughout the Project, and in compliance with all applicable laws. Landlord
shall begin all Landlord's work immediately upon satisfaction of the condition
set forth in paragraph 45(b) hereof, shall pursue all such work diligently and
expediently to completion and shall coordinate the schedule of all Landlord's
Work with the schedule of Tenant's contractors and subcontractors so as not to
unreasonably affect the scheduling and construction of the Tenant Improvements.
Tenant or Tenant's agents shall have the right to inspect and require correction
of Landlord's Work during the progress thereof, it being the intent of the
parties that Tenant shall be reasonable in its inspection of Landlord's Work. In
lieu of Landlord performing some or all of the items of Landlord's Work set
forth above, Landlord and Tenant may separately agree to a monetary sum to be
paid by Landlord to Tenant whereupon Tenant shall assume responsibility for
causing such item or items of Landlord's Work to be performed by Tenant's
Contractor.
Landlord has delivered to Tenant, and Tenant acknowledges receipt of, that
certain Asbestos Survey Summary Report, dated July 6, 1993, prepared by The M.F.
Lundeen Company ("Asbestos Report"). Except as disclosed in the Asbestos Report,
Landlord has no actual knowledge of the presence of any Hazardous Materials in,
on or about the Premises. Landlord shall be responsible for promptly removing as
part of Landlord's Work in accordance with applicable Hazardous Materials laws,
(i) any Hazardous Materials present or installed before the Commencement Date in
or on the floor, walls, ceiling or other items in the interior areas of the
Premises, and (ii) any Hazardous Materials in the roof or parapets which might
otherwise be disturbed in the process of construction of either Landlord's Work
or the Tenant Improvements. Upon Tenant expanding into any additional space
pursuant to paragraphs 1(c) or 1(d) hereof, Landlord shall be similarly
responsible for removing any Hazardous Materials (i) then present or installed
in such additional space and (ii) in the roof or parapets which might otherwise
be disturbed in the process
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<PAGE>
or construction or any Tenant improvements for such additional
space. If Tenant should knowingly discover the presence of any
such Hazardous Materials (that Landlord was so obligated to
remove) during the course of constructing any tenant improvements
or any subsequent alterations, additions or improvements in or
about the Premises or in or about any additional space, (A) Tenant
shall promptly notify Landlord of the same and (B) at Tenant's
election, either Landlord shall at its sole cost promptly remove
such Hazardous Materials, or Tenant may instead, by notice to
Landlord, elect to assume responsibility for the removal of any
such Hazardous Materials, with Landlord in such event to be
obligated to reimburse Tenant for all costs reasonably incurred by
Tenant for accomplishing such removal to the extent such costs so
incurred by Tenant do not exceed standard industry costs for
accomplishing such removal, with any such reimbursement to be due
within twenty (20) days after presentation to Landlord by Tenant
of reasonable documentation of the costs so incurred.
Tenant
Improvements 45. Tenant shall construct the improvements shown on the
Construction Documents (the "Tenant Improvements") in accordance
with the following provisions:
45. (a) Tenant Improvement Plans.
------------------------
(1) Tenant's Designer. Tenant shall retain a designer
-----------------
("Designer" with "Tenant's Architect" as used in this Lease to
mean either such Designer or any architect who replaces the
Designer in the supervision of construction of any Tenant
Improvements or of any later alterations, additions, or
improvements to the Premises) to prepare preliminary space plans
("Space Plans") to be utilized in the preparation of the final
working drawings and specifications for the Tenant Improvements.
Such Designer shall be subject to the approval of Landlord, which
approval will not be unreasonably withheld or delayed. Tenant is
currently utilizing Ehrlich - Rominger as its Designer, and
Landlord hereby approves of the same.
(2) Space Plans. Tenant shall deliver two (2) copies of the
-----------
Space Plans to Landlord within thirty (30) days after the date of
expiration of the Existing Tenant Decision Period. Such Space
Plans are required to reflect the general design of the Premises,
including interior walls and a general idea of the contemplated
use of each separate room therein. Landlord shall approve or
disapprove, for reasonable reasons, the Space Plans within five
(5) business days after Landlord receives the Space Plans and, if
disapproved, Landlord shall return the Space Plans to Tenant, who
shall make all necessary revisions within fifteen (15) business
days after Tenant's receipt thereof. The failure of Landlord to
respond to any Space Plans so submitted within such five business
day period (and if disapproved, stating therein in reasonable
detail, the basis for such disapproval), shall be deemed to
constitute the approval of Landlord thereto. This procedure shall
be repeated until Landlord ultimately approves the Space Plans. As
approved, the Space Plans, as modified, shall be deemed the "Final
Preliminary Plans."
(3) Engineering Plans. Tenant shall select as the
-----------------
mechanical and electrical engineer(s) a qualified company or
companies, experienced in such buildings which company or
companies must possess a reputation for excellence, to prepare all
engineering plans, many of which engineering plans are intended to
be done on a "design-build" basis.
(4) Construction Documents. After the Space Plans are
----------------------
ultimately approved by Landlord and are deemed to be
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the Final Preliminary Plans, Tenant shall cause Designer to
prepare, within seventy-five (75) business days following
Landlord's approval of the Final Preliminary Plans, final plans
and specifications ("Final Tenant Plans") and a reasonably
detailed, line item budget ("Budget") for completion of the Tenant
Improvements. Tenant shall then deliver two (2) sets of the Final
Tenant Plans and the Budget to Landlord. The Final Tenant Plans
shall reflect the proposed locations of the windows, doors and
skylights to be installed by Landlord as part of Landlord's Work,
and all other information required to permit Landlord to proceed
with Landlord's Work. Landlord shall approve or disapprove, for
reasonable reasons (provided, however, Landlord may disapprove the
location of any window, door or skylight to be installed by
Landlord as part of Landlord's Work if any such location would
materially adversely effect the structural integrity of the
Building, would result in significant seismic improvements or
upgrading to install any such item in that location or if
installing any such item in that location would cost more than ten
thousand dollars ($10,000)), the Final Tenant Plans and the Budget
within five (5) business days after Landlord receives the Final
Tenant Plans and the Budget and, if disapproved, Landlord shall
return the Final Tenant Plans and the Budget to Tenant who shall
make all necessary revisions within fifteen (15) business days
after Tenant's receipt thereof. The failure of Landlord to respond
to any Final Tenant Plans and Budget so submitted within such five
business day period (and if disapproved, stating therein in
reasonable detail, the basis for such disapproval), shall be
deemed to constitute the approval of Landlord thereto. This
procedure shall be repeated until Landlord ultimately approves the
Final Tenant Plans and the Budget. As approved, the Final Tenant
Plans and the Budget, as modified, shall be deemed the
"Construction Documents." All deliveries of the Space Plans, Final
Preliminary Plans, Final Tenant Plans and the Budget shall be
delivered by messenger service, by personal hand delivery or by
overnight parcel service. While Landlord has the right to approve
the Space Plans, Final Preliminary Plans, Final Tenant Plans and
the Budget, Landlord's sole interest in doing so is to protect the
Building and Landlord's interests. Accordingly, Tenant shall not
rely upon Landlord's approvals and Landlord shall not be the
guarantor of, nor responsible for, the correctness or accuracy of
any such Space Plans, Final Preliminary Plans, Final Tenant Plans
or the Budget, or the compliance thereof with applicable laws, and
Landlord shall incur no liability of any kind by reason of
granting such approvals. Tenant shall provide Landlord with an
updated version of the Budget within ten (10) days after any
material change to the Budget and within (10) days after
Landlord's written request for an updated version of the Budget
(which requests shall not be more frequent than monthly), but
Landlord shall have no right to approve any revisions to the
Budget. Tenant shall provide Landlord with two sets of "as built"
Final Tenant Plans within forty-five (45) days after completion of
the Tenant Improvements.
45. (b) Permits and Approvals. Tenant shall be responsible for
---------------------
obtaining all governmental approvals of the Construction Documents
to the full extent necessary for the issuance of a building permit
for the Tenant Improvements based upon such Construction
Documents. Landlord shall cooperate with Tenant to the extent
reasonably necessary in obtaining a building permit for the Tenant
Improvements, with such cooperation to be at Tenant's expense as
to any out-of-pocket expenses, if any, reasonably incurred by
Landlord. Tenant shall also cause to be obtained all other
necessary approvals and permits from all governmental agencies
having authority over the
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construction and installation of the Tenant Improvements in
accordance with the approved Construction Documents and shall
undertake all steps necessary to insure that the construction of
the Tenant Improvements is accomplished in strict compliance with
all state or local laws, ordinances, rules and regulations
applicable to such construction and the requirements and standards
of any insurance underwriting board, inspection bureau or
insurance carrier insuring the Premises pursuant to the Lease.
Tenant shall have the right by written notice to Landlord, given
on or before March 31, 1994 to terminate the Lease in the event
Tenant has not been and does not reasonably contemplate becoming
by March 31, 1994 fully successful in obtaining (upon such terms
and conditions as are reasonably acceptable to Tenant) all
required or appropriate governmental approvals, consents, permits
and licenses to build the Tenant Improvements contemplated by
Tenant, to use and store such Hazardous Materials as are
appropriate to the activities contemplated to be conducted by
Tenant in the Premises and, more generally, to conduct the
activities contemplated to be conducted by Tenant in the Premises.
Landlord shall not be obligated either to commence construction of
Landlord's Work or to commence construction of any tenant
improvements associated with relocating the Existing Tenant
pursuant to Paragraph 43 hereof, prior to either (i) the
satisfaction of this condition, (ii) the waiver by Tenant of this
condition, or (iii) the receipt of a written notice from Tenant
requesting Landlord to proceed immediately with Landlord's Work
(and if then applicable, with constructing tenant improvements for
purposes of relocating the Existing Tenant), which notice embodies
the agreement of Tenant in the event of Tenant's subsequent
termination of the Lease pursuant to this condition, to reimburse
Landlord for its out-of-pocket costs reasonably incurred by
Landlord in (a) performing any Landlord's Work and (b) in
thereafter removing any Landlord's Work and returning the Premises
to the condition in which it existed prior to such Landlord's Work
to the extent Landlord elects to remove any of such Landlord's
Work within ninety (90) days after receiving any such notice of
termination, and, if applicable, to reimburse Landlord for a
portion of the costs of such tenant improvements for the Existing
Tenant in the amount required by Paragraph 43(b)(4) of this Lease.
45. (c) Seismic Upgrade. Without limiting paragraph 45(b),
---------------
Tenant acknowledges that governmental approval of the Construction
Documents will result in some mandatory seismic upgrades to 863
Mitten. Accordingly, Tenant agrees to give Landlord reasonable
prior notice of all conversations and meetings with applicable
governmental agencies regarding approval of the Space Plans, Final
Preliminary Plans and Construction Documents to permit Landlord or
its representative to participate in such governmental approval
process. Landlord and Tenant shall cooperate with each other and
act in good faith in obtaining governmental approval of the
Construction Documents and negotiating the scope of any seismic
upgrade work. Landlord and Tenant agree that (i) all work shown on
those certain plans approved by the City of Burlingame during
November, 1993 for the issuance of a building permit with respect
to the Building (the "Approved Seismic Work"); and (ii) any
additional or different work in the nature of seismic upgrade work
which the City of Burlingame may require be done to the Building
in conjunction with its later issuance of a building permit for
any Landlord's Work or Tenant Improvements, or in conjunction with
the approval by city inspectors of any of the same, shall be
herein collectively referred to as the "Mandatory Seismic Work."
The Mandatory Seismic Work shall be part of Landlord's Work;
provided, however, (i) Landlord shall not be responsible for any
costs of
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relocating any then installed Approved Seismic Work caused by the
design of the Tenant Improvements and (ii) Tenant may elect, by
delivering written notice (the "Seismic Election Notice") to
Landlord within five (5) business days after receipt by Tenant of
the Mandatory Seismic Work Cost Estimate (as defined below), to
cause Contractor (as defined in paragraph 45(d) to perform, at
Tenant's sole cost and in accordance with the Seismic Report and
applicable laws, that portion of the Mandatory Seismic Work to
upgrade the Premises from 1973 Uniform Building Code standards to
1985 Uniform Building Code standards. Landlord shall, as soon as
reasonably practicable, notify Tenant of the reasonably estimated
cost of performing the Mandatory Seismic Work, and of the
estimated cost of the portion of the Mandatory Seismic Work to
upgrade the Premises from 1973 Uniform Building Code Standards to
1985 Uniform Building Code Standards ("Landlord's Seismic Work
Cost Estimate"). Landlord's failure to so receive Tenant's Seismic
Election Notice shall be deemed Tenant's election not to perform
any of the Mandatory Seismic Work, in which event Tenant shall pay
to Landlord, upon delivery of invoices or other reasonably
satisfactory evidence, an amount equal to the incremental cost to
upgrade Buildings A, B, C and D, which constitute an approximately
71,193 rentable square foot portion of the two connected buildings
constituting 863 Mitten, from 1973 Uniform Building Code standards
to 1985 Uniform Building Code standards multiplied by a fraction,
the numerator of which shall be the rentable area of the Premises,
and the denominator of which shall be 71,193; provided, however,
in no event shall the foregoing amount to be paid by Tenant exceed
the product of one and 40/100 dollars ($1.40) multiplied by the
rentable area of the Premises (as recalculated as of the
Commencement Date in accordance with paragraph 5(e) hereof).
Tenant's failure to pay any such amount within ten (10) business
days after receipt of invoice shall have the same effect as
Tenant's failure to pay rent under this Lease; provided, however,
Landlord shall also have the right, at its option, to deduct the
amount that Tenant failed to pay from the amount of the Basic
Allowance.
45. (d) Construction. Tenant shall employ an outside
------------
contractor or contractors of Tenant's choice ("Contractor") to
construct the Tenant Improvements in substantial conformance with
the Construction Documents; provided, however, that the Tenant
Improvements must be at least equal, in quality, to Landlord's so-
called "building standard work" and shall include those items and
materials approved by Landlord (or reasonably appropriate
substitute items or materials of at least substantially equivalent
quality to those earlier approved by Landlord) in connection with
the Space Plans, and provided further that Contractor and the
performance of the work shall be subject to the following
conditions:
(1) Contractor shall be duly licensed and subject to
Landlord's prior written approval, which approval shall not be
unreasonably withheld, with Landlord hereby approving in advance
any decision by Tenant later to engage as its Contractor the firm
of Rudolph & Sletten, Inc.
(2) Landlord or Landlord's agents shall have the right to
inspect the construction work to be conducted by Tenant during the
progress thereof, it being the intent of the parties hereto that
Landlord shall be reasonable in its inspection of the construction
work conducted by Tenant and that Landlord shall recognize, to the
extent commercially reasonable and practicable, the necessity of
field changes based on field conditions. If Landlord shall give
valid notice of faulty construction or any
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other deviation from the Construction Documents, Tenant shall cause Contractor
to make corrections promptly. However, neither the privilege herein granted to
Landlord to make such inspections, nor the making of such inspections by
Landlord, shall operate as a waiver of any rights of Landlord to require good
and workmanlike construction and improvements erected in accordance with the
Construction Documents.
45. (e) Tenant Construction Allowance.
-----------------------------
(1) Basic Allowance. Landlord will pay an amount equal to one-third of
---------------
all costs, but in no event more than $241,130, toward the cost of the design and
construction of the Tenant Improvements to the extent shown on the Budget
approved by Landlord, and for no other purpose (the "Basic Allowance"). The
amount of the Basic Allowance shall adjust upward or downward to any change in
the rentable square footage area of the Premises, with such adjustment to be at
the rate of Ten Dollars ($10.00) per rentable square foot. Landlord will make
payments to Tenant from the Basic Allowance only in progress payments not more
frequently than once per month, and shall only make payments equal to one half
(1/2) of the amount Tenant has theretofore made or thereupon simultaneously
makes to Contractor or subcontractors, and only after receipt by Landlord of
conditional mechanics' lien releases (which mechanics' lien releases shall, at
Landlord's option, be executed by such subcontractors, labor suppliers and
materialmen, as reasonably determined by Landlord, in addition to Contractor).
Landlord shall also withhold the last fifteen percent (15%) of the Basic
Allowance until lien-free expiration of the time for the filing of any
mechanics' liens claimed or which might be filed on account of any work ordered
by Tenant or Contractor or any subcontractor of Tenant as relates to the
completion of the First Phase of the Tenant Improvements. In the event the cost
of construction of the Tenant Improvements exceeds the available amount of the
Basic Allowance, Tenant shall be obligated to pay such excess cost.
(2) Tenant Improvement Account. Prior to or concurrently with the
--------------------------
commencement of construction of any Landlord's Work, Seismic Work, the Tenant
Improvements, or any relocation work for the Existing Tenant, Tenant shall
deposit with a Chicago Title Company, or another escrow company reasonably
acceptable to the parties ("Escrow Agent"), the sum of two hundred fifty
thousand dollars ($250,000.00) to secure Tenant's obligations to complete the
Tenant Improvements, which amount shall be deposited in an interest-bearing
account ("Tenant Improvement Account") in the name of Tenant. Landlord and
Tenant shall execute any instructions reasonably required by Escrow Agent to
disburse the funds from the Escrow Improvement Account. Those funds shall be
disbursed as follows:
A. Provided Tenant is not in default under this Lease, and no event
has occurred and is then continuing for which Tenant has received written notice
which with the passage of time would constitute a default (the "No Default
Condition"), on the date that Tenant has paid to Contractor or Tenant's
subcontractors an amount at least equal to eight hundred thousand dollars
($800,0O0) towards the total cost of the Tenant Improvements, all of the funds
in the Tenant Improvement Account shall then be returned to Tenant. If the No
Default Condition to the return of the funds in the Tenant Improvement Account
is not initially satisfied at the time that Tenant has so paid $800,000, but
such default (or the event which would otherwise constitute a default) is
thereafter cured while this Lease remains in effect, then the funds in the
Tenant
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<PAGE>
Improvement Account shall at such time be returned to Tenant.
B. UPON TENANT'S DEFAULT UNDER THIS LEASE WHICH RESULTS IN THE
TERMINATION OF THIS LEASE BEFORE THE EVENT DESCRIBED IN PARAGRAPH 45(E)(2)(A)
OCCURS, ALL FUNDS THEN DEPOSITED IN THE TENANT IMPROVEMENT ACCOUNT SHALL BE
DELIVERED TO LANDLORD. ONE HALF OF THE AMOUNT (THE "FIRST HALF") IN THE TENANT
IMPROVEMENT ACCOUNT SHALL BE APPLIED BY LANDLORD TO PAY ANY AND ALL MECHANICS'
OR MATERIALMEN'S LIENS OR CLAIMS RELATING TO THE CONSTRUCTION OF ANY TENANT
IMPROVEMENTS TO THE PREMISES, AND THE REMAINING ONE-HALF OF SUCH AMOUNT TOGETHER
WITH ANY PORTION OF THE FIRST HALF WHICH EXCEEDS, IF AT ALL, THE SUM OF ALL SUCH
MECHANICS' OR MATERIALMEN'S LIENS OR CLAIMS SHALL BE RETAINED BY LANDLORD AS
LIQUIDATED DAMAGES FOR TERMINATION OF THE LEASE. LANDLORD SHALL HAVE NO OTHER
CLAIMS, CAUSES OF ACTION OR REMEDIES AGAINST TENANT OTHER THAN TO RECOVER ANY
AMOUNT BY WHICH ANY SUCH LIENS OR CLAIMS ACTUALLY PAID BY LANDLORD EXCEED THE
AMOUNT OF THE FIRST HALF. SUCH LIQUIDATED DAMAGES ARE INTENDED TO COMPENSATE
LANDLORD FOR ALL OTHER CLAIMS OR CAUSES OF ACTION IT MIGHT OTHERWISE HAVE
AGAINST TENANT, INCLUDING ANY CLAIMS FOR FUTURE RENT UNDER THE LEASE OR FOR
COMPLETING OR REMOVING ANY TENANT IMPROVEMENTS THEN MADE TO THE PREMISES. IN
LIGHT OF THE DIFFICULTY THE PARTIES WOULD HAVE IN DETERMINING LANDLORD'S ACTUAL
DAMAGES FOR TENANT'S FAILURE TO COMPLETE THE TENANT IMPROVEMENTS AS A RESULT OF
SUCH A DEFAULT, THE PARTIES AGREE THAT THE SO ALLOCABLE PORTION OF THE AMOUNT OF
FUNDS THEN DEPOSITED IN THE TENANT IMPROVEMENT ACCOUNT IS A REASONABLE ESTIMATE
OF THE EXTENT TO WHICH LANDLORD WOULD BE DAMAGED BY SUCH TENANT DEFAULT.
/s/ WB /s/ RR
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Tenant's Landlord's
Initials Initials
C. If Tenant fails to pay any amount required to be paid by Tenant
under this Lease in connection with the Tenant Improvements, such amount, after
expiration of the applicable notice and cure period provided in paragraph 24,
may be paid by Landlord from the funds in the Tenant Improvement Account.
45. (f) Change Orders. In the event that Tenant in writing requests or
-------------
approves of any changes to the Construction Documents (each, a "Change Order"),
Landlord shall not unreasonably withhold its consent to any such Change Order,
provided the Change Orders do not materially affect the Building's structure or
exterior appearance and do not result in the use of materials in the
construction of the Tenant Improvements of a materially lesser quality than the
materials approved by Landlord in connection with the Space Plans. Landlord
shall respond to any request for approval of any Change Order within three (3)
business days, with the failure to respond to be deemed approval of such Change
Order. Notwithstanding the foregoing, Landlord shall have no approval rights as
to any Change Order where the Change Order would not result in any change in the
ultimate cost of construction of the Tenant Improvements of greater than One
Hundred Thousand Dollars ($l00,000.00), and the Change Order does not materially
affect the structural integrity of the Building. If such Change Orders, as
approved by Tenant, increase the cost of completing Landlord's Work, or of
constructing the Tenant Improvements as shown on the Construction Documents in
excess of the Basic Allowance, Tenant shall pay such increased costs provided
that Tenant shall not be responsible for any increase in the cost of Landlord's
Work where the Change Order arises out of any requirement imposed in conjunction
with the issuance of any building permit or occupancy permit or other approval
of Landlord's
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Work by any governmental authorities or as a result of the
failure of Landlord to relocate the Existing Tenant.
45. (g) Construction Materials. Tenant will utilize, for the
----------------------
construction of the Tenant Improvements, the items and
materials designated in the Construction Documents. However,
whenever Tenant determines in its reasonable judgment that it
is not practical or efficient to use such materials, Tenant
shall have the right, to substitute comparable items and
materials.
45. (h) Prompt Construction/General Responsibility for Costs.
----------------------------------------------------
Tenant shall instruct Contractor to build the Tenant
Improvements as soon as reasonably possible; provided, however,
Landlord agrees that Tenant may defer construction of any
portion of the Tenant Improvements ("Deferred Improvements")
until needed by Tenant so long as Tenant does not defer
construction of any Tenant Improvements necessary for Tenant to
obtain a certificate of occupancy for the Premises (the "First
Phase"). Landlord's further consent to construct the Deferred
Improvements shall not be required so long as Tenant is only
constructing the Deferred Improvements and such other
alterations, additions or improvements which do not require the
approval of Landlord under the other provisions of this Lease
(and if any approval is required to any such other alterations,
additions or improvements, such approval rights shall be
confined to the same). Since Landlord's sole economic
responsibility is to pay the Basic Allowance, all of the Tenant
Improvements shall be designed and constructed at Tenant's sole
and entire cost, with Landlord being obligated only to disburse
the Basic Allowance pursuant to the terms hereof.
45. (i) Reasonable Diligence. Both Landlord and Tenant
--------------------
agree to use reasonable diligence in performing all of their
respective obligations and duties under this paragraph 45 and
in proceeding with the construction and completion of all
Tenant Improvements in the Premises.
Construction-
Related Defin-
itions 46. (a) The term "Force Majeure Delay" as used in the Lease
shall mean any delay in the completion of Landlord's Work or
the Tenant Improvements which is attributable to any: (1)
actual delay or failure to perform attributable to any strike,
lockout or other labor or industrial disturbance (whether or
not on the part of the employees of either party hereto), civil
disturbance, future order claiming jurisdiction, act of a
public enemy, war, riot, sabotage, blockade, embargo, inability
to secure customary materials, supplies or labor through
ordinary sources by reason of regulation or order of any
government or regulatory body; (2) delay attributable to the
failure of Landlord and/or Tenant despite reasonable diligence
to secure building permits and approvals; (3) delay in
completing the construction of Landlord's Work because of
changes in any applicable law (including, without limitation,
the Americans with Disabilities Act of 1990, Pub. L. 101-336
(the "ADA")), or the interpretation thereof; or (4) delay
attributable to lightning, earthquake, fire, storm, hurricane,
tornado, flood, washout, explosion, or any other cause beyond
the reasonable control of the party from whom performance is
required, or any of its contractors or other representatives.
Any prevention, delay or stoppage due to any Force Majeure
Delay shall excuse the performance of the party affected for a
period of time equal to any such prevention, delay or stoppage
(except the obligations of either party to pay money, including
rent and other charges, pursuant to the Lease).
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<PAGE>
46. (b) The term "Tenant Delay" as used in the Lease shall mean
any delay in the completion of either Landlord's Work or the
Tenant Improvements which is due to any wrongful or negligent act
or omission of Tenant or its agents or contractors (including acts
or omissions while acting as agent or contractor for Landlord).
The term Tenant Delay shall include, but shall not be limited to
any: (1) delay in the giving of information, authorizations or
approvals by Tenant beyond any applicable period provided for in
this Lease; (2) delay attributable to the wrongful or negligent
acts or failures to act, of Tenant, its agents or contractors,
where such acts or failures to act delay the completion of
Landlord's Work or Tenant Improvements; (3) delay attributable to
the material interference of Tenant, its agents or contractors
with the completion of Landlord's Work; or (4) delay attributable
to any Change Order approved by Tenant (provided that Tenant shall
not be responsible for any delay attributable to any Change Order
where the Change Order arises out of any requirement imposed in
conjunction with the issuance of any building permit or occupancy
permit or other approval of Landlord's Work or the Tenant
Improvements by any governmental authorities). Any delay occurring
after the date of this Lease attributable to the uncertainties as
to the anticipated relocation of the Existing Tenant shall not
constitute a Tenant Delay, including but not limited to, any delay
in proceeding with the design of the Premises due to such
uncertainties and any delay or change in the design of the
Premises or any Change Order arising from any redesign due to the
subsequent exclusion or inclusion of the Existing Premises as a
part of the Premises.
46. (c) The term "Landlord Delay" as used in the Lease shall
mean any delay in the completion of either Landlord's Work or the
Tenant Improvements which is due to any wrongful or negligent act
or omission of Landlord or its agents or contractors (including
acts or omissions while acting as agent or contractor for
Landlord). The term Landlord Delay shall include, but shall not be
limited to any: (1) delay in the giving of information,
authorizations or approvals by Landlord beyond any applicable
period provided for in this Lease (subject to approvals being
deemed given pursuant to paragraph 59 hereof); (2) delay
attributable to the wrongful or negligent acts or failures to act,
of Landlord, its agents or contractors, where such acts or
failures to act delay the completion of Landlord's Work or Tenant
Improvements; (3) delay attributable to the material interference
of Landlord, its agents or contractors with the completion of the
Tenant Improvements; or (4) delay in the delivery of the Premises
to Tenant for the commencement of construction of Tenant
Improvements. Any delay occurring after the date of this Lease
attributable to the uncertainties as to the anticipated relocation
of the Existing Tenant shall not constitute a Landlord Delay.
Hazardous
Materials 47. (a) Tenant shall in the use of the Premises comply with all
federal, state or local laws, ordinances or regulations relating
to industrial hygiene and environmental, conditions on, under or
about the Project including, but not limited to, soil and ground
water conditions. Without limiting the generality of the
foregoing, except as permitted herein, Tenant shall not transport,
use, store, maintain, generate, manufacture, handle, dispose,
release or discharge any Hazardous Materials upon or about the
Project, nor permit Tenant's Employees or other occupants of the
Premises to engage in such activities upon or about the Project.
However, the foregoing provisions shall not prohibit the
transportation to and from, and the use, storage, maintenance and
handling within, the Premises of
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<PAGE>
substances customarily used in connection with Tenant's permitted uses;
including biotechnical research, provided: (1) such substances shall be used and
maintained only in such quantities as are reasonably necessary for the permitted
use of the Premises set forth in this Lease, strictly in accordance with
applicable laws and the manufacturers' instructions therefor, (2) such
substances shall not be disposed of, released or discharged on the Project, and
shall be transported to and from the Premises in compliance with all applicable
laws, and as Landlord shall reasonably require, (3) if any applicable law or
Landlord's trash removal contractor requires that any such substances be
disposed of separately from ordinary trash, Tenant shall make arrangements at
Tenant's expense for such disposal directly with a qualified and licensed
disposal company at a lawful disposal site and shall ensure that disposal occurs
frequently enough to prevent unnecessary storage of such substances in the
Premises, and (4) any remaining such substances shall be completely, properly
and lawfully removed from the Project upon expiration or earlier termination of
this Lease.
47. (b) Without limiting the generality of paragraph 22 of the Lease, Landlord
shall have the right, at the following times, to enter the Premises in order to
inspect same and to conduct any testing, monitoring or analysis reasonably
required in connection therewith (collectively, "Inspection"):
(1) Once in any calendar year upon reasonable notice to Tenant;
(2) At any time during the Lease Term upon notice as provided herein if, in
Landlord's reasonable judgment, Tenant is violating the use restrictions of this
Lease or is not in strict compliance with the regulations, rules or procedures
of any applicable governmental entity with respect to the transport, use,
storage, maintenance, generation, manufacturing, handling, disposal, release or
discharge of Hazardous Materials at the Premises, in which case Landlord shall
give notice to Tenant of the reason for the Inspection and Tenant shall provide
Landlord with access to the Premises for such Inspection within five (5) days of
any such notice; provided, however, that in an emergency situation Tenant will
provide Landlord with immediate access to the Premises.
If Tenant is violating the use restrictions of this Lease or is not in material
compliance with the regulations, rules or procedures of the applicable
governmental entity, then all reasonable costs and expenses reasonably incurred
by Landlord in connection with any related Inspection shall become due and
payable by Tenant as additional rent, within ten (10) days of presentation by
Landlord of an invoice therefor. If a dispute exists between Landlord and
Tenant as to whether Landlord has sufficient reason to believe that Tenant may
be violating the use restrictions of this Lease or may not be in compliance with
any other provision of this Lease or any applicable governmental entity with
respect to the transport, use, storage, maintenance, generation, manufacturing,
handling, disposal, release or discharge of Hazardous Materials at the Premises,
Tenant will provide Landlord with access to the Premises for an Inspection in
accordance with the provisions of the immediately preceding paragraph; provided,
however, that if there is no such violation or material non-compliance, Landlord
shall be liable for the cost and expense incurred by Landlord in connection with
such Inspection.
47. (c) Tenant shall promptly notify Landlord of: (1) any enforcement, cleanup
or other regulatory action
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<PAGE>
taken or threatened by any governmental or regulatory authority with respect to
the presence of any Hazardous Materials on the Premises or the migration thereof
from or to other property, (2) any demands or claims made or threatened by any
party against Tenant or the Premises relating to any loss or injury resulting
from any Hazardous Materials, (3) any release, discharge or nonroutine, improper
or unlawful disposal or transportation of any Hazardous Materials on or from the
Premises, and (4) any matters where Tenant is required by law to give a notice
to any governmental or regulatory authority respecting any Hazardous Materials
on the Premises. Landlord shall have the right (but not the obligation) to join
and participate, as a party, in any legal proceedings or actions affecting the
Premises initiated in connection with any environmental, health or safety law.
At such times as Landlord may reasonably request, Tenant shall provide Landlord
with a written list identifying any Hazardous Materials then used, stored, or
maintained upon the Premises other than common office supplies, the use and
approximate quantity of each such material, a copy of any material safety data
sheet ("MSDS") issued by the manufacturer thereof, written information
concerning the removal, transportation and disposal of the same, and such other
information as Landlord may reasonably require or as may be required by
applicable law. The term "Hazardous Materials" for purposes hereof shall mean
any chemical, substance, material or waste or component thereof which is
now or hereafter listed, defined or regulated as a flammable explosive,
radioactive material, hazardous or toxic chemical, substance, material or waste
or component thereof (whether injurious by themselves or in conjunction with
other materials), any medical or infectious waste (including, without
limitation, "sharps" waste), or any petroleum, including crude oil or any
fraction thereof, by any federal, state or local governing or regulatory body
having jurisdiction, or which would trigger any employee or community "right-to-
know" requirements adopted by any such body, or for which any such body has
adopted any requirements for the preparation or distribution of an MSDS.
Without limiting the generality of the foregoing, Hazardous Materials shall
include, but not be limited to substances defined as "hazardous substances",
"hazardous materials", or "toxic substances" in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801
-- ---
et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
- -- --- --
seq.; and those substances defined as "hazardous wastes" in Section 25117 of the
- ---
California Health & Safety Code or as "hazardous substances" in Section 25316 of
the California Health & Safety Code; and in the regulations adopted and
publications promulgated from time to time pursuant to said laws.
47. (d) If any Hazardous Materials are released, discharged or disposed of by
Tenant, Tenant's Employees or any other occupant of the Premises, on or about
the Project in violation of the foregoing provisions, Tenant shall immediately,
properly and in compliance with applicable laws clean up and remove the
Hazardous Materials from the Project and any other affected property and clean
or replace any affected personal property (whether or not owned by Landlord),
at Tenant's expense. Such clean-up and removal work shall be subject to
Landlord's prior written approval (except in emergencies), and shall include,
without limitation, any testing, investigation, and the preparation and
implementation of any remedial action plan required by any governmental body
having jurisdiction or reasonably required by Landlord.
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If Tenant shall fail to comply with the provisions of this paragraph
47(d) within five (5) days after written notice by Landlord, or such
shorter time as may be required by applicable law or in order to
minimize any hazard to persons or property, Landlord may (but shall not
be obligated to) arrange for such compliance directly or as Tenant's
agent through contractors or other parties selected by Landlord, at
Tenant's expense (without limiting Landlord's other remedies under this
Lease or applicable law). If any Hazardous Materials are found to be
present or are released, discharged or disposed of on or about the
Project and such presence, release, discharge or disposal is not caused
by Tenant, Tenant's Employees or other occupants of the Premises,
Landlord shall be responsible for all costs and expenses to manage,
abate, remediate or remove, as required by applicable Hazardous
Materials laws, any such Hazardous Materials and to repair any property
damage caused thereby, provided however as respects any termination
rights of Landlord or Tenant, such release, discharge or disposal shall
be deemed casualty damage under paragraph 25 to the extent that the
Premises or common areas serving the Premises are affected thereby.
Parking 48. (a) Tenant and Tenant's Employees shall have the right to have
assigned and use twenty-four (24) reserved parking spaces. These
reserved parking spaces shall be located on the east side of the
Building, nearest to the main entrance of the Premises as possible
(utilizing parking stalls on both sides of the parking aisle), but
excluding any reserved parking spaces previously granted to (i) the
Existing Tenant until relocated out of Building A (at which time such
reserved parking spaces of the Existing Tenant shall be included as
part of Tenant's reserved parking spaces) and (ii) the FAA for so long
as it remains a tenant of 863 Mitten. Tenant shall request Landlord's
prior written approval of Tenant's selection of such reserved parking
spaces, and all markings and signs identifying such spaces, which
approval shall not be unreasonably withheld or delayed. Landlord hereby
preapproves the twenty-four (24) parking spaces designated on (A)
Exhibit A-2 hereto as reserved parking spaces for Tenant's exclusive
-----------
use effective during the period on and after the date the Existing
Tenant vacates the Existing Premises, and (B) Exhibit A-3 hereto as
-----------
reserved parking spaces for Tenant's exclusive use effective during the
period prior to the date the Existing Tenant vacates the Existing
Premises. Except for approving Tenant's selection of reserved parking
spaces, Landlord shall have no obligation, and shall not be liable to
Tenant in any way, in connection with those reserved spaces, and it
shall be Tenant's obligation, at its sole cost, to mark those spaces as
reserved, to post all signs required by applicable laws, to take any
action permitted by applicable laws to remove unauthorized vehicles
from those spaces, and to enforce Tenant's rights to use those reserved
parking spaces; provided, however, Landlord shall publicly acknowledge
Tenant's reserved spaces and, upon request of Tenant, shall take
reasonable action to support Tenant's exclusive right to use such
parking spaces.
48. (b) In addition to the spaces granted to Tenant pursuant to
paragraph 48(a), Tenant and Tenant's Employees shall have the non-
exclusive right during the Lease Term to use additional parking spaces
such that the total number of parking spaces (including the reserved
spaces pursuant to paragraph 48(a)) equals one (1) parking space for
each two hundred eighty-two (282) rentable square feet of the Premises
demised hereunder. If Tenant leases additional space in 863 Mitten as
permitted under this Lease, the number of unreserved parking spaces
shall be increased by one (1) for each two hundred eighty-two (282)
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rentable square feet or additional space; provided, however,
in no event shall the number of reserved spaces be increased.
Signs 49. Tenant may install two (2) signs identifying Tenant on or
about the Premises provided that Landlord approves, in its
reasonable judgment, plans and specifications for such signs
and the locations of such signs, and such signs comply with
all applicable laws, regulations, ordinances and building
codes. Landlord hereby grants its approval to signage that
would be in the following locations and maximum size: (i) a
monument sign facing Mitten Road in the approximate location
indicated on Exhibit A-4 hereto which shall be dedicated
-----------
exclusively to Tenant and (ii) a wall sign on the side of
Building A facing Mitten Road which shall be dedicated
exclusively to Tenant, where each of such signs may have an
overall size not to exceed five (5) feet in height and
fourteen (14) feet in length, and with lettering thereon up
to three (3) feet in height and overall length of lettering
of twelve (12) feet. No approval by Landlord under this
paragraph 49 shall relieve Tenant from its obligations to
comply with applicable laws and obtain applicable
governmental approvals for its signs, and Landlord makes no
representation or warranty that Tenant's proposed signs
comply with any applicable laws or would be approved by any
applicable governmental agency. Landlord, in its approval of
signage in the Project, shall not discriminate in favor of
other tenants or occupants of the Project as to the relative
size or location of signage in relation to the location and
size of the portion of the Project leased or occupied by such
other tenants or occupants as compared to Tenant's approved
signage.
Broker 50. Provided that this Lease is not terminated on or before
the Commencement Date, Landlord agrees to pay a broker's
commission to Mr. William R. Beckman ("Broker") pursuant to a
separate agreement between Broker and Landlord. Other than
Broker, each party represents and warrants to the other that
it has not dealt with any other broker or finder in
connection with the Premises or this Lease. Each party shall
indemnify, defend and hold harmless the other party from and
against all claims, liabilities, losses, damages, costs and
expenses (including, without limitation, attorneys' fees) for
any broker's commission or finder's fee asserted as a result
of its own act or omission in connection with this
transaction. The parties' obligations under this paragraph 50
shall survive the expiration or earlier termination of the
Lease Term.
Other Documents;
Cooperation of
Parties 51. Each party agrees to sign any other and further documents
(including, without limitation, any document evidencing
termination of Tenant's options or rights of first refusal
granted herein, in recordable form if required by Landlord)
as may be reasonably necessary or proper in order to
accomplish the intent of this Lease.
Counterparts 52. This Lease may be signed in multiple counterparts which,
when signed by all parties, shall constitute a binding
agreement.
Recording 53. Except as provided herein, Tenant shall not record this
Lease or any memorandum or short form thereof. Landlord
shall, upon Tenant's request, join in executing a memorandum
of short form of this Lease, which shall be recorded at
Tenant's expense.
Authorization 54. Each individual executing the Lease on behalf of Landlord
and Tenant represents and warrants that he/she is
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duly authorized to execute and deliver the Lease on behalf of
Landlord or Tenant in accordance with a duly adopted
resolution of such entity's Board of Directors, and that the
Lease is binding upon such entity in accordance with its
terms. Tenant shall, concurrently with its execution of this
Lease, deliver to Landlord a certified copy of a resolution
of its Board of Directors either authorizing the specific
execution of the Lease or authorizing the person signing this
Lease generally to execute leases. Landlord shall deliver to
Tenant, concurrently with Landlord's execution of this Lease,
reasonably satisfactory evidence that execution of this Lease
was duly authorized. Landlord represents and warrants that to
the best of Landlord's knowledge, it is the record fee owner
of the Project and that the Project is currently unencumbered
by any deed of trust, mortgage, ground lease or other
financing, and that Landlord has full and unencumbered title
and authority to lease the Premises to Tenant and to grant
the options and other rights as to leasing other space in 863
Mitten to Tenant as are granted herein.
Separability 55. The illegality, invalidity or unenforceability of any
term, condition, or provision of the Lease shall in no way
impair or invalidate any other term, provision or condition
of the Lease, and all such other terms, provisions and
conditions shall remain in full force and effect.
Covenants and
Conditions 56. All provisions, whether covenants or conditions, on the
part of Tenant shall be deemed to be both covenants and
conditions.
Quiet Enjoy-
ment 57. Landlord covenants and agrees that Tenant, upon making
all of Tenant's payments as and when due under the Lease, and
upon performing, observing and keeping the covenants,
agreements and conditions of this Lease on its part to be
kept, shall peaceably and quietly hold, occupy and enjoy the
Premises during the term of this Lease Term without hindrance
or molestation from Landlord subject to the terms and
provisions of this Lease.
Cumulative
Remedies 58. No remedy or election provided, allowed or given by any
provision of the Lease shall be deemed exclusive unless so
indicated, but shall, whenever possible, be cumulative with
all other remedies in law or equity.
Reasonable
Approval
Standard 59. Whenever in this Lease the review, acceptance, approval,
or consent of either party ("Reviewing Party") is required to
the taking of or refraining from taking any action under this
Lease, or to the manner of performing or observing any
covenant or condition of this Lease (collectively "Matter"),
the favorable review, acceptance, approval or consent
(collectively "Approval") as to any such Matter shall neither
be unreasonably withheld nor unduly delayed by the Reviewing
Party, and if the Reviewing Party desires to deny or withhold
its Approval as to any such Matter, the Reviewing Party
shall, by written notice to the other party given within the
time period for the giving of such Approval as provided
herein or elsewhere in this Lease, state with particularity
the basis for the denial or withholding by such Reviewing
Party of such Approval. The failure of the Reviewing Party to
so respond in writing to any Matter within twenty (20) days
of receipt of the written request of the other party (or
within such other period of time for response if this Lease
otherwise expressly provides a specific period
-57-
<PAGE>
for such Approval), shall be deemed to constitute the
Reviewing Party's Approval of the Matter.
IN WITNESS WHEREOF Landlord and Tenant have executed this Lease as of the
day and year first above written.
Landlord:
Dated: December __, 1993. PROVIDENT LIFE AND ACCIDENT
INSURANCE COMPANY, a Tennessee
corporation
By: /s/ Robert Reno
----------------------------------------
Its: Vice President Corporate Properties
-----------------------------------
Tenant:
Dated: December 22, 1993. MEGABIOS CORP., A California
corporation
By: /s/ William L. Brown
----------------------------------------
Its: Vice President
-----------------------------------
-58-
<PAGE>
EXHIBIT A
SITE PLAN
[MAP APPEARS HERE]
<PAGE>
EXHIBIT A-1
EQUIPMENT AREA
[MAP APPEARS HERE]
<PAGE>
EXHIBIT A-2
RESERVED PARKING - EXISTING TENANT VACATED
X = 24 RESERVED PARKING SPACES FOR MEGABIOS
[MAP APPEARS HERE]
<PAGE>
EXHIBIT A-3
RESERVED PARKING - EXISTING TENANT REMAINS
X = 24 RESERVED PARKING SPACES FOR MEGABIOS
N = 13 PARKING SPACES FOR NATIONAL GLASS
[MAP APPEARS HERE]
<PAGE>
EXHIBIT A-4
APPROVED SIGNAGE LOCATIONS
C = LOCATION OF PROPOSED WALL SIGNS
D = LOCATION OF PROPOSED MONUMENTS
[MAP APPEARS HERE]
<PAGE>
Exhibit "B"
COMMENCEMENT DATE MEMORANDUM
----------------------------
This Commencement Date Memorandum ("Memorandum") is made this _____ day of
_____________, 1994, by and between PROVIDENT LIFE AND ACCIDENT INSURANCE
-------------------------------------
COMPANY, a Tennessee corporation ("Landlord"), and MEGABIOS CORP., a California
- ------- -------------
corporation ("Tenant"), with reference to the following facts:
A. Landlord and Tenant entered into that certain Lease dated December __,
1993 (the "Lease") concerning certain premises (the "Premises") which are a
portion of the property commonly known as 863 Mitten Road, Burlingame,
California, and more particularly described in the Lease. Each capitalized used
term in this Memorandum, but not defined herein, shall have the meaning ascribed
to it in the Lease.
B. In accordance with the Lease, the parties desire to confirm certain
matters with respect to the Lease and the Premises.
Therefore, the parties agree as follows:
1. Landlord's Work has been accepted by Tenant as being substantially
complete in accordance with the Lease.
2. Tenant has possession of the Premises and the Initial Term commenced
_______________, 1994 for a term of approximately five (5) years, ending on
_______________, 1999.
3. Rent commenced to accrue on _____________, 1994, and the initial
amount of monthly Basic Rent is $______________.
4. The rentable square footage of the Premises is __________, measured in
accordance with the terms of the Lease. The Adjusted Load Factor is ______%, and
Tenant's percentage share (as defined in the Lease) is _____%.
LANDLORD: PROVIDENT LIFE AND ACCIDENT INSURANCE
COMPANY, a Tennessee corporation
By:
------------------------------------
Its:
------------------------------------
TENANT: MEGABIOS CORP., a California corporation
By:
------------------------------------
Its:
------------------------------------
-1-
<PAGE>
EXHIBIT C
1994 BUDGET
DIRECT EXPENSES
Miscellaneous General and Administration $ 5,395+
Management Fees 42,775+
Legal Fees (for Property Tax Appeals) 6,000+
0+
* Electricity 195,775-
* Gas 62,450-
Water/Sewer 19,224+
* Janitorial Services 44,865-
* Janitorial Supplies 7,560-
* Keys and Locks 2,340-
Pest Control 1,700+
Plant Maintenance (Interior Landscaping) 2,100+
Salaries (Maintenance Person) 29,950+
Window Cleaning 1,000+
Building Repair-Electrical/Lighting 1,500+
Building Repair-Plumbing 1,800+
Building Repair-Roof 1,000+
Building Repair-Signs 1,440+
Other Building Repairs (New) 2,400+
Hardware Supplies 1,425+
** Mechanical Equipment-Elevator Maintenance 840x
** Mechanical Equipment-Elevator Repair 400x
*** HVAC Maintenance 9,720+
*** HVAC Repairs 9,726+
Other Equipment Maintenance/2/ 1,040+
Other Equipment Repairs/3/ 400+
Ground Supplies and Equipment 4,800+
Landscape Contracts 14,640+
0+
Parking Lot Lighting 600+
Paving/Sidewalk Repairs 0+
Striping 0+
Sweeping 1,800+
Security 3,360+
Trash Removal 29,465+
Insurance 10,500+
Real Estate Taxes 109,140+
--------
TOTAL DIRECT EXPENSES $627,130
--------
TOTAL 1994 BUDGETED DIRECT EXPENSES FOR PURPOSES OF
THIS LEASE PURSUANT TO PARAGRAPH 6(C) $293,454
--------
DIRECT EXPENSES PER RENTABLE SQ. FT. PER MONTH FOR THE PROJECT:
(293,454/152,297/12) = $0.16057
* These expenses will be paid separately by Tenant to vendors (not paid by
Landlord and reimbursed by Tenant to Landlord).
** Landlord excludes there expenses and will not be reimbursed by Tenant for
them.
*** These expenses will be paid separately by Tenant to vendors(s); however,
Tenant may choose to use same vendor as Landlord to obtain a better rate.
/2/Quarterly fire sprinkler inspections required by Fire Marshall and fire
extinguisher service in common areas.
/3/Repairs to fire sprinkler equipment.
<PAGE>
EXHIBIT D
RULES AND REGULATIONS FOR THE BUILDING
ATTACHED TO AND MADE A PART OF THIS LEASE
1. Except as provided or required by Landlord in accordance with building
standards, no sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed, painted or affixed by Tenant on or to any part of
the Building or exterior of the Premises leased to Tenants or to the door or
doors thereof without the written consent of Landlord first obtained and
Landlord shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Tenant.
2. Except as provided or required by Landlord in accordance with Building
standards, no draperies, curtains, blinds, shades, screens or other devices
shall be hung at or used in connection with any window or exterior door or doors
of the Premises.
3. The bulletin board or directory of the building shall be used primarily
for display of the name and location of Tenants and Landlord reserves the right
to exclude any other names therefrom, to limit the number of names associated
with Tenants to be placed thereon and to charge for names associated with
Tenants to be placed thereon at rates applicable to all Tenants.
4. The sidewalks, halls, passages, exits, entrances, elevators and
stairways of the Building shall not be obstructed by Tenants or used by them for
any purpose other than for ingress to and egress from their respective Premises.
The halls, passages, exits, entrances, elevators, stairways, balconies and roof
of the Building are not for the use of the general public and Landlord in all
cases reserves the right to control the same and prevent access thereto by all
persons whose presence, in the judgment of the Landlord, is or may be
prejudicial to the safety, character, reputation or interests of the Building
and its Tenants; provided however, that Landlord shall not prevent such access
to persons with whom Tenants deal in the ordinary course of business unless such
persons are engaged in illegal activities. No person shall go upon the roof of
the Building unless expressly so authorized by Landlord.
5. Tenants shall not alter any lock nor install any new or additional
locks or any bolts on any interior or exterior door of any Premises leased
to tenant.
6. The doors, windows, light fixtures and any lights or skylights that
reflect or admit light into halls or other places of the Building shall not
be covered or obstructed. The toilet rooms, toilets, urinals, wash bowls and
other apparatus shall not be used for any purpose other than that for which
they were constructed and no foreign substance of any kind whatsoever shall be
thrown or placed therein. The expense of any breakage, stoppage or damage
resulting from the violation of this rule shall be borne by the Tenant who,
or whose employees or invitees, cause such expense.
7. Tenants shall not mark, drive nails, screw or drill into the walls,
woodwork or plaster or in any way deface the Building or any Premises leased
to Tenant.
8. Furniture, freight or equipment of every kind shall be moved into or out
of the building only at such times and in such manner as Landlord shall
designate. Landlord may prescribe and limit the weight, size and position of all
equipment to be used by Tenants, other than standard office desks, chairs and
tables and portable office machines. Safes and other heavy equipment shall, if
considered necessary by Landlord, stand on wood strips of such thickness as
Landlord deems necessary to distribute properly the weight thereof. All damage
to the Building or Premises occupied by Tenants caused by moving or maintaining
any property of a Tenant shall be repaired at the expense of such Tenant.
9. No Tenant shall employ any person, other than the janitor provided by
Landlord, for the purposes of cleaning the Premises occupied by such Tenant
unless otherwise agreed to by Landlord. Except with the written consent of
Landlord, no person shall be permitted to enter the Building for the
purpose of cleaning the same. Tenants shall not cause any unnecessary
labor by carelessness or indifference in the preservation of good order and
cleanliness. Landlord shall not be responsible to any Tenant for loss of
property on the Premises, however occurring, or for any damage to the
property of any Tenant caused by the employees or independent
contractors of Landlord or by any other person. Janitor service will not be
furnished when rooms are occupied during the regular hours when janitor
service is provided. Window cleaning shall be done only at the regular and
customary times determined by Landlord for such services.
10. No Tenant shall sweep or throw or permit to be swept or thrown any
dirt or other substance into any of the corridors, halls or elevators or
out of the doors or stairways of the Building; use or keep or permit to be
used or kept any foul or noxious gas or substance; permit or suffer the
Premises occupied by such Tenant to be occupied or used in a manner offensive
or objectionable to Landlord or other Tenants by reason of noise, odors
or vibrations; interfere in any way with other Tenants or persons having
business in the Building; or bring or keep or permit to be brought or
kept in the Building any animal life form, other than human, except seeing-eye
dogs when in the company of their masters.
11. No cooking shall be done or permitted by Tenants in their respective
Premises, nor shall Premises occupied by Tenants be used for the storage
of merchandise, washing clothes, lodging, or any improper, objectionable or
immoral purposes.
12. No Tenant shall use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of customary office equipment, or, without Landlord's prior written approval,
use any method of heating or air conditioning other than that supplied by
Landlord. No Tenant shall use or keep or permit to be used or kept any foul or
noxious gas or substance in the Premises or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors or vibrations, or interfere
in any way with other Tenants or those having business therein. Tenant must
comply with any government imposed codes and regulations concerning the use or
storage of any substances on the Premises.
13. No boring or cutting for telephone or electric wires shall be allowed
without the consent of Landlord and any such wires permitted shall be introduced
at the place and in the manner described by Landlord. The location of
telephones, speakers, fire extinguisher and all other office equipment affixed
to Premises occupied by Tenants shall be subject to the approval of Landlord.
Each Tenant shall pay all expenses incurred in connection with the installation
of its equipment, including any telephone and electricity distribution
equipment.
14. Upon termination of occupancy of the Building, each Tenant shall
deliver to Landlord all keys furnished by Landlord, and any reproductions
thereof made by or at the direction of such Tenant, and in the event of loss of
any keys furnished to Tenant shall pay Landlord therefor.
(Page 1 of 3)
<PAGE>
15. No Tenant shall affix any floor covering in any manner except as
approved by the Landlord. The expense of repairing any damage caused by removal
of any such floor covering shall be borne by the Tenant by whom, or by whose
contractors, employees or invitees, the damage shall have been caused.
16. No mail, furniture, packages, supplies, equipment, merchandise or
deliveries of any kind will be received in the building or carried up or down in
the elevators except between such hours and in such elevators as shall be
designated by Landlord.
17. On Saturdays, Sundays and legal holidays and between the hours of 6:00
p.m. and 8:00 a.m., access to the Building may be refused unless the person
seeking access is known to the person charged with responsibility for the safety
and protection of the Building and has a pass or is properly identified. In no
case shall Landlord by liable for any loss or damage for any error with respect
to the admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement or other commotion and at such times as
Landlord deems necessary for the safety and protection of the Building, its
Tenants and all property located therein, Landlord may prohibit and prevent
access to the Building by all persons by any means Landlord deems appropriate.
18. Each Tenant shall see that the exterior doors of its Premises are closed
and securely locked on Sundays and legal holidays and not later than 6:00 p.m.
of each other day each Tenant shall exercise extraordinary care and caution that
all water faucets or water apparatus are entirely shut off each day before its
Premises are left unoccupied and that all electricity or gas shall likewise be
carefully shut off so as to prevent waste or damage to Landlord or to other
Tenants of the Building.
19. Landlord may exclude or expel from the Building any person who, in the
judgment of Landlord, is intoxicated or under the influence of liquor or drugs,
or who shall in any manner do any act in violation of any of the rules and
regulations of the Building.
20. The requirements of Tenants will be attended to only upon application to
Landlord at the office of the Building. Employees of Landlord shall not perform
any work outside of their regular duties unless under special instructions from
Landlord, and no employee of Landlord shall be required to admit any person
(Tenant or otherwise) to any Premises in the Building.
21. No vending or food or beverage dispensing machine or machines of any
description shall be installed, maintained or operated upon any Premise in the
Building without the written permission of the Landlord.
22. Landlord, without notice and without liability to any Tenant, at any
time may change the name or the street address of the Building.
23. The word "Building" as used in these rules and regulations means the
Building of which a part of the Premises are leased pursuant to the Lease to
which these rules and regulations are attached. Each Tenant shall be liable to
Landlord and to each other Tenant of the Building for any loss, cost, expense,
damage or liability, including attorneys' fees, caused or occasioned by the
failure of such first named Tenant to comply with these rules, but Landlord
shall have no liability for such failure or for failing or being unable to
enforce compliance therewith by any Tenant and such failure by Landlord or non-
compliance by any other Tenant shall not be a ground for termination of the
Lease to which these rules and regulations are attached by the Tenant
thereunder.
24. Carpet protector pads shall be used by all desk stations.
25. Each Tenant shall maintain the portions of its Premises which are
visible from the outside of the Building or from hallways or other public areas
of the Building, in a neat, clean and orderly condition.
26. No Tenant shall tamper with or attempt to adjust the temperature control
thermostats in its Premises. Landlord shall adjust such thermostats as required
to maintain heat and air-conditioning at the Building standard temperature.
27. All requests for air-conditioning or heating during hours when such
services are not normally furnished by Landlord must be submitted in writing to
the Building management office by 2:00 p.m. on the preceding Thursday for
weekend service, and by 9:00 a.m. on the preceding business day for holiday
service.
28. No Tenant shall place any items whatsoever on the roof or balcony areas
of the Building without prior written consent of Landlord.
29. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any window of the Building without prior written consent
of Landlord. In any event, with the prior written consent of Landlord, such
items shall be installed on the office side of the Landlord's standard window
covering and shall in no way be visible from the exterior of the Building.
30. No Tenant shall obtain or use in the Premises ice, drinking water, food,
beverage, towel or other similar services, except at such reasonable hours and
under reasonable regulations as may he fixed by the Landlord.
3l. Except with the prior written consent of Landlord, no Tenant shall sell,
or permit the sale at retail, of newspapers, magazines, periodicals, tickets or
any other goods or merchandise to the general public in or on the Premises, nor
shall Tenant carry on, or permit or allow any employee or other person to carry
on, the business of stenography, notary, typewriting or similar business in or
from the Premises for the service or accommodation of occupants of any other
portion of the Building, nor shall the Premises of any Tenant be used for
manufacturing of any kind, or any business or activity other than that
specifically provided for in such Tenant's Lease.
32. No Tenant shall install any radio or television antenna, loudspeaker or
other device on the roof or exterior walls of the Building.
33. There shall not be used in any space, or in the public halls of the
Building, either by any Tenant or others, any hand trucks except those equipped
with rubber tires and side guards or such other material handling equipment as
Landlord may approve. No other vehicles of any kind shall be brought by any
Tenant into the Building or kept in or about the Premises.
34. Each Tenant shall store all its trash and garbage within its Premises.
No material shall be placed in the trash boxes or receptacles if such material
is of such nature that it may not be disposed of in the ordinary and customary
manner of removing and disposing of trash and garbage in the City of Burlingame
without being in violation of any law or ordinance governing such disposal. All
garbage and refuse disposal shall be made only through entryways and elevators
provided for such purpose and at such times as Landlord shall designate.
(Page 2 of 3)
<PAGE>
35. Canvassing, peddling, soliciting, and distribution of handbills or any
other written materials in or about the Building are prohibited, and each tenant
shall cooperate to prevent same.
36. While in the Building, Tenant's contractors shall be subject to and
under the control and direction of the manager of the Building or the Building
Engineer (but not as an agent or employee of Landlord or said manager or
engineer).
37. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular Tenant or Tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations against
any or all of the Tenants of the Building.
38. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any Lease of Premises in the Building.
39. Landlord reserves the right to make such other reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building and for the preservation of good order
therein.
(Page 3 of 3)
<PAGE>
EXHIBIT 10.12
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made and entered into this 18th day of
March, 1997 by and between SFO OFFICE ASSOCIATES LLC, a California limited
liability company ("Landlord") and MEGABIOS CORP., a California corporation
("Tenant").
1. Recitals. This First Amendment to Lease ("Agreement") is made with
--------
reference to the following:
1.1. Provident Life and Accident Insurance Company, a Tennessee
Corporation ("Provident") and Tenant were the original parties to a lease dated
December 21, 1993 ("Lease") whereby Provident leased to Tenant and Tenant hired
from Provident the following real property (collectively, the "Premises")
situated in the City of Burlingame, San Mateo County, California:
(a) All of the rentable space within "Building A" of the property
commonly known and designated as 863 Mitten Road (the "Building A Space")
(b) A portion (more particularly described in the Lease) of the
rentable space within "Building C" of the property commonly known and designated
as 863 Mitten Road (the "Building C Space").
The Building A Space and the Building C Space together comprise
approximately 27,279 rentable square feet.
1.2. Landlord is successor in interest to Provident as owner of the real
property in which the Premises is situated and as landlord under the Lease and
as such is, among other things, a "successor Landlord" for purposes of Paragraph
l4(b)(iii)B of the Lease. The Initial Term shall expire November 30, 1999, for
the purposes of Paragraph 14(b)(iii).
1.3. Pursuant to the Lease, Tenant was granted an option to lease
additional space in Building C ("Option to Expand") and an option to extend the
initial five (5) year term of the Lease for an additional five (5) year period
("Option to Extend").
1.4. The Lease is in full force and effect and Tenant currently is in
possession of and occupies all of the Premises.
1.5. Tenant, by this Agreement, is hereby exercising the Option to
Expand to include within the Premises the remaining rentable space in Building C
comprised of approximately 7,394 rentable square feet ("Additional Space"). By
License Agreement dated January 17, 1997 ("License Agreement"), Landlord granted
to Tenant a license to immediately enter the Additional Space for the purpose of
inspecting said space, removing asbestos-containing floor sealing and mastic
(with Landlord's prior written permission), and demolishing certain existing
interior improvements.
Page 1
<PAGE>
1.6. Tenant, by this Agreement, is hereby exercising the Option to
Extend, and Landlord and Tenant have agreed upon the terms of an additional
option to extend the Lease Term.
1.7. Contemporaneously with the execution of this Agreement, Landlord
and Tenant have executed a lease ("Building E Lease") whereby Landlord is
leasing to Tenant and Tenant is hiring from Landlord all of the rentable space
within "Building E" of the property commonly known and designated as 866 Malcolm
Road (the "Building E Space"). The initial term of the Building E Lease is for a
period of ten (10) years ("Building E Lease Initial Term"), and Tenant is
granted therein an option to extend such term for an additional period of five
(5) years ("Building E Lease Extension Term").
1.8. Landlord and Tenant desire and intend by this Agreement to amend
the Lease in order to make certain changes thereto which are necessitated by
Tenant's exercise of the Option to Expand and exercise of the Option to Extend
and to make additional changes thereto that have been agreed upon by Landlord
and Tenant all as more particularly set forth below.
WHEREFORE, in consideration of the mutual covenants herein made and other
good and valuable consideration, the receipt of which is acknowledged, the
parties hereto hereby agree as follows:
2. Recitals Correct. The Recitals set forth in Section 1 above are true and
----------------
correct and are part of this Agreement.
3. Additional Premises. Pursuant to Tenant's exercise of the Option to
-------------------
Expand, commencing on the date of this Agreement ("Additional Space Delivery
Date"), the Additional Space shall (except as otherwise provided in this
Agreement) become subject the terms of this Lease as modified by this Agreement.
Commencing on the Additional Space Rent Commencement Date (as defined in
Paragraph 7 below), the total rentable area pursuant to the Lease is agreed by
Landlord and Tenant to be 34,673 rentable square feet. On the Additional Space
Delivery Date, Landlord shall deliver the Additional Space to Tenant for
Tenant's exclusive use and occupancy, and Tenant shall thereafter have the
exclusive right to take possession of and occupy the Additional Space in
accordance with all of the terms and conditions of the Lease as modified by this
Agreement. Tenant's occupancy of the Additional Space from and after the
Additional Space Delivery Date shall be pursuant to the terms of the Lease, as
hereby amended, which shall supersede the provisions of the License Agreement.
The condition of the Additional Space as delivered to Tenant, Landlord's
obligations with respect to tenant improvements, the commencement of rent
obligations for the Additional Space and the computation of any credit against
rent for Option Consideration paid with respect to the Additional Space shall
all be determined by Landlord and Tenant as provided in Section 1(c) of the
Lease; provided, however, Landlord and Tenant agree that Landlord has performed
and completed all removal of Hazardous Materials as described in Paragraph
1(c)(2)(a) of the Lease and all seismic and other work described in Paragraph
1(c)(2)(c) of the Lease and that no further work of either nature shall be
required. For purposes of computing the "Increment Allowance"
Page 2
<PAGE>
for tenant improvements to the Additional Space, the term "Initial Term" shall
mean the Term of the Lease prior to Tenant's exercise of the Option to Extend.
4. Right of First Refusal. The words "Lease Term" in Paragraph 1(d) of the
----------------------
Lease are hereby deleted and the words "Initial Term" are substituted in place
thereof. The last sentence of Paragraph 1(d)(2) of the Lease is hereby amended
to delete the parenthetical phrase "(except as expressly modified by this
paragraph 1(d))." Paragraph 1(d)(3) of the Lease is hereby deleted in its
entirety.
5. Term. Pursuant to Tenant's exercise of the Option to Extend, Paragraph
----
3(a) of the Lease is hereby amended in its entirety to read as follows:
"3.(a) Initial Term. The initial term of this Lease shall be for a
------------
period of ten (10) years and 23 days commencing on November 8, 1994
("Commencement Date") and ending on November 30, 2004 (the "Initial
Term"). "
6. Option to Extend. Paragraph 3(b) of the Lease is hereby amended in its
----------------
entirety to read as follows:
"3.(b) Option to Extend Initial Term. Provided that Tenant is not in
-----------------------------
default in any of the provisions of this Lease, at the time of the exercise
of the option to extend set forth in this Paragraph 3(b), Tenant may elect
to extend the Initial Term of this Lease ("Option Term"). The Option Term
shall be for a period commencing upon the expiration of the Initial Term
and ending on the same date as the termination date of the Building E Lease
Initial Term; provided, however, that if Tenant, concurrently with the
exercise of this option, has the right, and validly exercises such right,
to extend the term of the Building E Lease as provided therein, the Option
Term shall end on the same date as the termination date of the Building E
Lease Extension Term. It is the intent of this Paragraph that the Initial
Term of this Lease may only be extended to a period which is coterminous
with the Building E Lease. The option to extend may be exercised by Tenant
by a written notice ("Extension Notice") delivered to Landlord not less
than two hundred seventy (270) nor more than three hundred sixty (360) days
prior to the end of the Initial Term. Landlord's failure to so receive an
Extension Notice shall be deemed Tenant's election not to extend the
Initial Term, and Tenant shall thereafter have no further right to extend
the Initial Term. If Tenant duly delivers its Extension Notice, the term of
this Lease shall thereupon be extended in accordance with Tenant's
election, and the Option Term shall begin on the day immediately following
the last day of the Initial Term.
Page 3
<PAGE>
The Option Term shall be subject to all the terms and conditions of this
Lease except that (i) the Basic Rent shall be the same amount per rentable
square foot of the Premises as the Base Rent then payable pursuant to the
Building E Lease and shall adjust as and when the Base Rent adjusts under
the Building E Lease and the Base Year shall be adjusted to be the same
Base Year as under the Building E Lease, (ii) after Tenant exercises its
Option Term, Tenant shall have no further right to extend the Lease Term
(as defined below), and (iii) the provisions of Paragraph 1(d) of the Lease
shall be inapplicable to the Option Term.
The Initial Term and the Option Term are collectively referred to
herein as the "Lease Term."
7. Rent. Commencing on the date that Tenant's rental obligations begin with
----
respect to the Additional Space (as provided in Paragraph 1(c)(2) of the Lease)
(the "Additional Space Rent Commencement Date"), the Basic Rent for the Premises
(per month) shall be calculated by multiplying 34,673 square feet times either
(i) $0.68557 if such date occurs prior to June 1, 1997, or (ii) $0.76057 if such
date occurs on or after June 1, 1997. If such date occurs prior to June 1, 1997,
Basic Rent, as calculated above, shall be adjusted on June 1, 1997 to $0.76057
per rentable square foot per month ($26,371.24). Commencing December 1, 1999,
the Basic Rent shall be $27,238.07 per month, and commencing June 1, 2002, the
Basic Rent shall be $28,104.89 per month.
8. Tenant's Percentage. Subject to provisions of the Lease regarding
-------------------
commencement of the obligation to pay rent with respect to the Additional Space,
Landlord and Tenant agree that, effective as of the Additional Space Rent
Commencement Date, Tenant's Percentage Share of the Project for purposes of the
Lease is increased to 22.77% as a result of the addition of the Additional Space
to the Premises.
9. Equipment Platform(s). Tenant is hereby granted a license to construct
---------------------
and maintain, at Tenant's sole cost and expense, an additional platform or
platforms above the roofs of Building A and/or Building C on which to install
mechanical equipment necessary for Tenant's permitted use of the Premises
("Additional Equipment Platform"). The following terms and conditions shall
apply to the installation, maintenance, and removal of each Additional Equipment
Platform:
9.1. The terms and conditions set forth in Paragraphs 1(b)(1), 1(b)(2),
1(b)(3), 1(b)(4) and 15 of the Lease;
9.2. Tenant shall maintain each Additional Equipment Platform in good
condition and repair, at Tenant's sole cost and expense;
9.3. If, as a result of Tenant's construction of any such Additional
Equipment Platform, Landlord's out-of-pocket cost of repairing or replacing the
roof of Building A and/or
Page 4
<PAGE>
Building C is increased over the cost of repairing or replacing such roof absent
the presence of the Additional Equipment Platform, Tenant shall promptly upon
demand from Landlord reimburse Landlord for such actual additional cost at such
time as the applicable repair or replacement occurs; provided, however, that if
Landlord intends to seek any reimbursement for any such additional cost, it
must, prior to authorizing any such work to be performed, provide to Tenant for
Tenant's prior review and approval, which approval shall not be unreasonably
withheld or unduly delayed, the following: (i) written notice of Landlord's
estimate of any such additional cost and the basis for calculating such
additional cost; and (ii) a copy of the proposed contract relating to the work
to be performed.
9.4. All Additional Equipment Platforms and related equipment shall, at
the written request of Landlord, be removed by Tenant upon termination of this
Lease and the roof shall be patched and repaired as reasonably required by
Landlord as a result of the removal of the Additional Equipment Platform and
associated equipment.
10. Continued Effect. The Lease, as hereby amended, remains in full force
----------------
and effect.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized and
empowered representatives, have executed this FIRST AMENDMENT TO LEASE and make
it effective as of the day and year first above written.
LANDLORD: TENANT:
SFO OFFICE ASSOCIATES LLC, a MEGABIOS CORP., a California corporation
California limited liability company
By: /s/ Michael Halper By: /s/ Patrick G. Enright
--------------------------------- ------------------------------
Michael Halper Name: Patrick G. Enright
Manager ------------------------------
Title: CFO and VP Business Development
--------------------------------
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<PAGE>
EXHIBIT 10.13
SFO OFFICE COMPLEX
OFFICE LEASE
SFO OFFICE ASSOCIATES LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY
"LANDLORD"
AND
MEGABIOS CORP.,
A CALIFORNIA CORPORATION
"TENANT"
DATED: MARCH 18, 1997
<PAGE>
SFO OFFICE COMPLEX
BASIC LEASE INFORMATION
(Notwithstanding this Basic Lease Information, the express terms of the Lease
shall be controlling over this Basic Lease Information.)
Lease Section
Introductory Section: Date: March 18, 1997
Landlord: SFO OFFICE ASSOCIATES LLC,
a California limited liability company
Tenant: MEGABIOS CORP.,
a California corporation
1. Premises: All of Building E, comprising
approximately 10,646 rentable square feet
(initial estimate)
Building: 866 Malcolm Road, Building E,
Burlingame, California 94010
Complex: 819-863 Mitten Road, 866 Malcolm Road,
Burlingame, California 94010, which shall
be deemed to consist of 152,297 rentable
square feet
2. Purpose: laboratory, offices and small-scale
manufacturing
3. Projected Commencement Date: September 29, 1997
Term: l0 years
4. Option Term: One (1) five (5) year option
5. Projected Delivery Date: August 1, 1997
Interim Rent: During Early Occupancy Period the
Interim Rent is equal to $.60 per
rentable square foot per month
Base Rent: From and after the Commencement Date
<TABLE>
<CAPTION>
MONTHS RATE/r.s.f./MONTH
------ -----------------
<S> <C>
1-18 $1.48
19-36 $1.57
37-60 $1.665
61-84 $1.801
85-108 $1.948
109-120 $2.026
</TABLE>
6. Tenants Share: 6.990%
Taxes and Operating Expenses Base Year: 1997
8. Security Deposit: $22,118
Page i
<PAGE>
43. Tenant's Address for Notices:
MEGABIOS CORP.
863A Mitten Road
Burlingame, CA 94010
Attn: Mr. Patrick Enright
Telephone: 415-697-1900
Facsimile: 415-652-1990
Copy to:
HELLER, EHRMAN, WHITE & McAULIFFE
333 Bush Street, 30th Floor
San Francisco, CA 94104
Ann: K. William Neuman, Esq.
Telephone: 415-772-6064
Facsimile: 415-772-6268
Landlord's Address for Notices:
SFO OFFICE ASSOCIATES LLC
2269 Chestnut Street, #336
San Francisco, CA 94123
Attn: Mr. Michael Halper
Telephone: 415-652-9650
Facsimile: 415-652-6951
49. Broker: William R. Beckman
The sections of the Lease identified above in the margin are those sections
where references to particular Basic Lease information appear. Each such
reference shall incorporate the applicable Basic Lease Information.
/s/ P.E.
Initials: ________ Initials: ________
LANDLORD TENANT
Page ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. PREMISES.................................................... 1
2. PURPOSE..................................................... 1
3. TERM........................................................ 1
4. POSSESSION.................................................. 2
5. RENT........................................................ 3
6. TAXES....................................................... 4
7. OPERATING EXPENSES.......................................... 6
8. SECURITY DEPOSIT............................................ 9
9. USES PROHIBITED............................................. 9
10. COMPLIANCE WITH LAWS........................................10
11. USE OF HAZARDOUS MATERIALS..................................10
12. ALTERATIONS AND IMPROVEMENTS................................13
13. EQUIPMENT AREA, CORRIDOR AND ROOF PLATFORMS.................14
14. MAINTENANCE AND REPAIRS.....................................17
15. ABANDONMENT.................................................19
16. LIENS.......................................................19
17. ASSIGNMENT AND SUBLETTING...................................19
18. INDEMNIFICATION.............................................21
19. INSURANCE...................................................22
20. MUTUAL WAIVER OF SUBROGATION RIGHTS.........................23
21. UTILITIES...................................................24
22. PERSONAL PROPERTY AND OTHER TAXES...........................24
23. RULES AND REGULATIONS.......................................24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
24. HOLDING OVER................................................25
25. SUBORDINATION...............................................25
26. ENTRY BY LANDLORD...........................................26
27. INSOLVENCY OR BANKRUPTCY....................................27
28. DEFAULT.....................................................27
29. DAMAGE OR DESTRUCTION.......................................28
30. EMINENT DOMAIN..............................................30
31. CLAUSES, PLATS AND RIDERS...................................30
32. BOMA MEASUREMENTS...........................................30
33. EXISTING TENANTS............................................31
34. SALE BY LANDLORD............................................33
35. LIMITATION OF LIABILITY.....................................33
36. ESTOPPEL CERTIFICATES.......................................34
37. RIGHT OF LANDLORD TO PERFORM................................34
38. LANDLORD'S DEFAULT AND TENANT'S REMEDIES....................34
39. MORTGAGEE PROTECTIONS.......................................35
40. ATTORNEY FEES...............................................35
41. SURRENDER OF POSSESSION.....................................35
42. WAIVER......................................................36
43. NOTICES.....................................................36
44. DEFINED TERMS AND MARGINAL HEADINGS.........................36
45. TIME AND APPLICABLE LAW.....................................36
46. SUCCESSORS..................................................36
47. ENTIRE AGREEMENT............................................37
48. LATE CHARGE; INTEREST.......................................37
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
49. BROKERS.....................................................37
50. NO DISCRIMINATION...........................................38
51. PARKING AND COMMON AREAS....................................38
52. SIGNAGE.....................................................38
53. TELEPHONE SERVICE...........................................39
54. HAZARDOUS SUBSTANCE DISCLOSURE..............................40
55. AUTHORITY...................................................40
56. EXECUTION OF LEASE..........................................41
57. COUNTERPARTS................................................41
58. RECORDING...................................................41
59. SEVERABILITY................................................41
60. COVENANTS AND CONDITIONS....................................41
61. QUIET ENJOYMENT.............................................41
62. CUMULATIVE REMEDIES.........................................41
63. REASONABLE APPROVAL STANDARD................................41
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
EXHIBIT A - Legal Description
EXHIBIT A-1 - Equipment Area
EXHIBIT B - Site Plan of Complex
EXHIBIT C - Description of Small-Scale Manufacturing Uses
EXHIBIT D-l - Lease Commencement Date Memorandum
EXHIBIT D-2 - Premises Acceptance Date Memorandum
EXHIBIT E - Work Letter Agreement
EXHIBIT F - Rules and Regulations of the Building
EXHIBIT F-1 - Amendment to Rules and Regulations of the Building
EXHIBIT G - Non-Disturbance Agreement
EXHIBIT H - Environmental Reports
SCHEDULE 1 - Renewal Options
SCHEDULE 1-A - Form of Option Exercise Notice
SCHEDULE 2 - Limitations on Operating Expenses
SCHEDULE 2-A - Expense Distribution
SCHEDULE 3 - Leasehold Mortgage Provisions
</TABLE>
iv
<PAGE>
OFFICE LEASE
This Lease, made this 18th day of March, 1997, is by and between SFO OFFICE
ASSOCIATES LLC, a California limited liability company ("Landlord"), and
MEGABIOS CORP., a California corporation ("Tenant").
WITNESSETH:
1. Premises
Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord,
certain premises ("Premises") consisting of the entire rentable area within that
certain building known as Building E (the "Building") and by the street address
of 866 Malcolm Road, Burlingame, California. The Building is part of an office
complex (the "Complex") owned by Landlord and located on certain land situated
in the City of Burlingame, County of San Mateo, California, which land is more
particularly described in Exhibit A attached hereto. The Building and the
Complex are generally depicted in the site plan attached hereto as Exhibit B
(the "Site Plan"). Tenant also leases from Landlord, pursuant to that certain
Lease dated December 21, 1993 as amended ("863 Mitten Lease"), certain space in
Buildings A and C of the Complex ("Current Space") as depicted on Exhibit B.
Said letting and hiring under this Lease is upon and subject to the terms,
covenants, and conditions herein set forth, and Tenant covenants as a material
part of the consideration for this Lease to keep and perform each and all of
said terms, covenants and conditions by it to be kept and performed. Tenant and
Landlord agree that the rentable area of the Premises set forth in the Basic
Lease Information above are the best estimates as of the date of this Lease. The
rentable area shall be recalculated as provided in Section 32 below.
2. Purpose
The Premises shall be used for a laboratory, offices, and small-scale
manufacturing facilities as more particularly described on Exhibit C hereto, and
for no other use or purpose without the prior written consent of Landlord, which
consent may be granted or denied in Landlord's sole discretion.
3. Term
(a) The initial term of this Lease shall commence on the date
("Commencement Date") which is sixty (60) days after the date the last Existing
Tenant (as defined in Section 33 below) in the Premises vacates its unit and
Landlord tenders the Premises vacant to Tenant. Unless earlier terminated in
accordance with the terms of this Lease, the Lease term shall extend for the
period specified in the Basic Lease Information. Notwithstanding the foregoing,
if the Commencement Date occurs on the first day of a calendar month, then the
initial Term shall be ten (10) years, but if the Commencement Date occurs on any
day other than the first day of a calendar month, then the initial Term shall be
the period from the Commencement Date to the first day of the first full
calendar month thereafter, plus the following one hundred twenty (120) full
calendar months ("Term"). The date upon which this Lease is to expire is
referred to as the "Expiration Date."
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<PAGE>
(b) The term of this Lease for the Equipment Area (as defined in Section 13
below) shall commence on the Commencement Date, and unless earlier terminated in
accordance with the terms of this Lease, shall continue until the earlier to
occur of the following: (i) the expiration or termination date for the 863
Mitten Lease, or (ii) the Expiration Date, as the same may be extended
hereunder.
(c) Upon determination of the actual Commencement Date, the parties shall
sign a commencement date memorandum in the form attached hereto as EXHIBIT D-1,
which shall become a part of this Lease. Tenant's failure to execute the
commencement date memorandum shall not affect the actual Commencement Date or
the Expiration Date of this Lease.
(d) Tenant shall have the right to extend the term of this Lease for the
period set forth in the Basic Lease Information and on the terms and conditions
set forth on Schedule 1 attached hereto.
----------
4. Possession
(a) Commencing on the date this Lease is executed by Landlord and Tenant,
Landlord shall deliver vacant possession of the Premises to Tenant in increments
as they become free of Existing Tenants pursuant to Section 33 below. Landlord
shall exercise commercially reasonable efforts to deliver possession of the
entire Premises free of Existing Tenants (as defined in Section 33 below) on or
before August 1, 1997 (the "Projected Delivery Date"). If Landlord, despite the
exercise of commercially reasonable efforts, cannot deliver possession of the
entire Premises to Tenant on or prior to the Projected Delivery Date, (i)
Landlord shall remain obligated to exercise commercially reasonable efforts to
deliver possession of the entire Premises to Tenant as soon as possible
thereafter and (ii) this Lease shall not be void or voidable, nor shall Landlord
be liable to Tenant for any loss or damage resulting therefrom; provided
however, that if Landlord does not deliver the entire Premises (other than the
Orkin Space as defined in Section 33 below) to Tenant on or before that date
which is one hundred twenty (120) days after the Projected Delivery Date (with
such one hundred twenty (120) -day period to be extended day by day for any
delay caused by the acts or omissions of Tenant or any of Tenant's agents,
employees, invitees, consultants or contractors), Tenant shall have the right no
later than ten (10) days thereafter to terminate this Lease by notifying
Landlord thereof at any time within that time period and before Landlord tenders
possession of the entire Premises (other than the Orkin Space) to Tenant free of
Existing Tenants. In the event of any such termination, Landlord shall promptly
reimburse Tenant for one-half of any Interim Rent or Relocation Costs (as
defined in Section 33 below) previously paid by Tenant to Landlord. As an
alternative to terminating this Lease, Tenant may instead elect no later than
ten (10) days thereafter to reduce the size of the Premises to be leased
hereunder by electing to proceed with leasing in accordance with the terms of
this Lease (reduced on a pro rata basis where appropriate in light of the
reduced square footage area of the Premises being leased) as to all of the
portions of the Premises as to which Landlord has then already delivered
possession to Tenant. In the event of any election by Tenant pursuant to the
preceding sentence to lease a reduced portion of the Premises, the Commencement
Date of the Lease shall be sixty (60) days after the date of Tenant's notice of
its election to so proceed.
Page 2
<PAGE>
(b) Tenant confirms and agrees that it is leasing the Premises in their "as
is" state and condition, including patent and latent defects. Tenant also
confirms and agrees that other than as set forth herein Landlord shall have no
obligation whatsoever to make improvements or renovations in the Premises to
prepare the same for Tenant's occupancy. Landlord shall provide a Tenant
Improvement Allowance as provided in Section 12 of this Lease. By taking
possession of the Premises, Tenant shall be deemed to have accepted the Premises
in the condition in which Landlord was required to deliver them to Tenant.
(c) Before the Commencement Date, Tenant shall be entitled to enter the
vacant portions of the Premises which are tendered to Tenant by Landlord as
provided in Section 33 hereof for the purposes of using such portion for storage
purposes or to perform demolition in preparation for construction and
construction of the Tenant Improvements (as defined in Section 12 below) or for
any other work on the Premises which Tenant desires to perform and which is in
conformity with the provisions of this Lease, provided that Tenant may at any
time beginning sixty (60) days or more after the Projected Delivery Date begin
to use any portion of the Premises that has been tendered to Tenant for the
conducting of any of the business uses permitted under this Lease; provided,
however, if Tenant uses any portion of the Premises for conducting any of the
business uses permitted hereunder, Tenant shall be subject to all the terms and
provisions of this Lease, including payment of Base Rent and all additional rent
on a pro rata basis as to all portions of the Premises so used. As used herein
with respect to each portion of the Premises which is tendered to Tenant
pursuant to Section 33, the term "Early Occupancy Period" shall mean the period
commencing on the date such portion is tendered to Tenant and ending on the
Commencement Date of this Lease.
5. Rent
(a) During the Early Occupancy Period and continuing until the Commencement
Date, Tenant shall pay to Landlord for the Premises, or so much thereof as is
tendered to Tenant, Interim Rent of sixty cents (60 cents) per rentable square
foot per month.
(b) During the Term, Tenant shall pay to Landlord for the Premises, the
Base Rent set forth in the Basic Lease Information. The Base Rent for any
partial month shall be prorated at the rate of one-thirtieth (1/30th) of the
Base Rent per day. Simultaneously with the execution of this Lease, Tenant shall
pay to Landlord the Base Rent for the first full calendar month for which Base
Rent is payable .
(c) Interim Rent, Equipment Area Base Rent (as defined in Section 13 below)
and all charges and other amounts of any kind payable by Tenant to Landlord
pursuant to this Lease shall be deemed additional rent. Additional rent for any
partial month shall be prorated in the same manner as Base Rent. Landlord shall
have the same remedies for default in the payment of additional rent as for
default in the payment of Base Rent. Base Rent and additional rent are
collectively sometimes hereinafter referred to as rent. The Base Rent shall be
subject to adjustment in the months and in the amounts shown in the Basic Lease
Information.
(d) All rent shall be paid by Tenant to Landlord monthly, in advance, on or
before the first day of each calendar month without prior demand, deduction or
offset, in lawful money of
Page 3
<PAGE>
the United States of America at SFO OFFICE ASSOCIATES LLC, 849 MITTEN ROAD,
SUITE 1, BURLINGAME, CA 94010 or to such other person or at such other place as
Landlord may from time to time designate in writing. Payments made by check must
be drawn either on a California financial institution or on a financial
institution that is a member of the federal reserve system.
(e) The parties agree that the rentable area of the Premises, the rent and
all other sums calculated based upon the rentable area under this Lease shall be
recalculated as provided in Section 32 below prior to the Projected Delivery
Date.
6. TAXES
(a) Tenant shall pay to Landlord an amount equal to Tenant's Share (as set
forth in the Basic Lease Information) of any increase in Taxes (applicable to
the term of this Lease occurring after the Base Year) above the amount of Taxes
levied and assessed for the fiscal tax year specified in the Basic Lease
Information. The total amounts due hereunder (as respects the applicable Tax)
shall be paid to Landlord on or before the date full payment of the applicable
Tax would be delinquent or, if payable in installments, the date payment of the
respective installment of such Tax would be delinquent. Notwithstanding anything
in the foregoing to the contrary, at Landlord's sole election, at any time or
times Landlord may in good faith estimate in advance the amount of Taxes for any
next ensuing twelve (12)-month period and, upon Landlord's written notice,
Tenant shall pay to Landlord on the first day of each calendar month of such
twelve (12)-month period, with Base Rent as provided for in Section 5 hereof,
one-twelfth (1/12th) of Tenant's Share of such estimated Taxes. If during any
such twelve (12)-month period Landlord shall in good faith revise its estimate
of Tenant's share of said taxes for such twelve (12)-month period, Landlord
shall advise Tenant and commencing on the date the next Base Rent payment is due
which date is more than ten (10) business days after Tenant's receipt of such
revised estimate, Tenant shall pay all additional Taxes on such revised estimate
for the portion of the twelve (12)-month period already elapsed and shall
commence paying the additional Taxes based on such revised estimate for the
remainder of such twelve (12) -month period. Within ninety (90) days following
the conclusion of such twelve (12)-month period, Landlord shall deliver to
Tenant a reasonably detailed statement of Tenant's Share of the actual Taxes for
such period accompanied by a reasonably detailed listing of the Taxes for the
Base Year, and the year which immediately preceded the year to which such
increase applies (if other than the Base Year). If the amounts theretofore paid
by Tenant on account of Landlord's estimate shall exceed the amount of Tenant's
Share of such actual Taxes, Landlord shall pay to Tenant the amount of such
excess within fifteen (15) days after date of delivery of such statement to
Tenant. If the amounts theretofore paid by Tenant on account of Landlord's
estimate shall be less than the amount of Tenant's Share of such actual Taxes,
Tenant shall pay to Landlord the amount of such deficiency within fifteen (15)
days after date of delivery of such statement to Tenant. Landlord, at its
election, may estimate Taxes on a calendar year basis, in which event Tenant
shall pay one-twelfth (1/12th) of such estimated Taxes as hereinbefore provided
and, if this Lease shall commence on a day other than the first day of a
calendar year and/or shall end on a day other than the last day of a calendar
year, Tenant's Share of such Taxes, as applicable to such first and last
calendar years of the term hereof, shall be computed on a pro rata basis.
Page 4
<PAGE>
(b) For the purposes of this Section 6, "Taxes" shall mean all real and
personal property taxes, assessments, and reassessments, special or otherwise,
foreseen or unforeseen, levied or assessed upon the Complex, including, without
limitation, any increases in taxes resulting from any change in ownership of the
Complex or any portion thereof, and any taxes levied and assessed in lieu of or
in substitution for existing or additional real or personal property taxes as
well as any form of assessment, license, fee, levy, penalty, or tax (other than
inheritance or estate taxes), imposed by any authority having the direct or
indirect power to tax, including any city, county, state, or federal government,
or any school, agricultural, lighting, drainage, or other improvement district,
as against any legal or equitable interest of Landlord in the Premises or in the
real property of which the Premises are a part, or as against Landlord's right
to rent or other income therefrom, or as against Landlord's business of leasing
the Premises. In addition, Tenant shall pay one hundred percent (100%) of any
increase in taxes or assessments of whatsoever kind and nature (including,
without limitation, all personal property taxes) caused by improvements
(including, without limitation, the Tenant Improvements) or installations made
by Tenant to the Premises at any time during the term hereof. If Landlord has
the right to elect to pay any Taxes in installments, it shall be obligated to
make such an election, and only the amount of each such installment payable
during such twelve (12) -month period shall be deemed to be Taxes applicable to
such twelve-month period. Taxes shall not be deemed to include (i) any federal,
state or local income tax, (ii) any taxes computed or otherwise based upon the
net income of Landlord from the Complex (as opposed to rents, receipts or income
attributable to operations at the Complex), (iii) any taxes computed or
otherwise based upon the gross income of Landlord from sources other than the
rental income from the Complex, (iv) any taxes applicable to Landlord because of
any foreign ownership, and (v) any taxes attributable to any personal property
or tenant improvements owned by or installed for any other tenants or occupants
of the Complex. If at any time (including after the expiration of the term of
this Lease) Landlord receives a refund of any Taxes from the taxing authority as
a result of an appeal or otherwise, Landlord shall promptly pay to Tenant
Tenant's Share (or such other portion) of the net refunded amount (deducting
from the gross amount of the refund the cost borne by Landlord in pursuing any
appeal if such expense was not already included as a part of Taxes or Operating
Expenses) as appropriately equates to the amount which Tenant earlier paid
hereunder as any increase in Taxes.
(c) For purposes of this Section 6, "Tenant's Share" shall be in the same
proportion that the rentable square footage of the Premises bears from time to
time to the aggregate rentable square footage of all buildings then situated in
the Complex. At the inception of this Lease, Tenant's Share for purposes of this
Section 6 shall be that percentage specified as Tenant's Share in the Basic
Lease Information (which may be adjusted from time to time by Landlord, upon
written notice to Tenant accompanied with appropriate documentation of the same,
in event of changes in the aggregate rentable building square footage in the
Complex). Tenant, at its expense, shall have the right from time to time to
recalculate Tenant's Share in view of any apparent changes in the aggregate
rentable building square footage in the Complex, subject to Landlord's approval
of such recalculation of Tenant's Share.
(d) For any period (including the Base Year) during which at least ninety-
five percent (95%) of the rentable square footage comprising the Complex is not
leased, Taxes shall be
Page 5
<PAGE>
adjusted to equal Landlord's reasonable estimate of what Taxes would be had
ninety-five percent (95%) of the total rentable area of the Complex been
occupied during such period.
7. Operating Expenses
(a) Tenant shall pay to Landlord, at the times hereinafter set forth, an
amount equal to Tenant's Share of any increase in Operating Expenses for the
Complex (applicable to the term of this Lease occurring after the Base Year)
above the Operating Expenses for the Complex for the Base Year specified in the
Basic Lease Information. Statements of the amount of Operating Expenses for the
preceding calendar year and the amount of such increase payable by Tenant shall
be determined by Landlord and shall be payable by Tenant fifteen (15) days after
demand by Landlord accompanied by a reasonably detailed listing of the Operating
Expenses by category for the Base Year, the preceding year to which such
increase applies and the year which immediately preceded the year to which such
increase applies (if other than the Base Year).
(b) Notwithstanding the foregoing, at Landlord's sole election, at any time
or times Landlord may in good faith estimate in advance Landlord's Operating
Expenses for any next ensuing 12-month period and, upon Landlord's written
notice, Tenant shall pay to Landlord on the first day of each calendar month of
such 12-month period, with Base Rent as provided for in sections hereof, one-
twelfth (1/12th) of Tenant's Share of such estimated Operating Expenses. If
during any such twelve (12)-month period Landlord shall in good faith revise its
estimate of Tenant's Share of said expenses for such twelve (12)-month period,
Landlord shall advise Tenant and commencing on the date the next Base Rent
payment is due which date is more than ten (10) business days after Tenant's
receipt of such revised estimate, Tenant shall pay all additional Operating
Expenses on such revised estimate for the portion of the twelve (12)-month
period already elapsed and shall commence paying the additional Operating
Expenses based on such revised estimate for the remainder of such twelve (12)-
month period. Within ninety (90) days following the conclusion of such twelve
(12)-month period, Landlord shall deliver to Tenant an itemized statement in
reasonable detail of Tenant's Share of Landlord's actual Operating Expenses for
such period accompanied by a reasonably detailed statement of the Operating
Expenses for the Base Year and the year which immediately preceded the year to
which such increase applies (if other than the Base Year). If the amounts
theretofore paid by Tenant on account of Landlord's estimate shall exceed the
amount of Tenant's Share of such actual costs, Landlord shall pay to Tenant the
amount of such excess within fifteen (15) days after date of delivery of such
statement to Tenant. If the amounts theretofore paid by Tenant on account of
Landlord's estimate shall be less than the amount of Tenant's Share of such
actual costs, Tenant shall pay to Landlord the amount of such deficiency within
fifteen (15) days after date of delivery of such statement to Tenant. Landlord,
at its election, may estimate Operating Expenses on a calendar year basis, in
which event if this Lease shall commence on a day other than the first day of a
calendar year and/or shall end on a day other than the last day of a calendar
year, Tenant's Share of such estimated costs, as applicable to such first and
last calendar years of the term hereof, shall be computed on a pro rata basis.
(c) For purposes of this Section 7, "Tenants Share" shall be in the same
proportion that the rentable square footage of the Premises bears from time to
time to the aggregate rentable
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square footage of all buildings then situated in the Complex. At the inception
of this Lease Tenant's Share for purposes of this Section 7 shall be that
percentage specified as Tenant's Share in the Basic Lease Information (which may
be adjusted from time to time by Landlord, upon written notice to Tenant
accompanied with appropriate documentation of the same, in event of changes in
the aggregate rentable building square footage in the Complex). Tenant shall
have the right from time to time, at Tenant's sole cost and expense, to
recalculate Tenant's Share (which shall be confirmed by Landlord) in view of any
apparent changes in the aggregate rentable building square footage in the
Complex, subject to Landlord's approval of such recalculation of Tenant's Share.
(d) As used in this Section 7, "Operating Expenses" shall mean any and all
sums expended by Landlord directly or indirectly for the maintenance,
management, and operation of the Complex, such as the following: wages,
salaries, employee benefits, and payroll burden of personnel engaged in
management, operation and maintenance of the Complex (but if any such personnel
perform any other functions such as management or leasing of any other
properties or any investment entities, then such expenses shall be included as
Operating Expenses only to the extent reasonably allocable to the management,
operation and maintenance of the Complex), including, without limitation, those
categories of costs of operation and maintenance as reflected on Schedule 2-A
------------
which indicate they are to be "Reimbursed to Landlord by Tenant," subject to the
other limitations set forth in this Lease; Complex management office rent or
rental value (similarly limited to the proportion reasonably allocable to the
management, operation and maintenance of the Complex); costs of power, heat,
light, steam, air conditioning, gas, water, garbage, sewage and waste disposal
and other utilities to the extent used for the common areas of the Complex or
supplied without separate metering or charge to Tenant as well as other tenants
of the Complex; costs of equipment, tools, materials and supplies; insurance
premiums for insurance of the nature and general amount carried by Landlord
throughout the Base Year (including premiums for earthquake and flood insurance)
and deductibles incurred by Landlord in repairing the Complex (excluding any
tenant improvements of any other tenants) in the event of an otherwise insured
loss (but in no event shall any such deductible exceed $10,000 per occurrence);
any annual operating licenses or permits for the Complex generally, amounts paid
under maintenance contracts and for general services for the benefit of the
Complex as a whole; depreciation on, or rental of, personal property used in the
maintenance of the Complex; the costs of resurfacing, repainting, re-striping,
cleaning, sweeping and repairing the parking lot areas; costs of repairing or
replacement of debris receptacles; landscaping costs including maintenance,
watering and the replacement of plants; cost of directional signs, other
markers, and car stops; costs of keeping the exterior walls, foundations, down
spouts, roofs, plumbing, sewage systems, electrical, and heating and air
conditioning systems of the buildings in the Complex in good order, condition
and repair; any and all parking charges, surcharges or any other costs levied by
any governmental authority on the Complex, or the rents generated therefrom, or
the utilities consumed therein or similar matters; reasonable management fees
(not to exceed the amount that would be charged by an independent management
company providing substantially the same services as Landlord); and the cost
(hereinafter "capital cost") of any capital improvements made to the Complex by
Landlord that (i) reduce Operating Expenses or that reduce or conserve the
amount of utilities consumed (but with any annual charge not to exceed the
annual estimated savings from such capital improvement), or (ii) are required
under any legal requirements that
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were not applicable to the Complex at the time this Lease was entered into, with
each of the foregoing capital costs to be amortized over such reasonable period
as Landlord shall determine together with interest on the unamortized balance at
the rate of ten percent (10%) per year or such higher rate as may have been paid
by Landlord on funds borrowed for the purpose of constructing such capital
improvements. Operating Expenses shall not include depreciation on the Complex,
real estate broker's commissions, tenant improvements, interest and capital
items other than those referred to above. Notwithstanding the foregoing,
Operating Expenses also shall not include (a) the costs for the following
services to the Premises or to other portions of the Complex (other than common
areas): costs of power, heat, light, steam, air conditioning, sewer and water,
gas and other utilities, or janitorial or other maintenance expenses which
Tenant shall pay for directly pursuant to Section 21 below; and (b) any expenses
of the nature listed on Schedule 2 hereto. If at any time (including after the
----------
expiration of the term of this Lease) Landlord receives a refund or
reimbursement of any Operating Expenses as a result of any insurance payment,
any recovery from any tenant or otherwise, Landlord shall promptly pay to Tenant
Tenant's Share (or such other portion) of the net refunded or reimbursed amount
(deducting from the gross amount of the refund or reimbursement the cost
reasonably borne by Landlord in pursuing the recovery of any such refund or
reimbursement if such expense was not already included as a part of Taxes or
Operating Expenses) as appropriately equates to the amount which Tenant earlier
paid hereunder as any increase in Operating Expenses.
(e) For any period (including the Base Year) during which at least ninety-
five percent (95%) of the rentable square footage comprising the Complex is not
leased, Operating Expenses shall be adjusted to equal Landlord's reasonable
estimate of what Operating Expenses would be had ninety-five percent (95%) of
the total rentable area of the Complex been occupied during such period.
(f) This shall be a modified full service lease and Base Rent shall be paid
to Landlord absolutely net of all increases in Operating Expenses and Taxes in
excess of the Base Year, except as specifically provided to the contrary in this
Lease.
(g) If in Landlord's reasonable determination Tenant's demand for or use of
the common area facilities and services for the Complex is or becomes excessive
or sufficiently frequent as to warrant the same, Landlord may separately charge
Tenant for Landlord's additional maintenance or service costs related thereto,
which additional charges shall be due and payable within ten (10) days after
demand therefor.
(h) At Tenant's sole cost and expense, Tenant shall have the right, not
later than one hundred twenty (120) days following the receipt of a statement as
provided in Section 7(a), and upon the condition that Tenant shall have paid in
full Tenant's Share, at Landlord's office where books and records for the
Complex are maintained, and upon reasonable notice to Landlord, to review or
audit any Operating Expenses, Taxes or other additional rent charges. Any audit
of such books and records must be performed by a certified public accountant
selected by Tenant. Landlord shall fully cooperate with Tenant or Tenant's
certified public accountant with respect to the same and shall maintain
reasonably detailed records of such expenses for at least two (2) years after
the submission of its year-end statement of Operating Expenses for such
calendar year
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to Tenant. If Tenant's review or audit shall demonstrate any overpayment or
underpayment by Tenant, either Landlord shall, within ten (10) business days
after receiving reasonably detailed documentation of the same, credit such
amount so overpaid against the next installment(s) of additional rent falling
due hereunder, or Tenant shall pay to Landlord, within that 10-business day
period, the amount of such underpayment. Tenant's audit rights and the
obligation of Landlord and Tenant to correct any overpayment or underpayment
shall survive the termination of this Lease. If Tenant shall not request an
audit within one hundred twenty (120) days after receipt of Landlord's
statement, such statement shall be final and binding for all purposes hereof.
8. Security Deposit
(a) Simultaneously with the execution of this Lease, Tenant shall deposit
with Landlord the sum specified as the Security Deposit in the Basic Lease
Information (said sum, as may be augmented as hereinafter provided, is referred
to herein as the "Security Deposit"). The Security Deposit shall be held by
Landlord as security for the faithful performance by Tenant of all the terms,
covenants and conditions of this Lease. No interest shall be payable on the
Security Deposit, and Landlord shall not be required to keep said sum in a
separate account. If Tenant fails to pay any rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Landlord may at its option apply or retain all or any portion of the Security
Deposit for the payment of any rent or other charge in default or the payment of
any other sum to which Landlord may become obligated by Tenant's default, or to
compensate Landlord for any loss or damage which Landlord may suffer thereby. If
Landlord so uses or applies all or any portion of the Security Deposit, then
within ten (10) days after demand therefor, Tenant shall deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to the full
amount thereof; and Tenant's failure to do so shall be a material breach of this
Lease. Landlord's application or retention of the Security Deposit shall not
constitute a waiver of Tenant's default to the extent that the Security Deposit
does not fully compensate Landlord for all losses or damages incurred by
Landlord in connection with such default and shall not prejudice any other
rights or remedies available to Landlord under this Lease or by law. At the end
of the Term, Tenant shall deliver the Premises to Landlord, broom clean, and in
the same condition as at the Commencement Date, reasonable wear and tear and
damage Tenant is not obligated to repair under this Lease excepted. The Security
Deposit, or portion thereof then held by Landlord after all applications on
account of Tenant's defaults, shall be returned to Tenant.
(b) No security or guaranty which may now or hereafter be furnished
Landlord for the payment of the rent herein reserved or for performance by
Tenant of the other covenants or conditions of this Lease shall in any way be a
bar or defense to any action in unlawful detainer, or for the recovery of the
Premises, or to any action which Landlord may at any time commence for a breach
of any of the covenants or conditions of this Lease.
9. Uses Prohibited
Except for such uses as are permitted to be made of the Premises under the
terms of this Lease, Tenant shall not do or permit anything to be done in or
about the Premises nor bring or keep anything therein which will in any way
increase the rate of or affect any fire or other
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insurance upon the Premises or Complex or any of its contents or cause a
cancellation of any insurance policy covering said Premises or Complex or its
contents. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or materially interfere with the rights
of other tenants or occupants of the Premises or Complex or injure or
unreasonably annoy them, or use or allow the Premises to be used for any
residential, immoral, unlawful or objectionable purpose, nor shall Tenant cause,
maintain or permit any nuisance in, on or about the Premises. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises.
10. COMPLIANCE WITH LAWS
Tenant shall not use or permit anything to be done in or about the Premises
which will in any way conflict with any law, statute, ordinance or governmental
rule, regulation or requirement now in force or which may hereafter be enacted
or promulgated. Tenant, at its sole cost and expense, shall promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force, including without limitation, the Americans With
Disabilities Act ("ADA"), or which may hereafter be in force and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises by Tenant for its permitted uses, excluding structural changes
not related to or affected by Tenant's improvements or acts. The judgment of any
court of competent jurisdiction, or the admission of Tenant in any action or
proceeding against Tenant, whether Landlord is a party thereto or not, that
Tenant has violated any law, statute, ordinance or governmental rule, regulation
or requirement, shall be conclusive of that fact as between Landlord and Tenant.
11. USE OF HAZARDOUS MATERIALS
(a) Tenant shall keep and maintain the Premises in compliance with and
shall not cause or permit the Premises or the Complex to be in violation of any
Environmental Laws (as defined below), provided that Tenant hereby does not
assume any responsibility for any Hazardous Materials that may exist on or about
the Premises prior to the Commencement Date or may migrate from other property
onto the Premises after the Commencement Date unless introduced into the
Premises or such other property by Tenant or its employees, agents, contractors,
or invitees or Tenant's or its employees', agents', contractors', or invitees'
acts otherwise contribute to the existence of or migration of Hazardous
Materials. Tenant shall not use, generate, manufacture, produce, store, release,
discharge, or dispose of, on, under or about the Premises or the Complex or
transport to or from the Premises or the Complex any Hazardous Materials (as
defined below) or allow its employees, agents, contractors, or invitees to do
so, except that Tenant shall be permitted to transport to and from the Premises,
and to use, store, maintain and handle within the Premises reasonable and
customary quantities of ordinary office products, janitorial materials and
cleaning supplies such as inks, household cleansers, and the like. However, the
foregoing provisions shall not prohibit the transportation to and from, and the
use, storage, maintenance and handling within the Premises of substances
customarily used in connection with Tenant's permitted uses (as currently set
forth in Section 2 above or as otherwise approved by Landlord), including
biotechnical research and production, provided: (1) such
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substances shall be used and maintained only in such quantities as are
reasonably necessary for the permitted uses of the Premises, strictly in
accordance with Environmental Laws and the manufacturers' instructions therefor;
(2) such substances shall not be disposed of, released or discharged in the
Complex, and shall be transported to and from the Premises in compliance with
all applicable laws; (3) if any applicable law or Landlord's trash removal
contractor requires that any such substances be disposed of separately from
ordinary trash, Tenant shall make arrangements at Tenant's expense for such
disposal directly with a qualified and licensed disposal company (with insurance
listing Landlord as an additional insured) at a lawful disposal site and shall
ensure that disposal occurs frequently enough to prevent unnecessary storage of
such substances in the Premises; and (4) any Hazardous Materials introduced into
the Premises by Tenant or its employees, agents, contractors, or invitees shall
be properly and lawfully removed from the Complex upon expiration or earlier
termination of this Lease;
(b) Without limiting the generality of Section 26 of the Lease, Landlord
shall have the right to enter the Premises in order to inspect same and to
conduct any testing, monitoring or analysis reasonably required in connection
therewith (collectively, "Inspection"). If Tenant is violating the use
restrictions of this Lease or is not in material compliance with the
regulations, rules or procedures of the applicable governmental entity, then all
reasonable costs and expenses reasonably incurred by Landlord in connection with
any related Inspection shall become due and payable by Tenant as additional
rent, within ten (10) days of presentation by Landlord of an invoice therefor.
(c) Tenant, upon learning of the same, shall promptly notify Landlord of:
(1) any enforcement, cleanup or other regulatory action taken or threatened by
any governmental or regulatory authority with respect to the presence of any
Hazardous Materials on the Premises or the migration thereof from or to other
property; (2) any demands or claims made or threatened by any party against
Tenant or the Premises relating to any loss or injury resulting from any
Hazardous Materials; (3) any release, discharge or non-routine, improper or
unlawful disposal or transportation of any Hazardous Materials on or from the
Premises; and (4) any matters where Tenant is required by law to give a notice
to any governmental or regulatory authority respecting any Hazardous Materials
on the Premises. At such times as Landlord may reasonably request, Tenant shall
provide Landlord with a copy of Tenant's Hazardous Materials Management Plan and
a copy of any changes made to the plan as a result of any change in Tenant's
mode of operations or use of Hazardous Materials resulting in increased risk and
with a written list identifying any Hazardous Materials then used, stored, or
maintained upon the Premises other than common office supplies, the use and
approximate quantity of each such material, a copy of any material safety data
sheet ("MSDS") issued by the manufacturer thereof, written information
concerning the removal, transportation and disposal of the same, and such other
information as Landlord may reasonably require or as may be required by
applicable law.
(d) If any Hazardous Materials are released, discharged or disposed of by
Tenant or Tenant's employees, agents, contractors or invitees, on or about the
Complex in violation of the foregoing provisions, Tenant shall immediately,
properly and in compliance with all Environmental Laws clean up and remove the
Hazardous Materials from the Complex and any other affected property and clean
or replace any affected personal property (whether or not
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owned by Landlord), at Tenant's expense. Such clean-up and removal work shall be
subject to Landlord's prior written approval (except in emergencies), and shall
include, without limitation, any testing, investigation, and the preparation and
implementation of any remedial action plan required by any governmental body
having jurisdiction or reasonably required by Landlord. If Tenant shall fail to
comply with the provisions of this Section 11(d) within five (5) days after
written notice by Landlord, or such shorter time as may be required by
applicable Environmental Laws or in order to minimize any hazard to persons or
property, Landlord may (but shall not be obligated to) arrange for such
compliance directly or as Tenant's agent through contractors or other parties
selected by Landlord, at Tenant's expense (without limiting Landlord's other
remedies under this Lease or applicable law).
(e) Tenant shall protect, defend, indemnify and hold harmless Landlord, the
holder(s) of any mortgage or deed of trust encumbering the Complex, and their
respective partners, agents, employees, officers, directors, and shareholders,
from and against any and all liabilities, losses, damages, costs, and expenses
(including attorneys' and consultants' fees and costs) directly or indirectly
arising out of the presence, due to the acts or omissions of Tenant (or its
employees, agents, contractors or invitees) with respect to the Premises, of any
Hazardous Materials in, under or about the Premises or the Complex, whether
resulting from Tenant's activities with respect to the Premises prior to or
after the Commencement Date. This indemnity shall survive the expiration or
termination of this Lease. Landlord shall have the right to join and participate
in, as a party if it so elects, any legal proceedings or actions affecting the
Premises or the Complex initiated in connection with any Environmental Law
violated by Tenant and shall have its attorneys' and consultants' fees in
connection therewith paid by Tenant.
(f) "Hazardous Materials" means any substance, chemical, material or waste
which is now or hereafter defined or listed as "hazardous substances,"
"hazardous materials," "toxic substances," "petroleum," "pollutant," "asbestos,"
"asbestos materials" or "hazardous wastes" in any federal, state or local laws,
rules or regulations (whether now existing or hereafter enacted or promulgated)
including, without limitation, the Federal Water Pollution Control Act (33
U.S.C. Section 1251 et seq.), Hazardous Materials Transportation Act (49 U.S.C.
Section 180l et seq.), Resource Conservation and Recovery Act (42 U.S.C. Section
6901 et seq.), Safe Drinking Water Act (42 U.S.C. Section 3000(f) et seq.),
Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), Clean Air Act (42
U.S.C. Section 7401 et seq.), Comprehensive Environmental Response, Compensation
and Liability Act (42 U.S.C. Section 9601 et seq.), United States Department of
Transportation Hazardous Materials Table (49 C.F.R 172.101), California Health &
Safety Code (Section 25100 et seq., Section 25300 et seq., Section 3900 et seq.
), California Water Code (Section 1300 et seq.), California Labor Code (Section
6501.7 and Section 9004), California Civil Code (Section 2929.5), all as
heretofore and hereafter amended, or any judicial or administrative
interpretation of such laws, rules or regulations.
(g) "Environmental Laws" shall mean any federal, state or local law,
statute, ordinance, or regulation now or hereafter pertaining to health,
industrial hygiene, or the environmental conditions on, under or about the
Premises, or the Complex, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") as
amended, 42 U.S.C. Section 9601 et seq., and the Resource Conservation and
Recovery Act of 1976 ("RCRA"), 42 U.S.C. Sections 6901 et seq.
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12. ALTERATIONS AND IMPROVEMENTS
(a) Tenant, at its sole cost and expense, will make all alterations and
improvements to the Premises ("Tenant Improvements") as more particularly
described in the Work Letter ("Work Letter") attached hereto as EXHIBIT E on the
terms and conditions contained therein. Landlord shall provide Tenant with an
allowance ("Tenant Improvement Allowance") of Ten Dollars ($10.00) per rentable
square foot toward the costs of all Tenant Improvements in the Premises,
including but not limited to, costs for: (i) bringing the Premises into
compliance under the Americans with Disabilities Act of 1990, and (ii) abatement
or removal of asbestos or other Hazardous Materials, subject to reduction of the
Tenant Improvement Allowance as provided in the Work Letter.
(b) Except for the Tenant improvements and any other alterations, additions or
improvements expressly permitted by paragraph (c) below to be made by Tenant
without Landlord's prior consent, Tenant shall not make, or cause to be made,
any alterations, additions or improvements to the Premises or any part thereof
without the prior written consent of Landlord. Any alterations, additions, or
Tenant Improvements to the Premises, including without limitation any
permanently mounted partitions and all carpeting and HVAC units, shall upon the
expiration or earlier termination of the term of the Lease become a part of the
realty and belong to Landlord. Movable furniture, equipment and trade fixtures
(including, but not limited to, any roof mounted ventilation equipment other
than the HVAC units installed for office use and HVAC equipment installed by
Landlord) shall remain the property of Tenant. If Landlord consents to the
making of any alterations, additions or improvements to the Premises by Tenant,
the same shall be made by Tenant at Tenant's sole cost and expense, and any
contractor or person selected by Tenant to make the same must first be approved
of in writing by Landlord.
(c) Other than for the Tenant Improvements, Tenant shall pay Landlord, as
additional rent, the reasonable cost of professional services and costs (but in
no event more than Two Thousand Five Dollars ($2,500) for any particular
alteration) for any fees of third party consultants used by Landlord for review
of any plans, specifications and working drawings of any alterations. The
payment shall be made within ten (10) days after Tenant's receipt of invoices
either from Landlord or its consultants.
(d) Subject to the provisions of this Section 12, Tenant may, without
Landlord's prior consent, make alterations, additions or improvements to the
Premises ("Minor Alterations"), but not the Equipment Area or the Roof
Platforms, at Tenant's expense, including, without limitation, laboratory
benchwork, cabinetry and laboratory equipment so long as: (a) the cost thereof
in any instance is in good faith estimated to be less than $25,000; (b) such
alterations, additions or improvements do not affect the structural portions of
the Premises or the Building; and (c) Tenant delivers to Landlord notice of such
Minor Alterations and a copy of the final plans, specifications and working
drawings for the Minor Alterations prior to commencement of such Minor
Alterations.
(e) All alterations and Tenant Improvements made by or on behalf of Tenant or
any of Tenant's agents shall be made and performed (i) except for Minor
Alterations, in accordance with
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drawings and specifications approved in advance in writing by Landlord, (ii) at
Tenant's cost and expenses and at such time and in such manner as Landlord may
reasonably designate, (iii) except for Minor Alterations, by contractors or
mechanics reasonably approved by Landlord, (iv) in such manner as to be at least
equal in quality of materials and workmanship to the original work or
installation, (v) except for Minor Alterations, in accordance with such
reasonable requirements as Landlord may impose with respect to insurance and
bonds to be obtained by Tenant in connection with the proposed work (but if any
bonds are required, the amount thereof shall in no event exceed 125% of the
estimated cost of the proposed alteration, addition or improvement), (vi) in
accordance with this Lease and the Rules and Regulations adopted by Landlord
from time to time and in accordance with all applicable laws and regulations of
governmental authorities having jurisdiction over the Premises, (vii) so as not
to materially and unreasonably interfere with the use and enjoyment of the
Complex by Landlord, other tenants or any other person, and (viii) in compliance
with such other requirements as Landlord may reasonably impose (including
without limitation a requirement that Tenant shall furnish Landlord with
certified as-built drawings upon completion of the work).
(f) Tenant shall, at its own expense, demolish any and all improvements to the
Premises (including, without limitation, the Tenant Improvements, the Corridor,
Roof Platforms and Equipment Area) immediately following the termination or
expiration of the Lease, if Landlord so requests. Tenant shall notify Landlord
in writing no less than sixty (60) days prior to the Expiration Date, as the
same may be accelerated or extended, to request from Landlord notice of
Landlord's desire to have the Tenant Improvements or other improvements or any
portion thereof demolished. Landlord shall provide such notice within ten (10)
days after receipt of Tenant's notice. Tenant shall with all due diligence
remove any alterations, additions or improvements made by Tenant and properly
designated by Landlord to be removed, and Tenant, forthwith and with all due
diligence, at its sole cost and expense, shall repair any damage to the Premises
caused by such removal. Tenant's obligation to remove any alterations,
additions, improvements, trade fixtures and/or personal property and to repair
any damage from such removal shall survive the termination of this Lease
provided that Tenant breached the same, and as to the removal of any
alterations, additions or improvements, timely notice to remove was given by
Landlord in accordance with the provisions of this Paragraph (e).
13. Equipment Area, Corridor and Roof Platforms
(a) Tenant shall have the option to lease additional space in the courtyard
area between the Premises and the Current Space in Building C, up to
approximately five thousand six hundred (5,600) rentable square feet, shown on
Exhibit A-1 hereto ("Equipment Area"), solely for the storage and operation of
Tenant's equipment, subject to the following:
(i) Tenant shall exercise the option to lease the Equipment Area, or any
portion thereof, by giving thirty (30) days' prior written notice of exercise
each time it exercises its option until the total rentable square footage set
forth in (a) has been leased, and shall provide Landlord with the approximate
rentable square feet it desires at each time.
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(ii) Tenant shall comply with all applicable federal, state and local
laws and regulations in the construction and maintenance of the Equipment Area.
Landlord, without delay, shall cooperate with Tenant at no expense to Landlord
in obtaining the applicable approvals and permits.
(iii) Tenant shall obtain Landlord's prior approval, which approval
shall not be unreasonably withheld, of Tenant's proposed plans and
specifications, including, without limitation, Landlord's approval of the
equipment to be stored and operated as applicable, the location for storage and
operation as applicable, and the plans for landscaping and for screening the
equipment from view. Tenant hereby agrees that any landscaping or screening of
the Equipment Area shall be of a design and quality compatible with the
surrounding Complex and maintained in a neat and orderly condition.
(iv) Tenant shall pay all costs of installing, maintaining,
operating, repairing and removing, if requested by Landlord in accordance with
Section 12(f) above, the Equipment Area and cause all work to be carried out in
a good and workmanlike manner and in accordance with the terms of this Lease.
(v) Tenant shall pay no additional rent for the Equipment Area so long
as the Equipment Area rentable square footage does not exceed one thousand four
hundred (1,400) rentable square feet. Once the Equipment Area rentable square
footage exceeds one thousand four hundred (1,400) rentable square feet,
thereafter Tenant shall pay Landlord as additional rent twenty cents (20(cents))
per square foot per month ("Equipment Area Base Rental Rate") for that portion
of the entire Equipment Area occupied by Tenant ("Equipment Area Base Rent"),
subject to adjustment beginning on the first anniversary date after the
Commencement Date and on each anniversary date thereafter during the Term
("Adjustment Date"). Equipment Area Base Rental Rate shall be increased by one-
hundred percent (100%) of the percentage of increase, shown by the Consumer
Price Index, All Items Indexes, Urban Wage Earners and Clerical Workers, San
Francisco-Oakland-San Jose Area SMSA ("Index"), published by the U.S. Department
of Labor, Bureau of Labor Statistics (1967 = 100), for the month immediately
preceding the Adjustment Date as compared with the Index for the month
immediately preceding the Commencement Date. Landlord shall calculate the amount
of this increase in Equipment Area Base Rental Rate and in the Equipment Area
Base Rent after the United States Department of Labor publishes the statistics
on which the amount of the increase will be based. Landlord shall give written
notice of the amount of the increase, multiplied by the number of installments
of Equipment Area Base Rent due since the respective Adjustment Date. Tenant
shall pay this amount, together with the first installment of Base Rent which
comes due under this Lease more than ten (10) business days after Tenant's
receipt of such notice from Landlord, and Tenant shall thereafter pay the
monthly Equipment Area Base Rent at this increased rate, which shall constitute
Equipment Area Base Rent. Landlord's failure to make the required calculations
promptly shall not be considered a waiver of Landlord's rights to adjust the
Equipment Area Base Rent, nor shall it affect Tenant's obligations to pay the
increased Equipment Area Base Rent following receipt of appropriate notice from
Landlord. If for any reason the Index is not published for any month referenced
above, then the Index applicable for the month which most immediately precedes
the month referenced above for which an Index is published shall instead be
used. If the Index changes so
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that the base year differs from that in effect on the Commencement Date, the
Index shall be converted in accordance with the conversion factor published by
the United States Department of Labor, Bureau of Labor Statistics. If the Index
is discontinued or revised during the Term, the government index or computation
with which it is replaced shall be used to obtain substantially the same result
as if the Index had not been discontinued or revised. Notwithstanding the
foregoing, in no event shall the adjusted Equipment Area Base Rental Rate
increase in any year be less then two percent (2%) nor more than five percent
(5%) over the prior year's Equipment Area Base Rental Rate. Any Equipment Area
Base Rent shall be subject to abatement in the same manner and proportion as
Base Rent in the event of the occurrence of any event giving rise to a right to
abatement of Base Rent under this Lease.
(b) Tenant shall have the right, at any time during the Term and without the
obligation to pay additional rent in connection therewith, to erect and use an
enclosed corridor between the Premises and the Current Space in Building C (the
"Corridor"), subject to the following:
(i) Tenant shall comply with all applicable federal, state and local
laws and regulations in the construction and maintenance of the Corridor,
including, without limitation, constructing any required exits or making other
alterations to the Complex as may be required by applicable federal, state or
local law as a result of the construction of the Corridor. Landlord, without
delay, shall cooperate with Tenant at no expense to Landlord in obtaining the
applicable approvals and permits.
(ii) Tenant shall obtain Landlord's prior approval, which approval
shall not be unreasonably withheld, of Tenant's proposed plans and
specifications.
(iii) Tenant shall pay all costs of installing, maintaining, operating
and repairing the Corridor and removing the Corridor by the earlier of the
Expiration Date or the date of expiration of the 863 Mitten Lease if requested
by Landlord in accordance with Section 12(f) above. Tenant shall cause all work
to be completed in a good and workmanlike manner and in accordance with the
terms of this Lease.
(c) Tenant shall have the right, at any time during the Term and without
the obligation to pay rent in connection therewith, to construct one or more
equipment platforms on the roof of the Premises for Tenant's equipment
(collectively "Roof Platforms"), subject to the following:
(i) Tenant shall comply with all applicable federal, state and local
laws and regulations in the construction and maintenance of the Roof Platforms.
Landlord, without delay, shall cooperate with Tenant at no expense to Landlord
in obtaining the applicable approvals and permits.
(ii) Tenant shall obtain Landlord's prior approval, which approval
shall not be unreasonably withheld, of Tenant's proposed plans and
specifications, including, without limitation, Landlord's approval of the
equipment to be stored and operated, the location for storage and operation, and
the plans for screening the equipment from view.
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(iii) Tenant shall pay all costs of installing, maintaining,
operating and repairing the Roof Platforms and removing the Roof Platforms by
the Expiration Date, if requested by Landlord in accordance with Section 12(f)
above. Tenant shall cause all work to be carried out in a good and workmanlike
manner. In addition, Tenant shall pay to Landlord within fifteen (15) days after
notice (together with reasonable accompanying documentation of the same) of any
increase in the cost of roofing that Landlord incurs over the amount that
Landlord would otherwise have paid for roofing such Building without Roof
Platforms.
(iv) Tenant shall not make any penetrations in the roof without the
prior written consent of Landlord. Any roof penetrations contemplated in the
plans for the Tenant Improvements (as reviewed and approved by Landlord pursuant
to the Work Letter Agreement) shall be deemed to have received such consent of
Landlord .
14. Maintenance and Repairs
(a) Tenant, at Tenant's sole cost and expense, shall keep the Premises, the
Equipment Area, the Corridor, the Roof Platforms and all equipment installed
thereon and every part thereof in good order, condition and repair, ordinary
wear and tear and any damage or destruction for which Tenant is not obligated to
repair pursuant to Section 29 excepted. All maintenance, repairs and
replacements by Tenant shall be made and performed: (a) at Tenant's cost and
expense, (b) by reputable licensed contractors or mechanics which have
experience in the type of work to be completed, are insured (with insurance
certificates to be provided to Landlord prior to commencement of such
maintenance or repair) and are one of the contractors or mechanics listed on a
schedule to be provided to Landlord by Tenant from time to time and which
contractors and mechanics on the schedule are subject to Landlord's reasonable
approval, (c) in such manner as to be at least equal in quality of materials and
workmanship to the original work or installation, (d) in accordance with this
Lease and the Rules and Regulations adopted by Landlord from time to time and in
accordance with all applicable laws and regulations of governmental authorities
having jurisdiction over the Premises, (e) so as not to unreasonably interfere
with the use and enjoyment of the Complex by Landlord, other tenants or any
other person, (f) if involving any material changes to the design of the
Premises or any operating system or utility service, then Tenant shall furnish
Landlord with an as-built drawing within a reasonable period of time following
completion of the work and (g) such that no maintenance will be deferred or
delayed, ordinary wear and tear excepted.
(b) Tenants repair and maintenance obligations in connection with the
Premises, the Corridor, the Equipment Area and the Roof Platforms shall include:
all plumbing and sewage facilities within the Premises, fixtures, interior walls
and ceiling, floors, windows, doors, entrances, plateglass, showcases,
skylights, all electrical facilities and equipment, including lighting fixtures,
lamps, fans and any exhaust equipment and systems, any automatic fire
extinguisher equipment within the Premises, electrical motors and all other
appliances and equipment of every kind and nature located in, upon or about the
Premises. Tenant shall continuously maintain at its expense an HVAC systems
preventive maintenance contract providing services appropriate to properly
maintain the HVAC equipment in accordance with manufacturer recommendations,
which shall be subject to the reasonable approval of Landlord,
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and which shall provide for and include replacement of filters, oiling and
lubricating of machinery, parts replacement, adjustment of drive belts, oil
changes and other preventive maintenance, including maintenance of duct work,
interior unit drains and caulking of sheet metal, and recaulking of jacks and
vents as needed, but in no event shall any preventative maintenance contract
contain reduced requirements for preventative maintenance than those
requirements set forth in the current contract with Western Allied. Tenant shall
have the benefit of all warranties available to Landlord regarding the equipment
in such HVAC systems. Landlord hereby approves Western Allied as the
contractor/mechanic to perform HVAC maintenance for Tenant.
(c) In conjunction with any repairs of any portion of the Premises of a
magnitude which would constitute an alteration, addition or improvement which
would require the consent of Landlord pursuant to Section 12, Tenant shall
comply with the requirements of Section 12.
(d) To the extent not covered by any insurance carried (or required to be
carried by Landlord pursuant to the terms of this Lease), Tenant shall either
cause to be repaired or pay upon demand the entire cost of repairing any damage
to any portion of the Premises, the Building or the Complex caused by the
negligence or willful misconduct of Tenant or its agents, employees,
contractors, or invitees, or by Tenant's failure to comply with the terms of
this Lease.
(e) Landlord shall maintain and repair the structural elements and the roof
of the Building, the public and common areas of the Building and of the Complex
(including all parking areas, landscaping [other than the landscaping in the
Equipment Area as installed by Tenant] and trash collection areas other than
those trash collection areas dedicated to Tenant's use), and all utility lines,
pipes and equipment (other than Tenant's equipment or utility lines, pipes or
equipment to be maintained by a public utility) outside of the Premises, as the
same may exist from time to time, except for wear and tear which is the result
of a negligent or willful act or omission of Tenant or its officers, directors,
shareholders, partners, agents, employees, contractors, invitees, licensees,
subtenants or assignees. Landlord shall have no obligation to make repairs under
this Section until a reasonable time after receipt of written notice of the need
for such repairs.
(f) It is specifically understood and agreed that Landlord has no
obligation and has made no promises to alter, remodel, improve, repair, decorate
or paint the Premises or any part thereof and that no representations respecting
the condition of the Premises, the Building or the Complex have been made by
Landlord to Tenant, except as specifically set forth in this Lease. Tenant
hereby waives all rights to make repairs at the expense of the Landlord as
provided by law, statute or ordinance now or hereafter in effect. Upon the
expiration or sooner termination of the Lease, Tenant shall surrender the
Premises to Landlord in shell condition as improved with such alterations,
additions and improvements as have theretofore been made to the Premises by
Tenant to the extent Tenant is not then obligated to remove the same pursuant to
the other provisions of this Lease, ordinary wear and tear and damage or
destruction for which Tenant is not obligated under this Lease to repair
excepted. Tenant hereby waives all rights to make repairs at the expense of
Landlord as provided by law, statute or ordinance now or hereafter in
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effect or to deduct the cost of repairs from the rent and all rights under
Sections 1941 and 1942 of the California Civil Code.
15. Abandonment
Tenant shall not abandon the Premises at any time during the term hereof,
and if Tenant shall abandon or surrender the Premises or be dispossessed by
process of law, or otherwise, any personal property belonging to Tenant and left
on the Premises shall be deemed to be abandoned, at the option of Landlord.
16. Liens
Tenant shall keep the Premises and the Building and the land upon which the
Building is situated free from any liens arising out of any work performed,
materials furnished or obligations incurred by Tenant. Tenant shall in the event
of the filing of any such lien, post any bond required to release the Premises
therefrom. Should Tenant fail to remove any such lien within twenty (20) days
after notice to do so from Landlord, Landlord may, in addition to any other
remedies, record a bond pursuant to California Civil Code Section 3143 and all
amounts incurred by Landlord in so doing shall become immediately due and
payable by Tenant to Landlord as additional rent. Landlord shall have the right
to post and keep posted on the Premises any notices that may be provided by law
or which Landlord may deem to be proper for the protection of Landlord, the
Premises and the Building from such liens. Tenant shall provide written notice
to Landlord of any work (other than minor repairs or Minor Alterations) to be
commenced on the Premises at least ten (10) days prior to commencement of any
work by Tenant.
17. Assignment and Subletting
(a) Except upon Landlord's prior written consent, which consent shall not
be unreasonably withheld, delayed or conditioned, and except as otherwise
expressly permitted herein, neither this Lease nor all or any part of the
Premises shall, directly or indirectly, voluntarily or involuntarily, by
operation of law or otherwise, be assigned, mortgaged, pledged, encumbered or
otherwise transferred by Tenant or Tenant's legal representatives or successors
in interest (collectively an "assignment") and neither the Premises nor any part
thereof shall be sublet or be used or occupied for any purpose by anyone other
than Tenant (collectively, a "sublease"). Notwithstanding the foregoing, the
issuance or transfer of any voting or non-voting stock of Tenant shall not
constitute an assignment hereunder for which any consent is required and Tenant
may assign this Lease or sublet the Premises or any portion thereof to any
corporation which controls, is controlled by or is under common control with
Tenant, or to any corporation resulting from merger or consolidation with Tenant
provided that the net worth of Tenant after such assignment or subletting or
after such merger or consolidation with Tenant is equal to or greater than the
net worth of Tenant at the date of this Lease), or to any person or entity which
acquires all the assets as a going concern of the business of Tenant that is
being conducted on the Premises, without Landlord's consent (collectively a
"Permitted Transfer"), but no assignment or subletting shall relieve the
original Tenant hereunder from its continuing liability for the performance of
the obligations of Tenant hereunder.
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In no event shall Tenant assign this Lease or sublet the Premises or any
portion thereof to any then-existing tenant or any prospective tenant of the
Complex, with whom Landlord is engaged in active negotiations for alternative
space in the Complex, provided Landlord so indicates the same to Tenant in
writing promptly upon request by Tenant as to names of existing or prospective
tenants with whom Landlord is then involved in negotiations.
(b) Any assignment or subletting without Landlord's prior written consent
shall, at Landlord's option, be void and shall entitle Landlord to exercise the
remedies provided in Section 28 of this Lease. Landlord's consent to one
assignment or sublease shall not be deemed to be a consent to any subsequent
assignment or sublease.
(i) If Tenant desires to assign this Lease or any interest therein or
sublet all or part of the Premises (each hereinafter a "transfer") other than
for a Permitted Transfer, Tenant shall first give Landlord written notice
("Transfer Notice") at least twenty (20) days in advance of the proposed
transfer date. In the event of a Permitted Transfer, Tenant shall first give
Landlord a Transfer Notice at least ten (10) days in advance of the proposed
transfer date. Tenant shall pay Landlord's reasonable costs incurred in
reviewing the Transfer Notice (other than for a Permitted Transfer) and
accompanying information in an amount not to exceed One Thousand Dollars
($1,000), regardless of whether the Landlord consents to the proposed transfer.
Tenant shall deliver with the Tenant Notice the following: (i) the proposed
sublease or assignment, designating the space proposed to be transferred and the
terms proposed, (ii) the nature of the proposed subtenant's or assignee's
business, and (iii) such financial information as Landlord may reasonably
request concerning the proposed subtenant or assignee thereof. Other than for a
Permitted Transfer, Landlord shall by written notice to Tenant given within
twenty (20) days after receipt of the Tenant Notice and information specified
above approve or disapprove the proposed assignment or sublease, and if
disapproved, stating with particularity the basis for such disapproval. No
approval of any assignment or sublease shall constitute any release of Tenant of
its liability for the performance of all its obligations under this Lease.
(c) In the event Tenant assigns or sublets to anyone (other than a
Permitted Transfer), with the consent of Landlord, fifty percent (50%) of any
"excess rent" received by Tenant shall be paid to Landlord. Excess rent, as
herein defined, is the amount of rent and additional monetary consideration paid
by the assignee or sublessee for such assignment or sublease over and above the
Base Rent, additional rent and any other additional charges payable by Tenant
under this Lease for the Premises or a portion thereof affected, less the
reasonable expenses incurred by Tenant in entering into such assignment or
sublease, e.g., broker leasing commissions, required retrofit (including any
alterations or improvements for the successor occupant) and reasonable
attorneys' fees. Such excess thereof shall be paid monthly as received by
Tenant. Landlord shall have the right upon ten (10) days' written request, to
inspect the books and records of Tenant relating to the receipt of excess rents
which books and records shall be made available at the Tenant's principal
corporate office.
(d) Without limiting any other conditions stated in this Section 17, no
permitted subletting or assignment by Tenant (including a Permitted Transfer)
shall be effective until there has been delivered to Landlord a counterpart of
the sublease or assignment in which: (i) if an
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assignment, the assignee assumes the obligations of Tenant under this Lease;
(ii) Tenant acknowledges that it shall remain liable for the performance of all
of the terms and provisions of this Lease; (iii) if a sublease, the subtenant
acknowledges that the Landlord may enforce the provisions of the Sublease
directly against the subtenant, including any violation by subtenant of any of
the provisions of this Lease; provided, however, that the subtenant shall be
liable to Landlord for rent only in the amount set forth in the sublease; (iv)
if a sublease, the subtenant may not further assign or sublet the sublet space
without Landlord's prior written consent; (iv) if an assignment, that the
assignee will comply with all of the provisions of this Lease; and (v) if an
assignment, that Landlord may enforce the Lease provisions directly against such
assignee. No permitted sublease or assignment shall be effective unless and
until there has been delivered to Landlord a counterpart thereof. The failure or
refusal of a subtenant or assignee to execute any such instrument shall not
release or discharge the subtenant or assignee from its liability as set forth
above.
18. Indemnification
Tenant agrees to indemnify and defend against and hold harmless Landlord
and the holders of any mortgage or deed of trust encumbering the Complex, and
each of their respective constituent shareholders, partners, members or other
owners, and all of their respective agents, contractors, servants, officers,
directors, managers, employees and licensees (hereinafter collectively called
the "Indemnitees") from and against any and all loss, cost, liability, claim,
cause of action, proceeding, investigation, damage and expense, including
without limitation penalties, fines and reasonable attorneys fees and costs
(collectively "Losses"), incurred in connection with or arising from any of the
following: (i) any default by Tenant in the observance or performance of any of
the terms, covenants or conditions of this Lease on Tenants part to be observed
or performed; or (ii) the use of occupancy or manner of the use or occupancy of
the Premises by Tenant or any other person or entity claiming through or under
Tenant, including without limitation, the presence, release, removal,
remediation, abatement, use, generation, storage, transportation or disposal of
any Hazardous Materials by Tenant or any other person or entity claiming through
or under Tenant (excluding the existence or migration of any Hazardous Materials
that exist on or about the Premises or the Complex before the Commencement Date
of this Lease, or any Hazardous Materials used or installed on or about the
Complex by any person other than Tenant); or (iii) the condition of the Premises
or the occurrence or happening of any event in the Premises from any cause
whatsoever during the Term of this Lease; or (iv) any wrongful or negligent acts
or omissions (both active and passive) of Tenant or of Tenant's agents,
contractors, employees, subtenants, licensees, invitees or visitors with respect
to the Premises, in, on or about the Premises or the Building, either prior to
the commencement of, during, or after the expiration of the Term, including,
without limitation, any acts, omissions or negligence in the making or
performing of any alterations. Tenant further agrees to indemnify, defend and
save harmless Landlord and each Indemnitee from and against any and all loss,
cost, liability, damage and expense, incurred in connection with or arising from
any claims by any persons by reason of injury to persons or damage to property
occasioned by any use, occupancy, condition, occurrence, happening, act,
omission or negligence referred to in the preceding sentence. In the event any
action or proceeding is brought against Landlord or any Indemnitee for any claim
against which Tenant is obligated to indemnify hereunder, Tenant upon notice
from Landlord
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shall defend such action or proceeding at Tenant's sole expense by counsel
approved by Landlord, which approval shall not be unreasonably withheld. The
provisions of this Section 18 shall survive the expiration or earlier
termination of this Lease. Notwithstanding the foregoing, Tenant's indemnity
obligations under this Section shall not extend to any Losses to the extent
reasonably arising solely from the active negligence or willful acts or
omissions of Landlord or any other Indemnitee or any other tenants of the
Building, or from any breach by Landlord of its obligations under this Lease.
19. Insurance
(a) Tenant shall, at Tenant's expense, maintain during the term of this
Lease (and, if Tenant shall occupy or conduct activities in or about the
Premises prior to or after the Term, then also during such pre-term or post-term
period): (i) Comprehensive General Liability insurance including contractual
liability coverage on an occurrence and not on a claims-made basis except as
provided below, with a minimum combined single limit of liability of at least
S2,000,000, for injuries to, or illness or death of, persons and damage to
property occurring in or about the Premises or otherwise resulting from Tenant's
operations in the Complex; (ii) property insurance protecting Tenant against
loss or damage by fire and such other risks as are insurable under then
available standard forms of "all risk" insurance policies (excluding earthquake
and flood but including water damage), covering Tenant's property in or about
the Premises and also covering any fixtures that may belong to Tenant, the
Tenant Improvements (including any subsequent alterations, additions or
improvements to the Tenant Improvements), for the full replacement value thereof
without deduction for depreciation; and (iii) workers' compensation insurance in
statutory limits. The above described liability insurance shall protect Tenant,
as named insured, and Landlord and its agent and any other parties designated by
Landlord, as additional insureds by endorsement to the policy, shall insure
Landlord's, its agent and such other parties' contingent liability with regard
to acts or omissions of Tenant. The contractual liability coverage afforded by
such insurance shall not limit or be deemed to satisfy Tenant's indemnity
obligations under this Lease. Landlord reserves the right to increase the
foregoing amount of liability coverage from time to time (but not more
frequently than once every two (2) years) as Landlord reasonably determines is
required to adequately protect Landlord and the other parties designated by
Landlord from the matters insured thereby. Tenant may elect to carry such
Comprehensive General Liability insurance on a claims-made basis, in which event
Tenant shall be obligated upon the expiration or earlier termination of the Term
of this Lease to continue to carry such claims-made liability insurance coverage
for a period of four (4) full additional years thereafter with such insurance
coverage so carried by Tenant to continue to provide the liability insurance
coverage described herein with respect to Tenant's prior operations at the
Complex and reflecting Landlord as an additional insured. The obligation of
Tenant under the foregoing sentence shall survive any termination of this Lease.
(b) Each insurance policy required pursuant to this Section 19 shall be
issued by an insurance company licensed to do business in the State of
California, with a financial rating of at least an A:XIII status for any
property insurance and B+:IX for any liability insurance as rated in the most
recent edition of "Best's Insurance Guide." Each insurance policy, other than
Tenant's workers' compensation insurance, shall (i) provide that it may not be
materially reduced in
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coverage, canceled or allowed to lapse unless thirty (30) days' prior written
notice to Landlord and any other insureds designated by Landlord is first given;
(ii) provide for severability of interests and cross-liability and that no act
or omission of Tenant shall affect or limit the obligations of the insurer with
respect to any other insured; (iii) provide that their respective coverages
shall in all respects be primary and that any insurance maintained by Landlord
shall be excess insurance only; (iv) in the case of insurance against loss or
damage to the Premises, be endorsed to provide that such loss shall be adjusted
with and be payable to Landlord to the extent that Landlord then has the
obligation under this Lease to rebuild such Premises; and (v) shall have
deductible amounts, if any, as to property coverage not in excess of One
Thousand Dollars ($1,000), and as to liability coverage not in excess of Two
Thousand Five Hundred Dollars ($2,500). Tenant shall be responsible for the
satisfaction of all deductibles on the policies Tenant is required to carry in
this Lease. Each such insurance policy or a certificate thereof shall be
delivered to Landlord by Tenant on or before the effective date of such policy
and thereafter Tenant shall deliver to Landlord renewal policies or certificates
at least ten (10) days prior to the expiration dates of expiring policies. If
Tenant fails to procure such insurance or to deliver such policies or
certificates, Landlord may, at its option, procure the same for Tenant's
account, and the cost thereof shall be paid to Landlord by Tenant upon demand.
(c) Landlord shall maintain in effect at all times fire and hazard "all
risk" insurance covering one hundred percent (100%) of the full replacement
cost valuation of the Building, the Complex and Landlord's personal property
including its business papers, furniture, fixtures and equipment, subject to
commercially reasonable deductibles, in the event of fire, lightning, windstorm,
vandalism, malicious mischief and all other risks normally covered by "all risk"
policies, but excluding coverage for any tenant improvements (including the
Tenant Improvements). Landlord shall also obtain and keep in full force (a) a
policy of commercial general liability and property damage insurance, (b) loss
of rent insurance and (c) workers' compensation insurance, all as deemed
commercially reasonable in Landlord's reasonable discretion.
20. Mutual Waiver of Subrogation Rights
Each party hereto hereby releases the other party and the respective partners,
shareholders, agents, employees, officers, directors and authorized
representatives of such released party (and, in the case of Tenant as the
releasing party, the holders of any mortgage or deed of trust encumbering the
Complex), from any claims such releasing party may have for damage to the
Premises, the building or any of such releasing party's fixtures, personal
property, improvements and alterations in or about the Premises or the Building
or the Complex that is caused by or results from risks insured against under any
fire and extended coverage insurance policies actually carried by such releasing
party or deemed or required hereunder to be carried by such releasing party;
provided, however, that such waiver shall be limited to the extent of the net
insurance proceeds payable by the relevant insurance company with respect to
such loss or damage. For purposes of this Section 20, Tenant shall be deemed to
be carrying the fire and extended coverage insurance policies required pursuant
to clause (ii) of Section 19(a), above and Landlord shall be deemed to be
carrying fire and extended coverage insurance policies required pursuant to
Section 19(c) above. Each party hereto shall cause each such fire and extended
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coverage insurance policy obtained by it to provide that the insurance company
waives all rights of recovery by way of subrogation against the other respective
party and the other aforesaid released parties in connection with any matter
covered by such policy.
21. Utilities
(a) Tenant shall be responsible for and shall pay promptly all charges for
water/sewer, gas, electricity, including HVAC and HVAC maintenance, telephone,
janitorial service and all other utilities, materials and services directly
furnished by contract or meter to Tenant in, on or about the Premises during the
Term, together with any taxes thereon. Charges for garbage are included in
Direct Expenses. If any utilities to be directly charged to Tenant are not
separately metered to the Premises, Landlord shall bill Tenant for Tenant's pro
rata share based on Tenant's Share (or based on such other equitable basis as
reasonably agreed to by Landlord and Tenant), and Tenant shall pay such share to
Landlord within ten (10) days after receipt of Landlord's written statement.
(b) The Premises shall be separately metered for gas, water/sewer and
electricity at the expense of Tenant prior to or during construction of the
Tenant Improvements as set forth in Section 33(d) below.
(c) Landlord shall not be liable under any circumstances for loss of
business or injury to property, however occurring, through or in connection with
or incidental to failure of any utility or other service furnished to the
Premises, and Tenant shall not be entitled to any abatement or reduction of rent
Tenant shall pay and provide for all services and utilities not furnished by
Landlord.
22. Personal Property and Other Taxes
Tenant shall pay, before delinquency, any and all taxes levied or assessed
and which become payable during the Term hereof upon Tenant's equipment,
furniture, fixtures, trade fixtures, and other personal property located in the
Premises, including carpeting installed by Tenant even though said carpeting has
become a part of the Premises; and any and all taxes or increases therein levied
or assessed on Landlord or Tenant by virtue of alterations, additions or
improvements to the Premises made by Tenant or Landlord at Tenant's request. In
the event said taxes are charged to or paid or payable by Landlord, Tenant,
forthwith upon demand therefor, shall reimburse Landlord for all of such taxes
paid by Landlord.
23. Rules and Regulations
Except as the same may be waived as to its application to Tenant or the
Premises from time to time by Landlord in writing, Tenant shall faithfully
observe and comply with the rules and regulations printed on or annexed to this
Lease as Exhibit F ("Rules and Regulations") and all modifications of and
additions thereto applicable to all tenants of the Building from time to time
put into effect by Landlord of which Tenant shall have notice, to the extent
such rules and regulations and any modifications and additions are consistent
with the terms and intent of this Lease, and the size, location, purposes and
uses of the Premises contemplated by this Lease
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(which includes the contemplated presence and use on the Premises of Hazardous
Materials and animals and Tenant having principal responsibility for its own
HVAC, janitorial services, Equipment Area and Roof Platforms). Exhibit F-1
contains the amendments to the Rules and Regulations and constitutes the written
waiver of Landlord to application of Exhibit F to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance by any other tenant or occupant of
the Building of any of said Rules and Regulations, but Landlord shall not
enforce the same in a discriminatory manner adverse to Tenant.
24. Holding Over
If Tenant holds possession of the Premises after the Term of this Lease,
Tenant shall, (at option of Landlord to be exercised by Landlord's giving
written notice to Tenant and not otherwise) become a Tenant from month to month
upon the terms and conditions herein specified, so far as applicable, at a
monthly rental of 150% times the Base Rent in effect during the last month of
the Term. Such monthly rent shall be payable in advance, in lawful money, and
shall continue until thirty (30) days after Tenant shall have given to Landlord
or Landlord shall have given to Tenant a written notice of intent to terminate
such monthly tenancy. Unless Landlord shall exercise the option provided herein,
Tenant shall be a tenant at sufferance only, whether or not Landlord shall
accept any rent from Tenant while Tenant is so holding over.
25. Subordination
(a) This Lease shall be subject and subordinate at all times to all ground
or underlying leases which may now exist or hereafter be executed affecting the
Building and/or the Complex or the land upon which the Building is situated and
to the lien of any mortgages or deeds of trust in any amount or amounts
whatsoever now or hereafter placed on or against said Building and/or the land
upon which the Building is situated and/or on the Complex or on or against
Landlord's interest or estate therein or on or against any ground or underlying
lease without the necessity of having further instruments on the part of Tenant
to effectuate such subordination. Notwithstanding the foregoing, Tenant
covenants and agrees to execute and deliver, within ten (10) days after
Landlord's written request therefor, such further instruments evidencing such
subordination of this Lease to such ground or underlying leases and to the lien
of any such mortgages or deeds of trust as may be reasonably required by
Landlord. Notwithstanding the foregoing subordination, in the event of
termination of any ground or underlying lease, or in the event of foreclosure or
exercise of any power of sale under any mortgage or deed of trust superior to
this Lease or to which this Lease is subject or subordinate, Tenant shall upon
demand attorn to the lessor under such ground or underlying lease or to the
purchaser at any foreclosure sale or sale pursuant to the exercise of any power
of sale under any mortgage or deed of trust, in which event this Lease shall not
terminate, and Tenant shall automatically be and become the Tenant of said
lessor under such ground or underlying lease or to said purchaser, whichever
shall make demand therefor.
(b) If any lessor or holder of a mortgage or deed of trust advises Landlord
that it desires or requires this Lease to be prior and superior to a lease,
mortgage or deed of trust, Landlord may notify Tenant. Within thirty (30) days
of Landlord's notice, Tenant shall execute,
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have acknowledged and deliver to Landlord any and all documents or instruments,
in the form present to Tenant, which Landlord, or a holder of a mortgage or deed
of trust deems necessary or desirable to make this Lease prior and superior to
the lease, mortgage or deed of trust.
(c) It is further agreed that notwithstanding any such subordination, in
the event of termination of any ground or underlying lease, or in the event of
foreclosure or exercise of any power of sale under any mortgage or deed of trust
superior to this Lease or to which this Lease is subject or subordinate, upon
the attornment of Tenant (or if applicable, the Leasehold Mortgagee or Leasehold
Mortgage Purchaser as defined in Schedule 3 attached to this Lease) to the
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lessor under such ground or underlying lease or to the purchaser at any
foreclosure sale or sale pursuant to the exercise of any power of sale under any
mortgage or deed of trust, this Lease shall not terminate, and Tenant (or if
applicable, the Leasehold Mortgagee or Leasehold Mortgage Purchaser) shall
automatically be and become the tenant under the terms of this Lease to said
lessor under such ground or underlying lease or to said purchaser, whichever is
applicable, and any subordination agreement requested of Tenant shall so
provide. Landlord's interest in any Tenant Improvements or any alterations,
additions or improvements made by Tenant shall be subordinate to the interest of
the Leasehold Mortgagee and Landlord's interest in any equipment, fixtures,
inventory, furniture, trade fixtures or other personal property of Tenant shall
be subordinate to the interest of the Leasehold Mortgagee or Equipment Mortgagee
(as defined in Schedule 3 attached to this Lease).
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(d) Landlord agrees that in the event Landlord is unable to obtain a non-
disturbance agreement, in form and substance similar to Exhibit G attached
hereto, within thirty (30) days of execution of this Lease, Tenant shall have
the right to terminate this Lease by providing written notice to Landlord within
fifteen (15) days thereafter of its election to terminate the Lease. Failure to
provide such written notice to Landlord within the time period provided shall be
deemed Tenant's election not to terminate the Lease.
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26. Entry By Landlord
Landlord reserves and shall at any and all reasonable times have the right
to enter the Premises to inspect the same, to submit the Premises to prospective
purchasers or Tenants, to post notices of non-responsibility, and to alter,
improve or repair the Premises and any portion of the Building without abatement
of rent and may for that purpose erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed, provided the entrance to the Premises shall not be blocked thereby
and further providing that the business of Tenant shall not be interfered with
unreasonably. Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenants business, any loss of occupancy of
quiet enjoyment of the Premises, and other loss occasioned by such entry. For
each of the aforesaid purposes, Landlord shall at all times have and retain a
key with which to unlock all of the doors, in, upon and about the Premises
excluding Tenant's vaults and safes, and Landlord shall have the right to use
any and all means which Landlord may deem proper to open said doors in an
emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord by any of said means, or otherwise, shall not
under any circumstances be construed or deemed to be a forcible or unlawful
entry into or a detainer of the
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Premises or an eviction of Tenant from the Premises or any portion thereof
Notwithstanding the foregoing, Landlord's access to the Premises is subject to
reasonable security regulations of Tenant.
27. INSOLVENCY OR BANKRUPTCY
Either (i) the appointment of a receiver to take possession of all or
substantially all of the assets of Tenant, (ii) an assignment by Tenant for the
benefit of creditors, or (iii) any action taken or suffered by Tenant under any
insolvency, bankruptcy or reorganization act shall constitute an event of
default entitling Landlord to terminate this Lease and to exercise all other
remedies provided in Section 28 of this Lease; provided, however, if an
involuntary bankruptcy petition is filed against Tenant, there shall be no event
of default under this Lease if that petition is dismissed within sixty (60) days
after it is filed. In no event shall this Lease be assigned or assignable by
reason of any voluntary or involuntary bankruptcy proceedings nor shall any
rights or privileges hereunder be an asset of Tenant in any bankruptcy,
insolvency or reorganization proceedings.
28. DEFAULT
(a) The occurrence of any of the following shall constitute a default under
this Lease: (i) Tenant's failure to pay rent or any other sum due under this
Lease within five (5) business days after Landlord's delivery of written notice
to Tenant of Tenant's failure to pay such sum when due hereunder; or (ii)
Tenant's failure to perform any other obligation of Tenant under this Lease
within thirty (30) days after Landlord's delivery of written notice to Tenant of
Tenant's failure to perform such obligation when due hereunder (provided,
however, the 30-day period shall be extended if Tenant cannot reasonably cure
that default within 30 days so long as Tenant promptly commences that cure
within the 30-day period and thereafter diligently prosecutes that cure to
completion); or (iii) Tenant abandons the Premises.
(b) In the event of any breach or default of this Lease by Tenant, then
Landlord, besides any other rights and remedies of Landlord at law or equity,
shall have the right either to terminate Tenant's right to possession of the
Premises and thereby terminate this Lease or to have this Lease continue in full
force and effect with Tenant at all times having the right to possession of the
Premises. In the event Landlord elects to terminate this Lease, Landlord, in
addition to any other rights and remedies (including rights and remedies under
Subsections (1), (2) and (4) of Subdivision (a) of Section 1951.2 of the
California Civil Code or any amendment thereto), shall be entitled to recover
from Tenant the worth at the time of award of the amount by which the unpaid
rent for the balance of the Term after the time of award exceeds the amount of
such rental loss that the Tenant proves could be reasonably avoided. The "worth
at the time of award" of the amount referred to in Subsections (1) and (2) of
Subdivision (a) of Section 1951.2 of the California Civil Code shall be computed
by allowing interest at the legal rate and the amount referred to in Subsection
(3) of Subdivision (a) of Section 1951.2 of the California Civil Code shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award plus one percent (1%).
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(c) Should Landlord, following any breach or default of this Lease by
Tenant, elect to keep this Lease in full force and effect, with Tenant retaining
the right to possession of the Premises (notwithstanding the fact the Tenant may
have abandoned the leased Premises), then Landlord, besides the rights and
remedies specified in Section 1951.4 of the California Civil Code ("lessor may
continue lease in effect after lessee's breach and abandonment and recover rent
as it becomes due, if lessee has right to sublet or assign, subject only to
reasonable limitations") and all other rights and remedies Landlord may have at
law or equity, shall have the right to enforce all of Landlord's rights and
remedies under this Lease. Notwithstanding any such election to have this Lease
remain in full force and effect, Landlord may at any time thereafter elect to
terminate Tenant's right to possession of said Premises and thereby terminate
this Lease for any previous breach or default which remains uncured, or for any
subsequent breach or default.
(d) Landlord may, with or without terminating this Lease, re-enter the
Premises and remove all persons and property from the Premises; such property
may be removed and stored in a public warehouse or elsewhere at the cost of and
for the account of Tenant No re-entry or taking possession of the Premises by
Landlord pursuant to this section shall be construed as an election to terminate
this Lease unless a written notice of such intention is given to Tenant.
(e) For purposes of this Section 28, Tenants right to possession shall not
be considered to have been terminated by Landlord's efforts to relet the
Premises, by Landlord's acts of maintenance or preservation with respect to the
Premises, or by appointment of a receiver to protect Landlord's interest under
this Lease. This list is merely illustrative of acts that may be performed by
Landlord without terminating Tenant's right to possession.
(f) Tenant waives redemption or relief from forfeiture under California
Code of Civil Procedure Sections 1174 and 1179, or under any other present or
future law, if Tenant is evicted or Landlord takes possession of the Premises by
reason of any default of Tenant hereunder.
29. DAMAGE OR DESTRUCTION
(a) In the event the Premises, or any part of the Complex that provides
building services to the Premises, or the parking areas for the Premises (to the
extent any parking areas are lost or become unusable) are damaged by fire or
other casualty, to the extent of available insurance proceeds and an amount
equal to Landlord's insurance deductible or otherwise uninsured amount, but in
either case not to exceed $50,000 unless Landlord, in its sole discretion,
determines to spend an amount greater than $50,000, Landlord shall diligently
repair and restore the same to substantially the same condition as existing
immediately prior to such damage to the fullest extent possible, subject to the
provisions of this Section 29, provided that if any repairs to the Premises
cannot reasonably be made within one hundred eighty (180) days after issuance of
a building permit therefor under the laws and regulations of federal, state and
local governmental authorities having jurisdiction thereof, either Landlord or
Tenant may by notice to the other given within thirty (30) days after the date
of such fire or other casualty, elect to terminate this Lease as of a date
specified in such notice. Landlord shall notify Tenant, within twenty (20) days
after the date of such fire or other casualty, of the estimated period required
for repairing any
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such damage to the Premises and the estimated cost of repairing such damage. In
the event Landlord's deductible or otherwise uninsured amount exceeds $50,000
and Landlord elects not to spend an amount greater than $50,000 in addition to
the insurance proceeds received by Landlord to restore the Premises, then Tenant
may elect upon written notice to Landlord to provide any amount in excess of the
$50,000 to restore the Premises to substantially the same conditions as existing
immediately prior to such damage. Notwithstanding the foregoing: (i) if any such
damage to the Premises shall occur during the final year of the Lease Term (with
all options to extend having then occurred or expired or been waived without
exercise) and the reasonably estimated cost of repairing such damage exceeds ten
percent (10%) of the full replacement value of the Premises (including all
Tenant Improvements, and any alterations, additions or other improvements),
either Landlord or Tenant may instead elect to terminate this Lease upon written
notice given to the other within thirty (30) days after the date of such fire or
other casualty, in which event this Lease shall terminate as of the termination
date specified in such notice; and (ii) if the reasonably estimated cost of
repairing any damage to the Premises which is not covered by any applicable
insurance coverage exceeds twenty percent (20%) of the full replacement value of
the Premises (including all Tenant Improvements, and any alterations, additions
or other improvements), then Landlord may instead elect to terminate this Lease
upon written notice given to Tenant within thirty (30) days after the date of
such fire or other casualty, in which event this Lease shall terminate as of the
termination date specified in Landlord's notice.
(b) where more than one patty is entitled to and in fact gives any notice
of termination, the earlier of the termination dates specified in such notices
of termination shall be controlling. As to any notice of termination given by
Landlord which provides for a period of notice of termination shorter than
thirty (30) days, Tenant shall have the right by notice to Landlord to require
that such shorter notice period given by Landlord be extended to be a period of
thirty (30) days. In the event of the occurrence of any such damage unless the
damage were due to the willful misconduct of Tenant, an abatement of rent (both
Base Rent and additional rent) under this Lease shall be allowed Tenant during
the period and to the extent Tenant's use of the Premises in the conduct of its
business is materially affected by any damage to, or any repairs being made to,
the Premises, the Building or the Complex; provided however, that such abatement
of rent shall not exceed the amount of any rent loss insurance proceeds, or such
other proceeds, that are paid to Landlord with respect to such occurrence and
nothing herein shall preclude Landlord from being entitled to collect the full
amount of any rent loss insurance proceeds maintained by Landlord. Tenant shall
not be entitled to any compensation or damages from Landlord for loss of the use
of the Premises, damage to Tenant's personal property or any inconvenience
occasioned by any damage, repair or restoration.
(c) A total destruction of the Building automatically shall terminate this
Lease. Landlord and Tenant acknowledge that this Lease constitutes the entire
agreement of the parties regarding events of damage or destruction, and Tenant
waives the provisions of California Civil Code Sections 1932(2) and 1933(4) and
any similar statute now or hereafter in force.
(d) If the Premises are to be repaired subject to the provisions of this
Section 29, Landlord shall repair any injury or damage to the Building itself
and restore the Premises to the condition existing upon substantial completion
of the Tenant Improvements, as such Tenant
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Improvements may be modified or supplemented by any subsequent alterations,
additions or improvements; provided, however, Tenant shall make available to
Landlord the proceeds of any insurance to be maintained by Tenant thereon
pursuant to Section 1 9(a)(ii) when and to the extent needed to pay the cost of
any such repairs or replacements by Landlord to the Tenant Improvements, as such
Tenant Improvements may have been modified or supplemented by any subsequent
alterations, additions or improvements, and Tenant shall pay the cost of
repairing or replacing all Tenant's trade fixtures, furnishing, equipment and
other personal property.
30. EMINENT DOMAIN
If all or any part of the Premises shall be taken or appropriated by any
public or quasi public authority under the power of eminent domain, and such
taking will substantially impair Tenant's use of the Premises for more than
ninety (90) days, Tenant shall have the right, at its option, to terminate this
Lease as of the date of such taking. If all or any substantial part of the
Premises shall be permanently taken or appropriated by any public or quasi
public authority under any power of eminent domain, either Landlord or Tenant
may terminate this Lease. In either of such events, Landlord shall be entitled
to and Tenant upon demand of Landlord shall assign to Landlord any rights of
Tenant to any and all income, rent award, or any interest therein relating to
the value of any unexpired term of this Lease, and Tenant shall have no claim
against Landlord for the value of any unexpired term of this Lease. If a part of
the Premises shall be so taken or appropriated and neither party hereto shall
elect to terminate this Lease, the rent thereafter to be paid by Tenant shall be
equitably reduced.
31. CLAUSES, PLATS AND RIDERS
Clauses, plats and riders, if any, affixed to this Lease are incorporated
herein and made a part hereof. In the event of variation or discrepancy, the
duplicate original hereof, including such clauses, plats and riders, if any,
held by Landlord shall control.
32. BOMA MEASUREMENTS
(a) All calculations of rentable square footage of the Premises, Equipment
Area or other space leased under this Lease shall be made in accordance with the
Building Owners and Managers Association's 1996 American National standard
method of floor measurement for office buildings. If by reason of actual
measurement of the Premises, it is ascertained that the rentable square footage
is different from the rentable square footage stated in the Basic Lease
Information, there shall be a like recalculation and amendment to the Basic
Lease Information. If as a result of recalculation of the rentable square
footage it is determined that Tenant paid in excess of what it should have,
Tenant may apply the amount of overpayment against rent due from Tenant; and if
a credit remains at the end of the Term, Landlord shall remit the amount thereof
to Tenant within thirty (30) days thereafter. If as a result of recalculation of
the rentable square footage it is determined that Tenant paid less than it
should have, Tenant shall remit the amount of the under payment to Landlord
within ten (10) days of such recalculation.
(b) Tenant and Landlord agree to recalculate the rentable area of the
Premises as of the Projected Delivery Date. Landlord's architect shall provide,
subject to verification by
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Tenant's architect, the rentable area calculation for the Premises as measured
in accordance with subsection (a). Such recalculation of the rentable area of
the Premises, shall include the enclosed entry area of 866 Malcolm Road and one-
half(l/2) of the enclosed breezeway area between 866 Malcolm Road and 863 Mitten
Road and shall not include the square footage of the restrooms in F Wing of the
Complex, provided that Tenant has built, as part of its Tenant improvements,
restrooms in the Premises and Tenant expressly agrees not to use the F Wing
Complex restrooms in conjunction with its leasing of the Premises.
33. EXISTING TENANTS
(a) Tenant acknowledges that the Premises are currently under lease to
other tenants ("Existing Tenants"). Landlord agrees to use commercially
reasonable efforts to buy out the leases of the Existing Tenants or to relocate
the Existing Tenants to other space within the Complex prior to the Projected
Delivery Date. If despite Landlord's commercially reasonable efforts, Landlord
cannot deliver possession of the entire Premises to Tenant on or before the
Projected Delivery Date due to the filing for bankruptcy by an Existing Tenant
(an "Existing Tenant Delay"), then, subject to the provisions of this Section 33
and Section 4 above, this Lease shall not be void or voidable, nor shall
Landlord be liable to Tenant for any loss or damage resulting therefrom;
(b) Landlord agrees to use reasonable efforts to minimize the costs of
relocating or buying out the leases of any Existing Tenants and Landlord agrees
to consult with Tenant regarding any proposed terms or costs to be paid for the
relocation or buying out of an Existing Tenant. Tenant and Landlord agree to
share the cost of relocating Existing Tenants or buying out the leases of
Existing Tenants (collectively, the "Relocation Costs") as follows:
(i) Landlord shall pay twenty five percent (25%) of the Relocation Costs,
and Tenant shall pay for seventy-five percent (75%) of the Relocation Costs,
subject to adjustment. Landlord's percentage of the Relocation Costs shall be
adjusted if Landlord and an Existing Tenant agree at any time prior to six (6)
months after the Commencement Date to the terms of a new or amended lease for
relocation space in the Complex and the term of such new lease exceeds the term
of the prior lease in the Premises by one year or more. In that event, Landlord
shall pay an additional ten percent (10%) of the Relocation Costs for such
Existing Tenant for each year of the additional term under the new lease. For
example, if an Existing Tenant executes a new lease for the relocation premises
that is for a term that is three years longer than the term of the Existing
Tenant's lease for a portion of the Premises, Landlord's share of the Relocation
Costs for that Existing Tenant will be 25% + (3x10%) = 55%, and Tenants share
will be 45%.
(ii) Notwithstanding the foregoing, in no event shall Tenant's aggregate
share of the Relocation Costs exceed Thirty-Seven Thousand Five Hundred Dollars
($37,500).
(iii) Landlord and Tenant shall concurrently pay all Relocation Costs for
an Existing Tenant upon receipt of invoices or other reasonably satisfactory
evidence of such costs. In the event that Tenant fails to pay any such amount
when due, then Landlord shall have the right to deduct the same from the Tenant
Improvement Allowance.
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(c) During the Early Occupancy Period, as Existing Tenants vacate portions
of the Premises, Landlord shall tender to Tenant such vacant portions of the
Premises in an 'as is' condition. Landlord shall have no obligation whatsoever
to make any improvements or renovation to the vacant portion other than as set
forth in the Work Letter to prepare the same for Tenant's occupancy. By taking
possession of the Premises, Tenant shall be deemed to have accepted the Premises
in the condition in which Landlord was required to deliver the Premises. Tenant
shall be entitled to enter such vacant portions on the terms contained herein.
(d) During the Early Occupancy Period: (i) Tenant's use and occupancy of
any portion of the Premises shall be subject to the provisions of Section 4
above; (ii) Tenant's entry on and early possession of the Premises shall be
conducted in a manner so as not to materially interfere with any Existing
Tenants still occupying any portion of the Premises; (iii) Tenant shall deliver
to Landlord before entering on the Premises evidence of liability insurance
coverage required under this Lease; (iv) Tenant shall at all times during
Tenant's early possession keeps the Premises free of all mechanic's,
materialmen's and design professionals' liens arising from the work being
performed by Tenant and otherwise shall comply wit the provisions of Section 16;
(v) within tiny (30) days of delivery of the entire Premises (as the Premises
may be reduced by Tenant in accordance with the terms of Section 4 of this
Lease), Tenant shall separately meter the Premises; (vi) Tenant shall be subject
to and governed generally by all the applicable terms and conditions of this
Lease, except Tenant shall be obligated to pay only Interim Rent but not any
other additional rent (with the exception that Tenant or its contractor shall
pay as additional rent the reasonably allocable cost of security and any
electricity, water, HVAC and other utilities used by Tenant in the Premises in
demolition) for early occupancy unless Tenant is conducting business from the
Premises or any part thereof, in which case Tenant shall be liable for Base Rent
and additional rent as provided in Section 4 (c); and (vii) Tenant shall not be
permitted to enter any portion of the Premises still occupied by Existing
Tenants.
(e) As respects any portions of the Premises, Tenant shall have the right,
at its sole cost and expense, promptly following any Existing Tenant's vacating
of a portion of the Premises, to have such portion tested by a reputable
environmental consulting firm to confirm that such portion of the Premises
(including any drains) does not contain any Hazardous Materials. A copy of any
environmental consultant's report on Hazardous Materials shall be delivered by
Tenant to Landlord within ten (10) days of receipt by Tenant. If the testing
reflects the presence of any Hazardous Materials, Tenant shall notify Landlord
thereof, and Tenant may elect within thirty (30) days after receipt of such
report (i) to accept such portion of the Premises in such condition and to cause
such Hazardous Materials to be removed at its sole cost and expense, (ii) to
refuse delivery of such space (with the size of the Premises reduced on a pro
rata basis where appropriate in light of the reduced square footage area of the
Premises being leased), or (iii) to terminate this Lease. The foregoing right of
Tenant to refuse delivery of any portion of the Premises shall not extend to any
floor tile, mastic or floor coating which may contain asbestos. Landlord shall
not have any obligation to cause such Hazardous Materials to be removed from the
Premises. In the event Tenant refuses delivery of such space or terminates this
Lease, Tenant shall repair the space to the condition prior to commencement of
such testing and shall indemnify Landlord pursuant to Section 18 for any of
Tenant's testing activities. The period for election by Tenant as to the
acceptance or refusal of the delivery of any portion of the
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Premises shall be limited so as not to exceed sixty (60) days from the date of
delivery by Landlord to Tenant of the respective portion of the Premises,
provided, however, that Tenant shall have the right upon payment to Landlord of
a lump sum equal to One Dollar ($1.00) per square foot of the Premises that has
then been tendered to Tenant (an "Inspection Extension Payment"), to extend the
sixty day period stated above for an additional thirty (30) days. If the Lease
is ultimately terminated pursuant either to this Section 33 or Section 4 above,
Landlord's obligation as to reimbursing Tenant for one-half of any Interim Rent
or Relocation Costs paid by Tenant as provided in Section 4(a) above, shall not
extend to such Inspection Extension Payment.
Notwithstanding the foregoing, as respects the portion of the Premises
currently leased by Orkin ("Orkin Space"), Tenant may only refuse delivery of
the Orkin Space and the Lease shall remain in full force and effect (with the
size of the Premises reduced on a pro rata basis where appropriate in light of
the reduced square footage area of the Premises being leased) but Tenant shall
not have the right to terminate the Lease except as to that portion of the
Premises comprised of the Orkin Space.
(f) Landlord represents to Tenant that it does not have any actual
knowledge of any material defects in the construction of any portion of the
Premises or in any operating systems or utilities servicing the Premises and
that it shall be responsible to cause the existing HVAC equipment serving the
Premises or any portion thereof to be in reasonable working order at the time of
delivery of such portions of the Premises (or so much of the Premises as Tenant
elects to6 Lease in accordance with this Section) to Tenant.
34. SALE BY LANDLORD
In the event the Landlord hereunder shall sell or convey the Building, all
liabilities and obligations on the part of the Landlord under this Lease
accruing thereafter shall terminate, and thereupon all such liabilities and
obligations shall be binding upon the new owner. Tenant agrees to attorn to such
new owner. If any Security Deposit be given by Tenant to secure the faithful
performance of all or any of the covenants of this Lease on the part of Tenant,
Landlord may transfer and/or deliver the Security Deposit to the successor-in-
interest of Landlord and thereupon Landlord shall be discharged from any further
liability in reference thereto. Except as set forth in this Section 34, this
Lease shall not be affected by any such sale or conveyance.
35. LIMITATION OF LIABILITY
It is expressly understood and agreed by Tenant that none of Landlord's
covenants, undertakings or agreements are made or intended as personal
covenants, undertakings or agreements by Landlord, any mortgagee having a
security interest in the Complex or portion thereof, Landlord's partners (if
Landlord is a partnership), Landlord's shareholders, officers and directors (if
Landlord is a corporation) or Landlord's members, managers, officers and
directors (if Landlord is a limited liability company). Any liability for damage
or breach or nonperformance by Landlord shall be collectible only out of
Landlord's ownership interest in the Complex and no personal liability is
assumed by, nor at any time may be asserted against,
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Landlord, any mortgagee having an interest in the Complex or portion thereof; or
Landlord's partners, shareholders, members, managers, officers, or directors, as
applicable, or any of their respective officers, agents, employees, legal
representatives, successors or assigns, all such liability, if any, being
expressly waived and released by Tenant.
36. ESTOPPEL CERTIFICATES
At any time and from time to time, within ten (10) days after request by
either Landlord or Tenant (the "Requesting Party"), the other party (the
"Responding Party") shall execute, acknowledge and deliver to Requesting Party a
statement certifying the Commencement Date of this Lease, stating that this
Lease is unmodified and in hill force and effect (or if there have been
modifications, that this Lease is in hill force and effect as modified and the
date and nature of such modifications) and the dates to which the rent has been
paid, and setting forth such other matters as may reasonably be requested by the
Requesting Party. Landlord and Tenant intend that any such statement delivered
pursuant to this section may be relied upon by any mortgagee or the beneficiary
of any deed of trust or by any purchaser or prospective purchaser of the
Building or Complex or by any assignee of, sublessee under, Leasehold Mortgagee,
Equipment Mortgagee or other lender to or investor in Tenant. If the Responding
Party fails to so execute, acknowledge and deliver any such certificate within
the time provided, then the Requesting Party may certify any of the foregoing
matters, on which any such person may rely, and the Responding Party shall be
estopped from denying the truth of such facts. In addition, from time to time,
upon Landlord's request, Tenant shall promptly furnish Landlord Tenant's most
recently prepared financial statements and, if rendered in the ordinary course
of conducting Tenant's business, a copy of Tenant's latest certified financial
statements, which financial statements shall be treated as confidential by
Landlord.
37. RIGHT OF LANDLORD TO PERFORM
All covenants and agreements to be kept or performed by Tenant under any of
the terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent. If Tenant shall fail to pay any sum
of money, other than rent, required to be paid by it hereunder or shall fail to
perform any other act on its part to be performed hereunder, and such failure
shall continue for ten (10) days after notice thereof by Landlord, Landlord may,
but shall not be obligated to, and without waiving any default of Tenant or
releasing Tenant from any obligations of Tenant hereunder, make any such payment
or perform any such other act on Tenant's part to be made or performed as
provided herein. All sums so paid by Landlord and all necessary incidental
costs, together with interest thereon at the highest rate allowed by law from
the date of such payment by Landlord, shall be paid to Landlord forthwith on
demand, and Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of nonpayment thereof by
Tenant as in the case of default by Tenant in payment of rent.
38. LANDLORD'S DEFAULT AND TENANT'S REMEDIES
Landlord shall not be deemed to be in default (entitling Tenant to the
extent permitted by applicable law to terminate this Lease) unless Landlord
fails to perform any of its obligations
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under this Lease and fails to cure such default within thirty (30) days after
written notice from Tenant specifying the nature of such default where such
default could reasonably be cured within said thirty (30) -day period, or fails
to commence such cure within said thirty (30)-day period and thereafter
continuously with due diligence prosecute such cure to completion where such
default could not reasonably be cured within said thirty (30)-day period. Tenant
waives the provisions of Section 1932(1), 1941 and 1942 of the California Civil
Code and/or any similar or successor law regarding Tenant's right to terminate
this Lease or to make repairs and deduct the expenses of such repairs from the
rent due under the Lease.
39. MORTGAGEE PROTECTIONS
(a) If any lender requires, as a condition to its lending funds the
repayment of which is to be secured by a mortgage or trust deed on the Complex
or any portion thereof, that certain minor modifications be made to this Lease,
which modifications will not require Tenant to pay any additional amounts or
otherwise change materially the rights or obligations of Tenant hereunder,
Tenant shall not unreasonably withhold its approval to and execution of any
appropriate instruments designed to effect such modifications.
(b) In the event of any act or omission by Landlord which would give Tenant
the right to terminate this Lease, Tenant will not exercise any such right to
terminate until (i) it shall have given written notice of the act or omission to
Landlord and to the holder(s) of any mortgage or deed of trust encumbering the
Complex, if the name and address of such holder(s) have been furnished to
Tenant, and (ii) such holder(s) shall have been given a reasonable opportunity
to cure Landlord's default, including time to obtain possession of the Complex
or portion thereof by power of sale or judicial foreclosure or other appropriate
legal proceedings, if such should prove necessary to effect a cure.
40. ATTORNEY FEES
If as a result of any breach or default on the part of either patty under
this Lease ("Defaulting Party"), the other party uses the services of any
attorney in order to secure compliance with this Lease, the Defaulting Party
shall reimburse the other upon demand for any and all attorneys' fees and
expenses incurred by the other party, whether or not formal legal proceedings
are instituted. Should either party bring action against the other party to
enforce the provisions of this Lease, then the party which prevails in such
action shall be entitled to its reasonable attorneys' fees and expenses related
to such action in addition to all other recovery or relief.
41. SURRENDER OF POSSESSION
The voluntary or other surrender of this Lease by Tenant or mutual
cancellation thereof shall not work a merger and, at the option of Landlord,
shall terminate all or any existing subleases or subtenancies, or at the option
of Landlord, may operate as an assignment to Landlord of any or all such
subleases or subtenancies.
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42. WAIVER
The waiver by Landlord or Tenant of performance of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent.
43. NOTICES
Any notices required or permitted to be given hereunder shall be given in
writing and shall be delivered (i) in person, (ii) by certified mail, postage
prepaid, return receipt requested, (iii) by a commercial overnight courier that
guarantees next day delivery and provides a receipt, or (iv) by tele-facsimile
or telecopy, and such notices shall be addressed to Tenant or Landlord, as
applicable, at the addresses specified for each in the Basic Lease Information
or to such other address as either party may from time to time specify in
writing to the other party. Any notice shall be deemed delivered (i) when
actually delivered, if such delivery is in person, (ii) three (3) business days
after deposit with the U.S. Postal Service, if such delivery is by certified
mail, (iii) one (1) business day after deposit with the overnight courier
service, if such delivery is by an overnight courier service, and (iv) one (1)
business day after transmission, if such delivery is by tele-facsimile or
telecopy. The foregoing shall in no event prohibit notice from being given as
provided by the federal or state Rules of Civil Procedure, as the same may be
amended from time to time.
44. DEFINED TERMS AND MARGINAL HEADINGS
The words "Landlord" and "Tenant" as used herein shall include the plural
as well as the singular and words used in masculine gender shall include the
feminine and neuter. If there is more than one Tenant, the obligations hereunder
imposed upon Tenant shall be joint and several. The marginal headings and titles
to the sections of the Lease are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof.
45. TIME AND APPLICABLE LAW
Time is of the essence of this Lease and each and all of its provisions.
This Lease shall in all respects be governed by the laws of the state in which
the Premises are located.
46. SUCCESSORS
Subject to the provisions of Section 17 hereof, the covenants and
conditions herein contained shall be binding upon and inure to the benefits of
the heirs, successors, executors, administrators and assigns of the parties
hereto.
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<PAGE>
47. ENTIRE AGREEMENT
This Lease constitutes the entire agreement between Landlord and Tenant and
no promises or representations. express or implied, either written or oral, not
herein set forth shall be binding upon or inure to the benefit of Landlord or
Tenant. This Lease shall not be modified by any oral agreement, either express
or implied, and all modifications hereof shall be in writing and signed by both
Landlord and Tenant.
48. LATE CHARGE; INTEREST
In the event Tenant shall fail to pay any rent or other sums due hereunder
when due under this Lease, then the amount so due and unpaid shall bear interest
from and after due date until paid at an annual rate of interest equal to the
lesser of (i) three percent (3%) over the prevailing "prime rate" announced from
time, to time by the Bank of America NT & SA for purposes of pricing loans to
major corporate borrowers, or (ii) the highest rate allowed by law for
commercial obligations, which interest shall be payable forthwith upon demand.
In addition to such interest, with respect to any installment of Base Rent and
additional rent not received by Landlord within five (5) business days after
written notice from Landlord that such payment is past due, Landlord shall be
entitled to collect from Tenant a one time late collection charge in an amount
equal to five percent (5%) of the delinquent amount to compensate Landlord for
Landlord's administrative and other costs and efforts in connection therewith.
Landlord and Tenant hereby agree that such five percent (5%) late charge
represents a reasonable approximation of Landlord's losses and costs that would
be incurred in connection with the late payment of such monthly rent. (The
foregoing shall be in addition to any other fight or remedy of Landlord).
49. BROKERS
(a) Landlord and Tenant each represent and warrant to the other that, other
than the Broker identified in the Basic Lease Information, no broker, agent, or
finder negotiated or was instrumental in negotiating or consummating this Lease
on its behalf and that it knows of no broker, agent, or finder, other than the
Broker, who is, or might be, entitled to a commission or compensation in
connection with this Lease. Broker's commission or compensation is to be paid
pursuant to a separate agreement.
(b) In the event of any such claims for additional brokers' or finders'
fees or commissions in connection with the negotiation, execution or
consummation of this Lease, then Landlord shall indemnity, save harmless and
defend Tenant from and against such claims, and any liability, loss, damage, or
expense (including attorneys" fees and costs) if they shall be based upon any
statement, representation or agreement by Landlord, and Tenant shall indemnify,
save harmless and defend Landlord from and against such claims, and any
liability, loss, damage, or expense (including attorneys' fees and costs) if
they shall be based upon any statement, representation or agreement made by
Tenant. The parties obligations under this section shall survive the expiration
or earlier termination of the Lease.
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50. NO DISCRIMINATION
Tenant agrees for Tenant and Tenant's heirs, executors, administrators,
successors and assigns and all persons claiming tinder or through Tenant, and
this Lease is made and accepted upon the following conditions: that there shall
be no discrimination against or segregation of any person or group of persons on
account of race, color, creed, sex, religion, martial status, ancestry or
national origin (whether in the use, occupancy, subleasing, transferring, tenure
or enjoyment of the Premises or otherwise) nor shall Tenant or any person
claiming through or under Tenant establish or permit any such practice or
practices of discrimination or segregation with reference to or arising out of
the use or occupancy of the Premises by Tenant or any person claiming through or
under Tenant.
51. PARKING AND COMMON AREAS
(a) Apart from any parking to which Tenant may entitled to under the 863
Mitten Lease, Tenant and Tenant's employees shall have the right to six (6)
parking spaces for Tenant's exclusive use on the east side of the Premises in
the area so identified on Exhibit B attached hereto. In addition, Tenant and
Tenant's employees shall have the non-exclusive right during the term to use
additional parking spaces such that the total number of parking spaces
(including the reserved spaces in the preceding sentence) equals one (1) space
per 350 rentable square feet of the Premises. Unless as otherwise provided,
Tenants use of the parking area, as herein set forth, shall be in common with
other tenants of the Building and Complex and any other parties permitted by
Landlord to use the parking area, The parking rights herein granted shall not be
deemed a lease but shall be construed as a license granted by Landlord to Tenant
for the term of this Lease.
(b) Landlord shall have the right, without obligation, and from time to
time, to change the number, size, location, shape and arrangement of parking
areas and other common areas, restrict parking of tenants or their guests to
areas as are reasonably designated by Landlord, designate loading or handicap
loading areas, and change the level or grade of parking.
(c) Except as otherwise specifically provided herein, all access roads,
courtyards and other areas, facilities or improvements furnished by Landlord are
for the general and non-exclusive use in common of all tenants of the Building
or the Complex, and those persons invited upon the land upon which the Building
or the Complex is situated and shall be subject to the exclusive control and
management of Landlord, and Landlord shall have the right, without obligation to
establish, modify and enforce such Rules and Regulations which the Landlord may
deem reasonable and/or necessary.
52. SIGNAGE
(a) Tenant shall not place on the Premises any exterior signs or
advertisements, or any interior signs or advertisement that are visible from the
exterior of the Premises without Landlord's prior written consent, which
Landlord may withhold in its sole discretion, provided that such discretion
shall not be exercised in a discriminatory manner between Tenant and other
tenants.
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(b) Tenant may install one (1) sign identifying Tenant, provided that
Landlord approves, in its reasonable judgment, plans and specifications for such
sign and the location of such sign, and that such sign complies with all
applicable laws, regulations, ordinances and building codes. Landlord hereby
grants its approval to signage that would be in the location and with a maximum
size as follows: a parapet mounted sign on the side of Building E facing Malcolm
Road, which shall be dedicated exclusively to Tenant, with an overall size not
to. exceed three (3) feet in height and ten (10) feet in length. Landlord shall
not permit any other signage to be placed on the exterior of what is currently
commonly referred to as Building E, except any signage that may be required by
any appropriate municipal or other governmental authority, or in the last year
of the term (as the same may be extended pursuant to the terms of this Lease),
any leasing signs.
(c) Throughout the Term, Tenant shall have the right to signage adjacent to
or on the primary entrance to the Premises, with the name of Tenant, not to
exceed three (3) names. Landlord, at Landlord's expense, shall provide once for
such signage for one name. Any necessary revision to such directory shall be
made by Landlord, at Tenant's expense, within a reasonable time after written
notice from Tenant of the change making the revision necessary. Landlord shall
have the right to remove all non-permitted signs without notice to Tenant and at
the expense of Tenant.
(d) The size, design, color, location and other physical aspects of any sign
in or on the Building and otherwise within the Complex shall be subject to (i)
the Rules and Regulations set forth in Exhibit F, (ii) any signage criteria
which Landlord may reasonably establish from time to time, (iii) Landlord's
approval prior to installation, which approval may be withheld in its sole
discretion, provided that such discretion shall not be exercised in a
discriminatory manner between Tenant and other tenants.; and (iv) any
appropriate municipal or other governmental approvals. The costs of any
permitted sign, and the costs of its installation, maintenance and removal,
shall be at Tenants sole expense and shall be paid within ten (10) days of
Tenant's receipt of a bill from Landlord for the costs.
53. TELEPHONE SERVICE
(a) Except as required by the express terms of this Lease, Landlord shall
have no responsibility for providing to Tenant any telephone equipment,
including wiring within the Premises or for providing telephone service or
connections from the utility to the Premises.
(b) Tenant shall not alter, modify, add to or disturb any telephone wiring
in the Premises or elsewhere in the Building without the Landlord's prior
consent. Tenant shall be liable to Landlord for any damage to the telephone
wiring in the Building due to the act, negligent or otherwise, of Tenant or any
employee, contractor or other agent of Tenant. Tenant shall have no access to
the telephone closets within the Building, except in the manner and under
procedures established by Landlord. Tenant shall promptly notify Landlord of any
actual or suspected failure of telephone service to the Premises.
(c) All costs incurred by Landlord for the installation, maintenance,
repair and replacement of telephone wiring within the Building shall be an
Operating Expense, as otherwise
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<PAGE>
defined in Section 7 of this Lease, unless Landlord is reimbursed for such costs
by other tenants of the Building.
(d) Landlord shall not be liable to Tenant and Tenant waives all claims
against Landlord whatsoever, whether for personal injury, property damage, loss
of use of the Premises, or otherwise, due to the interruption or failure of
telephone services to the Premises. Tenant agrees to obtain loss of rental
insurance adequate to cover any damage, loss or expense occasioned by the
interruption of telephone service.
54. HAZARDOUS SUBSTANCE DISCLOSURE
California law requires landlords to disclose to tenants the existence of
certain Hazardous Materials. Accordingly, the existence of gasoline and other
automotive fluids, maintenance fluids, copy fluids and other office supplies and
equipment, certain construction and finish materials, tobacco smoke, cosmetics
and other personal items, and asbestos containing materials ("ACM"), must be
disclosed. Gasoline and other automotive fluids are found in the parking area of
the Complex. Cleaning, lubricating and hydraulic fluids used in the operation
and maintenance of the Complex are found in the utility areas of the Complex not
generally accessible to tenants or the public. Many Complex occupants use copy
machines and printers with associated fluids and toners, and pens, markers, inks
and office equipment that may contain Hazardous Materials. Certain adhesives,
paints and other construction materials and finishes used in portions of the
Complex may contain Hazardous Materials. Although smoking is prohibited in the
public areas of the Complex, these areas may, from time to time, be exposed to
tobacco smoke. Complex occupants and other persons entering the Complex from
time to time may use or carry prescription and non-prescription drugs, perfumes,
cosmetics and other toiletries, and foods and beverages, some which may contain
Hazardous Materials. Certain floor tiles, mastic and floor coating in the
Building may also contain ACM. Other than such floor tile, mastic and floor
coating and as described in the environmental reports listed in Exhibit H
attached hereto, Landlord has no actual knowledge of any existing Hazardous
Materials in the Premises which will remain in the Premises at the time of
delivery thereof to Tenant, but it is acknowledged that Landlord has not made
any special investigation of the Premises with respect to Hazardous Materials.
55. AUTHORITY
If Tenant is a corporation, partnership, trust, association or other entity,
Tenant and each person executing this Lease on behalf of Tenant hereby covenants
and warrants that (i) Tenant is duly incorporated or otherwise established or
formed and validly existing under the laws of its state of incorporation,
establishment or formation, (ii) Tenant is duly qualified to do business in the
State of California, (iii) Tenant has lull corporate, partnership, trust,
association or other appropriate power and authority to enter into this Lease
and to perform all of Tenant's obligations hereunder, and (iv) each person (and
all persons if more than one signs) signing this -Lease on behalf of Tenant is
duly and validly authorized to do so.
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<PAGE>
56. EXECUTION OF LEASE
The submission of this Lease to Tenant or its broker or other agent, does
not constitute an offer to Tenant to lease the premises. This Lease shall have
no force and effect until (i) it is executed and delivered by Tenant to Landlord
and (ii) it is hilly reviewed and executed by Landlord.
57. COUNTERPARTS
This Lease may be signed in multiple counterparts which, when signed by all
parties, shall constitute a binding agreement.
58. RECORDING
Except as provided herein, Tenant shall not record this Lease or any
memorandum or short form thereof. Landlord shall, upon Tenant's request join in
executing a memorandum of short form of this Lease, which shall be recorded at
Tenant's expense.
59. SEVERABILITY
The illegality, invalidity or unenforceability of any term, condition, or
provision of the Lease shall in no way impair or invalidate any other term,
provision or condition of the Lease, and all such other terms, provisions and
conditions shall remain in full force and effect.
60. COVENANTS AND CONDITIONS
All provisions, whether covenants or conditions, on the part of Tenant
shall be deemed to be both covenants and conditions.
61. QUIET ENJOYMENT
Landlord covenants and agrees that Tenant, upon making all of Tenant's
payments as and when due under the Lease, and upon performing, observing and
keeping the covenants, agreements and conditions of this Lease on its part to be
kept, shall peaceably and quietly hold, occupy and enjoy the Premises during the
term of this Lease Term without hindrance or molestation from Landlord subject
to the terms and provisions of this Lease.
62. CUMULATIVE REMEDIES
No remedy or election provided, allowed or given by any provision of the
Lease shall be deemed exclusive unless so indicated, but shall, whenever
possible, be cumulative with all other remedies in law or equity.
63. REASONABLE APPROVAL STANDARD
Unless specifically provided otherwise in this Lease, or unless a matter is
expressly stated to be within the sole discretion of that patty, whenever in
this Lease the review, acceptance,
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<PAGE>
approval, or consent of either Landlord or Tenant ("Reviewing Party") is
required to the taking of or refraining from taking any action under this Lease,
or to the manner of performing or observing any covenant or condition of this
Lease (collectively "Matter"), the favorable review, acceptance, approval or
consent (collectively "Approval") as to any such Matter shall neither be
unreasonably withheld nor unduly delayed by the Reviewing Party, and if the
Reviewing Party desires to deny or withhold its Approval as to any such Matter,
the Reviewing Party shall, by written notice to the other party given within the
time period for the giving of such Approval as provided herein or elsewhere in
this Lease, state with particularity the basis for the denial or withholding by
such Reviewing Party of such Approval. The failure of the Reviewing Party to so
respond in writing to any Matter within twenty (20) days of receipt of the
written request of the other party (or within such other period of time for
response if this Lease otherwise expressly provides a specific period for such
Approval), shall be deemed to constitute the Reviewing Party's Approval of the
Matter.
IN WITNESS WHEREOF Landlord and Tenant have executed this Lease as of the day
and year first above written.
LANDLORD: TENANT:
SFO OFFICE ASSOCIATES LLC, a MEGABIOS CORP.,
California limited liability company a California corporation
/s/MICHAEL HALPER /s/PATRICK ENRIGHT
By: ______________________________ By: _______________________________
Michael Halper Patrick Enright
Name: ______________________________ Name: _______________________________
Manager CFO and Vice President
Title: ______________________________ Title: _______________________________
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<PAGE>
EXHIBIT A-1
EQUIPMENT AREA
[SITE PLAN APPEARS HERE]
<PAGE>
EXHIBIT B
SITE PLAN OF COMPLEX
(INCLUDING IDENTIFICATION OF TENANT'S RESERVED PARKING)
[SITE PLAN APPEARS HERE]
<PAGE>
EXHIBIT C
DESCRIPTION OF SMALL-SCALE MANUFACTURING USES
In addition to office use, the Premises may be used for laboratory and
small-scale manufacturing uses involving research into and production of life
science and biomedical products as may be relevant from time to time to Tenant's
business. These laboratory and small-scale manufacturing uses currently include,
but are not limited to, research into and production of DNA plasmids (which
currently would involve using either or both fermentation and purification
processes). It is the understanding of both parties that the procedures and
processes involved in research and small-scale manufacturing will and are
allowed under the Lease to change from time to time as appropriate to Tenant's
business. Any laboratory and manufacturing procedures and processes shall
conform with any and all applicable governmental regulations and the terms of
this Lease.
<PAGE>
EXHIBIT D-1
LEASE COMMENCEMENT DATE MEMORANDUM
Landlord: SFO OFFICE ASSOCIATES LLC,
a California limited liability company
Tenant: MEGABIOS CORP.,
a California corporation
Lease Date: March 18, 1997
Premises: 866 Malcolm Road, Building E
Burlingame, California 94010
Pursuant to Section 3 of the above-referenced Lease, the Commencement Date
hereby is established as ___________________________
LANDLORD: TENANT:
SFO OFFICE ASSOCIATES LLC, a MEGABIOS CORP.,
California limited liability company a California corporation
By: ______________________________ By: _______________________________
Name: _____________________________ Name: _____________________________
Title: ___________________________ Title: ____________________________
<PAGE>
EXHIBIT D-2
PREMISES ACCEPTANCE DATE MEMORANDUM
Landlord: SFO OFFICE ASSOCIATES LLC, a California limited liability
company
Tenant: MEGABIOS CORP.,
a California corporation
Lease Date: March 18, 1997
Premises: 866 Malcolm Road, Building E
Burlingame, California 94010
Pursuant to Section 3 of the above-referenced Lease, the Premises Acceptance
Date hereby is established as ___________________________
LANDLORD: TENANT:
SFO OFFICE ASSOCIATES LLC, a MEGABIOS CORP.,
California limited liability company a California corporation
By: ______________________________ By: _______________________________
Name: _____________________________ Name: _____________________________
Title: ___________________________ Title: ____________________________
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
Commonly known as: 819-863 Mitten Road and 866 Malcolm Road, Burlingame,
California and described as follows:
PARCEL ONE:
Lots 28, 29, 30, 31, and a portion of Lots 27 and 32, Block 3 as shown on
the Map entitled "EAST MILLSDALE INDUSTRIAL PARK UNIT NO. 2, BURLINGAME, SAN
MATEO COUNTY, CALIFORNIA," filed in the office of the County Recorder of San
Mateo County on August 3, 1959, in Book 52 of Maps at Pages 4, 5, and 6 and a
portion of Lots 13, 14, 15, 16, 17, 18, Block 3 as shown on the Map entitled
"EAST MILLSDALE INDUSTRIAL PARK UNIT NO. 1, BURLINGAME, SAN MATEO COUNTY,
CALIFORNIA," filed in the office of the County Recorder of San Mateo County on
January 23, 1959, in Book 50 of Maps at Pages 24 and 25, more particularly
described as a whole as follows:
BEGINNING at the point of intersection of the Southwesterly line of said
Lot 18 with the Southeasterly line of Mitten Road as shown on last mentioned
Map; thence from said point of beginning along said Southwesterly line of Lot 18
South 50 degrees 41' 25" East 305.00 feet to a point distant thereon North 50
degrees 41' 25" West 105.00 feet from the most Southerly corner of said Lot 18;
thence leaving said Southwesterly line North 39 degrees 18' 35" East 363.00
feet; thence South 50 degrees 41' 25" East 105.00 feet to a point on common line
between said subdivisions above mentioned; thence along said common line South
39 degrees 18' 35" West 338.00 feet; thence South 50 degrees 41' 25" East 235.00
feet to the Northwesterly line of Malcolm Road, as shown on the Map first above
mentioned, thence along said Northwesterly line of Malcolm Road North 39 degrees
18' 35" East 315.00 feet to the Northeasterly line of said Lot 31; thence along
said Northeasterly line North 50 degrees 41' 25" West 175.00 feet; thence
leaving the last mentioned line North 39 degrees 18' 35" East 60.00 feet to the
Northeasterly line 50 degrees of Lot 32; thence along the last mentioned line
North 41' 25" West 60.00 feet to the common line between said Lots 32 and 13;
thence along said common line South 39 degrees 18' 35" West 5.00 feet; thence
leaving the last mentioned line North 50 degrees 41' 25" West 410.00 feet to the
said Southeasterly line of Mitten Road; thence along the last mentioned line
South 39 degrees 18' 35" West 395.00 feet to the point of beginning.
PARCEL TWO:
Lot 26 and a portion of Lot 27 Block 3 as shown on the Map entitled "EAST
MILLSDALE INDUSTRIAL PARK UNIT NO. 2, BURLINGAME, SAN MATEO COUNTY, CALIFORNIA,"
filed in the office of the County Recorder of San Mateo County on August 3,
1959, in Book 52 of Maps at Pages 4, 5 and 6 and a portion of Lots 13, 14, 15,
16, 17, and 18, Block 3 as shown on the Map entitled "EAST MILLSDALE INDUSTRIAL
PARK UNIT NO. 1, BURLINGAME, SAN MATEO COUNTY, CALIFORNIA," filed in the office
of the County Recorder of San Mateo County on January 23, 1959, in Book 50 of
Maps at Pages 24 and 25 more particularly described as a whole as follows:
EXHIBIT A - Page 1
<PAGE>
BEGINNING at the point of intersection of the Southwesterly line of said
Lot 26 with the Northwesterly line of Malcolm Road as shown on the first above
mentioned Map; thence from said point of beginning along said Southwesterly line
of Lot 26 North 50 degrees 41' 25" West 235.00 feet to the most Westerly corner
thereof; thence along the Northwesterly line of said Lots 26 and 27 North 39
degrees 18' 35" East 75.00 feet to the most Southerly corner of said Lot 18
thence along the Southwesterly line of said Lot 18 North 50 degrees 41' 25" West
105.00 feet; thence leaving the last mentioned line North 39 degrees 18' 35"
East 363.00 feet; thence South 50 degrees 41' 25" East 105.00 feet to a point on
common line between said subdivisions above mentioned; thence along the common
line South 39 degrees 18' 35" West 338.00 feet; thence South 50 degrees 41' 25"
East 235.00 feet to the said Northwesterly line of Malcolm Road; thence South 39
degrees 18' 35" West along the last mentioned Road 100.00 feet to the point of
beginning.
A.P.N. 024-403-400.J.P.N. 24-40-403-40.
A.P.N. 024-403-410.J.P.N. 24-40-403-41.
A.P.N. 026-301-310.J.P.N. 26-30-301-31.
A.P.N. 026-301-320.J.P.N. 26-30-301-32.
PARCEL THREE:
Lots 7, 8, and 9 in Block 3 as shown on that certain Map entitled "EAST
MILLSDALE INDUSTRIAL PARK UNIT NO. 1, BURLINGAME, SAN MATEO COUNTY, CALIFORNIA,
filed in the office of the County Recorder of San Mateo County on January 23,
1959, in Book 50 of Maps at Pages 24 and 25.
PARCEL FOUR:
Lot 12 and a portion of Lots 11 and 13, Block 3 as shown on that certain
Map entitled "EAST MILLSDALE INDUSTRIAL PARK UNIT NO. 1, BURLINGAME, SAN MATEO
COUNTY, CALIFORNIA," filed in the office of the County Recorder of San Mateo
County on January 23, 1959, in Book 50 of Maps at Pages 24 and 25 and a portion
of Lots 33 and 34, Block 3 as shown on that certain Map entitled "EAST MILLSDALE
INDUSTRIAL PARK UNIT NO. 2, BURLINGAME, SAN MATEO COUNTY, CALIFORNIA," filed in
the office of the County Recorder of San Mateo County on August 3, 1959, in Book
52 of Maps at Pages 4, 5 and 6, more particularly described as a whole as
follows:
BEGINNING at a point on the Southeasterly line of Mitten Road as shown on
the first above mentioned Map distant thereon South 39 degrees 18' 35" West
49.00 feet from the most Northerly corner of said Lot 11; thence from said point
of beginning South 50 degrees 4l' 25" East 410.00 feet to a point on the
dividing line between said Lots 11 and 34; thence continuing South 50 degrees
4l' 25" East 64.00 feet; thence South 39 degrees 18' 35" West 71.00 feet to the
Southwesterly line of said Lot 33; thence North 50 degrees 51' 25" West along
the last mentioned line 64.00 feet to the most Easterly corner of said Lot 13;
thence along the Southeasterly line of said Lot 13, South 39 degrees 18' 35"
West 5.00 feet; thence leaving the last mentioned line North 50 degrees 41' 25"
West 410.00 feet to the said
EXHIBIT A - Page 2
<PAGE>
Southeasterly line of Mitten Road; thence North 39 degrees 18' 15" East along
the last mentioned line 76.00 feet to the said point of beginning.
PARCEL FIVE:
Lot 10 and a portion of Lot 11, Block 3, as shown on that certain Map
entitled "EAST MILLSDALE INDUSTRIAL PARK UNIT NO. 1, BURLINGAME, SAN MATEO
COUNTY, CALIFORNIA," filed in the office of the County Recorder of San Mateo
County on January 23, 1959, in Book 50 of Maps at Pages 24 and 25 and a portion
of Lots 34 and 35, Block 3 as shown on that certain Map entitled "EAST MILLSDALE
INDUSTRIAL PARK UNIT NO. 2, BURLINGAME, SAN MATEO COUNTY, CALIFORNIA," filed in
the office of the County Recorder of San Mateo County on August 3, 1959, in Book
52 of Maps at Pages 4, 5 and 6, more particularly described as a whole as
follows:
BEGINNING at the point of intersection of the Northeasterly line of said
Lot 10 with the Southeasterly line of Mitten Road, as shown on the first above
mentioned Map; thence from said point of beginning along said Northeasterly line
of Lot 10 South 50 degrees 41' 25" East 410.00 feet to the most Northerly corner
of said Lot 35; thence along the Northeasterly line of laid lot 35, South 50
degrees 41' 25" East 64.00 feet; thence South 39 degrees 18' 35" West 109.00
feet; thence North 50 degrees 41' 25" west 64.00 feet to a point on the dividing
line between said Lots 34 and 11; thence continuing North 50 degrees 41' 25"
West 410.00 feet to a point on said Southwesterly line of Mitten Road distant
thereon South 39 degrees 18' 35" West 49.00 feet from the most Northerly corner
of said Lot 11; thence North 39 degrees 18' 35" East along the last mentioned
line, 109.00 feet to the point of beginning.
A.P.N. 024-403-360.J.P.N. 24-40-403-36.
A.P.N. 024-403-370.J.P.N. 24-40-403-37.
A.P.N. 024-403-380.J.P.N. 24-40-403-38.
A.P.N. 026-301-220.J.P.N. 26-30-301-22.
A.P.N. 026-301-240.J.P.N. 26-30-301-24.
EXHIBIT A - Page 3
<PAGE>
EXHIBIT E
WORK LETTER AGREEMENT
This Work Letter Agreement ("Agreement") supplements that certain lease
(the "Lease") dated and executed concurrently herewith by and between SFO OFFICE
ASSOCIATES LLC, a California limited liability company ("Landlord"), and
MEGABIOS CORP., a California corporation ("Tenant"), with the terms defined in
this Lease to have the same definition where used herein.
This Agreement shall set forth the terms and conditions relating to the
construction of the Premises.
1. LANDLORD IMPROVEMENTS
Landlord shall cause the Building to be improved pursuant to the plans
prepared by MSI, Job No. 9610116, dated November 6, 1996 ("MSI Plans"), and to
the bid provided by Rudolf and Sletten dated December 3, 1996, during the time
period Tenant is constructing the Tenant Improvements ("Landlord Improvements").
The cost of such Landlord Improvements shall be borne equally by Landlord and
Tenant; provided, however, Tenant's portion of such costs for Landlord
Improvements shall not exceed fifty percent (50%) of the Tenant improvement
Allowance as defined in Section 2 below except in the event that the City of
Burlingame ("City") requires Landlord to complete additional seismic upgrade
work not included in the MSI Plans. In the event the City requires such
additional seismic upgrade work not included in the MSI Plans, then Tenant and
Landlord shall bear such costs equally without a limitation on the amount of
Tenant's portion of such costs. The preliminary budget for the Landlord
Improvements is set forth on the attached Schedule 1 to this Work Letter and is
----------
subject to adjustment. Included in the Landlord Improvement costs are the costs
of the plans and specifications for the Landlord Improvements, construction
costs, a five percent (5%) fee to Landlord for construction administration,
costs for building permits and inspections and other costs directly associated
with such work.
2. TENANT IMPROVEMENTS
(a) Tenant Improvement Allowance. Tenant shall be entitled to a one-time
----------------------------
tenant improvement allowance (the "Tenant Improvement Allowance") in the amount
of $10.00 for each of the rentable square feet of the Premises to be applied
toward payment of the tenant improvement costs described below in connection
with the remediation, demolition and construction work described in the
"Approved Working Drawings," as that term is defined in Section 2 below (the
"Tenant Improvements"). In no event shall Landlord be obligated to make
disbursements pursuant to this Agreement in a total amount which exceeds the
Tenant Improvement Allowance.
(b) Disbursement of the Tenant Improvement Allowance.
------------------------------------------------
(i) Tenant Improvement Allowance Items. Except as otherwise set forth in
----------------------------------
this Agreement, the Tenant Improvement Allowance shall be disbursed as provided
below by Landlord for the costs of remediation, demolition and construction of
the Tenant Improvements
EXHIBIT E - Page 1
<PAGE>
and Tenant's share of the Landlord Improvements, including, without limitation,
the following items (collectively the "Tenant Improvement Allowance Items"):
(1) ADA;
(2) seismic upgrades; and
(3) Hazardous Materials and asbestos abatement or removal.
(ii) Disbursement of Tenant Improvement Allowance. Upon
--------------------------------------------
completion of the construction of the Tenant Improvements and issuance of the
Notice of Completion, Landlord shall disburse the Tenant Improvement Allowance
or so much thereof as remains after disbursement for Landlord Improvements to
Tenant for Tenant Improvement Allowance Items within thirty (30) days of written
request by Tenant for disbursement.
(iii) Tenant shall provide to Landlord prior to disbursement (i)
a request for payment detailing the work completed; (ii) invoices from all of
Tenant's Agents as defined below, for labor rendered and materials delivered to
the Premises; (iii) executed mechanic's lien releases from all of Tenant's
Agents which shall comply with the appropriate provisions, as reasonably
determined by Landlord, of California Civil Code Section 3263(d); and (iv) all
other information reasonably requested by Landlord. Thereafter Landlord shall
deliver a check to Tenant for the Tenant Improvement Allowance, provided that
Landlord does not in good faith dispute any request for payment based on non-
compliance of any work with the Approved Working Drawings, or due to Tenant's
failure to deliver the items required in the prior sentence. If Landlord
disputes only a portion of the amount requested, Landlord shall so pay the
undisputed portion, and the parties shall cooperate in good faith to resolve any
such dispute as soon as is reasonably possible. Landlord's payment of the Tenant
Improvement Allowance shall not be deemed Landlord's approval or acceptance of
the work furnished or materials supplied as set forth in Tenant's payment
request.
(iv) Other Terms. Landlord shall only be obligated to make
-----------
disbursements from the Tenant Improvement Allowance to the extent costs are
incurred by Tenant for Tenant Improvement Allowance Items, and, in any event, in
an aggregate amount not to exceed the Tenant Improvement Allowance.
3. CONSTRUCTION DRAWINGS
(a) Delivery of Base Building Plans. Landlord shall deliver to Tenant at
-------------------------------
Tenant's request any and all base building plans and specifications pertaining
to the Building that contains the Premises as Landlord may have (collectively,
"Base Building Plans") to facilitate Tenant's design and construction of the
Tenant Improvements.
(b) Review of Drawings. Tenant shall retain, with the prior approval of
------------------
Landlord and pursuant to an AIA contract with modifications as approved by
Landlord or such other contract as approved by Landlord, one or more duly
licensed architects of good reputation (collectively, the "Architect") to
prepare the Construction Drawings. Landlord hereby approves Randall Dowler as
the architect if Tenant should elect to use Randall Dowler. Tenant or Architect
shall retain, with the prior approval of Landlord and pursuant to an AIA
contract with modifications as
EXHIBIT E - Page 2
<PAGE>
approved by Landlord or such other contract as approved by Landlord, one or more
engineering consultants of good reputation (collectively, the "Engineers") to
prepare all plans and engineering working drawings relating to the structural,
mechanical, electrical, plumbing, HVAC, life safety, and sprinkler work in the
Premises. The plans and drawings to be prepared by the Architect and the
Engineers hereunder, including, without limitation, the Final Space Plan and the
Final Working Drawings, shall be known collectively as the "Construction
Drawings." Tenant shall submit all Construction Drawings to Landlord for
Landlord's approval, which approval shall not be unreasonably withheld and which
shall be given or withheld within five (5) days following Landlord's receipt
thereof from Tenant. If Landlord withholds such approval. Landlord shall do so
in writing and shall provide Tenant with a detailed written explanation of the
reasons for such withholding of approval and the measures that Tenant should
take to obtain such approval. Landlord and Tenant shall cooperate in good faith
to resolve any such issues to enable Tenant to receive such approval within five
(5) days following Tenant's receipt of such written notice from Landlord. Tenant
and Architect shall verify, in the field, the dimensions and conditions as shown
on the Base Building Plans, and Tenant and Architect shall be solely responsible
for the same, and Landlord shall have no responsibility in connection therewith.
Landlord's review of the Construction Drawings as set forth in this Section 2,
shall be for its sole purpose and shall not imply Landlord's review of the same,
or obligate Landlord to review the same, for quality, design, code compliance
or other like matters. Accordingly, notwithstanding that any Construction
Drawings are reviewed by Landlord or its space planner, architect, engineers and
consultants, and notwithstanding any advice or assistance which may be rendered
to Tenant by Landlord or Landlord's architect, engineers, and consultants,
Landlord shall have no liability whatsoever in connection therewith and shall
not be responsible for any omissions or errors contained in the Construction
Drawings, and Tenant's indemnity set forth in Section 18 of this Lease shall
specifically apply to the Construction Drawings.
(c) Final Space Plan. Tenant shall supply Landlord with two (2) copies of
----------------
its final space plan for the Premises for Landlord's approval, which approval
shall not be unreasonably withheld and which shall be given or withheld within
five (5) days following Landlord's receipt thereof from Tenant. If Landlord
withholds such approval, Landlord shall do so in writing and shall provide
Tenant with a detailed written explanation of the reasons for such withholding
of approval and the measures that Tenant should take to obtain such approval.
Landlord and Tenant shall cooperate in good faith to resolve any such issues to
enable Tenant to receive such approval within five (5) days following Tenant's
receipt of such written notice from Landlord. The final space plan (the "Final
Space Plan") shall include a layout and designation of all offices, rooms and
other partitioning, their intended use, and equipment to be contained therein.
(d) Final Working Drawings. Upon the approval of the Final Space Plan by
----------------------
Landlord and Tenant, Tenant shall promptly cause the Architect and the Engineers
to complete the architectural and engineering drawings for the Premises, and the
Architect shall compile a fully coordinated set of architectural, structural,
mechanical, electrical and plumbing working drawings in a form which is complete
to allow subcontractors to bid on the work and to obtain all applicable permits
(collectively, the "Final Working Drawings"). Tenant shall submit two (2)
complete sets of the Final Working Drawings to Landlord for Landlord's approval,
which approval shall not be unreasonably withheld and which shall be given or
withheld within five (5) days following Landlord's receipt thereof from Tenant.
If Landlord withholds such approval, Landlord shall do so in writing and shall
provide Tenant with a detailed written explanation of the
EXHIBIT E - Page 3
<PAGE>
reasons for such withholding of approval and the measures that Tenant should
take to obtain such approval. Landlord and Tenant shall cooperate in good faith
to resolve any such issues to enable Tenant to receive such approval within five
(5) days following Tenant's receipt of such written notice from Landlord.
(e) Approved Working Drawings. The Final Working Drawings shall be approved
-------------------------
by Landlord (the "Approved Working Drawings"), as provided above, prior to the
commencement of construction of the Premises by Tenant. After approval by
Landlord of the Final Working Drawings, Tenant may submit the same to the City
of Burlingame for all applicable building permits. Tenant hereby agrees that
neither Landlord nor Landlord's consultants shall be responsible for obtaining
any building permit or certificate of occupancy for the Premises and that
obtaining the same shall be Tenant's responsibility; provided, however, that
Landlord shall cooperate with Tenant in executing permit applications and
performing other ministerial acts reasonably necessary to enable Tenant to
obtain any such permit or certificate of occupancy.
(f) Changes. No material changes, modifications or alterations in the
-------
Approved Working Drawings ("Change") shall be made by Tenant without the prior
written consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed. Any request by Tenant for a Change shall he in writing
and shall be accompanied by all information necessary to clearly identify and
explain the proposed Change. Tenant shall submit all proposed Changes to
Landlord for Landlord's approval, which approval shall not be unreasonably
withheld and which shall be given or withheld within two (2) business days
following Landlord's receipt thereof from Tenant. If Landlord withholds such
approval, Landlord shall do so in writing and shall provide Tenant with a
detailed written explanation of the reasons for such withholding of approval and
the measures that Tenant should take to obtain such approval. Landlord and
Tenant shall cooperate in good faith to resolve any such issues to enable Tenant
to receive such approval within two (2) business days following Tenant's receipt
of such written notice from Landlord.
4. CONSTRUCTION OF THE TENANT IMPROVEMENTS
(a) Tenant's Selection of Contractors.
---------------------------------
(i) The Contractor. A duly licensed general contractor of good
--------------
reputation shall be retained by Tenant to construct the Tenant Improvements.
Such general contractor ("Contractor") shall be subject to the approval of
Landlord, which approval shall not be unreasonably withheld or delayed. Landlord
hereby approves Rudolph & Sletten as the Contractor if Tenant should elect to
use Rudolph & Sletten.
(ii) Tenant's Agents. All subcontractors, laborers, materialmen, and
---------------
suppliers used by Tenant in connection with the design and construction of the
Tenant Improvements shall be known collectively as "Tenant's Agents".
(b) Construction of Tenant Improvements by Tenant's Agents.
------------------------------------------------------
(i) Construction Contract. Promptly following Tenant's execution of
---------------------
the construction contract and general conditions with the Contractor on an MA
contract with modifications as approved by Landlord or such other contract as
approved by Landlord (the "Contract"), Tenant shall deliver to Landlord for
Landlord's information a copy of the Contract.
EXHIBIT E - Page 4
<PAGE>
The Contract shall expressly provide that Landlord is a third parry beneficiary
of the Contractor's obligations under the Contract.
(ii) Tenant's Agents.
---------------
(1) Landlord's General Conditions for Tenant's Agents and Tenant
------------------------------------------------------------
Improvement Work. Tenant's and Tenant's Agents' construction of the Tenant
- ----------------
Improvements shall comply with the following: (i) the Tenant Improvements shall
be constructed in substantial accordance with the Approved Working Drawings; and
(ii) Tenant shall abide by all reasonable rules made by Landlord with respect to
the storage of materials, coordination of work with the contractors of other
tenants of the Complex, and any other matter in connection with this Agreement,
including, without limitation, the construction of the Tenant Improvements.
(2) Indemnity. Tenant's indemnity of Landlord as set forth in
---------
Section 18 of this Lease shall also apply with respect to any and all costs,
losses, damages, injuries and liabilities related in any way to any act or
omission of Tenant or Tenant's Agents, or anyone directly or indirectly employed
by any of them, or in connection with Tenant's non-payment of any amount arising
out of the Tenant Improvements and/or Tenant's disapproval of all or any portion
of any request for payment. Such indemnity by Tenant, as set forth in Section 18
of this Lease, shall also apply with respect to any and all costs, losses,
damages, injuries and liabilities related in any way to Landlord's performance
of any ministerial acts reasonably necessary (i) to permit Tenant to complete
the Tenant Improvements, and (ii) to enable Tenant to obtain any building permit
or certificate of occupancy for the Premises. Tenant's obligations to indemnify
Landlord hereunder shall in no event extend to any costs, losses, damages,
injuries or liabilities arising primarily from Landlord's negligent or willful
acts.
(3) Insurance Requirements.
----------------------
a) General Coverages. All of Tenant's Agents shall carry
-----------------
worker's compensation insurance covering all of their respective employees, and
shall also carry public liability insurance, including property damage, all with
limits, in form and with companies as are required to be carried by Tenant as
set forth in Section 19 of this Lease.
b) Special Coverages. Tenant shall carry, or shall require
-----------------
that the Contractor carry, "Builder's All Risk" insurance in an amount
reasonably appropriate to cover the cost of construction of the Tenant
Improvements, it being understood and agreed that the Tenant Improvements shall
be insured by Tenant pursuant to Section 19 of this Lease immediately upon
completion thereof.
c) General Terms. Certificates for all insurance carried
-------------
pursuant to this Section 3 shall be delivered to Landlord before the
commencement of construction of the Tenant Improvements and before the
Contractor's equipment is moved onto the site. All such policies of insurance
must contain a provision that the company writing said policy will give Landlord
thirty (30) days' prior written notice of any cancellation or lapse of the
effective date or any reduction in the amounts of such insurance. In the event
that the Tenant Improvements are damaged by any cause during the course of the
construction thereof, Tenant shall immediately repair the same at Tenant's sole
cost and expense. Tenant's Agents shall
EXHIBIT E - Page 5
<PAGE>
maintain all of the foregoing insurance coverage in force until the Tenant
Improvements are fully completed. All policies carried under this Section 3
shall insure Landlord and Tenant, as their Interests may appear. All insurance,
except workers' compensation, maintained by Tenant's Agents shall preclude
subrogation claims by the insurer against anyone insured thereunder. Such
insurance shall provide that it is primary insurance as respects the Landlord
and that any other insurance maintained by Landlord is excess and non-
contributing with the insurance required hereunder. The requirements for the
foregoing insurance shall not derogate from the provisions for indemnification
of Landlord by Tenant under Section 3 of this Agreement.
(iii) Governmental Compliance. The Tenant Improvements shall comply in
-----------------------
all respects with the following: (1) the applicable building code and other
state, federal, city or quasi-governmental laws, codes, ordinances and
regulations, as each may apply according to the rulings of the controlling
public official, agent or other person; (2) applicable standards of the American
Insurance Association (formerly, the National Board of Fire Underwriters) and
the National Electrical Code; and (3) building material manufacturer's
specifications.
(iv) Inspection by Landlord. Landlord shall have the right, during
----------------------
normal business hours and after reasonable notice, to inspect the Tenant
Improvements; provided, however, that Landlord's failure to inspect the Tenant
Improvements shall in no event constitute a waiver of any of Landlord's rights
hereunder nor shall Landlord's inspection of the Tenant Improvements constitute
Landlord's approval of the same. Landlord shall have no right to disapprove of
any of the Tenant Improvements, except to the extent that they materially
deviate from the Approved Working Drawings. Should Landlord disapprove any
portion of the Tenant Improvements, Landlord shall notify Tenant in writing of
such disapproval and shall specify the items disapproved. Any material
deviations from the Approved Working Drawings in the Tenant Improvements shall
be rectified by Tenant at no expense to Landlord; provided however, that in the
event Landlord determines that any such deviation exists and such deviation
might adversely affect the mechanical, electrical, plumbing, heating,
ventilating and air-conditioning or life-safety systems of the Building, the
structure or exterior appearance of the Building or any other tenant's use of
such other tenant's leased premises, Landlord may take such action as Landlord
reasonably deems necessary, following reasonable notice to Tenant and a
reasonable opportunity for Tenant to rectify the same, at Tenant's expense and
without incurring any liability on Landlord's part, to correct any such
deviation, including, without limitation, causing the cessation of performance
of the construction of the Tenant Improvements until such time as the deviation
is corrected to Landlord's reasonable satisfaction.
(c) Notice of Completion; Copy of Record Set of Plans. Within ten (10) days
-------------------------------------------------
after completion of construction of the Tenant Improvements, Tenant shall cause
a Notice of Completion to be recorded in the office of the Recorder of the
County of San Mateo in accordance with Section 3093 of the Civil Code of the
State of California or any successor statute, and shall furnish a copy thereof
to Landlord upon such recordation. if Tenant fails to do so, following
Landlord's notice thereof to Tenant and a reasonable opportunity for Tenant to
correct such failure, Landlord may execute and file the same on behalf of Tenant
as Tenant's agent for such purpose, at Tenant's sole cost and expense. At the
conclusion of construction, Tenant shall cause the Architect and the Contractor
(A) to update the Approved Working Drawings as necessary to reflect all changes
made to the Approved Working Drawings during the course of construction, (B) to
certify to Tenant to the best of their knowledge that the "record-set" of mylar
EXHIBIT E - Page 6
<PAGE>
as-built drawings are true and correct, which certification shall survive the
expiration or termination of this Lease, and (C) to deliver to Landlord two (2)
sets of copies of such record set of drawings within ninety (90) days following
issuance of a certificate of occupancy for the Premises.
5. MISCELLANEOUS
(a) Time of the Essence in This Agreement. Unless otherwise indicated, all
-------------------------------------
references herein to a "number of days" shall mean and refer to calendar days.
If any item requiring approval is timely disapproved by Landlord, the procedure
for preparation of the document and approval thereof shall be repeated until the
document is approved by Landlord.
(b) Tenant's Lease Default. Notwithstanding any provision to the contrary
----------------------
contained in this Lease, during the existence of (i) an event of default as
described in Section 38 of this Lease or (ii) a breach by Tenant of any of its
material obligations under this Agreement that is not cured within a reasonable
period of time following notice thereof from Landlord, then in addition to all
other rights and remedies granted to Landlord pursuant to this Lease, Landlord
shall have the right (x) to suspend payment of all or any portion of the Tenant
Improvement Allowance until such event of default or breach is cured and/or
Landlord may cause the Contractor to suspend the construction of the Premises
until such event of default or breach is cured (in which case, Tenant shall be
responsible for any delay in the substantial completion of the Premises caused
by such work stoppage), and (y) all other obligations of Landlord under the
terms of this Agreement shall be forgiven until such time as such event of
default or breach is cured pursuant to the terms of this Lease (in which case,
Tenant shall be responsible for any delay in the substantial completion of the
Premises caused by such inaction by Landlord).
(c) Tenant's Agents. All subcontractors, laborers, materialmen, and
---------------
suppliers retained directly by Tenant shall conduct their activities in and
around the Premises, Building and the Complex in a harmonious relationship with
all other subcontractors, laborers, materialmen and suppliers at the Premises,
Building and Complex.
(d) Hazardous Materials. if the construction of the Tenant Improvements or
-------------------
Tenant's move into the Premises will involve the use of or disturb hazardous
materials or substances existing in the Premises, Tenant shall comply with
Landlord's reasonable rules and regulations concerning such hazardous materials
or substances.
(e) No Fee to Landlord. Other than as expressly provided in this Lease,
------------------
Landlord shall receive no fee for supervision, profit, overhead or general
conditions in connection with the design or construction of the Tenant
Improvements.
(f) No Miscellaneous Charges. Other than as expressly provided in the
------------------------
Lease, neither Tenant nor the Contractor shall be charged for parking (to the
extent parking is available) or for toilet facilities during the construction of
the Tenant Improvements or during Tenant's move-in prior to the commencement of
its business operations. Notwithstanding the foregoing, Tenant shall provide
toilet facilities during the construction period.
(g) Bonding. Provided that Rudolf & Sletten is the sole general contractor
-------
for the remediation, demolition, construction, alteration or improvement work
contemplated in the Lease
EXHIBIT E - Page 7
<PAGE>
and this Work Letter, including the construction of the Tenant Improvements,
Tenant shall not be required to provide performance and completion bonds in
connection with such remediation, demolition, construction, alteration or
improvement work, including the construction of the Tenant Improvements. In the
event Tenant elects to contract with a general contractor other than Rudolf &
Sletten to be the general contractor for any of the remediation, demolition,
construction, alteration or improvement work contemplated in the Lease and this
Work Letter including the construction of the Tenant Improvements, then Landlord
may require, in its sole discretion, that Tenant obtain or provide completion or
performance bonds in an amount determined by Landlord but not to exceed one
hundred twenty-five percent (125%) of the estimated cost of such remediation,
demolition, construction, alteration or improvement work, including for
construction of the Tenant Improvements. In the event a bond, or bonds, is
required pursuant to this subparagraph (g), Tenant must provide such bond, or
bonds, prior to commencement of any such work. Failure to provide such bond, or
bonds, at the request of Landlord, shall be a default under this Work Letter. In
the event no performance or completion bonds are required pursuant to this
subparagraph (g), Tenant shall pay to Landlord, in addition to any fees in
Paragraph I above, a fee equal to Five Thousand Dollars ($5,000) as a fee to
Landlord in consideration for not requiring completion or performance bonds and
such fee shall be due and payable within fifteen (15) days of commencement of
construction of the Tenant Improvements. In the event Tenant does not pay such
fee within the time provided, Landlord may deduct this fee amount from the
Tenant Improvement Allowance.
(h) Staging Area. In addition to any rights that Tenant may have with
------------
respect to storage space within the Building, during the period prior to the
Commencement Date, Tenant shall have the right, without the obligation to pay
rent, to place a construction trailer in the courtyard adjacent to the Premises
as reasonably designated by Landlord for the purposes of storing and staging its
materials, furniture and equipment. With respect to such construction trailer
and staging areas in the Building, Tenant shall be responsible for providing all
insurance required for the Premises under this Agreement and for providing any
necessary fencing or other protective facilities. Tenant shall hold Landlord
harmless and shall indemnify Landlord from and against any and all costs,
losses, damages, injuries and liabilities arising out of or in connection with
use of such construction trailer and staging areas in the Building by Tenant.
Tenant shall be obligated to remove all of the stored materials and any such
fencing or other facilities within thirty (30) days following its receipt of
written notice from Landlord that the interior staging area is needed by
Landlord for construction of another tenant's premises. Tenant shall repair any
damage that may be caused by it or its contractors as a result of such use of
the construction trailer or staging areas in the Building (including replacing
any landscaping that may be damaged by the construction trailer).
(i) Reasonable Approval Standard. Unless otherwise expressly provided to be
----------------------------
in the party's sole discretion, the provisions of Section 63 of this Lease shall
apply to all Matters contemplated in this Agreement.
EXHIBIT E - Page 8
<PAGE>
SCHEDULE 1 TO WORK LETTER AGREEMENT
PRELIMINARY BUDGET FOR LANDLORD IMPROVEMENTS
Rudolph and Sletten $59,000
MSI $ 5,000
City Fees $ 1,500
Inspection Fees $ 4,000
Contingency $ 5,000
Construction Management Fee
(Landlord) $ 3,725
-------
Total $78,225
These are estimates only.
<PAGE>
EXHIBIT F
RULES AND REGULATIONS FOR THE BUILDING
1. Except as provided or required by Landlord in accordance with building
standards, no sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed, painted or affixed by Tenant on or to any part
of the Building or exterior of the Premises leased to Tenants or to the door
or doors thereof without the written consent of Landlord first obtained and
Landlord shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Tenant.
2. Except as provided or required by Landlord in accordance with Building
standards, no draperies, curtains, blinds, shades, screens or other devices
shall be hung at or used in connection with any window or exterior door or
doors of the Premises.
3. The bulletin board or directory of the building shall be used primarily for
display of the name and location of Tenants and Landlord reserves the right
to exclude any other names therefrom, to limit the number of names associated
with Tenants to be placed thereon and to charge for names associated with
Tenants to be placed thereon at rates applicable to all Tenants.
4. The sidewalks, halls, passages, exits, entrances, elevators and stairways of
the Building shall not be obstructed by Tenants or used by them for any
purpose other than for ingress to and egress from their respective Premises.
The halls, passages, exits, entrances, elevators, stairways, balconies and
roof of the Building are not for the use of the general public and Landlord
in all cases reserves the right to control the same and prevent access
thereto by all persons whose presence, in the judgment of the Landlord, is or
may be prejudicial to the safety, character, reputation or interests of the
Building and its Tenants; provided however, that Landlord shall not prevent
such access to persons with whom Tenants deal in the ordinary course of
business unless such persons are engaged in illegal activities. No person
shall go upon the roof of the Building unless expressly so authorized by
Landlord.
5. Tenants shall not alter any lock nor install any new or additional locks or
any bolts on any interior or exterior door of any Premises leased to Tenant.
6. The doors, windows, light fixtures and any lights or skylights that reflect
or admit light into halls or other places of the Building shall not be
covered or obstructed. The toilet rooms, toilets, urinals, wash bowls and
other apparatus shall not be used for any purpose other than that for which
they were constructed and no foreign substance of any kind whatsoever shall
be thrown or placed therein. The expense of any breakage, stoppage or damage
resulting from the violation of this rule shall be borne by the Tenant who,
or whose employees or invitees, cause such expense.
EXHIBIT F - Page 1
<PAGE>
7. Tenants shall not mark, drive nails, screw or drill into the walls, woodwork
or plaster or in any way deface the Building or any Premises leased to
Tenant.
8. Furniture, freight or equipment of every kind shall be moved into or out of
the building only at such times and in such manner as Landlord shall
designate. Landlord may prescribe and limit the weight, size and position of
all equipment to be used by Tenants, other than standard office desks, chairs
and tables and portable office machines. Safes and other heavy equipment
shall, if considered necessary by Landlord, stand on wood strips of such
thickness as Landlord deems necessary to distribute properly the weight
thereof. All damage to the building or Premises occupied by Tenants caused by
moving or maintaining any property of a Tenant shall be repaired at the
expense of such Tenant.
9. No Tenant shall employ any person, other than the janitor provided by
Landlord, for the purposes of cleaning the Premises occupied by such Tenant
unless otherwise agreed to by Landlord. Except with the written consent of
Landlord, no person shall be permitted to enter the Building for the purpose
of cleaning the same. Tenants shall not cause any unnecessary labor by
carelessness or indifference in the preservation of good order and
cleanliness. Landlord shall not be responsible to any Tenant for loss of
property on the Premises, however occurring, or for any damage to the
property of any Tenant caused by the employees or independent contractors of
Landlord or by any other person. Janitor service will not be furnished when
rooms are occupied during the regular hours when janitor service is provided.
Window cleaning shall be done only at the regular and customary times
determined by Landlord for such services.
10. No Tenant shall sweep or throw or permit to be swept or thrown any din or
other substance into any of the corridors, halls or elevators or out of the
doors or stairways of the Building; use or keep or permit to be used or kept
any foul or noxious gas or substance; permit or suffer the Premises occupied
by such Tenant to be occupied or used in a manner offensive or objectionable
to Landlord or other Tenants by reason of noise, odors or vibrations;
interfere in any way with other Tenants or persons having business in the
Building; or bring or keep or permit to be brought or kept in the Building
any animal life form, other than human, except seeing-eye dogs when in the
company of their masters.
11. No cooking shall be done or permitted by Tenants in their respective
Premises, nor shall Premises occupied by Tenants be used for the storage of
merchandise, washing clothes, lodging, or any improper, objectionable or
immoral purposes.
12. No Tenant shall use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material other than limited
quantities thereof reasonably necessary for the operation or maintenance of
customary office equipment, or, without Landlord's prior written approval,
use any method of heating or air conditioning other than that supplied by
Landlord. No Tenant shall use or keep or permit to be used or kept any foul
or noxious gas or substance in the Premises, or permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or
EXHIBIT F - Page 2
<PAGE>
other occupants of the Building by reason of noise, odors or vibrations, or
interfere in any way with other Tenants or those having business therein.
Tenant must comply with any government imposed codes and regulations
concerning the use or storage of any substances on the Premises.
13. No boring or cutting for telephone or electric wires shall be allowed
without the consent of Landlord and any such wires permitted shall be
introduced at the place and in the manner described by Landlord. The
location of telephones, speakers, fire extinguisher and all other office
equipment affixed to Premises occupied by Tenants shall be subject to the
approval of Landlord. Each Tenant shall pay all expenses incurred in
connection with the installation of its equipment, including any telephone
and electricity distribution equipment.
14. Upon termination of occupancy of the Building, each Tenant shall deliver to
Landlord all keys furnished by Landlord, and any reproductions thereof made
by or at the direction of such Tenant, and in the event of loss of any keys
furnished to Tenant shall pay Landlord therefor.
15. No Tenant shall affix any floor covering in any manner except as approved by
the Landlord. The expense of repairing any damage caused by removal of any
such floor covering shall be borne by the Tenant by whom, or by whose
contractors, employees or invitees, the damage shall have been caused.
16. No mail, furnished, packages, supplies, equipment, merchandise or deliveries
of any kind will be received in the building or carried up or down in the
elevators except between such hours and in such elevators as shall be
designated by Landlord.
17. On Saturdays, Sundays and legal holidays and between the hours of 6:00p.m.
and 8:00 a.m., access to the Building may be refused artless the person
seeking access is known to the person charged with responsibility for the
safety and protection of the Building and has a pass or is properly
identified. In no case shall Landlord be liable for any loss or damage for
any error with respect to the admission to or exclusion from the Building of
any person. In case of invasion, mob, riot, public excitement or other
commotion and at such times as Landlord deems necessary for the safety and
protection of the Building, its Tenants and all property located therein,
Landlord may prohibit and prevent access to the Building by all persons by
any means Landlord deems appropriate.
18. Each Tenant shall see that the exterior doors of its Premises are closed and
securely locked on Sundays and legal holidays and not later than 6:00 p.m.
of each other day each Tenant shall exercise extraordinary care and caution
that all water faucets or water apparatus are entirely shut off each day
before its Premises are left unoccupied and that all electricity or gas
shall likewise be carefully shut off so as to prevent waste or damage to
Landlord or to other Tenants of the Building.
EXHIBIT F - Page 3
<PAGE>
19. Landlord may exclude or expel from the Building any person who, in the
judgment of Landlord, is intoxicated or under the influence of liquor or
drugs, or who shall in any manner do any act in violation of any of the
rules and regulations of the Building.
20. The requirements of Tenants will be attended to only upon application to
Landlord at the office of the Building. Employees of Landlord shall not
perform any work outside of their regular duties unless under special
instructions from Landlord, and no employee of Landlord shall be required to
admit any person (Tenant or otherwise) to any Premises in the Building.
21. No vending or food or beverage dispensing machine or machines of any
description shall be installed, maintained or operated upon any Premise in
the Building without the written permission of the Landlord.
22. Landlord, without notice and without liability to any Tenant, at any time
may change the name or the street address of the Building.
23. The word "Building" as used in these rules and regulations means the
Building of which a part of the Premises are leased pursuant to the Lease to
which these rules and regulations are attached. Each Tenant shall be liable
to Landlord and to each other Tenant of the Building for any loss, cost,
expense, damage or liability, including attorneys' fees, caused or
occasioned by the failure of such first named Tenant to comply with these
rules, but Landlord shall have no liability for such failure or for failing
or being unable to enforce compliance therewith by any Tenant and such
failure by Landlord or non-compliance by any other Tenant shall not be a
ground for termination of the Lease to which these rules and regulations are
attached by the Tenant thereunder.
24. Carpet protector pads shall be used by all desk stations.
25. Each Tenant shall maintain the portions of its Premises which are visible
from the outside of the Building or from hallways or other public areas of
the Building, in a neat, clean and orderly condition.
26. No Tenant shall tamper with or attempt to adjust the temperature control
thermostats in its Premises. Landlord shall adjust such thermostats as
required to maintain heat and air conditioning at the Building standard
temperature.
27. All requests for air conditioning or heating during hours when such services
are not normally furnished by Landlord must be submitted in writing to the
Building management office by 2:00 p.m. on the preceding Thursday for
weekend service, and by 9:00 a.m. on the preceding business day for holiday
service.
28. No Tenant shall place any items whatsoever on the roof or balcony areas of
the Building without prior written consent of Landlord.
EXHIBIT F - Page 4
<PAGE>
29. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in,
or used in connection with any window of the Building without prior written
consent of Landlord. In any event, with the prior written consent of
Landlord, such items shall be installed on the office side of the Landlord's
standard window covering and shall in no way be visible from the exterior of
the Building.
30. No Tenant shall obtain or use in the Premises ice, drinking water, food,
beverage, towel or other similar services, except at such reasonable hours
and under reasonable regulations as may be fixed by the Landlord.
31. Except with the prior written consent of Landlord, no Tenant shall sell, or
permit the sale at retail, of newspapers, magazines, periodicals, tickets or
any other goods or merchandise to the general public in or on the Premises,
nor shall any Tenant carry on, or permit or allow any employee or other
person to carry on, the business of stenography, notary, typewriting or
similar business in or from the Premises for the service or accommodation of
occupants of any other portion of the Building, nor shall the Premises of
any Tenant be used for manufacturing of any kind, or any business or
activity other than that specifically provided for in such Tenant's Lease.
32. No Tenant shall install any radio or television antenna, loudspeaker or
other device on the roof or exterior walls of the Building.
33. There shall not be used in any space, or in the public halls of the
Building, either by any Tenant or others, any hand trucks except those
equipped with rubber tires and side guards or such other material handling
equipment as Landlord may approve. No other vehicles of any kind shall be
brought by any Tenant into the Building or kept in or about the Premises.
34. Each Tenant shall store all its trash and garbage within its Premises. No
material shall be placed in the trash boxes or receptacles if such material
is of such nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of trash and garbage in the City
of Burlingame without being in violation of any law or ordinance governing
such disposal. All garbage and refuse disposal shall be made only through
entryways and elevators provided for such purpose and at such times as
Landlord shall designate.
35. Canvassing, peddling, soliciting, and distribution of handbills or any other
written materials in or about the Building are prohibited, and each Tenant
shall cooperate to prevent same.
36. While in the Building, Tenant's contractors shall be subject to and under
the control and direction of the manager of the Building or the Building
Engineer (but not as an agent or employee of Landlord or said manager or
engineer).
EXHIBIT F - Page 5
<PAGE>
37. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular Tenant or Tenants, but no such waiver by Landlord
shall be construed as a waiver of such rules and Regulations against any or
all of the Tenants of the Building.
38. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any Lease of Premises in the Building.
39. Landlord reserves the right to make such other reasonable rules and
regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building and for the preservation of
good order therein.
EXHIBIT F - Page 6
<PAGE>
EXHIBIT F-1
AMENDMENTS TO
"EXHIBIT F -- RULES AND REGULATIONS FOR THE BUILDING"
Landlord and Tenant hereby agree to the following amendments to the
correspondingly numbered items in the attached "RULES AND REGULATIONS FOR THE
BUILDING:"
4. Tenant, its employees and authorized maintenance/repair people shall
not need the express authorization of Landlord to go on the roof if: 1)
they are doing so in order to repair Tenant's equipment or address a matter
which may impact the operation of Tenant's business, and 2) they provide to
Landlord a certificate of insurance indicating appropriate coverage.
5. Tenant shall provide locks and keys to its own premises ("Premises").
Tenant shall provide to Landlord a copy of all keys unlocking areas to
which emergency access may be required by Landlord.
7. Tenant shall have the right to "mark, drive nails, screw or drill into
the walls, woodwork or plaster" within the Premises but shall be required
to repair the results of any such actions, normal wear and tear excepted,
if so requested by Landlord upon termination of the Lease.
9. As described in the Lease, Tenant shall handle its janitorial services
separately from those provided by the Landlord.
10. Tenant shall have the right to use and/or keep on Premises chemicals,
animals and equipment as permitted in the Lease. The permitted uses of the
Premises (including animal experimentation) shall not be deemed to be
offensive or objectionable.
11. Tenant's employees or caterers hired by Tenant shall be allowed to
cook on the Premises utilizing small appliances, such as microwave ovens.
12. Tenant shall be allowed to keep chemicals on the Premises as permitted
in the Lease. Tenant's Premises' heating and air-conditioning are separate
from those of the remainder of the Building.
13. Tenant shall be allowed to install/move or have installed/moved by its
contractors Tenant's telephone and data transmissions jacks, wires and
related equipment within the Premises without the consent of the Landlord.
16. Not applicable -- deliveries shall be made to the Premises directly.
21. Tenant shall be allowed to maintain vending, food and beverage
dispensing machines.
<PAGE>
EXHIBIT F-1, Amendments to
"EXHIBIT F - RULES AND REGULATIONS"
Page 2
on the Premises for the use of its employees and their guests without the
written permission of the Landlord.
24. Not applicable.
26. Not applicable.
27. Not applicable.
30. Not applicable.
34. Tenant shall be permitted to store trash and garbage outside the
Premises in a location in close proximity to Tenant's existing
shipping/receiving area at 863 Mitten Road, in containers approved by the
Landlord, which approval shall not be unreasonably withheld. Tenant shall
dispose of hazardous materials in a manner which is consistent with
applicable laws, as further detailed in the Lease.
<PAGE>
EXHIBIT G
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
SHEPPARD, MULLIN, RICHTER & HAMPTON
Four Embarcadero Center, 17th Floor
San Francisco, California 94111
Attention: Juliette M. Ebert
SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
THIS AGREEMENT ("Agreement") is dated the 18th day of March, 1997, and
is made between GENERAL ELECTRIC CAPITAL CORPORATION ("Lender"), SFO OFFICE
ASSOCIATES LLC ("Borrower"), and MEGABIOS CORP. ("Tenant").
RECITALS
--------
(a) Borrower and Tenant are about to enter into a certain Lease dated
March 18, 1997 (the "Lease") related to the premises located at 866
Malcolm Road, Building F, Burlingame, California, on the property more
particularly described on Exhibit "A" attached hereto and
incorporated herein by this reference (the "Premises");
(b) Lender has made a mortgage loan to Borrower secured by a lien on
the real estate and improvements (the "Property") of which the Premises
form a part pursuant to that certain Deed of Trust, Security Agreement
and Fixture Filing executed by Borrower, as trustor, in favor of
Lender, as beneficiary, recorded in San Mateo County, California (the
"Deed of Trust") as Instrument No. 96-106705;
(c) Lender desires that the Lease and all terms thereof, including
any purchase options or rights of first refusal, at all times remain
subordinate to the Deed of Trust, and Borrower has requested Lender to
enter this Agreement;
NOW, THEREFORE, in consideration of the Premises and of the sum of TEN
DOLLARS ($10.00) by each party in hand paid to the other, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
-1-
<PAGE>
EXHIBIT G
1. The Lease and all rights granted therein is and shall be, subject and
subordinate to the lien (the "Lien") granted pursuant to the Deed of Trust,
including any purchase options or rights of first refusal, and the interest
granted Lender in that certain Assignment of Rents and Leases (the "Assignment
of Leases"), and to all renewals, modifications, consolidations, substitutions,
replacement and extensions thereof, to the fill extent of amounts secured by
the Deed of Trust, the Assignment of Leases and all interests thereon.
2. Tenant, for itself, and all other parties bound or affected by the
Lease, agrees that it will attorn to and recognize any purchaser at a
foreclosure sale under the Deed of Trust, any transferee who acquires the
Property by deed in lieu of foreclosure or otherwise, and the successors and
assigns of such purchasers, as the owner upon the same terms and conditions set
forth in said Lease.
3. If it becomes necessary to foreclose the lien granted in the Deed of
Trust, or if Lender otherwise succeeds to the interest of Borrower in the
Property, Lender will not terminate the Lease, nor disturb Tenant's use or
possession of the Premises, nor join Tenant in summary or foreclosure
proceedings so long as Tenant is not in default under any of the terms,
covenants, or conditions of the Lease (and all grace or cure periods have
expired), and then only if Lender so elects.
4. If Lender succeeds to the interest of the landlord under the Lease, or
if the Property is sold by reason of foreclosure or other proceedings brought to
enforce the Deed of Trust, or if the Property is transferred by deed in lieu of
foreclosure, the Lease shall continue in fill force and effect as a direct
lease between the then owner of the Property (including Lender) and Tenant for
the balance of the term of the Lease, and Tenant agrees to attorn unto the then
owner as landlord, and pay rent and all other amounts due under the Lease
directly to said owner. From and after said owner's acquisition of title, Lender
shall be deemed to have assumed the landlord's obligations under the Lease,
provided, however, that Lender shall not be:
(a) liable for any act or omission of any prior landlord (including
Borrower);
(b) liable for the return of any security deposit unless actually
delivered to Lender by Borrower;
(c) subject to any offsets or defenses which Tenant might have against
any prior landlord (including Borrower), except those resulting from
matters of which Tenant has given written notice to Lender;
(d) bound by any rent or additional rent which Tenant might have paid
more than thirty (30) days in advance of the date when due under the
-2-
<PAGE>
EXHIBIT G
Lease to any prior landlord (including Borrower), unless Lender shall have
consented thereto or shall have received, directly or indirectly, such rent
or additional rent; or
(e) bound by any amendment or modification of the Lease made without
its consent.
5. Tenant agrees to give Lender, by registered mail, a copy of any notice
of default served by Tenant upon Borrower. Tenant further agrees that if
Borrower shall have failed to cure such default within the time provided for in
this Lease, then, prior to Tenant terminating the Lease, Lender shall have an
additional sixty (60) days within which to cure such default after receipt of
written notice thereof from Tenant, or if such default cannot be cured within
that time, then such additional time as may be necessary to cure such default
shall be granted if within sixty (60) days Lender has commenced and is
diligently pursuing the remedies necessary to cure such default (including, but
not limited to, commencement of foreclosure proceedings, if necessary to effect
such cure), in which event the Lease shall not be terminated while such remedies
are being so diligently pursued.
6. Tenant acknowledges that the interest of Borrower in the Property has
been assigned to the Lender as security for the Loan and that until the Lender
acquires title to the Premises, Lender assumes no duty, liability, or obligation
under the Lease either by virtue of said assignment or by any subsequent receipt
or collection of rents relating to the Property.
7. Borrower and Tenant agree that on receipt by Tenant of written notice
from Lender or any of its successors or assignees to do so, Tenant shall
thereafter pay all fixed rent, and other sums payable under the Lease, to Lender
or such successors or assignees, until further notice from Lender or such
successors or assignees and any such payment by Tenant to Lender or its
successors or assignees shall be deemed to constitute payment by Tenant to
Borrower under the Lease.
8. This Agreement shall be governed by and construed under the internal
laws of the State of California without regard to its conflict of law
principles. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns, or heirs and
personal representatives, as applicable. Time is of the essence hereunder. This
Agreement may be executed in counterparts all of which when taken together shall
constitute the whole of this Agreement.
-3-
<PAGE>
EXHIBIT G
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
"Lender"
GENERAL ELECTRIC CAPITAL CORPORATION
By:
--------------------------------
Its:
---------------------------
"Borrower"
SF OFFICE ASSOCIATES LLC,
a California limited liability company
By:
----------------------------------
Michael Halper
Managing Member
"Tenant"
MEGABIOS CORP.,
a California corporation
By:
-----------------------------------
Its:
------------------------------
-4-
<PAGE>
EXHIBIT H
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment for ATC Partners by E2C, Inc.
dated June 28, 1996.
2. Phase I Environmental Site Assessment for GE Capital by Clayton
Environmental Consultants, Clayton Project No. 70302.00.
3. Letter dated July 22, 1996, Clayton Environmental Consultants.
<PAGE>
SCHEDULE 1-A
FORM OF OPTION EXERCISE NOTICE
CERTIFIED MAIL--
RETURN RECEIPT REQUESTED
- ------------------------
TO: SFO OFFICE ASSOCIATES, LLC
2269 Chestnut Street, #336
San Francisco, CA 94123
Attn: Mr. Mike Halper
Notice is hereby given that the undersigned Tenant hereby exercises the
Option to extend the term of the Lease in accordance with Schedule I of that
----------
certain SFO Office Complex Office Lease, dated as of March 18, 1997, between the
undersigned, as Tenant, and SFO Office Associates, LLC, as Landlord. This Option
to extend the term of the Lease is being exercised to extend the term of the
Lease for one five (5)-year period to _____________________, ________.
Dated TENANT
--------------, -----
MEGABIOS CORP.
By:
---------------------------
Its.
---------------------------
<PAGE>
SCHEDULE 2
LIMITATIONS ON OPERATING EXPENSES
The categories of Operating Expenses listed in Section 7 of the Lease shall be
limited so as not to include any of the following items unless otherwise
expressly permitted in Section 7:
(i) wages, salaries, fees, and fringe benefits paid to administrative or
executive personnel or officers, partners or members of Landlord or its agents
unless such persons are employed at competitive rates as would be paid to an
independent third party, and then only to the extent that the labor of such
persons are reasonably allocable to the operation or maintenance of the Complex;
(ii) any charge for depreciation and any interest or other financing charge
relating to any financing of the Complex that are not necessary to fulfill
Landlord's obligations under this Lease and which do not relate to items which
otherwise would be includable in Operating Expenses as amortizable expenses;
(iii) any taxes, other than those permitted as Taxes pursuant to Section 6
of the Lease, and then only to the extent that Tenant is not already directly
paying its fair share of any such Taxes pursuant to Section 6;
(iv) all costs relating to activities for the solicitation, negotiation,
execution or enforcement of present or prospective leases of space in the
Complex (except enforcement of this Lease against Tenant);
(v) all costs for which Tenant or any other tenant in the Complex is being
or may be directly charged other than pursuant to a sharing in Operating
Expenses;
(vi) the costs of any alterations, additions, changes, replacements, and
other items (albeit classified by Landlord as maintenance or repairs) that under
generally accepted accounting principles are properly classified as capital
expenditures;
(vii) any Operating Expenses representing an amount paid (or reimbursed
for expenses) to any management agent, property manager or any other person or
entity to the extent they exceed what would reasonably be charges for comparable
services if rendered by an independent third party;
(viii) the cost of any work or service performed for or facilities or
utilities furnished to any tenant in the Complex that are provided selectively
or disproportionately to other tenants for their benefit and either not offered
to Tenant or separately billed to Tenant;
(ix) the cost of any improvements or alterations of space leased to other
tenants in the Complex that would under generally accepted accounting principles
be capital improvements;
SCHEDULE 2 - Page 1
<PAGE>
(x) the cost of overtime or other expense (including attorney's fees) to
Landlord because of its defaults or performing work expressly provided in this
Lease to be borne at Landlord's expense;
(xi) amounts paid after the date of this Lease (including interest and
penalties) by Landlord or any other tenant in the Complex in order to comply
with or cure violations of statutes, laws, notices, or ordinances that were
applicable to the Complex prior to the date of this Lease (except in the event
and to the extent caused by any act or omission of Tenant, including as a result
of any alterations or improvements made to the Premises by Tenant, or which is
otherwise the obligation of Tenant under this Lease);
(xii) any expense attributable to alterations, improvements or repairs
required after the date of this Lease by any law, ordinance, rule or regulation
that were applicable to the Complex prior to the date of this Lease, including
any costs of seismic work in the Complex or any costs of management, abatement,
remediation or removal of any Hazardous Materials in the Complex (except in the
event and to the extent caused by any act or omission of Tenant, including as a
result of any alterations or improvements made to the Premises by Tenant);
(xiii) any taxes assessed due to any improvements to other buildings other
than the Building or to any tenant spaces (excluding improvements made by
Tenant) on any portion of the Complex;
(xiv) all costs for which insurance or any other third party is obligated
by law or contract to reimburse Landlord to the extent Landlord actually
receives such reimbursement;
(xv) the cost of insurance premiums for any insurance in excess of levels
for comparable buildings, with the premiums, levels and coverages as they exist
as of the date hereof being hereby acknowledged to be reasonable (except in the
event and to the extent caused by any act or omission of Tenant), but excluding
any premiums associated with any insurance coverage of any tenant improvements
(including the Tenant Improvements);
(xvi) all costs associated with the operation or maintenance (including
repair) of the Building or any other buildings constituting a part of the
Complex if such cost or type of cost as it relates to the Premises is identified
under this Lease as a cost to be borne directly by Tenant hereunder:
(xvii) all costs associated with the operation, maintenance or repair of
any elevators in any buildings in the Complex.
SCHEDULE 2 - Page 2
<PAGE>
SCHEDULE 2-A
SFO OFFICE COMPLEX
EXPENSE DISTRIBUTION - MEGABIOS CORP.
REVISED: March 5,1997
866 Malcolm Bldg. E
<TABLE>
<CAPTION>
<S> <C>
EXPENSES
Management Salary Reimbursed to Landlord by Tenant
Group Insurance Reimbursed to Landlord by Tenant
Security Reimbursed to Landlord by Tenant
Misc G&A (less advertising) Reimbursed to Landlord by Tenant
Management Expense Reimbursed to Landlord by Tenant
Management Fee Reimbursed to Landlord by Tenant
Prof. Services Reimbursed to Landlord by Tenant
Legal Fees (as defined in lease) Reimbursed to Landlord by Tenant
Property Tax Services Reimbursed to Landlord by Tenant
Electricity Paid Separately by Tenant to Vendors
Natural Gas Paid Separately by Tenant to Vendors
Water & Sewer Paid Separately by Tenant to Vendors
Janitorial Service Paid Separately by Tenant to Vendors
Janitorial Supplies Paid Separately by Tenant to Vendors
Keys & locks (common areas only) Reimbursed to Landlord by Tenant
Pest Control Reimbursed to Landlord by Tenant
Plant Maintenance Reimbursed to Landlord by Tenant
Maintenance Salary Reimbursed to Landlord by Tenant
Trash Removal Reimbursed to Landlord by Tenant
Window Cleaning Reimbursed to Landlord by Tenant
Carpet Cleaning Reimbursed to Landlord by Tenant
Electrical & Lighting Reimbursed to Landlord by Tenant
Repair Hardware & Supply Reimbursed to Landlord by Tenant
Plumbing Repairs Reimbursed to Landlord by Tenant
Roof Repairs Reimbursed to Landlord by Tenant
Sign Repairs Reimbursed to Landlord by Tenant
Other Building Repairs Reimbursed to Landlord by Tenant
Elevator Maintenance No reimbursement - Landlord excludes these expenses
HVAC Maintenance Paid Separately by Tenant to Vendors
Other Equipment Maintenance Reimbursed to Landlord by Tenant
Elevator Repair No reimbursement - Landlord excludes these expenses
HVAC Repairs Paid Separately by Tenant to Vendors
Other Equipment Repair Reimbursed to Landlord by Tenant
Grounds Supply Equipment Reimbursed to Landlord by Tenant
Landscape Contract Reimbursed to Landlord by Tenant
Parking Lights Reimbursed to Landlord by Tenant
Sweeping Reimbursed to Landlord by Tenant
Insurance Reimbursed to Landlord by Tenant
Property Taxes Reimbursed to Landlord by Tenant
</TABLE>
SCHEDULE 2-A
<PAGE>
SCHEDULE 3
LEASEHOLD MORTGAGE PROVISIONS
(a) Leasehold Mortgage Authorized. Tenant may mortgage or otherwise encumber
-----------------------------
Tenant's leasehold estate (a "Leasehold Mortgage") to an Institutional Investor
(as hereinafter defined), under a Leasehold Mortgage and assign Tenant's
interest in this Lease as security for such Leasehold Mortgage.
(b) Notice to Landlord.
------------------
(1) Tenant shall keep Landlord reasonably informed as to any decision by
Tenant to enter into a Leasehold Mortgage. If Tenant shall mortgage Tenant's
leasehold estate to an Institutional Investor, and if either Tenant or the
holder of such Leasehold Mortgage shall provide Landlord with notice of such
Leasehold Mortgage together with a true copy of such Leasehold Mortgage and
the name and address of mortgagee thereunder (the "Leasehold Mortgagee"),
Landlord and Tenant agree that, following receipt of such notice by Landlord,
the provisions of this Schedule shall apply in respect to such Leasehold
Mortgage.
(2) In the event of any assignment of a Leasehold Mortgage (but such
assignment shall be only to an Institutional Investor) or in the event of a
change of address of a Leasehold Mortgagee, notice of the new name or address
of the Leasehold Mortgagee shall be provided to Landlord.
(3) Landlord shall promptly upon receipt of the notice provided for by
paragraph (b)(1) above acknowledge in writing to the Leasehold Mortgagee
receipt of such communication as constituting the notice provided for by
paragraph (b)(l) above.
(4) After Landlord has received the notice provided for by paragraph
(b)(I) above, Tenant, upon being requested to do so by Landlord, shall with
reasonable promptness, but in no event more than fifteen (15) days thereafter,
provide Landlord with copies of the note or other obligation secured by such
Leasehold Mortgage and of any other documents pertinent to the Leasehold
Mortgage as specified by Landlord. If requested to do so by Landlord, Tenant
shall thereafter also provide Landlord from time to time with a copy of each
amendment or other modification or supplement to such instruments, and any
assignments or conveyances of the Leasehold Mortgagee's interest.
(5) Tenant shall promptly provide Landlord with a copy of any notice of
default Tenant may receive from Leasehold Mortgagee with respect to the
Leasehold Mortgage.
(c) Definitions. The following terms are defined to and shall have the
-----------
following indicated meanings when used in this Schedule.
SCHEDULE 3 - Page 1
<PAGE>
(i) The term "Institutional Investor" shall refer to a savings bank,
savings and loan association, commercial bank, trust company, credit union,
insurance company, college, university, venture capital and/or partnership,
real estate investment trust or pension fluid. The term "Institutional
Investor" shall also include other lenders of substance which perform
functions similar to any of the foregoing, and which have assets in excess of
fifty million dollars ($50,000,000) at the time the Leasehold Mortgage loan is
made.
(ii) The term "Leasehold Mortgage" shall include a mortgage, a deed of
trust, a deed to secure debt, an assignment of rents, issues and profits from
the Premises, or other security instrument by which Tenant's leasehold estate
is mortgaged, conveyed, assigned, or otherwise transferred, to secure a debt
or other obligation.
(iii) The term "Leasehold Mortgagee" shall refer to a holder of a
Leasehold Mortgage in respect to which the notice provided for by paragraph
(b) of this Schedule has been given and received and as to which the
provisions of this Schedule are applicable.
(iv) The term "Leasehold Mortgage Purchaser" shall refer to the
purchaser at any sale of this Lease and of the leasehold estate hereby created
in any proceedings for the foreclosure of any Leasehold Mortgage, or the
assignee or transferee of this Lease and of the leasehold estate hereby
created under any instrument of assignment or transfer in lieu of the
foreclosure of any Leasehold Mortgage.
(d) Consent of Leasehold Mortgagee Required. No cancellation, surrender or
---------------------------------------
material modification of this Lease shall be effective as to the Leasehold
Mortgagee unless consented to in writing by such Leasehold Mortgagee.
(e) Default Notice. Landlord, upon providing Tenant any notice of (i) default
--------------
under this Lease, or (ii) termination of this Lease, shall at the same time
provide a copy of such notice to the Leasehold Mortgagee. No such notice by
Landlord to Tenant shall be deemed to have been duly given unless and until a
copy thereof has been so provided to the Leasehold Mortgagee. From and after the
date upon which such notice has been given to a Leasehold Mortgagee, such
Leasehold Mortgagee shall have the same period, after the giving of such notice
upon it, for remedying any default or acts or omissions which are the subject
matter of such notice or causing the same to be remedied, as is given Tenant
after the giving of such notice to Tenant, plus in each instance, the additional
periods of time specified in paragraphs (f) and (g) of this Schedule to remedy,
commence remedying or cause to be remedied the defaults or acts or omissions
which are the subject matter of such notice specified in any such notice.
Landlord shall accept such performance by or at the instigation of such
Leasehold Mortgagee as if the same had been done by Tenant. Tenant authorizes
the Leasehold Mortgagee to take any such action at such Leasehold Mortgagee's
option and does hereby authorize entry upon-the Premises by the Leasehold
Mortgagee for such purpose.
(f) Notice to Leasehold Mortgagee. Anything contained in this Lease to the
-----------------------------
contrary notwithstanding, if any default shall occur which entitles Landlord to
terminate this Lease while
SCHEDULE 3 - Page 2
<PAGE>
there exists a Leasehold Mortgage, Landlord shall have no right to terminate
this Lease unless, following the expiration of the period of time given Tenant
to cure such default or the act or omission which gave rise to such default,
Landlord shall notify the Leasehold Mortgagee of Landlord's intent to so
terminate this Lease ("Termination Notice") at least fifteen (15) days in
advance of the proposed effective date of such termination if such default is
capable of being cured by the payment of money, and at least thirty (30) days in
advance of the proposed effective date of such termination if such default is
not capable of being cured by the payment of money. The provisions of paragraph
(g) below of this Schedule shall apply if, during such 15- or 30-day Termination
Notice period, the Leasehold Mortgagee shall:
(i) notify Landlord of such Leasehold Mortgagee's desire to nullify
such notice, and
(ii) pay or cause to be paid all Base Rent, additional rent, and other
payments then due and in arrears as specified in the Termination Notice to
such Leasehold Mortgagee and which may become due during such 15 or 30-day
period, and
(iii) comply or, in good faith, with reasonable diligence and
continuity, commence to comply with all non-monetary requirements of this
Lease then in default and susceptible of being complied with by such Leasehold
Mortgagee.
(g) Procedure on Default.
--------------------
(1) If Landlord shall elect to terminate this Lease by reason of any
default of Tenant, and a Leasehold Mortgagee shall have proceeded in the
manner provided for by paragraph (f) of this Schedule, the specified date for
the termination of this Lease as fixed by Landlord in its Termination Notice
shall be extended for a period of four (4) months, provided that such
Leasehold Mortgagee shall, during such four (4)-month period:
(i) Pay or cause to be paid the Base Rent, additional rent and other
monetary obligations of Tenant under this Lease as the same become due, and
continue its good faith efforts to perform all of Tenant's other obligations
under this Lease, excepting past non-monetary obligations then in default and
not susceptible of being cured by such Leasehold Mortgagee such as curing the
bankruptcy or insolvency of Tenant; and
(ii) If not enjoined or stayed, take steps to acquire or sell Tenant's
interest in this Lease by foreclosure of the Leasehold Mortgage or other
appropriate means and prosecute the same to completion with due diligence.
(2) If at the end of such four (4)-month period such Leasehold Mortgagee
is complying, and thereafter continues to comply with paragraph (g)(l), this
Lease shall not then terminate, and the time for completion by such Leasehold
Mortgagee of its proceedings shall continue so long as such Leasehold
Mortgagee is enjoined or stayed and thereafter for so long as such Leasehold
Mortgagee proceeds to complete steps to acquire or sell Tenant's interest in
this Lease by foreclosure of the Leasehold Mortgage or
SCHEDULE 3 - Page 3
<PAGE>
there exists a Leasehold Mortgage, Landlord shall have no right to terminate
this Lease unless, following the expiration of the period of time given Tenant
to cure such default or the act or omission which gave rise to such default,
Landlord shall notify the Leasehold Mortgagee of Landlord's intent to so
terminate this Lease ("Termination Notice") at least fifteen (15) days in
advance of the proposed effective date of such termination if such default is
capable of being cured by the payment of money, and at least thirty (30) days
in advance of the proposed effective date of such termination if such default
is not capable of being cured by the payment of money. The provisions of
paragraph (g) below of this Schedule shall apply if, during such 15- or 30-day
Termination Notice period, the Leasehold Mortgagee shall:
(i) notify Landlord of such Leasehold Mortgagee's desire to nullify
such notice, and
(ii) pay or cause to be paid all Base Rent, additional rent, and other
payments then due and in arrears as specified in the Termination Notice to
such Leasehold Mortgagee and which may become due during such 15 or 30-day
period, and
(iii) comply or, in good faith, with reasonable diligence and
continuity, commence to comply with all non-monetary requirements of this
Lease then in default and susceptible of being complied with by such Leasehold
Mortgagee.
(g) Procedure on Default.
--------------------
(1) If Landlord shall elect to terminate this Lease by reason of any
default of Tenant, and a Leasehold Mortgagee shall have proceeded in the
manner provided for by paragraph (f) of this Schedule, the specified date for
the termination of this Lease as fixed by Landlord in its Termination Notice
shall be extended for a period of four (4) months, provided that such
Leasehold Mortgagee shall, during such four (4) -month period:
(i) Pay or cause to be paid the Base Rent, additional rent and other
monetary obligations of Tenant under this Lease as the same become due, and
continue its good faith efforts to perform all of Tenant's other obligations
under this Lease, excepting past non-monetary obligations then in default and
not susceptible of being cured by such Leasehold Mortgagee such as curing the
bankruptcy or insolvency of Tenant; and
(ii) If not enjoined or stayed, take steps to acquire or sell Tenant's
interest in this Lease by foreclosure of the Leasehold Mortgage or other
appropriate means and prosecute the same to completion with due diligence.
(2) If at the end of such four (4) -month period such Leasehold Mortgagee
is complying, and thereafter continues to comply with paragraph (g)(l), this
Lease shall not then terminate, and the time for completion by such Leasehold
Mortgagee of its proceedings shall continue so long as such Leasehold
Mortgagee is enjoined or stayed and thereafter for so long as such Leasehold
Mortgagee proceeds to complete steps to acquire or sell Tenant's interest in
this Lease by foreclosure of the Leasehold Mortgage or
SCHEDULE 3 - Page 3
<PAGE>
by other appropriate means with reasonable diligence and continuity. Nothing
in this paragraph (g) of this Schedule, however, shall be construed to extend
this Lease beyond the original term thereof as extended by any options to
extend the term of this Lease properly exercised by Tenant in accordance with
the provisions of this Schedule, nor to require a Leasehold Mortgagee to
continue such foreclosure proceedings after the default has been cured. If the
default shall be cured and the Leasehold Mortgagee shall discontinue such
foreclosure proceedings, this Lease shall continue in full force and effect as
if Tenant had not defaulted under this Lease.
(3) If a Leasehold Mortgagee is complying with paragraph (g)(l) of this
Schedule, upon the acquisition of Tenant's estate herein by such Leasehold
Mortgagee or its designee or any other Leasehold Mortgage Purchaser, this
Lease shall continue in full force and effect as if Tenant had not defaulted
under this Lease.
(4) For the purposes of this Schedule, the making of a Leasehold Mortgage
shall not be deemed to constitute an assignment or transfer of this Lease or
of the leasehold estate hereby created, nor shall the Leasehold Mortgagee, as
such, be deemed to be an assignee or transferee of this Lease or of the
leasehold estate hereby created so as to require such Leasehold Mortgagee, as
such, to assume the performance of any of the terms, covenants or conditions
on the part of the Tenant to be performed hereunder, but a Leasehold Mortgage
Purchaser shall be deemed to be an assignee or transferee within the meaning
of this Schedule, and such Leasehold Mortgage Purchaser shall be deemed to
have agreed to perform all of the terms, covenants and conditions on the part
of the Tenant to be performed hereunder from and after the date of such
purchase and assignment, but only for so long as such Leasehold Mortgage
Purchaser is the owner of the Leasehold Estate.
(5) Any Leasehold Mortgage Purchaser may, upon acquiring Tenant's
leasehold estate hereunder, with the further consent of Landlord in accordance
with Section 17, sell and assign such leasehold estate on such terms and to
such person or entity as assignee as are acceptable to such Leasehold Mortgage
Purchaser and thereafter be relieved of all obligations under this Lease,
provided that such assignee has delivered to Landlord in accordance with
Section 17 its written agreement to be bound by all of the provisions of this
Lease.
(6) Notwithstanding any other provisions of this Lease, any sale of this
Lease and of the leasehold estate hereby created in any proceedings for the
foreclosure of any Leasehold Mortgage, or the assignment or transfer of this
Lease and of the leasehold estate hereby created in lieu of the foreclosure of
the Leasehold Mortgage shall be deemed to be a permitted sale, transfer or
assignment of this Lease and of the leasehold estate hereby created.
(h) New Lease. In the event of the termination of this Lease as a result of
---------
Tenant's default, Landlord shall, in addition to providing the notices of
default and termination as required by paragraphs (e) and (f) above of this
Schedule, provide the Leasehold Mortgagee with written
SCHEDULE 3 - Page 4
<PAGE>
notice that the Lease has been terminated, together with a statement of all sums
which would at that time be due under this Lease but for such termination, and
of all other defaults, if any, then known to Landlord. Landlord agrees, at the
election of the Leasehold Mortgagee, to enter into a new lease ("New Lease") of
the Premises with such Leasehold Mortgagee or its designee for the remainder of
the term of this Lease, effective as of the date of termination, at the Base
Rent and additional rent, and upon the terms, covenants and conditions
(including all options to renew, but excluding requirements which are not
applicable or which have already been fulfilled) of this Lease, provided:
(i) Such Leasehold Mortgagee shall make written request upon Landlord
for such New Lease within ten (10) business days after the date such Leasehold
Mortgagee receives Landlord's Notice of Termination of this Lease given
pursuant to this paragraph (h).
(ii) Such Leasehold Mortgagee or its designee shall pay or cause to be
paid to Landlord at the time of the execution and delivery of such New Lease,
any and all sums which would at the time of execution and delivery thereof be
due pursuant to this Lease but for such termination and, in addition thereto,
all reasonable expenses, including reasonable attorneys' fees and court costs,
which Landlord shall have incurred by reason of such default by Tenant and the
termination and the execution and delivery of the New Lease and which have not
otherwise been received by Landlord from Tenant or another party.
(iii) Such Leasehold Mortgagee or its designee shall agree to remedy
any of Tenant's defaults of which said Leasehold Mortgagee was notified by
Landlord's Notice of Termination and which are susceptible of being so cured
by the Leasehold Mortgagee or its designee.
(iv) Any New Lease made pursuant to this paragraph (h) shall have the
same right, title and interest in and to the Premises and the buildings and
improvements thereon as Tenant had under this Lease.
(v) The tenant under any such New Lease shall be liable to perform the
obligations imposed on the Tenant by such New Lease only during the period
such person has ownership of such Leasehold Estate.
Upon execution and delivery of the New Lease, Landlord, at the expense of
the new tenant thereunder, shall take such action as shall be necessary to
cancel and discharge this Lease and to remove Tenant named herein from the
Premises. Landlord agrees that, until the earlier to occur of (A) the execution
and delivery of the New Lease, or (B) the expiration of the ten (10) business
day period set forth in subparagraph (h)(i) above without the Leasehold
Mortgagee's having given notice of its request for the New Lease, Landlord shall
not modify, amend or terminate any sublease of any portion of the Premises and
that, upon execution and delivery of any New Lease, Landlord shall assign all of
its right, title and interest in and to all such subleases to the Leasehold
Mortgagee or the Leasehold Mortgage Purchaser. Any sums received by Landlord as
rental owed to
SCHEDULE 3 - Page 5
<PAGE>
Tenant under any such subleases shall be credited against any monetary defaults
under this Lease.
(i) Casualty Loss. A standard mortgagee clause naming the Leasehold Mortgagee
-------------
may be added to any and all insurance policies required to be carried by Tenant
hereunder on the condition that the insurance proceeds are to be applied in the
manner specified in this Lease and the Leasehold Mortgage shall so provide.
(j) Legal Proceedings. Landlord shall give Leasehold Mortgagee prompt notice
-----------------
of any arbitration or legal proceedings between Landlord and Tenant involving
obligations under this Lease. Leasehold Mortgagee shall have the right to
intervene in any such proceedings and be made a party to such proceedings, and
the parties hereto do hereby consent to such intervention. In the event that the
Leasehold Mortgagee shall not elect to intervene or become a party to any such
proceedings, Landlord shall give the Leasehold Mortgagee notice of, and a copy
of any award or decision made in any such proceedings, which shall be binding on
the Leasehold Mortgagee.
(k) Security Deposit. If the Leasehold Mortgagee or Leasehold Mortgage
----------------
Purchaser has acquired the leasehold estate of Tenant pursuant to foreclosure,
conveyance in lieu of foreclosure or other proceedings, or has entered into a
New Lease with Landlord in accordance with paragraph (h) of this Schedule, such
Leasehold Mortgagee or Leasehold Mortgage Purchaser shall succeed to the rights
of Tenant, if any, in and to the security deposit paid by Tenant to Landlord
pursuant to the terms of this Lease. In such event, Tenant shall no longer have
any rights to such security deposit and Landlord shall hold such security
deposit for and on behalf of such Leasehold Mortgagee or Leasehold Mortgage
Purchaser.
(l) Erroneous Payments. No payment made to Landlord by a Leasehold Mortgagee
------------------
shall constitute agreement that such payment was, in fact, due under the terms
of this Lease; and a Leasehold Mortgagee having made any payment to Landlord
pursuant to Landlord's wrongful, improper or mistaken notice or demand shall be
entitled to the return of any such payment or portion thereof, provided that
such Leasehold Mortgagee shall have made demand therefor not later than one year
after the date of its payment.
(m) Sublease Rentals. Landlord consents to a provision in any Leasehold
----------------
Mortgage or otherwise for an assignment of Tenants interest in rents from
subleases of the Premises, as additional security to the Leasehold Mortgagee.
(n) Equipment Mortgages Authorized. On one or more occasions, Tenant may
------------------------------
lease, sell and leaseback, mortgage or otherwise encumber Tenants interest in
any item or items of furniture, inventory, trade fixtures, equipment (including,
without limitation, any equipment which by its installation in the Premises has
become a fixture) or other personal property then or thereafter to be located or
installed in the Premises (collectively for purposes of this Schedule,
"Equipment Mortgage" and "Equipment," respectively) to any company engaged in
the business of selling or financing the same (including but not limited to the
manufacturer, distributor or retailer of any Equipment or any Institutional
Investor) under one or more Equipment Mortgages. If either Tenant or any
Equipment Mortgagee shall provide Landlord with notice of any
SCHEDULE 3 - Page 6
<PAGE>
Equipment Mortgage, together with a true copy of such Equipment Mortgage and the
name and address of the Equipment Mortgagee, Landlord and Tenant agree that the
following shall apply to such Equipment Mortgage and the Equipment:
(i) Title to the Equipment shall be and remain in the name of either
Tenant or Equipment Mortgagee during the term of the Lease and not that of
Landlord, and as between Landlord and Equipment Mortgagee, shall not be deemed
to constitute real property and may be removed from the Premises by the
Equipment Mortgagee at any time during the term of the Lease in the event of a
default by Tenant under the terms of its Equipment Mortgage.
(ii) In the event of any assignment of an Equipment Mortgage, or in
the event of a change of address of an Equipment Mortgagee, notice of the new
name or address of the Equipment Mortgagee shall be provided to Landlord.
(iii) Landlord shall promptly notify the Equipment Mortgagee of any
termination or expiration of the term of this Lease, and afford any Equipment
Mortgagee a reasonable period of time, which period shall not exceed sixty
(60) days without the Landlord's written consent, after Equipment Mortgagee's
receipt of such notice in which Equipment Mortgagee may enter the premises to
inspect and remove any Equipment from the Premises which then remains subject
to such Equipment Mortgage. In the event that the Equipment Mortgagee occupies
the Premises or any portion thereof for any period, Equipment Mortgagee shall
pay Landlord an occupancy fee equal to the Base Rent and any additional rent
allocable to the portion so occupied. All physical damage to the Premises
caused by the removal of the Equipment by Equipment Mortgagee shall be
reimbursed or repaired by Equipment Mortgagee.
(iv) Landlord shall upon request of Tenant, execute any document
reasonably requested of it to evidence in favor of any Equipment Mortgagee (A)
the consent of Landlord to any such Equipment Mortgage, (B) the waiver by
Landlord of any possible rights in or liens upon any such Equipment, and (C)
the acknowledgment by Landlord of the rights of such Equipment Mortgagee in
and to such Equipment (including the rights of Equipment Mortgagee to remove,
subject to repairing the Premises, such Equipment upon termination of this
Lease); provided, that such Equipment Mortgagee expressly agrees to reimburse
Landlord for or to repair any damage to the Premises caused by the removal of
the Equipment and otherwise agrees to the terms of this Section,
(o) Notices. Notices from Landlord to the Leasehold Mortgagee or Equipment
-------
Mortgagee shall be mailed to the address furnished Landlord pursuant to this
Schedule, and those from the Leasehold Mortgagee or Equipment Mortgagee to
Landlord shall be mailed to the address designated pursuant to the provisions of
Section 43 of this Lease. Such notices, demands and requests shall be given in
the manner described in Section 43 of this Lease and shall in all respects be
governed by the provisions of that Section.
SCHEDULE 3 - Page 7
<PAGE>
(p) Leasehold and Equipment Mortgagee Benefited. The respective provisions of
-------------------------------------------
this Schedule are for the benefit of, and are to be enforceable by, the
Leasehold Mortgagee, Leasehold Mortgagee Purchaser or Equipment Mortgagee.
SCHEDULE 3 - Page 8
<PAGE>
EXHIBIT 10.14
[LETTERHEAD OF IMPERIAL BANK]
226 Airport Parkway
Jose, California
Subject: Credit Terms and Conditions ("Agreement")
Gentlemen:
To induce you to make loans to the undersigned (herein called "Borrower"), and
in consideration of any loan or loans you, in your discretion, may make to
Borrower, Borrower warrants and agrees as follows:
A. Borrower represents and warrants that:
1. EXISTENCE AND RIGHTS.
Company is a
[_] sole proprietor.
or individual.
[_] partnership.
[X] corporation.
If a partnership or corporation, Borrower is duly organized and existing and in
good standing under the laws of the State of California (if a corporation,
----------
without limit as to the duration of its existence) and is authorized and in good
standing to do business in the State of California. Company has powers and
adequate authority, rights and franchises to own its property and to carry on
its business as now conducted, and is duly qualified and in good standing in
each State in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary, and Borrower has the
power and adequate authority to make and carry out this Agreement. Borrower has
no investment in any other business entity, except as previously disclosed.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; are not in contravention of or
in conflict with any law or regulation or any term or provision of Borrower's
articles of incorporation, by-laws, or Articles of Association, as the case may
be, and this Agreement is the valid, binding and legally enforceable obligation
of Borrower in accordance with its terms.
3. NO CONFLICT. The execution, delivery and performance of this Agreement
are not in contravention of or in conflict with any agreement, indenture or
undertaking to which Borrower is a party or by which it or any of its property
may be bound or affected, and do not cause any lien, charge or other encumbrance
to be created or imposed upon any such property by reason thereof.
4. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower, and Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court or other
governmental or regulatory authority.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of February 28,
------------
1995, and the related profit and loss statement for the period ended on that
- ----- ------
date, a copy of which has heretofore been delivered to you by Borrower, and all
other statements and data submitted in writing by Borrower to you in connection
with this request for credit are true and correct, and said balance sheet and
profit and loss statement truly present the financial condition of Borrower as
of the date thereof and the results of the operations of Borrower for the period
covered thereby, and have been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained subject to year-end and
audit adjustments. Since such date there have been no materially adverse changes
in the financial condition or business of Borrower. Borrower has no knowledge of
any liabilities, contingent or otherwise, at such date not reflected in said
balance sheet, and Borrower has not entered into any special commitments or
substantial contracts which are not reflected in said balance sheet, other than
in the ordinary and normal course of its business, which may have a materially
adverse effect upon its financial condition, operations or business as now
conducted.
6. TITLE TO ASSETS. Borrower has good title to its assets, and the same
are not subject to any liens or encumbrances other than those permitted by
Section C.3 hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, and if Borrower has contracted with any governmental agency,
Borrower has no liability for renegotiation of profits.
Borrower: MEGABIOS CORP.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
9. REGULATION U. The proceeds of this loan shall not be used to purchase
or carry margin stock (as defined with Regulation U of the Board of Governors
of the Federal Reserve system).
B. Borrower agrees that so long as it is indebted to you, it will, unless you
shall otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate proceedings
in such manners as not to cause any materially adverse effect upon its financial
condition or the loss of any right of redemption from any sale thereunder, and
(b) it shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it adequate with
respect thereto.
4. [Intentionally struck out]
5. RECORDS AND REPORTS. Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles on a basis consistently
maintained; permit your representatives to have access to, and to examine its
properties, books and records at all reasonable times; and furnish you:
(a) As soon as available, and in any event within 25 days after the close of
--
each month of each fiscal year of Borrower, commencing with the month next
----- -----
ending, a balance sheet, profit and loss statement and reconciliation of
Borrower's capital accounts as of close of such period and covering operations
for the portion of Borrower's fiscal year ending on the last day of such period,
all in reasonable detail and stating in comparative form the figures for the
corresponding date and period in the previous fiscal year, prepared in
accordance with generally accepted accounting principles on a basis consistently
maintained by Borrower and certified by an appropriate officer of Borrower,
subject, however, to year-end audit adjustments;
(b) As soon as available, and in any event within 90 days after the close of
each fiscal year of Borrower, a report of audit of Company as of the close of
and for such fiscal year, all in reasonable detail and stating in comparative
form the figures as of the close of and for the previous fiscal year, with the
[X] unqualified [_] qualified opinion of accounts satisfactory to you, or
[_] no third party opinion required.
<PAGE>
(c) within 90 days after the end of each fiscal year of Borrower,a
certificate of chief financial officer or partner of Borrower,
stating that Borrower has performed and observed each and every
covenant contained in this Letter of Inducement to be performed by it
and that no event has occurred and no condition then exists which
constitutes an event of default hereunder or would constitute such an
event of default upon the lapse of time or upon the giving of notice
and the lapse of time specified herein, or, if any such event has
occurred or any such condition exists, specifying the nature thereof:
(d) Promptly after the receipt thereof by Borrower, copies of any
detailed audit reports submitted to Borrower by independent
accountants in connection with each annual or interim audit of the
accounts of Borrower made by such accountants;
(e) Promptly after the same are available, copies of all such proxy
statements, financial statements and reports as Borrower shall send
to its stockholders, if any, and copies of all reports which Borrower
may file with the Securities and Exchange Commission or any
governmental authority at any time substituted therefor; and
(f) Such other information relating to the affairs of Borrower as you
reasonably may request from time to time.
(g) Notice of Default. Promptly notify the Bank in writing of the
occurrence of any event of default hereunder or any event which upon
notice and lapse of time would be an event of default.
C. Borrower agrees that so long as it is indebted to you,it will not, without
your written consent:
1. Type of Business; Management; Executives' Compensation. Make any
substantial change in the character of its business; or make any change in its
executive management; or allow the salary, bonuses or other compensation of any
of its executives,to exceed $ N/A per annum in the aggregate.
-----
2. Outside Indebtedness. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from you except (i)
obligations now existing as shown in financial statement dated February 28,1995.
-----------------
excluding those being refinanced by your bank; (ii) short-term bridge loans from
corporate insiders; and (iii) indebtedness incurred to finance equipment (the
"Permitted Debt") or sell or transfer, either with or without recourse, any
accounts or notes receivable or any moneys due to become due.
3. Liens and Encumbrances. Create, incur, or assume any mortgage, pledge
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by it, other than
liens for taxes not delinquent and liens in your favor and liens in connection
with Permitted Debt.
4. Loans, Investments, Secondary Liabilities. Make any loans or advances in
to any person or other entity other than in the ordinary and normal course of
its business as now conducted or make any investment in the securities of any
person or other entity other than the United States Government; or guarantee or
otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in the
ordinary and normal course of its business.
5. Acquisition or Sale of Business; Merger or Consolidation. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings therof;
or sell any assets except in the ordinary and normal course of its business as
now conducted; or sell, lease, assign, or transfer any substantial part of its
business or fixed assets, or any property or other assets necessary for the
continuance of its business as now conducted including without limitation the
selling of any property or other asset accompanied by the leasing back of the
same.
6. Dividends, Stock Payments. If a corporation declare or pay any dividend
(other than dividends payable in common stock of Borrower) or make any other
distribution on any of its capital stock now outstanding or hereafter issued or
a purchase, redeem or retire any of such stock; except, however, Borrower may
pay a cash dividend to its shareholders in an amount not to exceed 0% of
net after taxes earnings for such dividend period.
7. [Intentionally struck]
8. [Intentionally struck]
D. The occurence of any one of the following events of default shall, at your
option, terminate your commitment to lend and make all sums of principal and
interest then remaining unpaid on all Borrower's indebtedness to you immediately
due and payable, all without demand, presentment or notice, all of which are
hereby expressly waived;
1. FAILURE TO PAY NOTE. Failure to pay installment of principal or on
interest on any indebtedness of Borrower to you.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement binding upon Borrower.
3. Breach of Warranty. Any of Borrower's representations or warranties made
herein or any statement or certificate at any time given in writing pursuant
hereto or in connection herewith shall be false or misleading in any material
respect.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or
admit its inability to pay its debts as they mature; or make an assignment for
the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
5. JUDGEMENTS, ATTACHMENTS. Any money judgement, writ or warrant or
attachment, or similar process shall be entered or filed against Borrower or
any of its assets and shall remain unvacated unbonded or unstayed for a period
of 10 days or in any event later than five days prior to the date of any
proposed sale thereunder.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall be consented to.
E. MISCELLANEOUS PROVISIONS.
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of your
Bank or any holder of Notes issued hereunder, in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this agreement or any note issued in
connection with a loan that your Bank may make hereunder, are cumulative to, and
not exclusive of, any rights or remedies otherwise available.
The terms and conditions in the attached commitment letter dated May 19,1995
are hereby incorporated. In the event of a conflict between this Agreement
and the commitment letter, the terms in the commitment letter prevail.
MEGABIOS CORP.
By /s/ Benjamin F. McGraw
-------------------------------------
(Signature and Title)
PRESIDENT & CEO
By /s/
-------------------------------------
<PAGE>
DO NOT DESTROY THIS NOTE:
When paid, this note, with the Deed of Trust securing same, must be surrendered
to the Trustee for cancellation before reconveyance will be made
[LOGO APPEARS HERE]
IMPERIAL BANK
Member FDIC
NOTE SECURED BY DEED OF TRUST
$ 1,500,000.00 San Jose, California, August 15, 1995
On July 31, 1998, and as hereinafter provided, for value received, the
undersigned promises to pay to IMERIAL BANK ("Bank"), a California banking
corporation, or order, at its SANTA CLARA VALLEY REGIONAL office, the principal
sum of $ 1,500,000.00 or such sums up to the maximum if so stated, as the Bank
may now or hereafter advance to or for the benefit of the undersigned in
accordance with the terms hereof, together with interest from date of
disbursement or N/A, whichever is later, on the unpaid principal balance [_] at
the rate of __% per year [X] at the rate of 2.000% per year in excess of the
rate of interest which Bank has announced as its prime lending rate (the "Prime
Rate"), which shall vary concurrently with any change in such Prime Rate, or
$250.00, whichever is greater. Interest shall be computed at the above rate on
the basis of the actual number of days during which the principal balance is
outstanding, divided by 360, which shall, for interest computation purposes, be
consider one year. Interest shall be payable [X] monthly [_] quarterly [_]
included with principal [X] in addition to principal [_] beginning AUGUST 31,
1995 and if not so paid shall become a part of the principal. All payments shall
be applied first to interest, and the remainder, if any, on principal. [X] (if
checked), Principal shall be payable in installments of $41,666.67, or more,
each installment on the 31st day of each MONTH, beginning AUGUST 31, 1995.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal or
interest when due, or in the performance or observance, when due, of any item,
convenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extentions thereof) securing or pertaining
to this note, at the option of the holder hereof and without notice or demand,
the entire balance of principal and accrued interest then remaining unpaid shall
(a) become immediately due and payable, and (b) thereafter bear interest, until
paid in full, at the increased rate of 5% per year in excess of the rate
provided for above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the maker(s)
to pay principal or interest when due; the filing as to each person obligated
hereon, whether as maker, co-maker, endorser or guarantor (individually or
collectively referred to as the "Obligor") of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act; the issuance of
any attachment or execution against any asset of any Obligor; the death of any
Obligor; or any deterioration of the financial condition of any Obligor which
results in the holder hereof considering itself, in good faith, insecure.
[_] If any installment payment or principal balance payment due hereunder is
delinquent ten or more days, Obligor agrees to pay a late charge in the amount
of 5% of the payment so due and unpaid, in addition to the payment; but nothing
in this paragraph is to be construed as any obligation on the part of the holder
of this note to accept payment of any installment past due or less than the
total unpaid principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all costs
and expenses of collection and reasonable attorney's fees incurred by the holder
hereof on account of such collection, plus interest at the rate applicable to
principal, whether or not suit is filed hereon. Each Obligor shall be jointly
and severally liable hereon and consents to renewals, replacements and
extensions of time for payment hereof, before, at, or after maturity; consents
to the acceptance, release or substitution of security for this note; and waives
demand and protest and the right to assert any statute of limitations. Any
married person who signs this note agrees that recourse may be had against
separate property for any obligations hereunder. The indebtedness evidenced
hereby shall be payable in lawful money of the United States. In any action
brought under or arising out of this note, each Obligor, including successor(s)
or assign(s) hereby consents to the application of California law, to the
jurisdiction of any competent court within the State of California, and to
service of process by any means authorized by California law.
This note is secured by a deed of trust, dated AUGUST 15, 1995, to IMPERIAL
BANCORP as Trustee which contains the following provisions: "In the event the
herein described property or any part thereof, or any interest therein is sold,
agreed to be sold, conveyed, transferred, disposed of, further encumbered, or
alienated by trustor or by the operation of law or otherwise, without the
written consent of beneficiary first obtained, all obligations secured by this
instrument, irrespective of the maturity dates expressed therein, at the option
of the holder beneficiary, and without demand or notice shall immediately become
due and payable. Consent to one such transaction shall not be deemed to be a
waiver of the right to require such consent to future or successive
transactions".
No single or partial exercise of any power hereunder, or under any deed of
trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any such power.
The holder hereof shall at all times have the right to proceed against any
portion of the security for this note in such order and in such manner as such
holder may consider appropriate, without waiving any rights with respect to any
of the security. Any delay or omission on the part of the holder hereof in
exercising any right hereunder, or under any deed of trust, security agreement
or other agreement, shall not operate as a waiver of such right, or of any other
right, under this note or any deed of trust, security agreement or other
agreement in connection herewith.
MEGABIOS CORP.
___________________________________ ------------------------------------
BY /s/ Patrick Enright
___________________________________ ------------------------------------
/s/ Benjamin McGraw
___________________________________ ------------------------------------
<PAGE>
[LOGO OF IMPERIAL BANK APPEARS HERE]
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
Name(s):MEGABIOS CORP. Date: August 15,1995
$ paid to you directly by Cashiers Check No.
$ credited to deposit account No.
$ 1,500,000.00 paid on Loan(s) No. 20-5958-0003
$ amounts paid to Bank for:
Amounts paid to others on your behalf:
$ to Title Insurance Company
$ to Public Officials
$ to
$ to
$ to
$ to
$ 1,500,000.00 SUBTOTAL (NOTE AMOUNT)
LESS $ 0.00 Prepaid Finance Charge (Loan fee(s))
$ 1,500,000.00 TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Imperial Bank to disburse the loan proceeds as stated above.
MEGABIOS CORP.
BY /s/ Patrick Enright
- ----------------------------------- ------------------------------------
Signature Signature
/s/ Benjamin McGraw
- ----------------------------------- ------------------------------------
Signature Signature
<PAGE>
RECORDING REQUESTED BY
IMPERIAL BANK
WHEN RECORDED, MAIL TO
IMPERIAL BANK
Note Center
9920 S. La Cienega Blvd.
Inglewood, California 90301
Special Markets Group #2005 INDEX AS DEED OF TRUST AND ASSIGNMENT OF RENTS
- -------------------------------- SINCE ABOVE THIS LINE FOR RECORDER'S USE-----
Real Estate Loan
Short Form
DEED OF TRUST AND ASSIGNMENT OF RENTS
BY THIS DEED OF TRUST, made on August 15,1995
by MEGABIOS CORP.
(herein called "Trustor"),
whose address is 863 A. Mitten Road
(Number and Street)
BURLINGAME CA 94010
(City) (State) (Zip Code)
to IMPERIAL BANCORP, a California corporation as Trustee, for the benefit of
IMPERIAL BANK, a California corporation, as Beneficiary,
Trustor irrevocably GRANTS, TRANSFERS AND ASSIGNS TO TRUSTEE IN TRUST, WITH
POWER OF SALE, all that property in the
Burlingame, County of San Mateo, State of California, described as:
Trustors interest as tenant under lease with PRUDENTIAL LIFE
AND ACCIDENT INSURANCE COMPANY, a Tennessee corporation dated
December 21, 1993 in real property described on the attached
"EXHIBIT A" consisting of one page.
Initial here PE
----
and commonly known as 863 A Mitten Road, Burlingame, CA 94010 ,
INCLUDING (a) all appurtenances and easements and rights of way used in
connection therewith or as a means of access thereto; (b) all buildings,
improvements and fixtures now or hereafter placed thereon, it being understood
and agreed that all classes of property attached or unattached used in
connection therewith shall be deemed fixtures; and (c) any water rights and/or
the stock of any water company which rights and/or stock are appurtenant or
pertain to said property.
TOGETHER WITH the rents, issues and profits thereof, SUBJECT, HOWEVER, to the
right, power and authority hereinafter given to and conferred upon Trustor to
collect and retain such rents, issues and profits prior to any default
hereunder.
FOR THE PURPOSE OF SECURING: (1) Payment of the indebtedness with interest
thereon evidenced by a PROMISSORY NOTE
executed
by TRUSTOR ,
dated August 15, 1995, in the principal sum of $1,500,000.00 payable to
Beneficiary or order, and all modifications, extensions or renewals thereof; (2)
Payment of such additional sums with interest thereon as the then record owner
of said property may hereafter borrow from Beneficiary, when evidenced by note
(or notes) or any agreement reciting that it is so secured; (3) Performance of
each agreement of Trustor and Borrower incorporated herein by reference or
contained herein; and (4) Performance of each agreement of Trustor contained in
any and all agreements executed by Trustor for the purpose of further securing
any obligations secured hereby.
In the event the herein described property, or any part therof, or any interest
therein, is sold, agreed to be sold, conveyed, transferred, disposed of, further
encumbered, or alienated by Trustor or by the operation of law or otherwise
without the written consent of Beneficiary first obtained, all obligations
secured by this instrument, irrespective of the maturity dates expressed
therein, at the option of the holder beneficiary, and without demand or notice,
shall immediately become due and payable. Consent to one such transaction shall
not be deemed to be a waiver of the right to require such consent to future or
successive transactions.
Page 1 of 4
<PAGE>
1. To complete promptly and in good and skillful manner any building or
improvement which may be begun on said property, and to pay when due all costs
and liabilities incurred therefor or in connection therewith, and if the loan
secured hereby, or any part thereof, is obtained for the purpose of construction
of improvements on said property, anything in the Deed of Trust to the contrary
notwithstanding: (a) to commence and complete such improvements promptly and in
any event both with respect to commencement and completion, not later than the
times specified in the building loan agreement; (b) to complete the same in
accordance with plans and specifications satisfactory to the Beneficiary; (c)
to allow Beneficiary to inspect said property at all times during construction;
(d) to replace, within fifteen (15) days after written notice from Beneficiary,
any work or materials unsatisfactory to Beneficiary, which notice may be given
to trustor by registered mail, sent to his last known address, or by personal
service; and (e) that no cessation of the construction of such improvements
shall continue, for any reason whatsoever, for a period of five (5) days or
more.
2. To maintain said property in good condition and repair; not to remove,
demolish or substantially alter any building or improvement thereon; not to
permit any building or improvement thereon to remain vacant or unoccupied for
more than six (6) consecutive months; to restore promptly and in good and
skillful manner any improvement thereon which is damaged or destroyed, and to
pay when due all costs and liabilities incurred therefor or in connection
therewith; to comply with all laws ordinances, regulations, covenants,
conditions, and restrictions affecting said property or requiring any
alterations or improvements to be made thereon; not to commit, suffer or permit
any waste thereof or any act upon said property in violation of law of
covenants, conditions or restrictions affecting said property; to perform, in
the event that all or any portion of said property constitutes a leasehold
estate belonging to Trustor, each and every obligation of Trustor under the
terms of the lease agreement and to refrain from taking action prohibited, as
necessary, to preserve and protect the leasehold estate and the value thereof;
if said lands are agricultural, property to harvest and care for the crops at
any time growing thereon or produced therefrom, also to cultivate, irrigate,
fertilize, spray, fumigate, and prune; and to do all other acts which from the
character or use of the property are reasonably necessary to protect and
preserve said property, the specific enumerations herein not excluding the
general, Trustee, upon presentation to it of an affidavit signed by Beneficiary
setting forth facts showing a default by Trustor under this paragraph or
paragraph (1) above. It is authorized to accept as true and conclusive all facts
and statements therein, and to act thereon hereunder.
3. To provide and maintain in force, at all times, fire and such other types
of insurance policies covering said property as Beneficiary may from time to
time require, each in an amount satisfactory to and with loss payable to
Beneficiary, and to deliver such policy or policies to Beneficiary together with
written evidence showing payment of the premium therefor. No such policy shall
be cancellable except after ten (10) days written notice to Beneficiary. Each
such policy shall be for a term and in form and content and in such companies as
may be satisfactory to Beneficiary, and shall remain in the possession of
Beneficiary as further security for performance of the obligations secured
hereby. At least thirty (30) days prior to the expiration of any such insurance
policy, a policy or policies renewing or extending the expiring insurance shall
be delivered to Beneficiary together with written evidence showing payment of
the premium therefor. If any such insurancy policy and evidence of the payment
of the premium therefor are not so delivered to Beneficiary, Beneficiary shall
have the right but without obligation so to do, without notice or demand upon
Trustor and without releasing Trustor from any obligation hereof, to obtain such
insurance, pay the premium therefor, and add the amount thereof to the
indebtedness secured hereby. Neither Trustee nor Beneficiary shall be
responsible for such insurance or for the collection of any insurance proceeds
or for the insolvency of any insurer or insurance underwriter. Any and all
unexpired insurance shall inure to the benefit and pass to the purchaser of said
property at any Trustee's sale held hereunder. Any part or all of the amount
collected under any such fire or other insurance policy may, at the option of
Beneficiary, be applied by Beneficiary upon any Indebtedness secured hereby and
in such order as Beneficiary may determine or, without reducing the indebtedness
secured hereby, used by Beneficiary to replace, restore or reconstruct the
property covered by this Deed of Trust to a condition satisfactory to
Beneficiary, or released to Trustor. Such application or release shall not cure
or waive any default or notice of default hereunder or invalidate any act done
pursuant to such notice.
4. To appear in and defend, and Beneficiary or Trustee, or both, shall have
the right to appear in and defend, any action or proceeding purporting to affect
the security hereof, or the rights, powers, duties of liabilities of Beneficiary
or Trustee, or both, hereunder or the payment of any funds in the possession of
either Beneficiary or Trustee arising out of or in connection with this Deed of
Trust, and any action to which either Beneficiary or Trustee, or both, is made a
party by reason of its interest in said property and, in connection therewith,
Trustor shall pay all costs and expenses in any such action or proceeding and in
any action by Trustee or Beneficiary, or both, to foreclose this Deed of Trust
or to enforce any right of Trustee or Beneficiary hereunder, including, but not
limited to costs of evidence of title and reasonable attorney's fees incurred by
Trustee or Beneficiary, or both, in any such action or proceeding, whether or
not the same proceeds to judgment, and Beneficiary or Trustee shall have the
right, but shall not be obligated, to apply any funds of Trustor in the
possession of either Beneficiary or Trustee toward payment of said costs and
expenses.
5. To pay (a) at least ten (10) days before delinquency, all taxes and
assessments affecting said property, all assessments upon water company stock
and all rents, assessments and charges for water appurtenant to or used in
connection with said property; (b) when due, all encumbrances charges and liens,
with interest, on said property, or any part thereof, which appear or be prior
to superior thereto; and (c) all costs, fees and expenses of this Trust; and, if
and as required by Beneficiary, to pay to Beneficiary in equal monthly
installments sufficient funds (as estimated by Beneficiary from time to time) to
pay when due to next maturing taxes and assessments affecting said property and
premium for the insurance required by Beneficiary hereunder. When provided with
sufficient funds, Beneficiary shall pay such taxes, assessments and premiums
before delinquency. Any amount so paid to Beneficiary in excess of the amount
required for such purposes shall be held for future use for such purposes,
applied to any indebtedness secured hereby, with interest, or refunded to
Trustors at Beneficiary's option.
6. If Trustor fails to make any payment or do any act as herein provided,
Beneficiary or Trustee, but with out obligation so to do and with or without
notice to or demand upon Trustor without releasing Trustor from any obligation
hereof, may (a) make or do the same in such manner and to such extent as either
deems necessary to protect the security hereof, Beneficiary and Trustee being
authorized to enter upon said property for such purpose; (b) pay, purchase,
contest or compromise any encumbrance, charge, or lien which in the judgment of
either appears to be superior hereto; and (c) in exercising any such power,
incur and pay necessary expenses, including reasonable attorney's fees.
7. To pay immediately and without demand all sums expended hereunder by
Beneficiary or Trustee, with interest from date of expenditure at the Prime Rate
charged by Imperial Bank.
8. Any award of damages made in connection with the condemnation for public
use of or injury to said property or any part thereof is hereby assigned and
shall be paid to Beneficiary, who may apply or release any monies received by
it therefor in the same manner and with the same effect as above provided for
the disposition of proceeds of fire or other insurance, and Trustor will execute
such further assignment of any such award as Beneficiary or Trustee requires.
9. The acceptance by Beneficiary of any payment less than the amount then due
shall be deemed an acceptance on account only and shall not constitute a waiver
of the obligations of Trustor to pay the entire sum then due or of Beneficiary's
right either to require prompt payment of all sums then due or to declare a
default. The acceptance of payment of any sum secured hereby after its due date
will not waive the right of Beneficiary either to require prompt payment when
due of all other sums so secured or to declare a default for failure so to pay,
and no waiver of any default shall be a waiver of any preceding or suceeding
default of any kind.
10. Trustee or Beneficiary may enter upon and inspect said property at any
reasonable time, and Beneficiary shall have the right at any reasonable time to
inspect Trustor's books and records relating to said property. Trustor agrees to
furnish to Beneficiary such statements and other data relating to said property
as Beneficiary may from time to time request.
11. At any time or from time to time, without liability therefor and with or
without notice, upon written request of Beneficiary and presentation of this
Deed of Trust and said promissory note for endorsement, and without affecting
the liability of any person for payment of the indebtedness secured hereby, or
the effect of this Deed of Trust upon the remainder of said property for the
full amount of the indebtedness then or thereafter secured hereby, or the rights
or powers of Beneficiary or Trustee with respect to the remainder of said
property, Trustee may reconvey any part of said property, consent to the making
of any map or plot thereof, join in granting any easement thereon, or join in
any extension agreement, or any agreement subordinating the lien or charge
hereof.
12. Upon written request of Beneficiary stating that all sums secured hereby
have been paid, and upon surrender of this Deed of Trust and said promissory
note to Trustee for cancellation and retention and upon payment of its fees,
Trustee shall reconvey, without warranty, the property then held hereunder. The
recitals in such reconveyance of any matters or facts shall be conclusive proof
of the truthfulness thereof. The grantee in such reconveyance may be described
as "the person or persons legally entitled thereto". Five (5) years after
issuance of such full reconveyance. Trustee may destroy said promissory note
and this Deed of Trust. Such request and reconveyance shall operate as a
reassignment of the rents, issues and profits hereinabove assigned to Trustee.
13. If default is made in the payment indebtedness or in the performance of any
agreement secured hereby, Beneficiary, with or without notice to Trustor, may
declare all sums secured hereby immediately due and payable by instituting suit
for the recovery thereof or for the foreclosure of this Deed of Trust or by
delivering to Trustee a written declaration of default and demand for sale, and
written notice of default and election to cause said property to be sold, which
notice Trustee shall cause to be filed for record, if such declaration is
delivered in Trustee, Beneficiary shall also deposit with Trustee this Deed of
Trust, said promissory note and all documents evidencing expenditures secured
hereby.
14. After the time then required by law has elapsed after recordation of such
notice of default, and notice of sale having been given as then required by law.
Trustee, with or without demand on Trustor, shall sell said property at the
time and place fixed in the notice of sale, either as a whole or in separate
parcels and in such order as Trustee determines, at public auction, to the
highest bidder, for cash in lawful money of the United States, payable at the
time of sale. Trustee may postpone from time to time sale of all or any portion
of said property by public announcement at the time and place of sale originally
fixed or fixed at the last preceding postponed time. Trustee shall deliver to
the purchaser its deed conveying the property sold, but without any covenant or
warranty, express or implied. The recitals in such deed shall be conclusive
proof of the truthfulness thereof, Trustor, Trustee, Beneficiary, or any other
person may purchase at the sale.
15. After deducting all costs, fees and expenses of Trustee and of this trust,
including the cost of evidence of title and reasonable attorney's fees in
connection with such sale, Trustee shall apply the proceeds of the sale to
payment of: (a) all sums expended under the terms hereof and not theretofore
repaid, with interest from date of expenditure at the Prime Rate charged by
Imperial Bank, and, (b) all other sums then secured hereby in such order as
Beneficiary in the exercise of its sole discretion, directs. The remainder, if
any, shall be paid to the person or persons legally entitled thereto.
16. Before any such sale, Beneficiary may rescind the notice of default and of
election to cause said property to be sold by delivering to Trustee a written
notice of rescission, which notice, when recorded, shall cancel any prior
declaration of default, demand for sale and acceleration of maturity. The
exercise of such right of rescission shall not constitute a waiver of any
default then existing or subsequently occurring or impair the right of
Beneficiary to deliver to Trustee other declarations of default and demands for
sale or notices of default and of election to cause said property to be sold, or
otherwise effect any provision of said promissory note or of this Deed of Trust
or any of the rights or remedies of Beneficiary or Trustee hereunder.
Page 2 of 4
<PAGE>
17. That as additional security, Trustor shall, upon request, give such further
written assignments of the rents, issues and profits of said property, the
lessor's interest in any or all leases and Trustor's interest in any or all
agreements, contracts, licenses and permits affecting said property and all
security for the performance of such leases as Beneficiary or Trustee requires,
such assignments to be made by instruments in form satisfactory to Beneficiary
to any lease, agreement, contract, license or permit so assigned, or to impose
upon Beneficiary any obligation with respect thereto.
18. Not to cancel any of the leases now or hereafter assigned to Beneficiary
pursuant to paragraph (17) above, or terminate or accept a surrender thereof, or
reduce the amount of rent thereunder, or modify any of said leases or accept any
prepayment of rent thereunder (except any amount, not exceeding two (2) month's
rent, which may be required to be prepaid by the terms of any such lease)
without first obtaining on each occasion, the written approval of Beneficiary.
19. To perform each and every obligation of the landlord under each of the
leases now or hereunder assigned to Beneficiary pursuant to paragraph (17)
above.
20. That as additional security, Trustor hereby transfers and assigns to
Beneficiary, effective upon any default in the payment of any indebtedness of
the performance of any agreement secured hereby, the rents, issues and profits
of said property, reserving to Trustor the right, prior to any such default, to
collect and retain such rents, issues and profits as but not before they become
due and payable. Said assignment to Beneficiary shall be prior and superior to
the assignment of said rents, issues and profits to Trustor hereinabove set
forth and, upon any such default, shall be absolute, not only as to amounts
accuring thereafter but also as to amounts then accrued and unpaid, and
Trustor's right to collect such rents, issues and profits shall thereupon cease.
In the event of default, Beneficiary may, at any time, with or without notice
and without regard to the adequacy of its security for the indebtedness secured
hereby, either in person or by an agent or by a receiver appointed by the court,
(a) enter upon and take possession of said property, or any part thereof, and
manage and control it in Beneficiary's discretion: and (b) with or without
taking possession, sue or otherwise collect such rents, issues and profits,
whether past due or coming due thereafter, and apply the same, less costs and
expenses of operation and collection, including reasonable attorney's fees, upon
any obligation secured hereby and in such order as Beneficiary determines. None
of the aforesaid acts shall cure or waive any default or notice of default
hereunder or invalidate any acts done pursuant to any such notice. Beneficiary
shall not be required to act diligently in the care or management of the
property or in collecting any such rents, issues and profits, and shall be
accountable only for sums actually received.
21. If this Deed of Trust or any promissory note secured hereby provides for any
penalty for prepayment of any indebtedness secured hereby, Trustor agrees to pay
said penalty if any of said indebtedness is paid prior to the due date thereof
stated in said promissory note or this Deed of Trust even if and notwithstanding
Trustor shall have defaulted in payment thereof or in the performance of any
agreement secured hereby, and Beneficiary, by reason thereof, shall have
declared all sums secured hereby immediately due and payable. Trustor shall pay
Beneficiary for each and any Beneficiary's statement furnished at Trustor's
request the maximum fee allowed by law pursuant to Sections 2943 and 2954 of the
Civil Code of California and all amendments thereto, the provisions of which are
incorporated herein by reference and made a part hereof. Such fee shall be
computed as of the time such statement is furnished. Beneficiary may also charge
Trustor a reasonable fee for any other service rendered Trustor, or on Trustor's
behalf, in connection with this Deed of Trust, or the indebtedness secured
hereby including without limiting the generality of the foregoing, the delivery
to an escrow holder of a request for full or partial reconveyance of this Deed
of Trust, transmitting to an escrow holder any sums, payment of which is secured
hereby, changing its records pertaining to this Deed of Trust and the
indebtedness secured hereby to show a new owner of said property, and replacing
an existing policy of fire or other insurances held by Beneficiary hereunder
with another such policy. Any such charge shall be secured hereby and Trustor
agrees to pay the same, together with interest from the date of such charge at
the Prime Rate charged by Imperial Bank immediately and without demand.
22. To pay a late charge in the amount specified in said promissory note.
23. Without affecting the liability of Trustor or of any other party now or
hereafter bound by the terms hereof for any obligation secured hereby.
Beneficiary may, in such manner, upon such terms and at such times as it deems
best and without notice or demand, extend or change the time or manner for the
payment of any indebtedness or the performance of any agreement secured hereby,
increase or reduce the rate of interest on any such indebtedness, release any
person now or hereafter liable for the payment of any such indebtedness or the
performance of any such agreement, accept additional or substituted security
therefor and after, substitute, release or subordinate any such security.
24. No remedy hereby given to Beneficiary or to Trustee is exclusive of any
other remedy hereunder or under any present or future law.
25. If default is made in payment of any indebtedness or in the performance of
any agreement secured hereby and if any such indebtedness or agreement is
secured at any time by any other instrument or in any other way, Beneficiary
shall not be obligated to resort to any such security in any particular order,
or at all, and the exercise by Beneficiary of any right or remedy with respect
to any other security shall not be a waiver of or limitation upon the right of
Beneficiary to exercise, at any time or from time to time thereafter, any right
or remedy with respect to this Deed of Trust.
26. In the event the herein described property or any part thereof, or any
interest therein is sold, agreed to be sold, conveyed, transferred, disposed of,
further encumbered, or alienated by Trustor or by the operation of law or
otherwise without the written consent of Beneficiary first obtained, all
obligations secured by this instrument, irrespective of the maturity dates
expressed therein, at the option of the holder beneficiary, and without demand
or notice shall immediately become due and payable. Consent to one such
transaction shall not be deemed to be a waiver of the right to require such
consent to future or successive transactions.
27. In the event of the passage after the date of this Deed of Trust of any law
of the State of California deducting from the value of real property for the
purposes of taxation any lien thereon, or changing in any way the laws for the
taxation of Deeds of Trust or debts secured thereby for State or local purposes,
or the manner of the collection of any such taxes so as to effect this Deed of
Trust or said promissory note, Beneficiary, with or without notice to Trustor,
may declare all sums secured hereby immediately due and payable.
28. Beneficiary may, from time to time, by instrument in writing, substitute a
successor or successors to any trustee named herein or acting hereunder, which
instrument, when executed and acknowledged by Beneficiary and recorded in the
office of the recorder of the county or counties where said property is
situated, shall be conclusive proof of proper substitution of such successor
trustee or trustees, who shall, without conveyance from their predecessor
trustee, succeed to all its title, estate, rights, powers and duties hereunder.
Said instrument must contain the name of the original Trustor, Trustee and
Beneficiary hereunder, the book and page where this Deed of Trust is recorded,
and the name and address of the new trustee. If notice of default has been
recorded, this power of substitution cannot be exercised until after the costs,
fees and expenses of the then acting trustee have been paid to such trustee who
shall endorse receipt thereof upon such instrument of substitution. The
procedure herein provided for substitution of trustees shall be exclusive of all
other provisions for substitution, statutory or otherwise.
29. This Deed of Trust applies to, insures to the benefit of, and binds,
Trustor, Trustee and Beneficiary, their heirs, legatees, devisees,
administrators, executors, successors and assigns. The term Beneficiary means
IMPERIAL BANK as long as it continues to be the owner and holder of said
promissory note, and thereafter it means the owner and holder, including
pledges, of said promissory note, even though not named as Beneficiary herein.
In this Deed of Trust, whenever the context so requires the singular number
includes the plural, and all obligations of each Trustor are joint and several.
30. That Trustee accepts this trust when this Deed of Trust, duly executed and
acknowledged, is made a public record as provided by law. Trustee is not
obligated to notify any party hereto of any pending sale under any other deed of
trust or of any action or proceeding in which Trustor, Beneficiary or Trustee is
a party unless brought by Trustee.
- --------------------------------------------------------------------------------
REQUEST FOR FULL RECONVEYANCE
To Be Used Only When Note Has Been Paid
A reconveyance will be issued upon presentation to Imperial Bancorp of
this request properly signed and accompanied by the reconveyance fee,
the Deed of Trust, the original note or notes secured by said Deed of
Trust and any receipt or document evidencing any other indebtedness
secured thereby.
To IMPERIAL BANCORP, Trustee Dated:___________________
The undersigned is the legal owner of the note or notes and of all other
indebtedness secured by the within Deed of Trust. Said note or notes,
together with all indebtedness secured by said Deed of Trust, have been
fully paid and satisfied and you are hereby requested and directed on
payment to you of any sums owing to you under the terms of said Deed of
Trust to cancel said note or notes and all other evidences of indebtedness
delivered to you herewith and said Deed of Trust and to reconvey without
warranty to the parties designated by the terms of said Deed of Trust all
the estate now held by you thereunder.
___________________________________
_________________________________ ____________________________________
_________________________________ ____________________________________
_________________________________ ____________________________________
___________________________________
Do not lose or destroy this Deed of Trust OR THE NOTE which it secures.
Both must be delivered to the Trustee for cancellation before
reconveyance will be made.
- --------------------------------------------------------------------------------
Page 3 of 4
<PAGE>
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR AGREED by the execution
and delivery of this Deed of Trust and the note secured hereby, that provision
(1) to (30), inclusive of the Fictitious Deed of Trust recorded in Los Angeles,
Riverside, San Francisco, Solano, Sonoma, Monterey, Contra Costa, San
Bernardino, San Diego, Ventura, Santa Clara, Sacramento, Marin and Alameda
Countries February 29, 1980, and in Orango, San Mateo and Santa Barbara
Countries March 4, 1980, in the Book and the Page or as the document number of
Official Records in the office of the County Recorder of the County where said
property is located as set forth and noted below opposite the name of such
County. viz:
<TABLE>
<CAPTION>
COUNTY COUNTY
<S> <C> <C> <C> <C> <C>
Los Angeles Document 80-206967 San Bernardino Document 80-052391
Orange Book 13522 Page 522 San Diego Book 1980 Page 80-070516
Riverside Book 1980 Page 40216 Ventura Book 5605 Page 585
San Francisco Book C953 Page 187 Santa Clara F 168 Page 720
San Mateo Reel 7942 Image 117 Sacramento Book 8002-29 Page 3
Solano Book 1980 Page 15924 Santa Barbara Document 80-8831
Sonoma Document 80-11977 Marin Book 3684 Page 09
Monterey Reel 1392 Page 1128 Alameda Document 80- 036324
Contra Costa Book 9752 Page 332
</TABLE>
(which provisions, identical in all counties, are printed on the reverse hereof)
hereby are adopted and incorporated herein and made a part hereof as fully as
though set forth herein at length; that Trustor will observe said provisions;
and that the references to property, obligations, and parties in said provisions
shall be construed to refer to the property, obligations, and parties set forth
in this Deed of Trust.
TRUSTOR REQUESTS that a copy of any notice of default and of any notice of sale
hereunder shall be mailed to Trustor at the address hereinabove set forth.
The following portions of provisions (1) to (30) of the Fictitious Deed of Trust
incorporated into this Deed of Trust are amended as follows:
a) In paragraphs 7, 15, and 21, wherever "Prime Rate charged by Imperial Bank"
appears, "Default Rate as charged by Imperial Bank as set forth in the
obligation secured hereby" is hereby substituted.
b) The first two full sentences in paragraph 20 are deleted in their entirety
and shall be replaced by the following provisions:
Trustor hereby absolutely and unconditionally assigns and transfers to
Beneficiary all the leases (including all security deposits, guarantees and
other security at any time given as security for the performance of the
obligations of the tenants thereunder), income, rents, issues, deposits, profits
and proceeds of the property to which Trustor may be entitled, whether now due,
past due or to become due, and hereby gives to and confers upon Beneficiary the
right, power and authority to collect such income, rents, issues, deposits,
profits and proceeds. This assignment of the leases, income, rents, issues,
deposits, profits and proceeds constitutes an irrevocable direction and
authorization of all tenants under the leases to pay all rent, income and
profits to Beneficiary upon demand and without further consent or other action
by Trustor. This is an absolute assignment, not an assignment for security only,
and Beneficiary's right to rents, issues and profits is not contingent on
Beneficiary's possession of all or any portion of the property. Trustor
irrevocably appoints Beneficiary its true and lawful attorney, at the option of
Beneficiary at any time, to demand, receive and enforce payment, to give
receipts, releases and satisfactions, and to sue, either in the name of Trustor
or in the name of the Beneficiary, for all such income, rents, issues, deposits,
profits and proceeds and apply the same to the indebtedness secured hereby. It
is understood and agreed that neither the foregoing assignment of leases,
income, rents, issues, deposits, profits and proceeds to Beneficiary nor the
exercise by Beneficiary of any of its rights or remedies under this Section or
under any similar provision of the Deed of Trust shall be deemed to make
Beneficiary a "mortgages-in-possession" or otherwise obligated, responsible or
liable in any manner with respect to the property or the use, occupancy,
enjoyment or operation of all or any portion thereof. Notwithstanding anything
to the contrary contained herein or in the obligation secured hereby, so long as
no event which is, or with notice or passage of time or both would constitute,
an event of default shall have occurred, Trustor shall have a license to collect
all income, rents, issues, profits and proceeds from the property as trustee for
the benefit of Beneficary and Trustor and Trustor shall apply the funds so
collected first to the payment of the indebtedness secured hereby which are then
due and payable in such manner as Beneficiary elects and thereafter to the
account of Trustor. Upon the occurrence of such event, such license shall be
deemed revoked and any rents received thereafter by Trustor shall be held by
Trustor in trust for the benefit of Beneficiary and shall be delivered in kind
to Beneficiary immediately upon receipt thereof by Trustor. Upon the occurrence
of such event, Trustor agrees to deliver the original copies of all leases to
Beneficiary. Trustor hereby irrevocably constitutes and appoints Beneficiary its
true and lawful attorney-in-fact to enforce, in Trustor's name or in
Beneficiary's name or otherwise, all rights of Trustor in the instruments,
including without limitation, checks and money orders, tendered as payments of
rents and to do any and all things necessary and proper to carry out the
purposes hereof.
SIGNATURE OF TRUSTOR
MEGABIOS CORP.
--------------------------------
By /s/ Patrick Enright
--------------------------------
/s/ Benjamin McGraw
--------------------------------
________________________________
SIGNATURES MUST BE ACKNOWLEDGED BEFORE A NOTARY PUBLIC
Page 4 of 4
<PAGE>
Attachment to Deed of Trust
dtd. 8/15/95, consisting of one (1) page
MEGABIOS CORP.
Legal description
"EXHIBIT A'
PARCEL ONE: 026-301-320; 024-403-410
Lots 28, 29, 30, 3 1 and a portion of Lots 27 and 32, Block 3 as shown on the
Map entitled "EAST MILLSDALE INDUSTRIAL PARK UNIT NO.2, BURLINGAME, SAN MATEO
COUNTY, CALIFORNIA", filed in the Office of the County Recorder of San Mateo
County on August 3, 1959 in Book 52 of Maps at Pages 4, 5 and 6, and a portion
of Lots 13, 14, 15, 16, 17, 18, Block 3 as shown on the Map entitled "EAST
MILLSDALE INDUSTRIAL PARK UNIT NO.1, BURLINGAME, SAN MATEO COUNTY, CALIFORNIA",
filed in the Office of the County Recorder of San Mateo County on January
23,1959 in Book 50 of Maps at Pages 24 and 25, more particularly described as a
whole as follows:
BEGINNING: at the point of intersection of the Southwesterly line of said Lot 18
with the Southeasterly line of Mitten Road, as shown on last mentioned Map;
thence from said point of beginning along said Southwesterly line of Lot 18,
South 50 degrees 41' 25" East 305.00 feet to a point distant thereon North 50
degrees 41' 25" West 105.00 feet from the Southerly corner of said Lot 18;
thence leaving said Southwesterly line North 39 degrees 18' 35" East 363.00
feet; thence South 50 degrees 41' 25" East 105.00 feet to a point on common line
between said subdivisions above mentioned; thence along said common line South
39 degrees 18' 35" West 338.00 feet; thence South 50 degrees 41' 25" East 235.00
feet to the Northwesterly line of Malcolm Road, as shown on the Map first above
mentioned; thence along said Northwesterly line of Malcom Road, North 39 degrees
18' 35" East 315.00 feet to the Northeasterly line of said Lot 31: thence along
said Northeasterly line North 50 degrees 41' 25" West 175.00 feet; thence
leaving the last mentioned line North 39 degrees 18' 35" East 60.00 feet to the
Northeasterly line of Lot 32; thence along the last mentioned line North 50
degrees 41' 25" West 60.00 feet to the common line between said Lots 32 and 13;
thence along said common line South 39 degrees 18' 35" West 5.00 feet; thence
leaving the last mentioned line North 50 degrees 41' 25" West 410.00 feet to the
said Southeasterly line of Mitten Road; thence along the last mentioned line
South 39 degrees 18' 35" West 395.00 feet to the point of beginning.
<PAGE>
EXHIBIT 10.15
[LOGO OF LEASE MANAGEMENT SERVICES, INC.]
MASTER LEASE AGREEMENT NUMBER 10467
-----
LESSEE: MEGABIOS Corp. LESSOR: LEASE MANAGEMENT SERVICES, INC.
-------------------------------- 2500 Sand Hill Road, Suite 101
871 Industrial Road, Suite J & K Menlo Park, CA 94025
--------------------------------
San Carlos, CA 94070
--------------------------------
________________________________________________________________________________
LEASE TERMS
________________________________________________________________________________
1. LEASE. Lessor hereby agrees to lease to Lessee and Lessee hereby agrees
to lease from Lessor, subject to the terms of this Master Lease Agreement and
any addenda thereto (the "Master Lease") and the Schedule defined below, the
personal property (together with all attachments, replacements, parts,
substitutions, additions, repairs, accessions, and accessories, incorporated
therein and/or affixed, thereto) (the "Equipment") described in any Lease
Schedule and any addenda thereto (a "Schedule") executed by the parties hereto
and incorporating the terms of this Master Lease by reference therein (the
"Lease"). The parties agree that this Lease is a "Finance Lease" as defined by
Section 10103 (1) (g) of the California Commercial Code (Cal.Com.C.). Lessee
acknowledges either (a) that Lessee has reviewed and approved any written Supply
Contract (as defined by Cal.Com.C 10103(1)(y)) covering the Equipment purchased
from the "Supplier" (as defined by Cal.Com.C. 10103 (1)(x)) thereof for lease to
Lessee or (b) that Lessor has informed or advised Lessee, in writing, either
previously or by this Lease of the following: (i) the identity of the Supplier;
(ii) that the Lessee may have rights under the Supply Contract; and (iii) that
the Lessee may contact the Supplier for a description of any such rights Lessee
may have under the Supply Contract.
2. TERM AND RENT. The term of this Lease shall be as specified in the
Schedule(s). The rental payments ("Rent") for the Equipment shall be as set
forth in the Schedule(s) and any addenda and shall be payable at the time set
forth therein.
3. LATE CHARGES. Time is of the essence in this Lease and if any Rent is
not paid within ten (10) days after the due date thereof, Lessor shall have the
right to add and collect, and Lessee agrees to pay: (a) a late charge on and in
addition to such Rent equal to five percent (5%) of such Rent or a lesser amount
if established by any state or federal statute applicable thereto, and (b)
interest on such Rent from thirty (30) days after the due date until paid at the
highest contract rate enforceable against Lessee under applicable law but never
to exceed eighteen percent (18%) per annum.
4. DISCLAIMER OF WARRANTIES. LESSOR IS NOT THE MANUFACTURER, SUPPLIER OR
---------------------------------------------------------------------
SELLER OF THE EQUIPMENT. LESSOR IS NOT THE AGENT OF THE MANUFACTURER, SUPPLIER
- ------------------------------------------------------------------------------
OR SELLER OF THE EQUIPMENT. LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES AS TO
- -------------------------------------------------------------------------------
ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE FITNESS,
- ------------------------------------------------------------------
MERCHANTABILITY, CONDITION, QUALITY, DURABILITY OR SUITABILITY OF THE EQUIPMENT
- -------------------------------------------------------------------------------
IN ANY RESPECT, OR IN CONNECTION WITH, OR FOR THE PURPOSES AND USES OF LESSEE,
- ------------------------------------------------------------------------------
OR ANY OTHER REPRESENTATION OR COVENANT OF ANY KIND OR CHARACTER, EXPRESS OR
- ----------------------------------------------------------------------------
IMPLIED, WITH RESPECT THERETO. As between Lessor and Lessee, the Equipment shall
- -----------------------------
be accepted and leased by Lessee "as is" and "with all faults." Lessee
specifically waives all rights to make claim against Lessor herein for breach of
any warranty of any kind whatsoever, asserting and resolving any such claims
directly with the Supplier of the Equipment, and Lessor hereby assigns to Lessee
all warranties, if any, received by Lessor resulting from its ownership of the
Equipment. Lessor shall not be responsible for any repairs, service or defects
in the quality or in its operation or for any delay of Supplier and Lessee
waives any claim it might have with respect to Lessor for any loss, damage, or
expense caused by the Equipment, its use or maintenance. In no event shall
Lessor be liable for any consequential damages. Supplier is not an agent of
Lessor and no employee, salesperson, or agent of Supplier is authorized to
waive, supplement, or otherwise alter any provision of this Lease, and no
representation as to the Equipment or any other matter by the Supplier shall in
any way affect the Lessee's duty to pay Rent and perform all its obligations as
set forth in this Lease. Lessor makes no warranty that the Equipment is in
compliance with applicable governmental requirements, rules or regulations.
Lessor has not made any representation or warranty to Lessee as to the tax
benefits, if any. Lessee will obtain from this Lease, or as to the manner in
which Lessee should treat this Lease in Lessee's records for tax, financial
reporting or accounting purposes.
5. ACCEPTANCE. Lessee's acceptance of the Equipment shall be conclusively
and irrevocably evidenced by Lessee signing the Lessor's standard form
Certificate of Acceptance. If Lessee fails or refuses to sign the Certificate of
Acceptance as to all or any part of the Equipment within a reasonable time,
Lessee shall automatically assume all of Lessor's purchase obligations for the
Equipment and Lessee agrees to indemnify and defend Lessor from any claims
including any demand for payment of the purchase price for the Equipment by the
manufacturer, Supplier or seller of the Equipment.
6. USE, OPERATION AND LOCATION. Lessee shall not use or operate the
Equipment so as to violate the terms of any insurance coverage for the Equipment
as required herein. Lessee agrees not to allow the Equipment to be used by
persons other than employees of Lessee, not to rent or sublet the Equipment or
any part thereof to others, to use the Equipment solely for commercial,
agricultural or business purposes, and to use and operate the Equipment in
accordance with the manufacturer's operating procedures and all applicable
governmental laws, ordinances, rules and regulations. If at any time during the
term hereof, Lessor supplies Lessee with labels or other markings, stating that
the Equipment is owned by Lessor, Lessee (or Lessor, at Lessor's option) shall
affix and keep the labels upon a prominent place on the Equipment.
The Equipment shall be located as shown on the Schedule(s). Lessee, without the
prior written consent of Lessor, shall not remove the Equipment from such
location nor give up possession or control thereof. Lessor, upon prior
reasonable notice to Lessee, shall have the right to inspect the Equipment
during Lessee's normal business hours.
7. ALTERATIONS, MAINTENANCE AND REPAIRS. Lessee, at its sole expense, shall
keep Equipment in good condition and working order and furnish all labor, parts
and supplies required therefor. Lessee agrees to maintain accurate and complete
records of all repairs and maintenance to the Equipment. Any modifications or
additions to the Equipment required by any governmental edict shall be promptly
made by Lessee at its own expense.
Without the prior written consent of Lessor, Lessee shall not make any
alterations, additions or improvements to the Equipment which are permanent or
which detract from its economic value or functional utility, except as may be
required pursuant to the preceding sentence of this Paragraph 7. All additions
and improvements to the Equipment shall belong to and immediately become the
property of Lessor and shall be returned to Lessor with the Equipment upon the
expiration or earlier termination of this Lease unless Lessor notifies Lessee to
restore such Equipment to its original state.
8. LOSS, DAMAGE. Lessee assumes the risk of loss and damage to the
Equipment, or any portion thereof, from every cause whatsoever, including but
not limited to damage, destruction, loss or theft. No loss, theft, damage,
destruction of the Equipment shall relieve Lessee of the obligation to pay Rent
or to comply with any other obligation under this Lease. In the event of damage
to any item of Equipment, Lessee shall immediately place the Equipment in good
condition and working order at Lessee's expense. If Lessor determines that any
item of Equipment is lost, stolen, destroyed or damaged beyond repair, Lessee
shall, at Lessor's option, either:
(a) Replace the same with like equipment in good condition and working
order, free and clear of all liens, claims and encumbrances, which equipment
shall thereupon become subject to this Lease; or
(b) Pay Lessor, not as a penalty, but herein liquidated for all purposes an
amount equal to the sum of (i) any accrued and unpaid Rent as of the date the
loss, theft, damage or destruction occurred ("Date of Loss") plus the total of
any amounts due to Lessor pursuant to Paragraph 3; (ii) the present value of all
future rentals reserved in this Lease and contracted to be paid over the
unexpired term of this Lease discounted at a rate equal to the discount rate of
the Federal Reserve Bank of San Francisco as of the Date of Loss; (iii) the
discounted value of the agreed upon or estimated residual value of the Equipment
as of the expiration of this Lease or any renewal thereof discounted at a rate
equal to the discount rate of the Federal Reserve Bank of San Francisco as of
the Date of Loss; and (iv) any other amount otherwise then due and owing under
this Lease or which otherwise will become due and owing irrespective of the fact
that the Equipment has been damaged, destroyed, lost or stolen including any
additional taxes or other charges that may otherwise arise by reason of the
damage, destruction, loss or theft of the Equipment. Lessee further agrees to
pay late charges calculated in accordance with Paragraph 3 from the Date of Loss
to the date the casualty payment is paid to Lessor.
9. INSURANCE. Commencing on the date risk of loss passes to Lessor from the
Supplier and continuing until all of Lessee's obligations under this Lease have
been satisfied, Lessee shall, at Lessee's own expense, keep the Equipment and
any replacements thereto insured against such risks, and in such amounts, in
such form and with such companies as are satisfactory to Lessor. All such
insurance policies shall protect Lessor and Lessee, as their respective
interests may appear, and shall provide that all losses shall be payable to and
adjusted solely with Lessor. Lessee shall, at Lessee's own expense, also
maintain public liability insurance, in such amounts, in such form and with such
companies as are satisfactory to Lessor, insuring Lessor with respect to injury
to person or property resulting from the condition, locations, maintenance, and
actual or alleged use of the Equipment. Lessee shall, prior to the acceptance of
a Schedule by Lessor, deliver to Lessor each of the foregoing policies or
satisfactory evidence of such insurance. Each such policy shall contain an
endorsement providing that the insurer will give Lessor not less than 30 days'
prior written notice of the effective date of any alteration or cancellation of
such policy. Lessee shall furnish annually to Lessor satisfactory evidence of
the maintenance of such insurance. Lessee hereby irrevocably appoints Lessor as
Lessee's attorney-in-fact to make claim for, receive payment of, and execute any
and endorse all documents for loss or damages under any insurance policy as
herein specified. In case of the failure of Lessee to maintain any of such
insurance, Lessor shall have the right, but shall not be obligated, to obtain
such insurance,and therefor, Lessee hereby grants Lessor the irrevocable right
to select an insurance broker for the procurement and maintenance of such
insurance coverage herein specified.
10. TAXES. Lessee shall pay directly, or to Lessor, all license fees,
registration fees, assessments and taxes which may now or hereafter be imposed
upon the ownership, sale (if authorized), possession or use of the Equipment,
excepting only those based on Lessor's income or any single business tax of
Lessor. All required personal property tax returns relating to the Equipment
shall be filed by Lessor unless otherwise provided in writing. If Lessee fails
to pay any said fees,
________________________________________________________________________________
THIS LEASE MAY NOT BE AMENDED EXCEPT BY A WRITING SIGNED BY LESSOR AND LESSEE.
LESSEE'S INITIALS KZL
---
<TABLE>
<S> <C>
Dated: 13th of May, 1994
------------------
LESSEE: LESSOR:
MEGABIOS Corp. LEASE MANAGEMENT SERVICES, INC.
- -----------------------------
By Kathleen Z Layendecker By Barbara B. Kaiser
------------------------- ---------------------------------
Title Director of Corporate Development Title Sr. Vice President/General Manager
--------------------------------- ---------------------------------
</TABLE>
WHITE - LESSOR'S COPY YELLOW - FILE COPY PINK - LESSEE'S COPY
<PAGE>
assessments,or taxes, Lessor shall have the right but not the obligation to pay
the same, and such amount, including penalties and costs, shall be repayable to
Lessor at the next Rent due date, and if not so paid, shall be the same as
failure to pay any Rent due hereunder. Lessor shall not be responsible for
contesting any valuation of or tax imposed on the Equipment but may do so
strictly as an accommodation to Lessee and shall not be liable or accountable to
Lessee therefor. If Lessee pays any taxes, fees or assessments directly to the
appropriate taxing authority, Lessee agrees to immediately notify Lessor and to
provide Lessor documentary evidence of said payment.
11. LESSEE'S FAILURE TO PAY: LESSOR'S PAYMENT. In the event Lessee fails to
pay any amounts due hereunder, including Lessee's obligation to pay taxes
and insurance, or to perform any of its other obligations under this Lease,
Lessor may, at its option, pay such amounts or perform such obligations, and
lessee shall reimburse Lessor the amount of such payment or cost of such
performance, including any charges or penalties which have been levied by the
taxing authority or insurance carrier for such late payment. Within ten (10)
days from demand, such reimbursement shall be paid as additional Rent plus late
charges as calculated in accordance with Paragraph 3 from the date of Lessor's
payment to the date of reimbursement.
12. TITLE. The Equipment is, and shall at all times be the sole and
exclusive property of Lessor, and Lessee shall have no right, title or interest
therein or thereto except as expressly set forth in this Lease. Further, the
Equipment shall at all times remain personal property, notwithstanding that the
Equipment or any part thereof may be affixed or attached to real property or any
building thereon.
Lessee shall keep the Equipment free and clear from all liens, charges,
encumbrances, legal process, and claims. Lessee shall not assign, sublet,
hypothecate, sell, transfer or give up possession of the Equipment or any
interest in this Lease, and any such attempt shall be null and void.
13. INDEMNITY. Lessee shall indemnify and hold Lessor harmless from and
against all claims, losses, liabilities (including negligence, tort and strict
liability), damages, judgments, suits, and all legal proceedings, and any and
all costs and expenses in connection therewith (including attorneys' fees)
arising out of or in any manner connected (a) with the manufacture, purchase,
financing, ownership, delivery, rejection, nondelivery, possession, use,
transportation, storage, operation, maintenance, repair, return or other
disposition of the Equipment; or (b) with this Lease, including, without
limitation, claims for injury or death of persons and for damage to property,
and claims for patent, trademark or copyright infringement, and give Lessor
prompt notice of any claim or liability.
14. NON-TERMINABLE LEASE: OBLIGATIONS UNCONDITIONAL. This Lease cannot be
terminated except as expressly provided herein. Lessee hereby agrees that
Lessee's obligation to pay all Rent and any other amounts owing hereunder shall
be absolute and unconditional.
15. HOLDING OVER. Any use of the Equipment by Lessee beyond the initial
Lease term or any renewal thereof shall be an extension of this Lease term at
the then current Rent on a month-to-month basis terminable by Lessor on ten (10)
days' notice to Lessee and all obligations of Lessee herein contained, including
payment of Rent, shall continue during such holding over. Any holdover period is
limited to twelve (12) months without written consent of Lessor.
16. RETURN OF EQUIPMENT. Upon the expiration or earlier termination of this
Lease, with respect to the Equipment or any part thereof, Lessee shall return
the same to Lessor in good condition and working order, ordinary wear and tear
excepted, in the following manner as selected by Lessor:
(a) By properly packing and delivering the Equipment at Lessee's cost and
expense,to such place as Lessor shall specify within the County in which the
same was delivered to Lessee; or
(b) By properly packing and loading the Equipment, at Lessee's cost and
expense, on board such carrier as Lessor shall specify, and shipping the same,
freight prepaid, to the destination indicated by Lessor.
Lessee agrees to pay for all repair to the Equipment other than
attributable to ordinary wear and tear. Notice of Lessee's intent to return
Equipment must be received by Lessor at least sixty (60) days prior to return.
17. LESSEE'S WAIVERS. To the extent permitted by applicable law, Lessee
hereby waives any and all rights and remedies conferred upon a Lessee by
Sections 10508 through 10522 of the Cal.Com.C., including but not limited to
Lessee's rights to: (i) cancel this Lease; (ii) repudicate this Lease; (iii)
reject the Equipment; (iv) revoke acceptance of the Equipment; (v) recover
damages from Lessor for any breaches of warranty or for any other reason; (vi)
a security interest in the Equipment in Lessee's possession or control for any
reason; (vii) deduct all or any part of any claimed damages resulting from
Lessor's default, if any, under this Lease; (viii) accept partial delivery of
the Equipment; (ix) "cover" by making any purchase or lease of or contract to
purchase or lease Equipment in substitution for Equipment due from Lessor; (x)
recover any general, special, incidental or consequential damages, for any
reason whatsoever; and (xi) specific performance, replevin, detinue,
sequestration, claim and delivery or the like for any Equipment identified to
this Lease. To the extent permitted by applicable law, Lessee also hereby waives
any rights now or hereafter conferred by statute or otherwise which may require
Lessor to sell, lease or otherwise use any Equipment in mitigation of Lessor's
damages as set forth in Paragraph 19 or which may otherwise limit or modify any
of Lessor's rights or remedies under Paragraph 19. Any action by Lessee against
Lessor for any default by Lessor under this Lease, including breach of warranty
or indemnity, shall be commenced within one (1) year after any such cause of
action accrues.
18. DEFAULT. Any of the following events or conditions shall constitute an
event of default ("Event of Default") hereunder:
(a) Lessee's failure to pay when due any Rent or other amount due
hereunder;
(b) Lessee's failure to perform any other term, covenant or condition
hereof or a default under any other agreement between Lessor and Lessee;
(c) The breach of any representation or warranty made by Lessee or any
guarantor of this Lease;
(d) Seizure of the Equipment under legal process;
(e) A filing by or against Lessee of a Petition for Reorganization or
Liquidation under the Bankruptcy Code or any amendments thereto or any other
insolvency law providing for the relief of debtors;
(f) The voluntary or involuntary making of an assignment of a substantial
portion of its assets by Lessee for the benefit of creditors, employment of a
receiver or trustee for Lessee or for any of Lessee's assets, the institution of
formal or informal proceedings by or against Lessee for dissolution,
liquidation, settlement of claims against or winding up of the affairs of
Lessee, or the making by Lessee of a transfer of all or a material portion of
Lessee's assets or inventory not in the ordinary course of business;
(g) The value or condition of any collateral furnished by the Lessee, or
any guarantor of this Lease, becomes impaired or diminished as to, in Lessor's
reasonable opinion, increase Lessor's credit risk;
(h) If, in Lessor's reasonable opinion, there should be a material adverse
change in the financial condition of Lessee.
19. REMEDIES. Upon the occurrence of any Event of Default and at any time
thereafter, Lessor may, with or without cancelling this Lease, in its sole
discretion, do any one or more of the following:
(a) upon notice to Lessee cancel this Lease and any or all Schedules;
(b) continue to be the owner of the Equipment and may, but is not
obligated to, take possession of the Equipment, dispose of the Equipment by sale
or otherwise, all of which determinations may be made by Lessor in its absolute
discretion and for its own account;
(c) declare immediately due and payable all Rents due and to becomes due
hereunder for the full term of this Lease (including any renewal or purchase
obligations);
(d) recover from Lessee damages not as a penalty but herein liquidated for
all purposes and in an amount equal to the sum of (i) any accrued and unpaid
rent as of the date of entry of judgment in favor of Lessor plus the total of
any amounts due to Lessor pursuant to Paragraph 3; (ii) the present value of all
future rentals reserved in this Lease and contracted to be paid over the
unexpired term of this Lease discounted at a rate equal to the discount rate of
the Federal Reserve Bank of San Francisco as of the date of entry of judgment in
favor of Lessor; (iii) all commercially reasonable costs and expenses incurred
by Lessor in any repossession, recovery, storage, repair, sale, re-lease or
other disposition of the Equipment including reasonable attorneys' fees and
costs incurred in connection therewith or otherwise resulting from Lessee's
default; (iv) the present value of the agreed upon or estimated residual value
of the Equipment as of the expiration of this Lease or any renewal thereof
discounted at a rate equal to the discount rate of the Federal Reserve Bank of
San Francisco as of the date of entry of judgment in favor of Lessor; and (v)
any indemnity, if then determinable, plus interest at eighteen percent (18%) per
annum;
(e) in its sole discretion, re-lease or sell any or all of the Equipment at
a public or private sale on such terms and notice as Lessor shall deem
reasonable and recover from Lessee damages, not as a penalty, but herein
liquidated for all purposes and in an amount equal to the sum of (i) any accrued
and unpaid rent as of the later of (A) the date of default or (B) the date that
Lessor has obtained possession of the Equipment or such other date as Lessee has
made an effective tender of possession of the Equipment back to Lessor ("Default
Date"); plus rent (at the rate provided for in this Lease) for the additional
period (but in no event longer than two (2) months) that it takes Lessor to
resell or re-let all of the Equipment, plus the total of any amounts due to
Lessor pursuant to Paragraph 3; (ii) the present value of all future rentals
reserved in this Lease and contracted to be paid over the unexpired term of this
Lease discounted at a rate equal to the discount rate of the Federal Reserve
Bank of San Francisco as of the Default Date; (iii) all commercially reasonable
costs and expenses incurred by Lessor in any repossession, recovery, storage,
repair, sale, re-lease or other disposition of the Equipment including
reasonable attorneys' fees and costs incurred in connection with or otherwise
resulting from the Lessee's default; (iv) estimated residual value of the
Equipment as of the expiration of this Lease or any renewal thereof; and (v) any
indemnity, if then determinable, plus interest at eighteen percent (18%) per
annum; LESS the amount received by Lessor upon such public or private sale or
re-lease of such items of Equipment, if any;
(f) exercise any other right or remedy which may be available to it under
the Uniform Commercial Code or any applicable law.
A cancellation hereunder shall occur only upon notice by Lessor and only as
to such items of Equipment as Lessor specifically elects to cancel and this
Lease shall continue in full force and effect as to the remaining items, if any.
If this Lease is deemed at any time to be one intended as security, Lessee
agrees that the Equipment shall secure; in addition to the indebtedness set
forth herein, all other indebtedness at any time owing by Lessee to Lessor.
No remedy referred to in this Paragraph is intended to be exclusive, but
shall be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law or in equity. No express or implied waiver
by Lessor of any default shall constitute a waiver of any other default by
Lessee or a waiver of any of Lessor's rights.
20. ASSIGNMENT BY LESSOR. LESSOR MAY ASSIGN OR TRANSFER THIS LEASE OR ANY
SCHEDULES OR LESSOR'S INTEREST IN THE EQUIPMENT WITHOUT NOTICE TO LESSEE. Any
assignee or transferee of Lessor shall have the rights, but none of the
obligations, of Lessor under this Lease. Lessee agrees that it will not assert
against any assignee or transferee of Lessor any defense, counterclaim or offset
that Lessee may have against Lessor and that upon notice, it will pay Rent to
such assignee or transferee. Lessee acknowledges that any assignment or transfer
by Lessor shall not materially change Lessee's duties or obligations under this
Lease nor materially increase the burdens or risks imposed on Lessee.
21. NO ASSIGNMENT BY LESSEE. LESSEE SHALL NOT ASSIGN OR IN ANY WAY DISPOSE
----------------------------------------------------------------------
OF ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER THIS LEASE OR ENTER INTO
- ------------------------------------------------------------------------------
ANY SUBLEASE OF ALL OR ANY PART OF THE EQUIPMENT WITHOUT THE PRIOR WRITTEN
- --------------------------------------------------------------------------
CONSENT OF LESSOR.
- ------------------
22. FURTHER ASSURANCES. Lessee will promptly and duly execute and deliver
to Lessor such further documents and take such further actions as Lessor may
from time to time deem necessary in order to carry out the intent and purpose of
this Lease and to protect the interests of Lessor under this Lease. Lessee, at
the request of Lessor, agrees to execute and deliver to Lessor, any financing
statements, fixture filings, or other instruments necessary for perfecting the
interest and title of Lessor in this Lease and the Equipment, agrees that a copy
of this Lease may be so filed, and agrees that all costs incurred in connection
therewith (including, without limitation, filing fees and taxes) shall be paid
by Lessee. Lessee hereby appoints Lessor as Lessee's attorney-in-fact to affix
Lessee's signature to any and all such documents. Lessee will deliver to Lessor
monthly financial statements (unaudited but prepared in accordance with
generally accepted accounting principles) within 30 days of each month-end and
audited annual financial statements within three months of fiscal year-end,
which financial statements, Lessee warrants, shall fully and fairly represent
the true financial condition of Lessee.
23. MISCELLANEOUS. This Lease shall constitute an agreement of lease
and nothing herein shall be construed as giving to Lessee any right, title or
interest in any of the Equipment except as a Lessee only. If Lessee is a
partnership, then this Lease is executed by a general partner thereof, and if
Lessee is a corporation, then this Lease is executed by a duly authorized
officer of said corporation pursuant to authority granted by the board of
directors of said corporation. This Lease may be executed in several
counterparts, each of which shall constitute an original and in each case, such
counterparts together shall constitute but one and the same instrument.
(a) Law: Jurisdiction, Venue. This Lease shall be deemed to have been made
and accepted in San Mateo County, California, where Lessor's principal place of
business is located, and shall be governed by the laws of the State of
California, except for local recording statutes. Lessee hereby agrees that all
actions and proceedings arising from this Lease may be litigated, at the
election of Lessor, only in courts having sites within the State of California
and Lessee hereby consents to the jurisdiction of any state or federal court
located within the State of California. Lessee agrees that if any action is
brought to enforce the provisions of this Lease by either party, the County of
San Mateo shall be a proper place for the trial of such action. Lessee agrees to
waive trial by jury.
(b) Binding on Successors. The terms and conditions of this Lease
shall, subject only to the provisions as to assignment, be binding upon and
inure to the benefit of Lessor and Lessee and their respective heirs, executors,
administrators and assigns.
(c) Survival. Lessee's indemnities such as given in Paragraphs 13 and in
any addenda to this Lease shall survive the expiration or other termination of
this Lease.
(d) Entire Agreement; Non-Waiver; Notices; Severability. This Lease
constitutes the entire understanding between Lessor and Lessee relating to the
subject matter hereof. Any representation, promises or conditions not contained
herein shall not be binding unless in writing and signed by duly authorized
representatives of each party. No covenant or condition of this lease can be
waived except by the written consent of Lessor. Any notices required to be given
hereunder shall be given in writing at the address of each party herein set
forth, or at such other address as either party may substitute by written notice
to the other. If any condition of this Lease is held invalid, such an invalidity
shall not affect any other provisions hereof.
(e) Gender; Number; Joint and Several Liability; Authorization; Paragraph
Headings. Whenever the content of this Lease requires, the masculine gender
includes the feminine or neuter, and the single number includes the plural.
Whenever the word "Lessor" is used herein, it shall include all assignees of
Lessor. Whenever the word "herein" is used referring to this Lease, it shall
include the applicable Schedules hereto. If there is more than one lessee named
in this Lease, the liability of each shall be joint and several. Lessee hereby
authorizes Lessor to (i) insert serial numbers and other identification in the
Equipment Description when known and (ii) correct any patent errors or omissions
in this Lease. The titles to the Paragraphs of this Lease are solely for the
convenience of the parties and shall in no way be held to explain, modify,
amplify or aid in the interpretation of the terms and provisions hereof.
<PAGE>
ADDENDUM TO MASTER LEASE NUMBER 10467
BETWEEN MEGABIOS Corp. ("LESSEE")
AND LEASE MANAGEMENT SERVICES, INC. ("LESSOR")
The printed form of Master Lease Agreement #10467 between the parties dated May
13, 1994 is amended as follows:
FIRST: In Section 5, Delete section in its entirety and replace with "5.
- -----
ACCEPTANCE. Lessee's acceptance of the Equipment shall be conclusively and
irrevocably evidenced by Lessee signing the Lessor's standard form of
Certificate of Acceptance. If Lessee fails or refuses to sign the Certificate of
Acceptance as to all or any part of the Equipment within a reasonable time after
Lessor pays, or assumes an obligation to pay, for all or any part of the
Equipment, Lessee shall automatically assume all of Lessor's purchase
obligations, if any, for the Equipment and Lessee agrees to indemnify and defend
Lessor from any claims with respect to such Equipment, including any demand for
payment of the purchase price for such Equipment by the manufacturer, supplier
or seller of such Equipment. If Lessor paid for the Equipment or any part
thereof and Lessee has not signed a Certificate of Acceptance with respect to
such Equipment, Lessee shall, immediately upon demand, repay the Lessor the
amount so paid or execute a Certificate of Acceptance.".
SECOND: In Section 6, line 4, after the word "employees" insert the words
- ------
"contractors, consultants, temporary workers or vendor representatives
("Authorized Users")" and in the same line after the word "Lessee" insert "or
Authorized Users of certain Universities specified by Lessee".
THIRD: In Section 7, paragraph 2, line 2, delete the second reference to the
- -----
word "or" and insert "and".
FOURTH: In Section 8, line 5, after the word "Equipment" insert "prior to
- ------
redelivery to LESSOR" and then in line 8, after the word "repair" insert
"Lessor shall first consult with Lessee and then".
FIFTH: In Section 8 (b), line 15, after the word "charges" insert ", if
- -----
applicable,".
SIXTH: In Section 9, delete section in its entirety and replace with "9.
- -----
INSURANCE. Commencing on the date risk of loss passes to Lessor from the
Supplier and continuing until all of Lessee's obligations under this Lease have
been satisfied, Lessee shall, at Lessee's own expense, keep the Equipment and
any replacements thereto insured against such risks, in an amount equal to or
exceeding the full replacement value of the Equipment, in such form and with
such companies as are reasonably satisfactory to Lessor. Such insurance policy
or policies shall protect Lessor and Lessee, as their respective interests may
appear, and shall provide that all losses shall be payable to and adjusted with
Lessor, as its interest may appear. Lessee shall, at Lessee's own expense, also
maintain public liability insurance, in such form and with such companies as are
reasonably satisfactory to Lessor, insuring Lessor with respect to injury to
person or property resulting from the condition, locations, maintenance, and
actual or alleged use of the Equipment. Lessee shall, prior to
<PAGE>
MEGABIOS Corp.
Addendum to Master Lease
Page 2 of 3
the acceptance of a Schedule by Lessor, deliver to Lessor each of the foregoing
policies or satisfactory evidence of such insurance. Each such policy shall
contain an endorsement or certificate providing that the insurer will give
Lessor not less than 30 days' prior written notice of the effective date of any
alteration or cancellation of such policy. Lessee shall furnish annually to
Lessor satisfactory evidence of the maintenance of such insurance. Lessee hereby
irrevocably appoints Lessor as Lessee's attorney-in-fact, if an Event of Default
has occurred and is continuing, to make claim for, receive payment of, and
execute any and endorse all documents for loss or damages under any insurance
policy as herein specified. In case of the failure of Lessee to maintain any of
such insurance, Lessor shall have the right, but shall not be obligated, to
obtain such insurance, and therefor, Lessee hereby grants Lessor irrevocable
right to select an insurance broker for the procurement and maintenance of such
insurance coverage herein specified.".
SEVENTH: After the sentence in bold print above the signature lines insert
- -------
"The terms and conditions in the attached commitment letter dated March 25,
1994, are specifically included as part of this Master Lease, including, without
limitation, a commitment for a $2,300,000 master lease/line of credit; provided
however, that the Warrant shall be a Warrant to purchase Series B Preferred
Stock. In the event of a conflict between the terms of this Master Lease and the
commitment letter, the terms of this Master Lease and related lease documents
shall govern.".
EIGHTH: Section 12, at the end of the first paragraph insert "Provided that
- ------
Lessee is not in Default hereunder, Lessee shall have the right of quiet
enjoyment of the Equipment" and then in the second paragraph, line 2, after the
word "not" insert", without Lessor's prior written consent,".
NINTH: SECTION 13, delete section in its entirety and replace with "13.
- -----
INDEMNITY. Lessee shall indemnify and hold Lessor harmless from and against all
claims, losses, liabilities (including negligence, tort and strict liability,
but excluding gross negligence or willful misconduct of Lessor), damages,
judgments, suits, and all legal proceedings, and any and all reasonable costs
and expenses in connection therewith (including reasonable attorneys' fees)
arising out of or in any way connected with (a) the purchase, financing,
ownership, delivery, rejection, nondelivery, possession, use, transportation,
storage, operation, maintenance, repair, return or other disposition of the
Equipment by Lessee; or (b) this Lease, including, without limitation, claims
for injury or death of persons and for damage to property, in each case
resulting from the lease of the Equipment by Lessee from Lessor, and claims for
patent, trademark or copyright infringement, and give Lessor prompt notice of
any claim or liability.".
TENTH: Section 15, delete section in its entirety.
- -----
ELEVENTH: Section 16, line 2, after the word "Lease" insert "and provided that
- --------
(i) the Lease is not renewed or (ii) Lessee does not exercise its option to
purchase the Equipment," and then in Section 16 (b), line 3, after the word
"Lessor" insert "in California.".
TWELFTH: Section 17, line 14, delete sentence that reads "To the extent
- -------
permitted.......remedies under Paragraph 19.".
<PAGE>
MEGABIOS Corp.
Addendum to Master Lease
Page 3 of 3
THIRTEENTH: Section 18 (a), after the word "hereunder" insert ", which failure
- ----------
shall not have been cured within ten (10) days:".
FOURTEENTH: Section 18 (b), line 2, after the word "Lessee" insert ", which
- ----------
failure or default shall not have been cured within 20 days after notice to the
Lessee, except that, Lessee shall not be entitled to any notice of default and
opportunity to cure if the default constitutes a default in (i) maintaining
insurance on or in connection with the Equipment and its use as provided in
Section 9, (ii) the removal of the Equipment in violation of Section 6, (iii)
the abandonment of the Equipment by Lessee or (iv) the breach of the Negative
Covenant Pledge Agreement being executed simultaneously herewith.".
FIFTEENTH: Section 18 (c), line 1 , before the word "representation" insert
- ---------
"material".
SIXTEENTH: Section 18 (e), after the word "debtors" insert ", provided,
- ---------
however, with respect to an involuntary petition in bankruptcy, such petition
shall not have been dismissed within forty-five (45) days after the filing of
such petition;".
SEVENTEENTH: Section 18 (g), after the word "becomes" insert "significantly".
- -----------
EIGHTEENTH: Section 18 (h), after the word "Lessee." insert ""Material Adverse
- ----------
Change" shall mean a change having a material adverse effect upon the financial
condition of the Lessee or upon the ability of Lessee to perform its obligations
under the Lease or any other agreement relating to the Lease; provided, however,
that the Lessee shall not be deemed to have sustained a material adverse change
in a situation where Lessee requires additional financing and pending the
current consummation of such additional financing Lessee procures bridge
financing by current major investors, which bridge financing is in anticipation
of a preferred stock equity round anticipated to close within six months of the
date of said bridge financing.".
NINETEENTH: Section 19 (e)(iv), before the word "estimated" insert "the present
- ----------
value of the " and then after the word "thereof" insert "discounted at a rate
equal to the discount rate of the Federal Reserve Bank of San Francisco as of
the Default Date".
IN WITNESS WHEREOF, the undersigned have executed this Addendum this 13th day
of May, 1994.
LESSEE: LESSOR:
MEGABIOS Corp. LEASE MANAGEMENT SERVICES, INC.
By: /s/ Kathleen Z. Layendecker By: /s/ Barbara B. Kaiser
--------------------------- --------------------------
Title: Director of Corporate Title: Sr. VP/GM
------------------------ -----------------------
Development
<PAGE>
Lease Management Services, Inc.
ADDENDUM TO
MASTER LEASE AGREEMENT NUMBER 10467
BY AND BETWEEN
MEGABIOS Corp., AS LESSEE
AND
LEASE MANAGEMENT SERVICES, INC., AS LESSOR
Attached to and made an integral part of Master Lease Agreement Number 10467, by
and between MEGABIOS Corp., as Lessee, and LEASE MANAGEMENT SERVICES, INC., as
Lessor (the "Master Lease").
In consideration of Lessor acquiring and leasing the equipment as more fully
described in subsequent Lease Schedules of the "Master Lease", Lessor and
Lessee hereby agree that at the end of the initial lease term, Lessee shall
exercise one of the following options:
---
OPTION 1: PURCHASE
------ -----------
Lessee will purchase the leased Equipment at its residual value which the
parties agree is equal to Fifteen percent (15%) of its initial cost. Such
initial cost includes any/all taxes, installation, freight, and other
charges capitalized into the Lease schedule; or
OPTION 2: RENEWAL*
------ -----------
Subject to satisfactory credit review, Lessee may renew the Lease for an
additional Twelve (12) month period at 1.35% of equipment cost per month,
after which time Lessee will own the equipment.
*Exercise of Option 2 requires 45-day prior written notice to Lessor.
No Lease Schedule may be subdivided. All Equipment subject to a Lease Schedule
shall be treated identically for purposes of purchase or renewal.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Addendum to be duly
executed in their respective names this 13th day of May, 1994.
---- -----
LESSEE: LESSOR:
MEGABIOS Corp. LEASE MANAGEMENT SERVICES, INC.
By: /s/ Kathleen Z. Layendecker By: /s/ Barbara B. Kaiser
--------------------------- ---------------------
Title: Director of Corporate Development Title: Sr. Vice President
--------------------------------- ------------------
/ General Manager
-----------------
<PAGE>
Lease Management Services, Inc.
EQUIPMENT FINANCING AGREEMENT
(Number 10767)
THIS EQUIPMENT FINANCING AGREEMENT NUMBER 10767 ("AGREEMENT") is dated as of
the date set forth at the foot hereof and is between LEASE MANAGEMENT SERVICES,
INC., ("Secured Party") and MEGABIOS CORP., ("Debtor").
1. EQUIPMENT; SECURITY INTEREST. The terms and conditions of this Agreement
cover each item of machinery, equipment and other property (individually an
"Item" or "Item of Equipment" and collectively the "Equipment") described in a
schedule now or hereafter executed by the parties hereto and made a part hereof
(individually a "Schedule" and collectively the "Schedules"). Debtor hereby
grants Secured Party a security interest in and to all Debtor's right, title and
interest in and to the Equipment under the Uniform Commercial Code, such grant
with respect to an Item of Equipment to be as of Debtor's execution of a related
Equipment Financing Commitment referencing this Agreement or, if Debtor then has
no interest in such Item, as of such subsequent time as Debtor acquires an
interest in the Item. Such security interest is granted by Debtor to secure
performance by Debtor of Debtor's obligations to Secured Party hereunder and
under any other agreements under which Debtor has or may hereafter have
obligations to Secured Party. Debtor will ensure that such security interest
will be and remain a sole and valid first lien security interest subject only to
the lien of current taxes and assessment not in default but only if such taxes
are entitled to priority as a matter of law.
2. DEBTOR'S OBLIGATIONS. The obligations of Debtor under this Agreement
respecting an Item of Equipment, except the obligation to pay installment
payments with respect thereto which will commence as set forth in Paragraph 3
below, commence upon the grant to Secured Party of a security interest in the
Item. Debtor's obligations hereunder with respect to an Item of Equipment and
Secured Party's security interest therein will continue until payment of all
amounts due, and performance of all terms and conditions required hereunder
provided, however, that if this Agreement is in default said obligations and
security interest will continue during the continuance of said default. Upon
termination of Secured Party's security interest in an Item of Equipment,
Secured Party will execute such release of interest with respect thereto as
Debtor reasonably requests.
3. INSTALLMENT PAYMENTS AND OTHER PAYMENTS. Debtor will repay advances Secured
Party makes on account of the Equipment in installment payments in the amounts
and at the times set forth in the Schedules, whether or not Secured Party has
rendered an invoice therefor, at the office of Secured Party set forth at the
foot hereof, or to such person and/or at such other place as Secured Party may
from time to time designate by notice to Debtor. Any other amounts required to
be paid Secured Party by Debtor hereunder are due upon Debtor's receipt of
Secured Party's invoice therefor and will be payable as directed in the
invoice. Payments under this Agreement may be applied to Debtor's then accrued
obligations to Secured Party in such order as Secured Party may choose.
4. NET AGREEMENT; NO OFFSET, SURVIVAL. This Agreement is a net agreement, and
Debtor will not be entitled to any abatement of installment payments or other
payments due hereunder or any reduction thereof under any circumstance or for
any reason whatsoever. Debtor hereby waives any and all existing and future
claims, as offsets, against any installment payments or other payments due
hereunder and agrees to pay the installment payments and other amounts due
hereunder as and when due regardless of any offset or claim which may be
asserted by Debtor or on its behalf. The obligations and liabilities of Debtor
hereunder will survive the termination of the Agreement.
5. FINANCING AGREEMENT. THIS AGREEMENT IS SOLELY A FINANCING AGREEMENT. DEBTOR
ACKNOWLEDGES THAT THE EQUIPMENT HAS OR WILL HAVE BEEN SELECTED AND ACQUIRED
SOLELY BY DEBTOR FOR DEBTOR'S PURPOSES, THAT SECURED PARTY IS NOT AND WILL NOT
BE THE VENDOR OF ANY EQUIPMENT AND THAT SECURED PARTY HAS NOT MADE AND WILL NOT
MAKE
<PAGE>
MEGABIOS Corp.
EQUIPMENT FINANCING AGREEMENT NUMBER 10767
PAGE 2 OF 8
ANY AGREEMENT, REPRESENTATION OR WARRANTY WITH RESPECT TO THE MERCHANTABILITY,
CONDITION, QUALIFICATION OR FITNESS FOR A PARTICULAR PURPOSE OR VALUE OF THE
EQUIPMENT OR ANY OTHER MATTER WITH RESPECT THERETO IN ANY RESPECT WHATSOEVER.
6. NO AGENCY. DEBTOR ACKNOWLEDGES THAT NO AGENT OF THE MANUFACTURER OR OTHER
SUPPLIER OF AN ITEM OF EQUIPMENT OR OF ANY FINANCIAL INTERMEDIARY IN CONNECTION
WITH THIS AGREEMENT IS AN AGENT OF SECURED PARTY. SECURED PARTY IS NOT BOUND BY
A REPRESENTATION OF ANY SUCH PARTY AND, AS CONTEMPLATED IN PARAGRAPH 27 BELOW,
THE ENTIRE AGREEMENT OF SECURED PARTY AND DEBTOR CONCERNING THE FINANCING OF THE
EQUIPMENT IS CONTAINED IN THIS AGREEMENT AS IT MAY BE AMENDED ONLY AS PROVIDED
IN THAT PARAGRAPH.
7. ACCEPTANCE. Execution by Debtor and Secured Party of a Schedule covering
the Equipment or any Items thereof will conclusively establish that such
Equipment has been included under and will be subject to all the terms and
conditions of this Agreement. If Debtor has not furnished Secured Party with an
executed Schedule by the earlier of fourteen (14) days after receipt thereof or
expiration of the commitment period set forth in the applicable Equipment
Financing Agreement, Secured Party may terminate its obligation to advance funds
as to the applicable Equipment.
8. LOCATION; INSPECTION; USE. Debtor will keep, or in the case of motor
vehicles, permanently garage and not remove from the United States, as
appropriate, each Item of Equipment in Debtor's possession and control at the
Equipment Location designated in the applicable Schedule, or at such other
location to which such Item may have been moved with the prior written consent
of Secured Party. Whenever requested by Secured Party, Debtor will advise
Secured Party as to the exact location of an Item of Equipment. Secured Party
will have the right to inspect the Equipment and observe its use during normal
business hours, subject to Debtor's security procedures and to enter into and
upon the premises where the Equipment may be located for such purpose. The
Equipment will at all times be used solely for commercial or business purposes
and operated in a careful and proper manner and in compliance with all
applicable laws, ordinances, rules and regulations, all conditions and
requirements of the policy or policies of insurance required to be carried by
Debtor under the terms of this Agreement and all manufacturer's instructions and
warranty requirements. Any modifications or additions to the Equipment required
by any such governmental edict or insurance policy will be promptly made by
Debtor.
9. ALTERATIONS; SECURITY INTEREST COVERAGE. Without the prior written consent
of Secured Party, Debtor will not make any alterations, additions or
improvements to any Item of Equipment which detract from its economic value or
functional utility, except as may be required pursuant to Paragraph 8 above.
Secured Party's security interest in the Equipment will include all
modifications and additions thereto and replacements and substitutions therefor,
in whole or in part. Such reference to replacements and substitutions will not
grant Debtor greater rights to replace or substitute than are provided in
Paragraph 11 below or as may be allowed upon the prior written consent of
Secured Party.
10. MAINTENANCE: Debtor will maintain the Equipment in good repair,
condition and working order. Debtor will also cause each Item of Equipment for
which a service contract is generally available to be covered by such a contract
which provides coverages typical to property of the type involved and is issued
by a competent servicing entity.
11. LOSS AND DAMAGE; CASUALTY VALUE. In the event of the loss of, theft
of, requisition of, damage to or destruction of an Item of Equipment ("Casualty
Occurrence"), Debtor will give Secured Party prompt notice thereof and will
thereafter place such Item in good repair, condition and working order,
provided, however, that if such Item is determined by Secured Party
<PAGE>
MEGABIOS Corp.
EQUIPMENT FINANCING AGREEMENT NUMBER 10767
PAGE 3 OF 8
to be lost, stolen, destroyed or damaged beyond repair, is requisitioned or
suffers a constructive total loss as defined in any applicable insurance policy
carried by Debtor in accordance with Paragraph 14 below, Debtor, at Secured
Party's option, will (a) replace such Item with like Equipment in good
repair, condition and working order whereupon such replacement equipment will be
deemed such Item for all purposes hereof or (b) pay Secured Party the "Casualty
Value" of such Item which will equal the total of (i) all installment payments
and other amounts due from Debtor to Secured Party at the time of such payment
and (ii) future installment payments due with respect to such Item with each
such payment including any final uneven payment discounted at a rate equal to
the discount rate of the Federal Reserve Bank of San Francisco from the date due
to the date of such payment.
Upon such replacement or payment, as appropriate, this Agreement and Secured
Party's security interest will terminate with, and only with, respect to the
Item of Equipment so replaced or as to which such payment is made in accordance
with Paragraph 2 above.
12. TITLING; REGISTRATION. Each item of Equipment subject to title
registration laws will at all times be titled and/or registered by Debtor as
Secured Party's agent and attorney-in-fact with full power and authority to
register (but without power to affect title to) the Equipment in such manner and
in such jurisdiction or jurisdictions as Secured Party directs. Debtor will
promptly notify Secured Party of any necessary or advisable retitling and/or
reregistration of an Item of Equipment in a jurisdiction other than the one in
which such Item is then titled and/or registered. Any and all documents of
title will be furnished or caused to be furnished Secured Party by Debtor within
sixty (60) days of the date any titling or registering or restating or
reregistering, as appropriate, is directed by Secured Party.
13. TAXES. Debtor will make all filings as to and pay when due all personal
property and other ad valorem taxes and all other taxes, fees, charges and
assessments based on the ownership or use of the equipment and will pay as
directed by secured party or reimburse secured party for all other taxes,
including, but not limited to, gross receipt taxes (exclusive of federal and
state taxes based on Secured Party's net income, unless such net income taxes
are in substitution for or relieve Debtor from any taxes which Debtor would
otherwise be obligated to pay under the terms of this Paragraph 13), fees,
charges and assessments whatsoever, however designated, whether based on the
installment payments or other amounts due hereunder, levied, assessed or imposed
upon the Equipment or otherwise related hereto or to the Equipment, now or
hereafter levied, assessed or imposed under the authority of a federal, state,
or local taxing jurisdiction, regardless of when and by whom payable. Filings
with respect to such other amounts will, at Secured Party's option, be made by
Secured Party or by Debtor as directed by Secured Party.
14. INSURANCE. Debtor will procure and continuously maintain all risk
insurance against loss or damage to the Equipment from any cause whatsoever for
not less than the full replacement value thereof naming Secured Party as Loss
Payee. Such insurance must be in a form and with companies approved by Secured
Party, must provide at least thirty (30) days advance written notice to Secured
Party of cancellation, change or modification in any term, condition, or amount
of protection provided therein, must provide full breach of warranty protection
and must provide that the coverage is "primary coverage" (does not require
contribution from any other applicable coverage). Debtor will provide Secured
Party with an original policy or certificate evidencing such insurance. in the
event of an assignment of this Agreement of which Debtor has notice, Debtor will
cause such insurance to provide the same protection to the assignee as its
interests may appear. The proceeds of such insurance, at the option of the
Secured Party or such assignee, as appropriate, will be applied toward (a)
repair or replacement of the appropriate Item or Items of Equipment, (b) payment
of the Casualty Value thereof and/or (c) payment of, or as provision for,
satisfaction of any other accrued obligations of Debtor hereunder. Debtor hereby
appoints Secured Party as Debtor's attorney-in-fact with full power and
authority to do all things, including, but not limited to, making claims,
receiving payments and endorsing documents, checks or drafts, necessary to
secure payments due under any policy contemplated hereby on account of a
Casualty Occurrence. Debtor and Secured Party contemplate that the jurisdictions
where the Equipment will
<PAGE>
MEGABIOS Corp.
EQUIPMENT FINANCING AGREEMENT NUMBER 10767
PAGE 4 OF 8
be located will not impose any liability upon Secured Party for personal injury
and/or property damage resulting out of the possession, use, operation or
condition of the Equipment. In the event Secured Party determines that such is
not or may not be the case with respect to a given jurisdiction, Debtor will
provide Secured Party with public liability and property damage coverage
applicable to the Equipment in such amounts and in such form as Secured Party
requires.
15. SECURED PARTY'S PAYMENT. If Debtor fails to pay any amounts due hereunder
or to perform any of its other obligations under this Agreement, Secured Party
may, at its option, but without any obligation to do so, pay such amounts or
perform such obligations, and Debtor will reimburse Secured Party the amount of
such payment or cost of such performance, plus interest at 1.5% per month.
16. INDEMNITY. Debtor does hereby assume liability for and does agree to
indemnify, defend, protect, save and keep harmless Secured Party from and
against any and all liabilities, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including court costs and legal
expenses, of whatever kind and nature, imposed on, incurred by or asserted
against Secured Party (whether or not also indemnified against by any other
person) in any way relating to or arising out of this Agreement or the
manufacture, financing, ownership, delivery, possession, use, operation,
condition or disposition of the Equipment by Secured Party or Debtor, including,
without limitation, any claim alleging latent and other defects, whether or not
discoverable by Secured Party or Debtor, and any other claim arising out of
strict liability in tort, whether or not in either instance relating to an event
occurring while Debtor remains obligated under this Agreement, and any claim for
patent, trademark or copyright infringement. Debtor agrees to give Secured Party
and Secured Party agrees to give Debtor notice of any claim or liability hereby
indemnified against promptly following learning thereof.
17. DEFAULT. Any of the following will constitute an event of default
hereunder: (a) Debtor's failure to pay when due any installment payment or other
amount due hereunder, which failure continues for ten (10) days after the due
date thereof; (b) Debtor's default in perofrming any other obligation, term or
condition of this Agreement or any other agreement between Debtor and Secured
Party or default under any further agreement providing security for the
performance by Debtor of its obligations hereunder provided such default has
continued for more than twenty (20) days, except as provided in (c) and (d)
hereinbelow, or, without limiting the generality of subparagraph (1)
hereinbelow, default under any lease or any mortgage or other instrument
contemplating the provision of financial accommodation applicable to the real
property where an Item of Equipment is located; (c) any writ or order of
attachment or execution or other legal process being levied on or charged
against any Item of Equipment and not being released or satisfied within ten
(10) days; (d) Debtor's failure to comply with its obligations under Paragraph
14 above or any transfer by Debtor in violation of Paragraph 21 below; (e) a
non-appealable judgment for the payment of money in excess of $100,000 being
rendered by a court of record against Debtor which Debtor does not discharge or
make provision for discharge in accordance with the terms thereof within ninety
(90) days from the date of entry thereof; (f) death or judicial declaration of
incompetency of Debtor, if an individual; (g) the filing by Debtor of a petition
providing for the relief of debtors, including, without limitation, a petition
for reorganization, arrangement or extension, or the commission by Debtor of an
act of bankruptcy; (h) the filing against Debtor of any such petition not
dismissed or permanently stayed within thirty (30) days of the filing thereof;
(i) the voluntary or involuntary making of an assignment of substantial portion
of its assets by Debtor for the benefit of creditors, appointment of a receiver
or trustee for Debtor proceeding (under the Bankruptcy Act or otherwise) or of
any formal or informal proceeding for dissolution, liquidation, settlement of
claims against or winding up of the affairs of Debtor, Debtor's cessation of
business activities or the making by Debtor of a transfer of all or a material
portion of Debtor's assets or inventory not in the ordinary course of business;
(j) the occurrence of any event described in parts (e), (f), (g), (h) or (i)
hereinabove with respect to any guarantor or other party liable for payment or
performance of this Agreement; (k) any certificate, statement,
<PAGE>
MEGABIOS CORP.
EQUIPMENT FINANCING AGREEMENT NUMBER 10767
PAGE 5 of 8
representation, warranty or audit heretofore or hereafter furnished with respect
hereto by or on behalf of Debtor or any guarantor or other party liable for
payment or performance of this Agreement proving to have been false in any
material respect at the time as of which the facts therein set forth were stated
or certified or having omitted any substantial contingent or unliquidated
liability or claim against Debtor or any such guarantor or other party; (l)
breach by Debtor of any lease or other agreement providing financial
accommodation under which Debtor or its property is bound; or (m) a transfer of
effective control of Debtor, if an organization.
18. REMEDIES. Upon the occurrence of an event of default, Secured Party will
have the rights, options, duties and remedies of a Secured Party, and Debtor
will have the rights and duties of a debtor, under the Uniform Commercial Code
(regardless of whether such Code or a law similar thereto has been enacted in a
jurisdiction wherein the rights or remedies are asserted) and, without limiting
the foregoing, Secured Party may exercise any one or more of the following
remedies: (a) declare the Casualty Value or such lesser amount as may be set by
law immediately due and payable with respect to any or all Items of Equipment
without notice or demand to Debtor; (b) sue from time to time for and recover
all installment payments and other payments then accrued and which accrue during
the pendency of such action with respect to any or all Items of Equipment; (c)
take possession of and, if deemed appropriate, render unusable any or all Items
of Equipment, without demand or notice, wherever same may be located, without
any court order or other process of law and without liability for any damages
occasioned by such taking of possession and remove, keep and store the same or
use and operate or lease the same until sold; (d) require Debtor to assemble any
or all Items of Equipment at the Equipment Location therefor, or at such
location to which such Equipment may have been moved with the written consent of
Secured Party or such other location in reasonable proximity to either of the
foregoing as Secured Party designates; (e) upon ten (10) days notice to Debtor
or such other notice as may be required by law, sell or otherwise dispose of any
Item of Equipment, whether or not in Secured Party's possession, in a
commercially reasonable manner at public or private sale at any place deemed
appropriate and apply the new proceeds of such sale, after deducting all costs
of such sale, including, but not limited to, costs of transportation,
repossession, storage, refurbishing, advertising and brokers' fees, to the
obligations of Debtor to Secured Party hereunder or otherwise, with Debtor
remaining liable for any deficiency and with any excess being returned to
Debtor; (f) upon thirty (30) days notice to Debtor, retain any repossessed or
assembled Items of Equipment as Secured Party's own property in full
satisfaction of Debtor's liability for the installment payments due hereunder
with respect thereto, provided that Debtor will have the right to redeem such
Items by payment in full of its obligations to Secured Party hereunder or
otherwise or to require Secured Party to sell or otherwise dispose of such Items
in the manner set forth in subparagraph (e) hereinabove upon notice to Secured
Party within such thirty (30) day period; or (g) utilize any other remedy
available to Secured Party under the Uniform Commercial Code or similar
provision of law or otherwise at law or in equity.
No right or remedy conferred herein is exclusive of any other right or remedy
conferred herein or by law; but all such remedies are cumulative of every other
right or remedy conferred hereunder or at law or in equity, by statute or
otherwise, and may be exercised concurrently or separately from time to time.
Any sale contemplated by subparagraph (e) of this Paragraph 18 may be adjourned
from time to time by announcement at the time and place appointed for such sale,
or for any such adjourned sale, without further published notice, Secured Party
may bid and become the purchaser at any such sale. Any sale of an Item of
Equipment, whether under said subparagraph or by virtue of judicial proceedings,
will operate to divest all right, title, interest, claim and demand whatsoever;
either at law or in equity, of Debtor in and to said item and will be a
perpetual bar to any claim against such Item, both at law and in equity, against
Debtor and all persons claiming by, through or under Debtor.
19. DISCONTINUANCE OF REMEDIES. If Secured Party proceeds to enforce any
right under this Agreement and such proceedings are discontinued or abandoned
for any reason or are determined adversely, then and in every such case Debtor
and Secured Party will be restored to their former positions and rights
hereunder.
<PAGE>
MEGABIOS Corp.
EQUIPMENT FINANCING AGREEMENT NUMBER 10767
PAGE 6 OF 8
20. SECURED PARTY'S EXPENSES. Debtor will pay Secured Party all costs and
expenses, including attorney's fees and court costs and sales costs not offset
against sales proceeds under Paragraph 18 above, incurred by Secured Party in
exercising any of its rights or remedies hereunder or enforcing any of the
terms, conditions or provisions hereof. This obligation includes the payment or
reimbursement of all such amounts whether an action is ultimately filed and
whether an action is ultimately dismissed.
21. ASSIGNMENT. Without the prior written consent of Secured Party, Debtor
will not sell, lease, pledge or hypothecate, except as provided in this
Agreement, any Item of Equipment or any interest therein or assign, transfer,
pledge, or hypothecate this Agreement or any interest in this Agreement or
permit the Equipment to be subject to any lien, charge or encumbrance of any
nature except the security interest of Secured Party contemplated hereby.
Debtor's interest herein is not assignable and will not be assigned or
transferred by operation of law. Consent to any of the foregoing prohibited
acts applies only in the given instance and is not a consent to any subsequent
like act by Debtor or any other person.
All rights of Secured Party hereunder may be assigned, pledged, mortgaged,
transferred or otherwise disposed of, either in whole or in part, without notice
to Debtor but always, however, subject to the rights of Debtor under this
Agreement. If Debtor is given notice of any such assignment, Debtor will
acknowledge receipt thereof in writing. In the event Secured Party assigns this
Agreement or the installment payments due or to become due hereunder or any
other interest herein, whether as security for any of its indebtedness or
otherwise, no breach or default by Secured Party hereunder or pursuant to any
other agreement between Secured Party and Debtor, should there be one, will
excuse performance by Debtor of any provision hereof, it being understood that
in the event of such default or breach by Secured Party that Debtor will pursue
any rights on account thereof solely against Secured Party. No such assignee,
unless such assignee agrees in writing, will be obligated to perform any duty,
covenant or condition required to be performed by Secured Party in connection
with this Agreement.
Subject always to the foregoing, this Agreement inures to the benefit of, and
is binding upon, the heirs, legatees, personal representative, successors and
assigns of the parties hereto.
22. MARKINGS; PERSONAL PROPERTY. If Secured Party supplies Debtor with labels,
plates, decals or other markings stating that Secured Party has an interest in
the Equipment, Debtor will affix and keep the same prominently displayed on the
Equipment or will otherwise mark the Equipment or its then location or
locations, as appropriate, at Secured Party's request to indicate Secured
Party's security interest in the Equipment. The Equipment is, and at all times
will remain, personal property notwithstanding that the Equipment or any Item
thereof may now be, or hereafter become, in any manner affixed or attached to,
or embedded in, or permanently resting upon real property or any improvement
thereof or attached in any manner to what is permanent as by means of cement,
plaster, nails, bolts, screws or otherwise. If requested by Secured Party,
Debtor will obtain and deliver to Secured Party waivers of interest or liens in
recordable form satisfactory to Secured Party from all persons claiming any
interest in the real property on which an Item of Equipment is or is to be
installed or located.
23. LATE CHARGES. Time is of the essence in this Agreement and if any
Installment Payment is not paid within ten (10) days after the due date
thereof, Secured Party shall have the right to add and collect, and Debtor
agrees to pay: (a) a late charge on and in addition to, such Installment Payment
equal to five percent (5%) of such Installment Payment or a lesser amount if
established by any state or federal statute applicable thereto, and (b) interest
on such Installment Payment from thirty (30) days after the due date until paid
at the highest contract rate enforceable against Debtor under applicable law but
never to exceed eighteen percent (18%) per annum.
24. NON-WAIVER. No covenant or condition of this Agreement can be waived except
by the written consent of Secured Party. Forbearance or indulgence by Secured
Party in regard to any
<PAGE>
MEGABIOS Corp.
EQUIPMENT FINANCING AGREEMENT NUMBER 10767
PAGE 7 OF 8
breach hereunder will not constitute a waiver of the related covenant or
condition to be performed by Debtor.
25. ADDITIONAL DOCUMENTS. In connection with and in order to perfect and
evidence the security interest in the Equipment granted Secured Party hereunder
Debtor will execute and deliver to Secured Party such financing statements and
similar documents as Secured Party requests. Debtor authorizes Secured Party
where permitted by law to make filings of such financing statements without
Debtor's signature. Debtor further will furnish Secured Party (a) on a timely
basis, Debtor's future financial statements, including Debtor's most recent
annual report, balance sheet and income statement, prepared in accordance with
generally accepted accounting principles, which reports, Debtor warrants, shall
fully and fairly represent the true financial condition of Debtor (b) any other
information normally provided by Debtor to the public and (c) such other
financial data or information relative to this Agreement and the Equipment,
including, without limitation, copies of vendor proposals and purchase orders
and agreements, listings of serial numbers or other identification data and
confirmations of such information, as Secured Party may from time to time
reasonably request. Debtor will procure and/or execute, have executed,
acknowledge, have acknowledged, deliver to Secured Party, record and file such
other documents and showings as Secured Party deems necessary or desirable to
protect its interest in and rights under this Agreement and interest in the
Equipment. Debtor will pay as directed by Secured Party or reimburse Secured
Party for all filing, search, title report, legal and other fees incurred by
Secured Party in connection with any documents to be provided by Debtor pursuant
to this Paragraph or Paragraph 22 and any further similar documents Secured
Party may procure.
26. DEBTOR'S WARRANTIES. Debtor certifies and warrants that the financial
data and other information which Debtor has submitted, or will submit, to
Secured Party in connection with this Agreement is, or will be at time of
delivery, as appropriate, a true and complete statement of the matters therein
contained. Debtor further certifies and warrants: (a) this Agreement has been
duly authorized by Debtor and when executed and delivered by the person signing
on behalf of Debtor below will constitute the legal, valid and binding
obligation, contract and agreement of Debtor enforceable against Debtor in
accordance with its respective terms; (b) this Agreement and each and every
showing provided by or on behalf of Debtor in connection herewith may be relied
upon by Secured Party in accordance with the terms thereof notwithstanding the
failure of Debtor or other applicable party to ensure proper attestation
thereto, whether by absence of a seal or acknowledgment or otherwise; (c) Debtor
has the right, power and authority to grant a security interest in the Equipment
to Secured Party for the uses and purposes herein set forth and (d) each Item of
Equipment will, at the time such Item becomes subject hereto, be in good
repair, condition and working order.
27. ENTIRE AGREEMENT. This instrument with exhibits and related documentation
constitutes the entire agreement between Secured Party and Debtor and will not
be amended, altered or changed except by a written agreement signed by the
parties.
28. NOTICES. Notices under this Agreement must be in writing and must be
mailed by United States mail, cerified mail with return receipt requested, duly
addressed, with postage prepaid, to the party involved at its respective address
set forth at the foot hereof or at such other address as each party may provide
on notice to the other from time to time. Notices will be effective when
deposited. Each party will promptly notify the other of any change in that
party's address.
29. GENDER, NUMBER: JOINT AND SEVERAL LIABILITY. Whenever the context of this
Agreement requires, the neuter gender includes the feminine or masculine and the
singular number includes the plural; and whenever the words "Secured Party" are
used herein, they include all assignees of Secured Party, it being understood
that specific reference to "assignee" in Paragraph 14 above is for further
emphasis. If there is more than one Debtor named in this Agreement, the
liability of each will be joint and several.
<PAGE>
MEGABIOS Corp.
EQUIPMENT FINANCING AGREEMENT NUMBER 10767
PAGE 8 OF 8
30. TITLES. The titles to the Paragraphs of this Agreement are solely for the
convenience of the parties and are not an aid in the interpretation of the
instrument.
31. GOVERNING LAW; VENUE. This Agreement will be governed by and construed
in accordance with the laws of the State of California. Venue for any action
related to the Agreement will be in an appropriate court in San Mateo County,
California, to which Debtor consents, or in another court selected by Secured
Party which has jurisdiction over the parties. In the event any provision hereof
is declared invalid, such provision will be deemed severable from the remaining
provisions of this Agreement, which will remain in full force and effect.
32. TIME. Time is of the essence of this Agreement and for each and all of its
provisions.
In WITNESS WHEREOF, the undersigned have executed this Agreement as of May 13,
------
1994.
DEBTOR:
MEGABIOS Corp.
871 Industrial Road, Suite J & K
San Carlos, CA 94070
By: /s/ Kathleen Z. Layendecker
------------------------------------
Title: Director of Corporate Development
------------------------------------
SECURED PARTY:
LEASE MANAGEMENT SERVICES, INC.
2500 Sand Hill Road, Suite 101
Menlo Park, CA 94025
By: /s/ Barbara B. Kaiser
------------------------------------
Title: Sr. Vice President / General Manager
<PAGE>
ADDENDUM TO EQUIPMENT FINANCING AGREEMENT
NUMBER 10767
BETWEEN MEGABIOS Corp. ("DEBTOR")
AND LEASE MANAGEMENT SERVICES, INC. ("SECURED PARTY")
The printed form of Equipment Financing Agreement #10767 between the parties
dated May 13, 1994 is amended as follows:
------
FIRST: At the end of the introductory paragraph insert "The terms and conditions
- -----
in the attached commitment letter dated March 25, 1994, are specifically
included as part of this Equipment Financing Agreement, including, without
limitation, a commitment for a $2,300,000 master lease/line of credit; provided
however, that the Warrant shall be a Warrant to purchase Series B Preferred
Stock. In the event of a conflict between the terms of this Agreement and the
commitment letter, the terms of this Agreement and the related loan documents
shall govern.
SECOND: In Section 1, line 11 after the word "agreements" insert "executed by
- ------
Debtor in connection with this Agreement".
THIRD: In Section 7, delete the second sentence in its entirety.
- -----
FOURTH: In Section 8, line 5, after the first appearance of the words "Secured
- ------
Party" insert "which consent shall not be unreasonably withheld".
FIFTH: In Section 11, line 7, after the word "below" insert "Secured Party
- -----
shall first consult with Debtor and then".
SIXTH: In Section 12, line 4, after the words "Secured Party" insert
- -----
"reasonably".
SEVENTH: Section 14, delete section in its entirety and replace with "14.
- -------
INSURANCE. Debtor will procure and continuously maintain insurance against loss
or damage to the Equipment from any cause whatsoever for not less than the full
replacement value thereof naming Secured Party as Loss Payee as its interest may
appear. Such insurance must be in a form and with companies approved by Secured
Party, must provide at least thirty (30) days advance written notice to Secured
Party of cancellation, change or modification in any term, condition, or amount
of protection provided therein, must provide full breach of warranty protection
and must provide that the coverage is "primary coverage" (does not require
contribution from any other applicable coverage). Debtor will provide Secured
Party with an original policy or certificate evidencing such insurance. In the
event of an assignment of this Agreement of which Debtor has notice, Debtor will
cause such insurance to provide the same protection to the assignee as its
interests may appear. The proceeds of such insurance, at the option of the
Secured Party or such assignee (after consultation with Debtor), as appropriate,
will be applied toward (a) repair or replacement of the appropriate Item or
items of Equipment (b) payment of the Casualty Value thereof and/or (c) payment
of, or as provision for, satisfaction of any other accrued obligations of Debtor
hereunder. Debtor hereby appoints Secured
<PAGE>
MEGABIOS Corp.
Addendum to Equipment Financing Agreement
2 of 3
Party as Debtor's attorney-in-fact with full power and authority, if an Event of
Default has occurred and is continuing, to do all things, including, but not
limited to, making claims, receiving payments and endorsing documents, checks or
drafts, necessary to secure payments due under any policy contemplated hereby on
account of a Casualty Occurrence. Debtor and Secured Party contemplate that the
jurisdictions where the Equipment will be located will not impose any liability
upon Secured Party for personal injury and/or property damage resulting out of
the possession, use, operation or condition of the Equipment. In the event
Secured Party determines that such is not or may not be the case with respect to
a given jurisdiction, Debtor will provide Secured Party with public liability
and property damage coverage applicable to the Equipment in such amounts and in
such form as Secured Party reasonably requires, provided, however, that public
liability insurance with primary limits of $1,000,000 with an excess policy of
$2,000,000, shall be deemed to satisfy this requirement.
EIGHTH: Section 15, at the beginning of the section insert "Subject to
- ------
Paragraph 23 below,".
NINTH: Section 16, delete section in its entirety and replace with "16.
- -----
INDEMNITY. Debtor shall indemnify and hold Secured Party harmless from and
against all claims, losses, liabilities (including negligence, tort and strict
liability, but excluding gross negligence or willful misconduct of Secured
Party), damages, judgments, suits, and all legal proceedings, and any and
all reasonable cost and expenses in connection therewith (including reasonable
attorneys' fees) arising out of or in any way connected with (a) the purchase,
financing, ownership, delivery, rejection, nondelivery, possession, use,
transportation, storage, operation, maintenance, repair, return or other
disposition of the Equipment by Debtor; or (b) this Equipment Financing
Agreement, including, without limitation, claims for injury or death of persons
and for damage to property, in each case resulting from the lease of the
Equipment by Debtor from Secured Party, and claims for patent, trademark or
copyright infringement, and give Secured Party prompt notice of any claim or
liability.".
TENTH: Section 17, line 1, insert "occurrence and continuance" between "any"
- -----
and "of".
ELEVENTH: Section 17 (h), delete "thirty (30)" and replace it with "forty-five
- --------
(45)".
TWELFTH: Section 17 (k), at the end of the clause insert "in excess of $50,000".
- -------
THIRTEENTH: Section 17 (l), delete the section and replace it with "breach, in
- ----------
excess of $50,000, by Debtor of any lease or other agreement providing financial
accommodation under which Debtor or its property is bound, which breach is not
cured or with respect to which no provision has been made to cure within twenty
(20) days;".
FOURTEENTH: Section 18, line 1, after the word "occurrence" insert "and
- ----------
continuance".
FIFTEENTH: Section 18 (d), line 3, after the word "Secured Party" insert ",
- ---------
which consent shall not be unreasonably withheld".
SIXTEENTH: Section 20, line 1, At the beginning of the section insert "Upon
- ---------
the occurrence and continuation of an Event of Default,".
<PAGE>
MEGABIOS CORP.
ADDENDUM TO EQUIPMENT FINANCING AGREEMENT
3 of 3
SEVENTEENTH: Section 20, line 1, insert "reasonable" between "all" and "cost".
- -----------
EIGHTEENTH: Section 20, line 2, insert "reasonable" between "including" and
- ----------
"attorney's".
NINETEENTH: Section 25, line 4, insert "reasonably" before "requests".
- ----------
TWENTIETH: Section 25, line 5, after "Secured Party" insert "at Secured Party's
- ---------
reasonable request or as provided in the commitment letter dated March 25,
1994".
TWENTY-FIRST: Section 25, line 17, Insert "reasonable" between "report," and
- ------------
"legal" and between "other" and "fees".
TWENTY-SECOND: Section 31, line 4, after the words "Secured Party" insert "and
- -------------
consented to by Debtor, which consent shall not be unreasonably withheld,".
IN WITNESS WHEREOF, the undersigned have executed this Addendum this 13th day of
--
May, 1994.
DEBTOR: SECURED PARTY:
MEGABIOS CORP. LEASE MANAGEMENT SERVICES, INC.
By: /s/ Kathleen Z. Layendecker By: /s/ Barbara Kaiser
--------------------------- ---------------------------
Title: Director of Corporate Title: Sr. VP/GM
------------------------ ------------------------
Development
<PAGE>
[LOGO] Lease Management Services, Inc.
ADDENDUM TO
EQUIPMENT FINANCING AGREEMENT
NUMBER 10767
BY AND BETWEEN
MEGABIOS CORP., AS DEBTOR,
AND
LEASE MANAGEMENT SERVICES, INC., AS SECURED PARTY
MEGABIOS CORP., as Debtor, hereby acknowledges our responsibility to pay, and
agrees to pay any additional sales taxes which may be due to the State of
California or where applicable, for the collateral covered under the above
referenced Equipment Financing Agreement.
DEBTOR:
MEGABIOS CORP.
By: /s/ Kathleen Z. Layendecker
---------------------------------
Title: Director of Corporate Development
---------------------------------
Date: May 13, 1994
---------------------------------
<PAGE>
EXHIBIT 10.16
PHOENIX GROWTH CAPITAL CORP. Norm Nelson
A Phoenix American Company Senior Vice President
================================================================================
February 9, 1996 2401 Kerner Boulevard
San Rafael, California 94901-5569
Mr. Martin W. Nibel (415)485-4569
Controller (415)485-4663 FAX
Megabios Corp.
863-A Mitten Road
Burlingame, CA 94010
Dear Martin:
We are pleased to offer a second revised warrant based proposal for an
------ ------- -------
equipment finance line under the following terms and conditions.
FACILITY
- --------
Loan and Security Agreement
PARTIES TO THE TRANSACTION
- --------------------------
1. Borrower: Megabios Corp. ("Megabios")
--------
2. Lender: Phoenix Growth Capital Corp. ("PGCC"), its Affiliates or
------
Assigns
COLLATERAL
- ----------
1. Total Cost: Up to $2,700,000 (Up to $2,000,000 in collateral may be
----------
financed through 3/31/97 with any short fall not to exceed $1.3M from
the $2.OM plus $700,000 financed 4/1/97 through 3/31/98.)
2. Collateral Description: The equipment to be financed will include
----------------------
standard biotech laboratory and test equipment, office equipment, and
information systems as generally described on the "Megabios Corp.
Forecast Capital Expenditures" list dated 8/25/95, and other equipment
as approved by PGCC. Up to 15% of the utilized line may be comprised
of soft costs (to include items normally excluded listed below).
a. Exclusions: Custom use equipment, installation and delivery
----------
costs, purchase tax, tooling, software, leasehold improvements
and items generally considered fungible or expendable.
b. Used Equipment: Lender will provide financing for acceptable used
--------------
equipment. Equipment purchased prior to 90 days before completion
of loan documentation is subject to adequate depreciation
allowances.
3. Deliveries: All equipment to be purchased by lender must be delivered
----------
and accepted no later than March 31, 1998.
<PAGE>
Mr. Martin W. Nibel
February 9, 1996
Page 2
4. Collateral Location: Same as above.
---------- --------
TRANSACTION STRUCTURE
----------- ---------
The Lender will pay the Vendor or Borrower for the equipment,
transferring title to the Borrower and take a first security interest in
the equipment. A loan representing payment amounts and terms will be
entered into with the borrower with schedules evidencing takedowns.
TRANSACTION INFORMATION
----------- -----------
1. Base Term Commencement Date: The Base Term will commence on
---- ---- ------------ ----
the first of the month. If funding is other than the first of the
month, commencement date will be the first of the following month.
2. Base Term(s): The Base Term will be for 48 months from the Base Term
---- -------
Commencement Date(s).
3. Delivery and Acceptance: All equipment delivered and placed in service
-------- --- ----------
will be acknowledged and accepted by the Borrower per a written
Acceptance Notice.
4. Financial Closing Date(s): The equipment will be paid for by
--------- ------- -------
the Lender on a monthly basis in aggregate amounts not less than
$50,000.
5. Interim Payment: An interim term will run from the date each
------- -------
equipment schedule is funded by the Borrower until the Base Term
Commencement Date.
6. Rate Factors:
---- -------
a) 48 months @ 2.446%, last payable in advance or
b) months 1-24 @ 2.0%, months 24-48 @ 3.0%, last payable in advance.
7. Rate Adjustment: At the time of each funding, the Initial Rate Factor
---- ----------
will be adjusted based on the change in yield, if any, for U.S.
Treasury notes of comparable maturity. The Treasury Base Rate assumed
for this proposal for 48 month Treasury notes is 5.90%. For each basis
point change from the Treasury Base Rate, the rate implicit in the Rate
Factor will be adjusted by one basis point and a new Rate Factor
calculated. The Rate Factor application to each schedule will be
calculated based on the Treasury Rate quoted in The Wall Street Journal
--- ---- ------ -------
15 days before the Funding. In no event the implicit rate applicable to
any Schedule will be no less than 8.85% (Plan A rate factor) and 9.00%
(Plan B rate factor). Once determined, the Rate Factor for each
Schedule will be fixed for the Initial Base Loan Term.
<PAGE>
Mr. Martin W. Nibel
February 9, 1996
Page 3
8. Additional Interest. A recourse, supplemental additional interest
-------------------
section of the note is due and payable at the end of the term of the
loan.
Standard Equipment - The additional interest section shall be
------------------
satisfied by either, (1) 12 monthly payments at 1.85% of original
Total Cost or (2) a single variable payment equal to the then fair
market value of the equipment, but not less than 10% nor more than 20%
of the equipment's original Total Cost.
9. Casualty Values (Stipulated Loss Values): In the event the equipment
----------------------------------------
is destroyed or otherwise rendered permanently unfit for service, and
is not repaired or replaced by Borrower or its insurance carrier,
the Borrower will pay a Casualty Value. The Casualty Values will be
calculated at the outset of the transaction and will dictate the
amount of the Borrower's casualty insurance coverage.
OTHER CONSIDERATIONS
- --------------------
1. Net Transaction: The Loan will be net to the Lender. Borrower will be
---------------
responsible for all expenses in connection with the equipment,
including taxes (except taxes based on the income of the Lender),
franchise taxes, charges in lieu of taxes, assessments, insurance
premiums, all costs of operation, repair, maintenance and rebuilding,
and all of the charges related to the equipment or its operation.
2. Transaction Expenses: Each party shall bear its own expenses,
--------------------
including fees and expenses of counsel and accountants, incurred in
connection with the documentation and preparation of this loan
transaction, except UCC and appraisal costs, which will be borne by
Borrower. However, if this transaction is approved substantially as
represented herein and not funded because Borrower (a) fails to
execute final documents with Lender, (b) chooses not to use the
committed loan amounts or (c) sustains a material adverse change in
its financial condition, Lender shall retain the commitment fee as
compensation for expenses.
3. Stock Warrants: Lender shall receive a Warrant to purchase that number
--------------
of shares of Borrower's Preferred stock equal to five and one-half
percent (5 l/2%) of the total finance commitment divided by $1.2945.
The exercise price of the warrant shall be $1.2945. The Warrant shall
contain "piggyback", "S-3" and other registration rights in parity
with equity investors (subject to Lender's review and approval of such
rights) and protection against dilutive issuances.
<PAGE>
Mr. Martin W. Nibel
February 9, 1996
Page 4
The warrant shall be exercisable for the shorter of ten (10) years from
the date of issuance or five (5) years after the initial public
offering of Borrower's Series C Preferred stock. The Warrant may be
exchanged without the payment or any additional consideration for stock
based upon the value of the Warrant at the exchange, i.e., net
issuance.
4. Additional Collateral: None
---------- ----------
5. Commitment Fee: To commence the due diligence process,
---------- ----
Borrower shall pay to lender a commitment fee of $27,000. The fee
shall be applied by Lender first to reimburse any Transaction Expenses
shown above and then proportionately to the first
payment due for each Schedule hereunder.
6. Financial Information: Borrower must provide interim financial
--------- -----------
information, (balance sheet, income statement, funds flow and changes
to projections) when available monthly after a commitment letter has
been signed by both parties.
7. Prepayment Term: The loan may not be voluntarily prepaid during the
---------- ----
initial term.
8. Conditions Precedent:
---------- ---------
a. No material adverse change in performance to plan.
This transaction is subject to final approval by PGCC's Venture Business
Committee and documentation agreeable to both parties. If you are in agreement
with the foregoing, please sign and date one copy of this proposal letter and
return it to my attention together with the commitment fee and required due
diligence information listed on the attachment by February 16, 1996. Terms and
conditions are subject to change after this date.
Sincerely, ACKNOWLEDGED AND AGREED TO:
By: /s/ Patrick Enright
/s/ ^^^ -----------------------
Its: VP Fin. and BD
----------------------
Date: 2-4-96
---------------------
Please initial Rate Factor Plan Chosen A /s/ PE
------
B
------
<PAGE>
DUE DILIGENCE INFORMATION
PHOENIX GROWTH CAPITAL
STEP 1. INFORMATION NEEDED FOR PHOENIX TO PROVIDE A PROPOSAL:
----------------------------------------------------
1. Collateral List
Vendor, model number, description, cost. Include projected delivery
schedule for equipment to be acquired and, for currently owned equipment to
be financed by Phoenix, original cost and acquisition date.
2. Financials
Current cash position
Balance Sheet and P&L (annual from inception and most recent month)
Capitalization table by round, with date of funding, investors, amounts,
number of shares and pricing
3. Financial Projections (Balance sheet, P&L and funds flow)
Current year (and prior year), monthly through funding period, plus
quarterly or annual through cash breakeven
4. Business Plan
Market, product and financing strategy; resume of management; names of
board members
STEP 2. INFORMATION NEEDED FOR CREDIT REVIEW:
------------------------------------
(After proposal letter signed and commitment fee received)
5. References (name, contact and telephone number - please authorize them to
talk to Phoenix)
Three largest equity investors
Three largest customers (if none, three industry references)
Bank - lending, if applicable, and depository
Three largest trade
Accounting firm
6. Warrant
If warrant applicable, provide Articles of Incorporation, shareholder
rights agreement, and offering documents from most recent financing, and
law firm contact name, address and phone number.
PHOENIX WILL TREAT ALL MATERIALS AS CONFIDENTIAL
<PAGE>
Recording Requested By
Asset Management Group
When Recorded Mail To:
MCCORD COMPANY
c/o PHOENIX LEASING INCORPORATED
2401 Kerner Boulevard
San Rafael, CA 94901
Space Above This Line for Recorder
- --------------------------------------------------------------------------------
REAL PROPERTY WAIVER
To: PHOENIX LEASING INCORPORATED
2401 Kerner Boulevard
San Rafael, CA 94901
Attention: Asset Management
Re: MEGABIOS CORP.
Borrower
As holder ("Holder") of an interest in the real property ("Real
Property") described below, I (we) (1) acknowledge and consent to your agreement
to finance and install on the Real Property the equipment (the "Equipment")
financed pursuant to Senior Loan and Security Agreement dated April ____, 1996,
and Senior Secured Promissory Note(s) thereto with Phoenix Leasing Incorporated,
(2) disclaim any ownership or other interest in subject Equipment and other
Equipment that may be added from time to time, and (3) recognize your right to
enter, and will permit you to enter upon the Real Property, but only for the
purposes of inspecting or removing your Equipment.
This Real Property Waiver shall be binding upon the heirs, successors and
assigns of Holder.
I (we), as Holder, am (are) the
(Please Check Appropriate Line Below):
___Beneficiary (Deed of Trust) ___Mortgagee _X_Landlord/Real Property Lessor
___Sublandlord/Real Property Sublessor _X_Owner
with respect to the Real Property.
Signed,
/s/ Katrina Edwards, agent for E.S. Merriman & Sons, agent for Provident Life &
Accident Insurance, Co.
- --------------------------------------------------------
Full Legal Name of Holder
/s/ K. Edwards Property Manager 4-23-96
- ----------------------- ------------------------ ----------
Signature Title Date
Real Property located at: 863-A Mitten Road
Burlingame, CA 94010
County of San Mateo
---------------
-1-
<PAGE>
Legal Description of Real Property (which can be taken from your title policy or
deed of trust) is as follows: (A copy of the legal description may be attached.)
SEE ATTACHED EXHIBIT A
ACKNOWLEDGMENT OF A NOTARY PUBLIC:
ALL-PURPOSE CERTIFICATE
(For use when agreement is executed in California)
State of California
County of San Mateo
------------
On 23rd of April 1996 before me William B. Dalton, Notary Public, personally
------------------ --------------------------------
appeared Katrina Edwards, personally known to me (or proved to me on the basis
---------------
of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature /s/ William B. Dalton (Seal)
-----------------------------------
-2-
<PAGE>
Attachment to Deed of Trust
dtd 8/15/95. consisting of one (1) page
MEGABIOS CORP.
Legal description
"EXHIBIT A"
PARCEL ONE: 026-301-320; 024-403-410
Lots 28, 29, 30, 31 and a portion of Lots 27 and 32, Block 3 as shown on the
Map entitled "EAST MILLSDALE INDUSTRIAL PARK UNIT NO. 2, BURLINGAME, SAN MATEO
COUNTY, CALIFORNIA", filed in the Office of the County Recorder of San Mateo
County on August 3, 1959 in Book 52 of Maps at Pages 4, 5 and 6, and a
portion of Lots 13,14, 15, 16, 17, 18, Block 3 as shown on the Map entitled
"EAST MILLSDALE INDUSTRIAL PARK UNIT NO.1, BURLINGAME, SAN MATEO COUNTY,
CALIFORNIA", filed in the Office of the County Recorder of San Mateo County on
January 23, 1959 in Book 50 of Maps at Pages 24 and 25, more particularly
described as a whole as follows:
BEGINNING: at the point of intersection of the Southwesterly line of said Lot
18 with the Southeasterly line of Mitten Road, as shown on last mentioned Map;
thence from said point of beginning along said Southwesterly line of Lot 18,
South 50 degrees 41 feet 25 inches East 305.00 feet to a point distant thereon
North 50 degrees 41 feet 25 inches West 105.00 feet from the Southerly corner of
said Lot 18; thence leaving said Southwesterly line North 39 degrees 18 feet 35
inches East 363.00 feet; thence South 51 degrees 41 feet 25 inches East 105.00
feet to a point on common line between said subdivisions above mentioned; thence
along said common line South 39 degrees 18 feet 35 inches West 338.00 feet;
thence South 50 degrees 41 feet 25 inches East 235.00 feet to the Northwesterly
line of Malcolm Road, as shown on the Map first above mentioned; thence along
said Northwesterly line of Malcom Road, North 39 degrees 18 feet 35 inches East
315.00 feet to the Northeasterly line of said Lot 31: thence along said
Northeasterly line North 50 degrees 41 feet 25 inches West 175.00 feet; thence
leaving the last mentioned line North 39 degrees 18 feet 35 inches East 60.00
feet to the Northeasterly line of Lot 32; thence along the last mentioned line
North 50 degrees 41 feet 25 inches West 60.00 feet to the common line between
said Lots 32 and 13; thence along said common line South 39 degrees 18 feet 35
inches West 5.00 feet; thence leaving the last mentioned line North 50 degrees
41 feet 25 inches West 410.00 feet to the said Southeasterly line of Mitten
Road; thence along the last mentioned line South 39 degrees 18 feet 35 inches
West 395.00 feet to the point of beginning.
<PAGE>
SENIOR LOAN AND SECURITY AGREEMENT NO. L0016
THIS SENIOR LOAN AND SECURITY AGREEMENT No. L0016 (this "Security
Agreement") is dated as of April 22, 1996 between Megabios Corp., a California
corporation ("Borrower") and Phoenix Leasing Incorporated, a California
corporation ("Lender").
RECITALS
A. Borrower desires to borrow from Lender in one or more borrowings an
amount not to exceed $2,700,000.00 in the aggregate, and Lender desires to loan,
subject to the terms and conditions herein set forth, such amount to Borrower.
Such borrowings shall be evidenced by one or more Senior Secured Promissory
Notes (each, a "Note" and collectively, the "Notes"), in the form attached
hereto.
B. As security for Borrower's obligations to Lender under this Security
Agreement, the Notes and any other agreement between Borrower and Lender
executed in connection with this Security Agreement, Borrower will grant to
Lender hereunder a first perfected security interest in certain of its
equipment, machinery and fixtures, to the extent that such equipment, machinery,
and fixtures are financed under this Security Agreement and listed in Schedule 1
to a Note, including but not limited to equipment generally described as a
biotech laboratory and test equipment, office equipment, and information system
described on "Megabios Corp. Forecast Capital Expenditures," now owned by
Borrower and all substitutions and replacements of and additions, improvements,
accessions and accumulations to said equipment, machinery and fixtures, together
with all rents, issues, income, profits and proceeds therefrom including the
items described in Schedule 1 attached to each Note (collectively, to the extent
listed in Schedule 1 to a Note, the "Collateral"). In addition to the foregoing
Collateral, under certain circumstances Borrower's obligations to Lender may
also be secured by certain "Additional Collateral" as provided below, which
Additional Collateral shall not include Megabios technology licenses and
intellectual property, in which case the term "Collateral" shall include such
Additional Collateral.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. THE LOANS.
---------
(a) General Terms. Subject to the terms and conditions of this
-------------
Security Agreement, Lender hereby agrees to make one or more senior secured
loans (each, a "Loan" and collectively, the "Loans") to Borrower, subject to the
following conditions: (i) each Loan shall be evidenced by a Note; (ii) the total
principal amount of the Loans shall not exceed $2,700,000.00 (to be utilized by
Borrower as described in Section 1(c)) in the aggregate (the "Commitment") of
which amount Borrower may apply to softcosts including, but not limited to
software, leasehold improvements, installation and delivery costs with an
aggregate cost not exceeding an amount equal to 15% of the Commitment; (iii) at
the time of each Loan, no Event of Default or event which with the giving of
notice or passage of time, or both, could become an Event of Default shall have
occurred and be continuing, as reasonably determined by Lender, and certified by
Borrower; (iv) the amount of each Loan shall be at least $50,000.00 except for a
final Loan which may be less than $50,000.00; (v) Lender shall fund Loans
hereunder from the date of this Agreement through March 31, 1997 ("First
Commitment Period") and April 1, 1997 through March 31, 1998 ("Second Commitment
Period") (as described in Section 1(c) herein); (vi) for each Loan, Borrower
shall present to Lender a list of proposed Collateral for approval by Lender in
its reasonable discretion; (vii) for each Loan, Borrower shall have provided
Lender with each of the closing documents described in Exhibit A hereto (which
documents shall be in
-1-
<PAGE>
form and substance reasonably acceptable to Lender); (viii) Borrower is
performing substantially according to its 1996 business plan referred to as
"Summary Cash Flow Forecasts Fiscal 1996" dated February 22, 1996 for fundings
through June 30, 1996 and for all fundings scheduled from July 1, 1996 to June
30, 1997, Lessee's 1997 Business Plan referred to as "Summary Cash Flow Forecast
Fiscal 1997" dated April 5, 1996 and fundings after June 30, 1997 Lender's
receipt and acceptance of Lessee's 1997-1998 Forecast Plan in form and substance
reasonably acceptable to Lender (the "Business Plans") as may be amended from
time to time in form and substance acceptable to Lender; (ix) there shall be no
material adverse change in Borrower's condition, financial or otherwise, as
reasonably determined by Lender, and Borrower so certifies, from (yy) the date
of the most recent financial statements delivered by Borrower to Lender to (zz)
the date of the proposed Loan; (x) Borrower shall use the proceeds of all Loans
hereunder for working capital; (xi) at the time of each loan, Borrower has
reimbursed Lender for all UCC filing and search costs and appraisal fees; (xii)
all Collateral has been marked and labeled by Lender or Lender's agent; and
(xiii) Lender has received in form and substance acceptable to Lender: (a)
Borrower's interim financial statements signed by a financial officer of
Borrower; (b) hardcopy evidence of Borrower's $3,600,000.00 cash position as of
January 31, 1996; and (d) complete copies of the Borrower's audit reports for
its most recent fiscal year, which shall include at least the Borrower's balance
sheet as of the close of such year, and the Borrower's statement of income and
retained earnings and of changes in financial position for such year, prepared
on a consolidated basis and certified by independent public accountants. Such
certificate shall not be qualified or limited because of restricted or limited
examination by such accountant of any material portion of the company's records.
Such reports shall be prepared in accordance with generally accepted accounting
principles and practices consistently applied ("GAAP").
(b) The Notes. Each Loan shall be evidenced by a Note in the form of
---------
Exhibit C. Each Note shall bear interest and be payable and prepayable at the
times and in the manner provided therein. Following payment of the Indebtedness
related to each Note, Lender shall return such Note, marked "canceled," to
Borrower.
(c) Subject to the terms and conditions of this Security Agreement,
Borrower and Lender agree that the total Commitment of $2,700,000.00 will be
funded by Lender during the First and Second Commitment Periods as follows:
(i) during the First Commitment Period, an amount equal to
$2,000,000.00 of the Commitment with no more than $1,300,000.00 of any
unutilized Commitment carried forward to the Second Commitment Period; and
(ii) during the Second Commitment Period, such unutilized
Commitment from the First Commitment Period, if any, and an additional amount
equal to $700,000.00. [BORROWER ACKNOWLEDGES THAT (i) IN THE EVENT LESS THAN
$700,000.00 OF LOANS ARE MADE BY LENDER DURING THE FIRST COMMITMENT PERIOD, THE
TOTAL PRINCIPAL AMOUNT OF ALL LOANS LENDER IS OBLIGATED TO MAKE HEREUNDER WILL
BE LESS THAN $2,700,000.00, AND (ii) THE MAXIMUM AMOUNT LENDER IS OBLIGATED TO
FUND IN EACH COMMITMENT PERIOD SHALL NOT EXCEED $2,000,000. IN ALL EVENTS,
LENDER WILL HAVE NO OBLIGATION TO FUND ANY LOANS AFTER MARCH 31, 1998.]
SECTION 2. SECURITY INTERESTS.
------------------
(a) Borrower hereby grants to Lender a first security interest in
all Collateral subject only to Permitted Liens (as defined in Exhibit D).
(b) This Security Agreement secures (i) the payment of the principal
of and interest on the Notes and all other sums due thereunder and under this
Security Agreement
-2-
<PAGE>
(the "Indebtedness") and (ii) the performance by Borrower of all of its other
covenants now or hereafter existing under the Notes and this Security Agreement
(the "Obligations").
SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES.
-----------------------------------------
Borrower represents and warrants that (a) it is a corporation in good
standing under the laws of the state of its incorporation, and duly qualified to
do business in each state where necessary to carry on its present business and
operations, including the jurisdiction(s) where the Collateral will be located
except where failure to qualify would not have a material adverse effect on
Borrower's business; (b) it has full authority to execute and deliver this
Security Agreement and the Notes and perform the terms hereof and thereof, and
this Security Agreement and the Notes have been duly authorized, executed and
delivered and constitute valid and binding obligations of Borrower enforceable
in accordance with their terms, subject, as to enforcement of remedies, to the
following qualifications: (i) an order of specific performance and an injunction
are discretionary remedies and, in particular, may not be available where
damages are considered an adequate remedy at law, and (ii) enforcement may be
limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction
and other similar laws affecting enforcement of creditors' rights generally
(insofar as any such law relates to the bankruptcy, insolvency or similar event
of Borrower); (c) the execution and delivery of this Security Agreement and the
Notes will not contravene any law, regulation or judgment affecting Borrower or
result in any breach of any agreement or other instrument binding on Borrower;
(d) no consent of Borrower's shareholders or holder of any indebtedness, or
filing with, or approval of, any governmental agency or commission, which has
not already been obtained or performed, as appropriate, is a condition to the
performance of the terms of this Security Agreement or the Notes; (e) there is
no action or proceeding pending or threatened against Borrower before any court
or administrative agency which might have a materially adverse effect on the
business, financial condition or operations of Borrower; (f) subject to
Permitted Liens, Borrower owns and will keep all of the Collateral free and
clear of all liens, claims and encumbrances, and, except for this Security
Agreement, there is no deed of trust, mortgage, security agreement or other
third party interest against any of the Collateral; (g) Borrower has good and
marketable title to the Collateral; (h) all Collateral has been received,
installed and is ready for use and is satisfactory in all respects for the
purposes of this Security Agreement; (i) subject to Permitted Liens, the
Collateral is, and will remain at all times under applicable law, removable
personal property, which is free and clear of any lien or encumbrance except in
favor of Lender, notwithstanding the manner in which the Collateral may be
attached to any real property; (j) all credit and financial information
submitted to Lender herewith or at any other time is and will at the time given
be true and correct, provided that any unaudited financial statements do not
contain the notes required by GAAP and are subject to normal recurring year-end
adjustments that are not in the aggregate material; and (k) subject to Permitted
Liens, the security interest granted to Lender hereunder is a perfected first
security interest.
SECTION 4. METHOD AND PLACE OF PAYMENT.
---------------------------
Borrower shall pay to Lender, at its office at the address specified in the
Notes, or such other address as Lender specifies in writing, all amounts payable
to it in respect of the principal of or interest on the Notes.
-3-
<PAGE>
SECTION 5. AFFIRMATIVE COVENANTS REGARDING THE COLLATERAL.
----------------------------------------------
Borrower covenants and agrees that so long as any portion of the
Indebtedness is unpaid and as long as any of the Obligations are outstanding it
will comply with the following covenants:
(a) Location; Inspection. All of the Collateral shall be located at the
--------------------
address (the "Collateral Location") shown on the Schedule 1 to each Note and
shall not be moved without Lender's prior written consent which shall not be
unreasonably withheld. All of the records regarding the Collateral shall be
located at 863-A Mitten Road, Burlingame, California 94010. Lender shall have
the right to inspect Collateral, including records relating thereto, and
Borrower's books and records at any time (upon reasonable notification) during
regular business hours, such books and records to be maintained in accordance
with generally accepted accounting principles. Borrower shall be responsible for
all labor, material and freight charges incurred in connection with any removal
or relocation of Collateral which is requested by Borrower and consented to by
Lender, as well as for any charges due to the installation or moving of the
Collateral. Payments under the Notes and under this Security Agreement shall
continue during any period in which the Collateral is in transit during a
relocation. Lender or its agent shall mark and label Collateral, which labels
(to be provided by Lender) shall state that such Collateral is subject to a
security interest of Lender, and Borrower shall keep such labels on the
Collateral as so labeled.
(b) Collateral Maintenance. Borrower will reasonably permit Lender to
----------------------
inspect such item of Collateral and its maintenance records. Borrower will at
its sole expense comply with all applicable laws, rules, regulations,
requirements and orders with respect to the use, maintenance, repair, condition,
storage and operation of each item of Collateral. Except as required herein,
Borrower will not make any addition or improvement to any item of Collateral
that is not readily removable without causing material damage to any item or
impairing its original value or utility. Any addition or improvement that is so
required or cannot be so removed will immediately become Collateral of Lender.
(c) Service and Repair. With respect to computer equipment, other than
------------------
personal computers, Borrower has entered into, and will maintain in effect,
vendor's standard maintenance contract or another contract satisfactory to
Lender for a period equal to the term of each Loan and extensions thereto which
provides for the maintenance of the Collateral in good condition and working
order and repairs and replacement of parts thereof, all in accordance with the
terms of such maintenance contract. Borrower shall have that Collateral
certified for the vendor's standard maintenance agreement before Lender acquires
any interest in the Collateral as provided in this Security Agreement. With
respect to any other Collateral, Borrower will at its sole expense maintain and
service and repair any damage to each item of Collateral in a manner consistent
with prudent industry practice and Borrower's own practice so that such item of
Collateral is at all times (i) in the same condition as when delivered to
Borrower, except for ordinary wear and tear, and (ii) in good operating order
for the function intended by its manufacturer's warranties and recommendations.
(d) Loss or Damage. Borrower assumes the entire risk of loss to the
--------------
Collateral through use, operation or otherwise. Borrower hereby indemnifies and
holds harmless Lender from and against all claims, loss of Loan payments, costs,
damages, and expenses relating to or resulting from any loss, damage or
destruction of the Collateral, any such occurrence being hereinafter called a
"Casualty Occurrence." Following a Casualty Occurrence, Borrower shall, on the
first day payment is due on each Note following the Casualty Occurrence or, if
there is no such payment date, thirty (30) days after such
-4-
<PAGE>
Casualty Occurrence, pay to Lender an amount equal to the Balance Due (as
defined below) for each item of Collateral. The Balance Due for each item is
the sum of: (i) all amounts for each item which may be then due or accrued to
the payment date, plus (ii) as of such payment date, an amount equal to the
product of the fraction specified below times the sum of all remaining payments
under the respective Note, including the amount of any mandatory or optional
payment required or permitted to be paid by Borrower to Lender at the maturity
of the Note which sum shall be discounted to present value as of the payment
date at the rate of six percent (6%) per annum. The numerator of the fraction
shall be the Collateral Value (as set forth on the applicable schedule) of the
item and the denominator shall be the aggregate Collateral Value of all items
under the Note. Upon the making of such payments, Lender shall release such
item of Collateral from its lien hereunder.
Notwithstanding the above, within thirty (30) days following a
Casualty Occurrence, Borrower may replace any item of Collateral which has
suffered a Casualty Occurrence with Collateral acceptable to Lender in its
reasonable discretion and, in such event, the provisions of the previous
paragraph shall not apply. Borrower's tender of such Collateral shall
constitute a representation and warranty that it is free of all liens, claims
and encumbrances other than Permitted Liens, and otherwise qualifies as
Collateral under this Security Agreement. Following such tender, Lender shall
have a first security interest in such Collateral subject only to Permitted
Liens.
(e) Insurance. Borrower at its expense shall keep the Collateral insured
---------
against all risk for the value of the Collateral and in no event for less than
the amount payable following a Casualty Occurrence (as provided in Section
5(d)). Such insurance shall provide for (i) property damage insurance naming
Lender or any assignee (of which Borrower has received notice) as loss payee as
its interest may appear and (ii) comprehensive general liability coverage naming
Lender as an additional insured or any assignee (of which Borrower has received
notice) in an amount not less than $5,000,000. Borrower will provide Lender and
any assignee (of which Borrower has received notice) of Lender with a
certificate of insurance from the insurer evidencing Lender's or such assignee's
interest in the policy of insurance. Such insurance shall cover any Casualty
Occurrence to any unit of Collateral. Notwithstanding anything in Section 5(d)
or this Section 5(e) to the contrary, this Security Agreement and Borrower's
obligations hereunder shall remain in full force and effect with respect to any
unit of Collateral which is not subject to a Casualty Occurrence.
SECTION 6. MISCELLANEOUS AFFIRMATIVE COVENANTS.
-----------------------------------
So long as any portion of the Indebtedness is unpaid and as long as any of
the Obligations are outstanding Borrower will:
(a) duly pay all governmental taxes and assessments at the time they
become due and payable unless Borrower is contesting the payment of such amounts
in good faith by appropriate proceedings;
(b) comply with all material applicable governmental laws, rules
and regulations;
(c) maintain Lender's security interest in the Collateral as a first and
prior perfected security interest subject only to Permitted Liens;
(d) furnish Lender with its annual audited financial statements within
ninety (90) days following the end of Borrower's fiscal year, and within twenty
(20) days of the end of each month a financial statement for that month prepared
by Borrower, including all
-5-
<PAGE>
financial information given to Borrower's Board of Directors, and including an
income statement and balance sheet, all of which shall be certified by an
officer of Borrower as true and correct and shall be prepared in accordance with
generally accepted accounting principles consistently applied, and such other
information as Lender may reasonably request;
(e) promptly (but in no event more than five (5) business days after
the occurrence of such event) notify Lender of any material adverse change in
Borrower's condition during the commitment period and of the occurrence of any
Event of Default; and
(f) take all steps deemed by Lender reasonable or advisable to validate
or perfect the security interest of Lender in the Collateral.
SECTION 7. INDEMNITIES.
-----------
(a) General. Borrower will protect, indemnify and save harmless Lender
-------
and any assignees on an after-tax basis from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including reasonable attorneys' fees and expenses), imposed upon or incurred by
or asserted against Lender or any assignee of Lender by Borrower or any third
party by reason of the occurrence or existence (or alleged occurrence or
existence) of any act or event relating to or caused by any portion of the
Collateral, or its purchase, acceptance, possession, use, maintenance or
transportation, including without limitation, consequential or special damages
of any kind, any failure on the part of Borrower to perform or comply with any
of the terms of this Security Agreement or the Notes, claims for latent or other
defects, claims for patent, trademark or copyright infringement and claims for
personal injury, death or property damage, including those based on Lender's
negligence or strict liability in tort and excluding only those based on
Lender's gross negligence or willful misconduct. In the event that any action,
suit or proceeding is brought against Lender by reason of any such occurrence,
Borrower, upon Lender's request, will, at Borrower's expense, resist and defend
such action, suit or proceeding or cause the same to be resisted and defended by
counsel designated by Lender and reasonably acceptable to Borrower.
(b) Tax Indemnity. Borrower agrees to reimburse Lender (or pay directly if
-------------
instructed by Lender) and any assignee of Lender for, and to indemnify and hold
Lender and any assignee harmless from, all fees (including, but not limited to,
license, documentation, recording and registration fees), and all sales, use,
gross receipts, personal property, occupational, value added or other taxes,
levies, imposts, duties, assessments, charges, or withholdings of any nature
whatsoever, together with any penalties, fines, additions to tax, or interest
thereon (the foregoing collectively "Impositions"), except same as may be
attributable to Lender's income, arising at any time prior to or during the term
of any Notes or of this Security Agreement, or upon termination or early
termination of this Security Agreement and levied or imposed upon Lender
directly or otherwise by any Federal, state or local government in the United
States or by any foreign country or foreign or international taxing authority
upon or with respect to (i) the Collateral, (ii) the exportation, importation,
registration, purchase, ownership, delivery, leasing, possession, use,
operation, storage, maintenance, repair, return, sale, transfer of title, or
other disposition thereof, (iii) the rentals, receipts, or earnings arising from
the Collateral, or any disposition of the rights to such rentals, receipts, or
earnings, (iv) any payment pursuant to this Security Agreement or the Notes, or
(v) this Security Agreement, the Notes or any transaction or any part hereof or
thereof.
-6-
<PAGE>
(c) Survivability. Borrower's obligations under this Section 7 shall
-------------
survive the payment in full of all the Indebtedness and the performance of all
Obligations with respect to acts or events occurring or alleged to have occurred
prior to the payment in full of all the Indebtedness and the performance of all
Obligations.
SECTION 8. RELEASE OF LIENS.
----------------
Upon payment of all of the Indebtedness and performance of all of the
Obligations, Lender shall execute UCC termination statements and such other
documents as Borrower shall reasonably require to evidence the release of
Lender's lien relating to the Collateral.
SECTION 9. ASSIGNMENT.
----------
WITHOUT LENDER'S PRIOR WRITTEN CONSENT WHICH SHALL NOT BE UNREASONABLY
WITHHELD, BORROWER SHALL NOT (a) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR
OTHERWISE DISPOSE OF THIS SECURITY AGREEMENT, ANY COLLATERAL, OR ANY INTEREST
THEREIN, (b) LEASE OR LEND COLLATERAL OR PERMIT IT TO BE USED BY ANYONE OTHER
THAN BORROWER OR BORROWER'S EMPLOYEES OR (c) MERGE INTO, CONSOLIDATE WITH OR
CONVEY OR TRANSFER ITS PROPERTIES SUBSTANTIALLY AS AN ENTIRETY TO ANY OTHER
PERSON OR ENTITY; provided, however, that no consent shall be required in
connection with a merger, consolidation or transfer in which the survivor or
acquiring party has a net worth at least as great as the net worth of Borrower
as of the date of this Security Agreement. Lender may assign any of the Notes,
this Security Agreement or its security interest in any or all Collateral, or
any or all of the above, in whole or in part to one or more assignees or secured
parties without notice to Borrower; provided that notwithstanding any assignment
by Lender, Lender shall not be relieved of its duties and obligations hereunder.
If Borrower is given notice of such assignment it agrees to acknowledge receipt
thereof in writing and Borrower shall execute such additional
documentation as Lender's assignee shall reasonably require. Each such
assignee and/or secured party shall have all of the rights, but (except as
provided in Section 9 hereof) none of the obligations, of Lender under this
Security Agreement, unless it expressly agrees to assume such obligations in
writing. Borrower shall not assert against any assignee and/or secured party any
defense, counterclaim or offset that Borrower may have against Lender.
Notwithstanding any such assignment, and providing no Event of Default has
occurred and is continuing, Lender, or its assignees, secured parties, or their
agents or assigns, shall not interfere with Borrower's right to quietly enjoy
use of Collateral subject to the terms and conditions of this Security
Agreement. Subject to the foregoing, the Notes and this Security Agreement
shall inure to the benefit of, and are binding upon, the successors and
assignees of the parties hereto.
SECTION 10. DEFAULT.
-------
(a) Events of Default. Any of the following events or conditions shall
-----------------
constitute an "Event of Default" hereunder: (i) Borrower's failure to pay any
monies due to Lender hereunder or under any Note beyond the fifth (5th) day
after the same is due; (ii) Borrower's failure to comply with its obligations
under Section 5(e) or Section 9; (iii) any representation or warranty of
Borrower made in this Security Agreement or the Notes or in any other agreement,
statement or certificate furnished to Lender in connection with this Security
Agreement or the Notes shall prove to have been incorrect in any material
respect when made or given; (iv) Borrower's failure to comply with or perform
any material term, covenant or condition of this Security Agreement or any Note
or under any lease of real property covering the location of the Equipment if
such failure to comply or perform is not cured by Borrower within thirty (30)
days after Borrower knows of the noncompliance or nonperformance or notice from
Lender; (v) seizure of any of the Collateral under legal process; (vi) the
filing by or against Borrower of a petition for reorganization or
-7-
<PAGE>
liquidation under the Bankruptcy Code or any amendment thereto or under any
other insolvency law providing for the relief of debtors provided that in the
case of an involuntary proceeding, such proceeding is not dismissed within
sixty (60) days after commencement; (vii) the voluntary or involuntary making of
an assignment of a substantial portion of its assets by Borrower for the benefit
of its creditors, the appointment of a receiver or trustee for Borrower or for
any of Borrower's assets, the institution by or against Borrower of any formal
or informal proceeding for dissolution, liquidation, settlement of claims
against or winding up of the affairs of Borrower provided that in the case of
all such involuntary proceedings, same are not dismissed within sixty (60) days
after commencement; (viii) the making by Borrower of a transfer of all or a
material portion of Borrower's assets or inventory not in the ordinary course of
business.
(b) Remedies. If any Event of Default has occurred and is continuing,
--------
Lender may in its sole discretion exercise one or more of the following remedies
with respect to any or all of the Collateral: (i) declare due any or all of the
aggregate sum of all remaining payments under the Notes, including the amount
of any mandatory or optional payment required or permitted to be paid by
Borrower to Lender at the maturity of the Notes which sum shall be discounted to
present value as of the payment date at the rate of six percent (6%) per annum
("Remaining Payments"); (ii) proceed by court action to enforce Borrower's
performance of the Notes and this Security Agreement or to recover all
reasonable damages and expenses incurred by Lender by reason of an Event of
Default; (iii) without court order or prior demand, enter upon the premises
where the Collateral is located and take immediate possession of and remove it
without liability of Lender to Borrower; (iv) terminate this Security Agreement
and sell the Collateral at public or private sale, or otherwise dispose of,
hold, use or lease any or all of the Collateral; or (v) exercise any other right
or remedy available to it under applicable law. If Lender has declared due any
or all of the Remaining Payments, Borrower will pay immediately to Lender (a)
the Remaining Payments, (b) all amounts which may be then due or accrued, and
(c) all other amounts due under this Security Agreement and under the Notes
(Lender's Return, as referred to below, means the amounts described in clauses
(a), (b) and (c) above). The net proceeds of any sale or lease of such
Collateral will be credited against Lender's Return. The net proceeds of a sale
of the Collateral pursuant to this Section 11(b) is defined as the sales price
of the Collateral less reasonable selling expenses, including, without
limitation, costs of remarketing the Collateral and all refurbishing costs and
commissions paid with respect to such remarketing. The net proceeds of a lease
of the Collateral pursuant to this Section 11(b) is defined as the amount equal
to the rental payments due under such lease (discounted at a rate per annum
equal to the discount rate for 13-week Treasury Bills as of the date on which
Lender notifies Borrower that this Security Agreement is terminated (the
"Termination Date") (as such rate is reported in the Money Rates column in the
Wall Street Journal) or the Termination Date or, if the Wall Street Journal is
- ------------------- -------------------
not published on such date or the next date after the Termination Date that the
Wall Street Journal is published (the "Discount Rate")) plus the residual value
- -------------------
of the Collateral at the end of the basic term of such lease, as reasonably
determined by Lender, and discounted at the Discount Rate.
Borrower agrees to pay all reasonable out-of-pocket costs of Lender
incurred in enforcement of this Security Agreement, the Notes or any instrument
or agreement required under this Security Agreement, including, but not limited
to reasonable, outside counsel legal fees and litigation expenses and fees of
collection agencies ("Remedy Expenses"). At Lender's request, Borrower shall
assemble the Collateral and make it available to Lender at such time and
location within the United States as Lender may designate not to exceed 100
miles from Lender's principal place of business. Borrower waives, to the
extent permitted by law, the right to repurchase any Collateral following the
sale or the disposition of the Collateral by Lender.
-8-
<PAGE>
Declaration that any or all amounts under this Security Agreement and/or
the Notes are immediately due and payable shall not terminate this Security
Agreement or any of the Notes unless Lender so notifies Borrower in writing.
Notwithstanding Section 11 herein, any amount required to be paid under this
section shall accrue interest at a rate of 20% per annum or the highest rate of
interest permitted by applicable law, whichever is less, accruing from the date
the amounts are payable hereunder until such amounts are paid. All such
remedies are cumulative and may be enforced separately or concurrently.
(c) Application of Proceeds. The proceeds of any sale of all or any part
-----------------------
of the Collateral and the proceeds of any remedy afforded to Lender by this
Security Agreement shall be paid to and applied as follows:
First, to the payment of reasonable costs and expenses of suit or
-----
foreclosure, if any, and of the sale, if any, including, without limitation,
refurbishing costs, costs of remarketing and commissions related to remarketing,
all Remedy Expenses, all reasonable expenses, liabilities and advances incurred
or made pursuant to this Security Agreement or any Note by Lender in connection
with foreclosure, suit, sale or enforcement of this Security Agreement or the
Notes, and taxes, assessments or liens superior to Lender's security interest
granted by this Security Agreement;
Second, to the payment of all other amounts not described in item Third
------ -----
below due under this Security Agreement and all Notes;
Third, to pay Lender an amount equal to Lender's Return, to the extent
-----
not previously paid by Borrower; and
Fourth, to the payment of any surplus to Borrower or to whomever may
------
lawfully be entitled to receive it.
(d) Effect of Delay; Waiver; Foreclosure on Collateral. No delay or
--------------------------------------------------
omission of Lender, in exercising any right or power arising from any Event of
Default shall prevent Lender from exercising that right or power if the Event of
Default continues. No waiver of an Event of Default, whether full or partial,
by Lender or such holder shall be taken to extend to any subsequent Event of
Default, or to impair the rights of Lender in respect of any damages suffered
as a result of the Event of Default. The giving, taking or enforcement of any
other or additional security, collateral or guaranty for the payment or
discharge of the Indebtedness and performance of the Obligations shall in no way
operate to prejudice, waive or affect the security interest created by this
Security Agreement or any rights, powers or remedies exercised hereunder or
thereunder. Lender shall not be required first to foreclose on the Collateral
prior to bringing an action against Borrower for sums owed to Lender under this
Security Agreement or under any Note.
SECTION 11. LATE PAYMENTS.
-------------
Borrower shall pay Lender an amount equal to the greater of 10% of all
amounts owed Lender by Borrower which are not paid within five (5) days of the
date when due or $100, but in no event an amount greater than the highest rate
permitted by applicable law. If such amounts have not been received by Lender at
Lender's place of business or by Lender's designated agent within five (5) days
of the date amounts are due under this Security Agreement or the Notes, Lender
shall bill Borrower for such charges. Borrower acknowledges that invoices for
amounts due hereunder or under the Notes are sent by Lender for Borrower's
convenience only. Borrower's non-receipt of an invoice will not relieve
Borrower of its obligation to make payments hereunder or under the Notes.
-9-
<PAGE>
SECTION 12. PAYMENTS BY LENDER.
------------------
If Borrower shall fail to make any payment or perform any act required
hereunder (including, but not limited to, maintenance of any insurance required
by Section 5(e)), then Lender may, but shall not be required to, after such
notice to Borrower as is reasonable under the circumstances, make such payment
or perform such act with the same effect as if made or performed by Borrower.
Borrower will upon demand reimburse Lender for all reasonable sums paid and all
reasonable costs and expenses incurred in connection with the performance of any
such act.
SECTION 13. FINANCING STATEMENTS.
--------------------
Borrower will execute all financing statements pursuant to the Uniform
Commercial Code and all such other documents reasonably requested by Lender to
perfect Lender's security interests hereunder. Borrower authorizes Lender to
file financing statements signed only by Lender (where such authorization is
permitted by law) at all places where Lender deems necessary.
SECTION 14. NATURE OF TRANSACTION.
---------------------
Lender makes no representation whatsoever, express or implied, concerning
the legal character of the transaction evidenced hereby, for tax or any other
purpose.
SECTION 15. SUSPENSION OF LENDER'S OBLIGATIONS.
----------------------------------
The obligations of Lender hereunder will be suspended to the extent that
Lender is hindered or prevented from complying therewith because of labor
disturbances, including but not limited to strikes and lockouts, acts of God,
fires, floods, storms, accidents, industrial unrest, strike, acts of war,
insurrection, riot or civil disorder, any order, decree, law or governmental
regulations or interference, or any cause whatsoever not within the sole and
exclusive control of Lender.
SECTION 16. STOCK WARRANT.
-------------
Borrower agrees that it will issue to Lender upon execution of this Loan a
Warrant in the form of the Warrant Agreement attached hereto as Exhibit B.
Borrower and Lender agree that the value of the Warrant hereunder is ten dollars
($10.00).
SECTION 17. COMMITMENT FEE.
--------------
Borrower has paid to Lender a commitment fee ("Fee") of $27,000.00. The Fee
shall be applied by Lender first to reimburse Lender for all out-of-pocket UCC
and other search costs, and all appraisal fees incurred by Lender, and then
proportionally to the first monthly payment for each Note hereunder in the
proportion that the Collateral Value for such Note bears to Lender's entire
commitment. However, the portion of the Fee which is not applied to such
monthly payments shall be non-refundable.
SECTION 18. MISCELLANEOUS.
-------------
(a) Borrower shall provide Lender with such corporate resolutions, financial
statements, and other documents as Lender shall reasonably request from time to
time. (b) Borrower represents that the Collateral hereunder is used solely for
business purposes. (c) Time is of the essence with respect to this Security
Agreement. (d) All notices
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<PAGE>
hereunder shall be in writing, sent by registered or certified mail, return
receipt requested or by reliable messenger or delivery service, and shall be
directed, as the case may be, to Lender at 2401 Kerner Boulevard, San Rafael,
California 94901, Attention: Lease Administration and to Borrower at Megabios
Corp., 863-A Mitten Road, Burlingame, California 94010, Attention: Martin Nibel,
Controller. Such notices shall be effective on receipt if delivered personally,
five days after dispatch if mailed and one business day after dispatch if sent
by courier service. (e) Borrower acknowledges that Borrower has read this
Security Agreement and the Notes, understands them and agrees to be bound by
their terms and further agrees that this Security Agreement and the Notes
constitute the entire agreement between Lender and Borrower with respect to the
subject matter hereof and supersede all previous agreements, promises, or
representations. (f) This Security Agreement and the Notes may not be changed,
altered or modified except by an instrument signed by an officer or authorized
representative of Lender and Borrower. (g) Any failure of Lender to require
strict performance by Borrower or any waiver by Lender of any provision herein
or in a Note shall not be construed as a consent or waiver of any other breach
of the same or any other provision. (h) If any provision of this Security
Agreement or a Note is held invalid, such invalidity shall not affect any other
provisions hereof or thereof. (i) The obligations of Borrower to pay the
Indebtedness and perform the Obligations shall survive the expiration or earlier
termination of this Security Agreement or the Notes until all Obligations of
Borrower to Lender have been met and all liabilities of Borrower to Lender and
any assignee have been paid in full. (j) Borrower will notify Lender at least 30
days before changing its name, principal place of business or chief executive
office. (k) Borrower will, at its expense, promptly execute and deliver to
Lender such documents and assurances (including financing statements) and take
such further action as Lender may reasonably request in order to carry out the
intent of this Security Agreement and Lender's rights and remedies. (1) Borrower
hereby appoints Lender (and each of Lender's officers, employees or agents
designated by Lender), with full power of substitution by Lender, as Borrower's
attorney, with power to execute and deliver on Borrower's behalf financing
statements and other documents necessary to perfect and/or give notice of
Lender's security interest in any of the Collateral.
SECTION 19. ADJUSTMENT OF INITIAL LOAN RATE FACTOR.
--------------------------------------
For each Note funded, Borrower and Lender agree that the initial payment
rate factor of 2.00% ("the Initial Payment Rate Factor"), will be adjusted based
on the Four Year Treasury Note Rate existing on the business day which is
fifteen (15) days preceding the funding date for each Note, as quoted in the
Wall Street Journal (the "Funding Treasury Note Rate"). Lessee and Lessor agree
that for each basis point that the Funding Treasury Note Rate is greater than an
assumed base Treasury Note Rate of 5.90%, the Initial Rate Factor for the
applicable Note shall be adjusted as set forth in the table on Exhibit B hereto
and shall remain constant, provided, however, Lessor and Lessee agree that in no
event shall the Initial Rate Factor be adjusted to be less than 2.00% for months
1 - 24, and not less than 3.00% for months 25 - 48 for any Note.
SECTION 20. JURISDICTION AND WAIVER OF JURY TRIAL.
-------------------------------------
This Security Agreement and the Notes shall be governed by and construed
under the laws of the State of California, excluding principles of conflicts of
laws. It is agreed that exclusive jurisdiction and venue for any legal action
between the parties arising out of or relating to this Security Agreement or a
Note shall be in the Superior Court for Marin County, California, or, in cases
where federal diversity jurisdiction is available, in the United States District
Court for the Northern District of California situated in
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<PAGE>
San Francisco. BORROWER, TO THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS
RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS SECURITY
AGREEMENT, ANY NOTE, ANY SECURITY DOCUMENTS, OR ANY OTHER AGREEMENTS EXECUTED IN
CONNECTION HEREWITH.
IN WITNESS WHEREOF, Borrower and Lender have caused this Security Agreement to
be executed as of the date and year first above written.
MEGABIOS CORP. PHOENIX LEASING INCORPORATED
- ----------------------------- -----------------------------------------
BORROWER LENDER
By: Patrick Enright By: /s/ Norm Nelson
-------------------------- -------------------------------------
Its: V.P. Finance and Business Its: V.P.
Development
------------------------- ------------------------------------
Headquarters Location:
863-A Mitten Road
Burlingame, CA 94010
County of San Mateo
---------
EXHIBITS AND SCHEDULES:
Exhibit A -- Closing Memorandum
Exhibit B -- Warrant
Exhibit C -- Note
Exhibit D -- Permitted Liens
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<PAGE>
EXHIBIT A to
SENIOR LOAN AND SECURITY AGREEMENT
CLOSING MEMORANDUM
------------------
1.* Duly executed Senior Loan and Security Agreement.
2. Duly executed Senior Security Promissory Note with Schedule 1 Collateral
Description attached.
3. Insurance Certificates reflecting coverage required under Section 5(e) of
the Senior Loan and Security Agreement.
4.* Resolutions of Borrower's Board of Directors.
5. Agreement to Allow Removal of Personal Property.**
6.* UCC-1 Financing Statements.
7.* Stock Warrant.
8. UCC Search.
9. Certificate of Chief Financial Officer stating that (i) except for
Permitted Liens there are no liens, charges, security interests or other
encumbrances that may affect Lender's right, title and interest in the
Collateral and there are no UCC-l financing statements filed or in the
process of being filed against any of the Collateral, (ii) Borrower is
performing substantially according to Borrower's business plan, (iii) no
material adverse change has occurred in the financial condition of
Borrower, (iv) no Event of Default has occurred, and (v) the
representations and warranties in Section 3 of the Senior Loan and Security
Agreement are true and correct as if made on the date of the Loan.
10. Certificate from the Secretary of State of Borrower's state of
incorporation, and from the state in which Borrower's chief executive
office is located, if different, stating the Borrower is in good standing
or is authorized to transact business, as the case may be, dated not more
than thirty days prior to the first Loan.*
11.* Borrower's Business Plan.
12. Borrower's most recent financial statements.
13. List of proposed Collateral.
14. Purchase documentation verifying Borrower's ownership of equipment.
15. See Section 1 of the Senior Loan and Security Agreement for additional
conditions to closing.
* First Loan only.
** Required if any Equipment is a fixture, i.e., attached to real property, or
located in certain states.
<PAGE>
EXHIBIT B TO SENIOR LOAN AND SECURITY AGREEMENT NO. L0016
<TABLE>
<CAPTION>
Funding Treasury Note Rate Initial Loan Rate Factor
-------------------------- ------------------------
<S> <C>
5.90% - 5.99 2.000%
6.00% - 6.09 2.009%
6.10% - 6.19 2.017%
6.20% - 6.29 2.026%
6.30% - 6.39 2.035%
6.40% - 6.49 2.044%
6.50% - 6.59 2.052%
6.60% - 6.69 2.061%
6.70% - 6.79 2.070%
6.80% - 6.89 2.078%
6.90% - 6.99 2.087%
7.00% - 7.09 2.096%
7.10% - 7.19 2.104%
7.20% - 7.29 2.113%
7.30% - 7.39 2.122%
7.40% - 7.49 2.130%
7.50% - 7.59 2.139%
7.60% - 7.69 2.147%
7.70% - 7.79 2.156%
7.80% - 7.89 2.165%
7.90% - 7.99 2.173%
8.00% - 8.09 2.182%
8.10% - 8.19 2.190%
8.20% - 8.29 2.199%
8.30% - 8.39 2.208%
8.40% - 8.49 2.216%
8.50% - 8.59 2.225%
8.60% - 8.69 2.233%
8.70% - 8.79 2.242%
8.80% - 8.89 2.250%
8.90% - 8.99 2.259%
9.00% - 9.09 2.267%
9.10% - 9.19 2.276%
9.20% - 9.29 2.284%
9.30% - 9.39 2.293%
9.40% - 9.49 2.301%
9.50% - 9.59 2.310%
9.60% - 9.69 2.318%
9.70% - 9.79 2.327%
9.80% - 9.89 2.335%
9.90% - 9.99 2.344%
10.00% - 10.09% 2.352%
</TABLE>
For every additional 10 basis point increase in Funding Treasury Note Rate,
a .01% increase in Initial Lease Rate Factor.
Lessor's Initials NN Lessee's Initials PE
------- ------
<PAGE>
EXHIBIT C
NOTE NO. 1
TO SENIOR LOAN AND SECURITY AGREEMENT
NO. L0016
BETWEEN MEGABIOS CORP.
AS BORROWER AND
PHOENIX LEASING INCORPORATED AS LENDER
SENIOR SECURED PROMISSORY NOTE
------------------------------
$514,682.23 May ____, 1996
San Rafael,California
FOR VALUE RECEIVED, the undersigned, Megabios Corp., a California
corporation ("Borrower"), hereby promises to pay to the order of Phoenix Leasing
Incorporated, or its assigns (the "LENDER") the principal sum of Five Hundred
Fourteen Thousand Six Hundred Eighty-Two and 23/100 Dollars ($514,682.23),
together with interest on the decreasing balance of this principal amount until
the principal is fully repaid. On the last day of the Forty-eighth (48th) month
the entire remaining unpaid principal balance, together with interest accrued
and unpaid, shall be due and payable. Principal and interest shall be payable in
consecutive monthly installments, each of which shall be equal to the percentage
specified below of the principal sum and in the amounts each month specified
below.
<TABLE>
<CAPTION>
Month Payment Amount Percentage
- --------------- -------------- -----------
<S> <C> <C>
1 - 24 $10,293.64 2.00%
25 - 48 $15,440.47 3.00%
</TABLE>
The first and last month's payment shall be due on the first day of the
month immediately following the date of this Note (unless the date of this Note
is the first day of the month in which case the first payment is due on that
day), and each succeeding payment shall be made on the first day of each
succeeding month. An interim payment will be due on the same dates as the first
payment for the period from the date Lender funds the principal amount of this
Note until the first day of the following month and shall be equal to 1/30 of
the monthly loan payment multiplied by the number of days, if any, between (and
including) the funding date and the first day of the following month.
As additional interest compensation, on the first day of the forty-ninth
(49th) month Borrower shall either (a) pay to Lender an amount equal to the then
Fair Market Value of all of the Collateral described in Schedule 1 to this Note,
provided that the amount of the payment shall be an amount which is not less
than ten percent (10%) nor more than twenty percent (20%) of the original
principal amount of this Note, or (b) make the first payment of twelve (12)
additional consecutive monthly payments each of which shall be in an amount
equal to 1.85% of the original principal amount of this Note. Borrower shall pay
to Lender an amount equal to the greater of 10% of all amounts owed Lender by
Borrower which are not paid within ten (10) days of the date when due or $100,
but in no event an amount greater than the highest rate permitted by applicable
law.
THIS NOTE MAY NOT BE PREPAID IN WHOLE OR IN PART.
-1-
<PAGE>
Payments of principal and interest hereunder shall be made in lawful money
of the United States of America at the offices of Lender at 2401 Kerner
Boulevard, San Rafael, California 94901, or such other place as the Lender shall
designate to the Borrower in writing.
This Note is secured by a Senior Loan and Security Agreement, dated as of
April 22, 1996 between Borrower and Lender (the "Security Agreement") and is
entitled to the benefits of the Security Agreement which contains, among other
things, provisions for (i) events of default and the Lender's rights and
remedies following an event of default (which include, but are not limited to,
acceleration of this Note), (ii) Collateral which secures the repayment of this
Note and is more particularly described on Schedule 1 hereto, (iii) liquidated
damages which may be payable following an event of default and (iv) other rights
and remedies of Lender.
This Note may be declared due prior to its expressed maturity date only in
the events, on the terms and in the manner provided in the Security Agreement.
This Note shall be construed and enforced in accordance with the laws of the
State of California, excluding principles of conflicts of laws.
The Borrower hereby expressly waives presentment for payment, demand for
payment, notice of dishonor, protest, notice of protest, notice of nonpayment,
and all lack of diligence or delays in collection or enforcement of this Note.
BORROWER:
MEGABIOS CORP.
By:
-----------------------
Its:
-----------------------
<PAGE>
EXHIBIT D TO SENIOR LOAN AND SECURITY AGREEMENT NO. L0016
"LIEN" means any mortgage, pledge, security interest, encumbrance, deed
of trust, lien, levy, charge or adverse claim of any kind, whether voluntary or
involuntary.
"Permitted Liens" means the following:
(a) Any Liens existing as of the date hereof and disclosed to Lender;
(b) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by appropriate
proceedings;
(c) Liens arising from judgments, decrees or attachments to the extent
and only so long as such judgment, decree or attachment has not caused or
resulted in an Event of Default;
(d) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution;
(e) Liens incurred in connection with the extension, renewal,
refunding, refinancing, modification, amendment or restatement of the
indebtedness secured by Liens of the type described in clause (a) above,
provided that any extension, renewal or replacement Lien shall be limited to the
property encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase.
Lessors Initials NN Lessee's Initials PE
-------- --------
<PAGE>
^?? ^??
Your cooperation is necessary for the prompt and efficient filing of the
attached UCC(s).
ONLY COMPLETE HIGHLIGHTED ITEMS
-------------------------------
PLEASE COMPLETE:
- ---------------
SECTION A - Signer's name, title, Social Security Number (if individual) or
- ---------
FEDERAL TAX I.D.# (if corporation
SECTION B - Provide those items highlighted
- ---------
SECTION C - If a Fixture Filing/Agreement to Allow Removal is attached provide
- ---------
those items listed
SECTION D - If any corrections, deletions or additions, need to be made
- ---------
please, indicate them below on the appropriate line as many states
will not accept UCC forms that have handwritten corrections and
carbon copies that are illegible.
SECTION A: Please print signer's name and title Patrick G. Enright, VP Finance
- --------- ------------------------------
and Business Development
------------------------
Social Security # if individual____________________________________
FEDERAL TAX I.D.# (if corporation or partnership)__________________
SECTION B (PROVIDE HIGHLIGHTED ITEMS)
- --------- ---------------------------
Imprint of Corporate Seal directly on UCC for: a) Debtor
b) secured Party
c) Mortgage Holder
Notarized signatures required directly on UCC
--------
Unofficial witness signature required directly on the UCC
--------
SECTION C
- ---------
1.) A LEGAL DESCRIPTION OF THE PROPERTY where the equipment will be
-----------------------------------
located.
2.) THE NAME OF THE RECORD OWNER (LANDLORD) of such property.
--------------------------------------
3.) A LIST OF THE EQUIPMENT to be placed on the property.
-----------------------
4.) UNOFFICIAL WITNESS SIGNATURE ON AGREEMENT TO ALLOW REMOVAL.
----------------------------------------------------------
SECTION D
- ---------
DEBTOR'S NAME:______________________________________________________
DEBTOR'S ADDRESS:___________________________________________________
OTHER:______________________________________________________________
______________________________________________________________
PLEASE SIGN UCC WHERE ARROW INDICATES AND RETURN THIS FORM WITH SIGNED UCC(s)
- -----------------------------------------------------------------------------
<PAGE>
UNIFORM COMMERCIAL CODE -- FINANCING STATEMENT -- FOR UCC-1 (REV. 1/90)
This FINANCING STATEMENT is presented for filing and will remain effective, with
certain exceptions, for five years from the date of the filing, pursuant to
Section 9403 of the California Uniform Commercial Code.
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 DEBTOR (LAST NAME FIRST -- IF AN INDIVIDUAL) 1A. SOCIAL SECURITY OR FEDERAL TAX NO.
MEGABIOS CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
863-A MITTEN ROAD BURLINGAME CA 94010
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST -- IF AN INDIVIDUAL) 2A. SOCIAL SECURITY OR FEDERAL TAX NO.
- ------------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES (IF ANY) 3A. FEDERAL TAX NUMBER
- ------------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY NO. FEDERAL TAX NO.
OR BANK TRANSIT AND A.B.A. NO.
NAME PHOENIX LEASING INCORPORATED
MAILING ADDRESS 2401 Kerner Boulevard
CITY San Rafael STATE CA ZIP CODE 94901
- ------------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO. FEDERAL TAX NO.
OR BANK TRANSIT AND A.B.A. NO.
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. This FINANCING STATEMENT covers the following types or items of property
(include description of real property on which located and owner of record
when required by instruction 4.)
Equipment, fixtures and general intangibles more specifically described on
Exhibit A attached hereto, serving as collateral for that certain Senior Loan
and Security Agreement between Secured Party and Debtor dated _____________,
19___(the "Loan"); said Loan and all rentals and other sums due thereunder;
all proceeds including insurance and general intangibles related thereto.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
7B. DEBTOR(S) SIGNATURE NOT REQUIRED IN ACCORDANCE WITH
7. CHECK [X] 7A. PRODUCTS OR COLLATERAL INSTRUCTION 5(a) ITEM:
IF APPLICABLE [X] ARE ALSO COVERED [_] (1) [_] (2) [_] (3) [_] (4)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
8. CHECK [X]
IF APPLICABLE [_] DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC (S) 9105 (1) (n)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
9. DATE: C 10. THIS SPACE FOR USE OF FILING OFFICER
O (DATE, TIME, FILE NUMBER AND FILING
BY: /s/ Patrick Enright 5-22-96 D OFFICER)
SIGNATURE(S) OF DEBTOR (S) E
- -------------------------------------------------------------------------------- -----
MEGABIOS CORPORATION
1
TYPE OR PRINT NAME(S) OF DEBTOR(S)
- -------------------------------------------------------------------------------- 2
BY: 3
SIGNATURE(S) OF SECURED PARTY(IES)
- -------------------------------------------------------------------------------- 4
PHOENIX LEASING INCORPORATED
5
TYPE OR PRINT NAME(S) OF SECURED PARTY(IES)
================================================================================ 6
11. Return copy to:
7
NAME CT CORPORATION SYSTEMS
ADDRESS 1201 K Street, Suite 1980 8
CITY Sacramento CA 95814
STATE 9
ZIP CODE
0
================================================================================
FORM UCC-1
(1) FILING OFFICER COPY Approved by the SECRETARY of State
================================================================================
</TABLE>
<PAGE>
UNIFORM COMMERCIAL CODE -- FINANCING STATEMENT -- FOR UCC-1 (REV. 1/90)
This FINANCING STATEMENT is presented for filing and will remain effective, with
certain exceptions, for five years from the date of the filing, pursuant to
Section 9403 of the California Uniform Commercial Code.
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 DEBTOR (LAST NAME FIRST -- IF AN INDIVIDUAL) 1A. SOCIAL SECURITY OR FEDERAL TAX NO.
MEGABIOS CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
863-A MITTEN ROAD BURLINGAME CA 94010
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST -- IF AN INDIVIDUAL) 2A. SOCIAL SECURITY OR FEDERAL TAX NO.
- ------------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES (IF ANY) 3A. FEDERAL TAX NUMBER
- ------------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY NO. FEDERAL TAX NO.
OR BANK TRANSIT AND A.B.A. NO.
NAME PHOENIX LEASING INCORPORATED
MAILING ADDRESS 2401 Kerner Boulevard
CITY San Rafael STATE CA ZIP CODE 94901
- ------------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO. FEDERAL TAX NO.
OR BANK TRANSIT AND A.B.A. NO.
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. This FINANCING STATEMENT covers the following types or items of property
(include description of real property on which located and owner of record
when required by instruction 4.)
Equipment, fixtures and general intangibles more specifically described on
Exhibit A attached hereto, serving as collateral for that certain Senior Loan
and Security Agreement between Secured Party and Debtor dated _____________,
19___(the "Loan"); said Loan and all rentals and other sums due thereunder;
all proceeds including insurance and general intangibles related thereto.
The goods on the attached Exhibit A are or are to become fixtures on
_____________, 19___ and this financing statement is to be recorded in the
real estate records. The name of the record owner is ____________________.
The goods that are or are to become fixtures are located on the real property
more fully described on the attached Exhibit B.
FILE WITH _______________ COUNTY OFFICIAL RECORDS (Fixture Filing)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
7B. DEBTOR(S) SIGNATURE NOT REQUIRED IN ACCORDANCE WITH
7. CHECK [X] 7A. PRODUCTS OR COLLATERAL INSTRUCTION 5(a) ITEM:
IF APPLICABLE [X] ARE ALSO COVERED [_] (1) [_] (2) [_] (3) [_] (4)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
8. CHECK [X]
IF APPLICABLE [_] DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC (S) 9105 (1) (n)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
9. DATE: C 10. THIS SPACE FOR USE OF FILING OFFICER
O (DATE, TIME, FILE NUMBER AND FILING
BY: /s/ Patrick Enright 5-22-96 D OFFICER)
SIGNATURE(S) OF DEBTOR (S) E
- -------------------------------------------------------------------------------- -----
MEGABIOS CORPORATION
1
TYPE OR PRINT NAME(S) OF DEBTOR(S)
- -------------------------------------------------------------------------------- 2
BY: 3
SIGNATURE(S) OF SECURED PARTY(IES)
- -------------------------------------------------------------------------------- 4
PHOENIX LEASING INCORPORATED
5
TYPE OR PRINT NAME(S) OF SECURED PARTY(IES)
================================================================================ 6
11. Return copy to:
7
NAME CT CORPORATION SYSTEMS
ADDRESS 1201 K Street, Suite 1980 8
CITY Sacramento CA 95814
STATE 9
ZIP CODE
0
================================================================================
FORM UCC-1
(1) FILING OFFICER COPY Approved by the SECRETARY of State
================================================================================
</TABLE>
<PAGE>
ORIGINAL
OFFICER'S CERTIFICATE
---------------------
The undersigned, Patrick G. Enright, hereby certifies that:
------------------
(i) I am the VP Finance and Business Development of Megabios Corp., a
-----------------------------------
California corporation (the "Borrower");
(ii) as such officer, I am familiar with the terms and conditions of that
certain Senior Loan and Security Agreement (the "Security Agreement")
dated as of April 22, 1996 between Borrower and Phoenix Leasing
Incorporated ("Lender");
(iii) the equipment, machinery, furniture, fixtures and other items on the
attached list are free and clear of any and all liens, charges,
security interests or other encumbrances that may affect Lender's
right, title or interest in and to the equipment and other items, and
no UCC-1 financing statements or other grants of security interests
have been or are in the process of being filed against any of such
equipment or other items;
(iv) Borrower is performing according to Borrower's business plan dated
February 22, 1996 a true copy of which has been delivered to lender;
-----------------
excepting the $3.5 million equity and corresponding R & D and payment
from the second corporate partnership expected in June 1996.
/s/ PE MBC
-------
/s/ NN Phoenix
-------
(v) there has been no material adverse change in the financial condition of
Borrower since its financial statements dated March 31, 1996, true
--------------
copies of which have been delivered to Lender; and
(vi) as of the date hereof, no Event of Default (as defined in the Security
Agreement) or event which with the giving of notice or passage of time,
or both, could become an Event of Default has occurred and is
continuing.
(vii) the representations and warranties in Section 3 of the Security
Agreement are true and correct as if made on the date of the loan.
IN WITNESS WHEREOF, I hereby execute this certificate on this 22nd day of
----
May, 1996.
- ---
/s/ Patrick Enright
---------------------------------
<PAGE>
EXHIBIT 10.17
RESEARCH & LICENSE AGREEMENT BETWEEN
------------------------------------
MEGABIOS CORP.
AND
GLAXO GROUP LIMITED
APRIL 11, 1994
<PAGE>
RESEARCH AND LICENSE AGREEMENT
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C>
ARTICLE I - DEFINITIONS............................................ 1
ARTICLE II - RESEARCH.............................................. 6
ARTICLE III - RESEARCH FEES........................................ 7
ARTICLE IV - INFORMATION, REPORTS AND SAMPLES...................... 7
ARTICLE V - DEVELOPMENT, MARKETING AND SALES....................... 9
ARTICLE VI - GRANT OF CYSTIC FIBROSIS LICENSES AND SUBLICENSES..... 10
ARTICLE VII- GRANT OF ASTHMA OPTION................................ 12
ARTICLE VIII - PAYMENT OBLIGATIONS................................. 13
ARTICLE IX - OWNERSHIP, PATENTS AND INFRINGEMENT................... 16
ARTICLE X - CONFIDENTIALITY........................................ 19
ARTICLE XI- WARRANTIES AND COVENANTS............................... 22
ARTICLE XII - TERM AND TERMINATION................................. 23
ARTICLE XIII - ASSIGNMENT.......................................... 27
ARTICLE XIV - PUBLICITY............................................ 27
ARTICLE XV - MISCELLANEOUS......................................... 28
</TABLE>
<PAGE>
RESEARCH AND LICENSE AGREEMENT
------------------------------
THIS AGREEMENT is entered into as of the 11th day of April, 1994, by and
between MEGABIOS CORP., a California corporation, having offices at 871
Industrial Road, San Carlos, California 94070 ("MEGABIOS") and GLAXO GROUP
LIMITED, a corporation organized under the laws of England and Wales having
offices at Glaxo House, Berkeley Avenue, Greenford, Middlesex, UB60NN, England,
("Glaxo"), each of MEGABIOS and Glaxo being referred to herein as a "Party."
WHEREAS, MEGABIOS owns or has rights to technology related to delivery
systems for DNA fragments, particularly the Cystic Fibrosis Transmembrane
Regulator ("CFTR") gene; and
WHEREAS, Glaxo has established expertise in the worldwide development and
sale of pharmaceuticals, particularly those in the area of respiratory
therapeutics; and
WHEREAS, the Parties desire to establish a relationship to foster research
in such delivery system for the treatment of cystic fibrosis and to provide a
mechanism for the commercialization of products resulting therefrom;
NOW, THEREFORE, the Parties agree as follows:
ARTICLE I - DEFINITIONS
-----------------------
1.1 "Affiliate" means any entity that directly or indirectly Owns, is
Owned by, or is under common Ownership with, a Party to this Agreement, where
"Owns" or "Ownership" means direct or indirect possession of at least 50% of the
outstanding voting securities of a corporation or a comparable equity interest
in any other type of entity.
1.2 "Agreement" means the present agreement together with all appendices.
---------
1
<PAGE>
1.3 "Asthma Agent" means any Complex containing at least a [*] which
------------
Complex is useful In the prevention or treatment of asthma.
1.4 "Asthma Field" means the subject matter of the disease asthma and
------------
methods and compounds including Asthma Agents, to prevent or treat asthma.
1.5 "Complex" means an aggregate, assemblage, association or construct of
-------
at least two different molecules.
1.6 "Control" means possession of the ability, or an option to obtain such
-------
ability, to grant a license or sublicense as provided for herein without
violating the terms of any agreement with or other arrangement with, or the
rights of, any Third Party.
1.7 "Cystic Fibrosis Agent" means any Complex containing at least a
---------------------
nucleotide sequence and a Lipid, which Complex is useful in the prevention or
treatment of cystic fibrosis, and includes without limitation a Complex of [*]
and one of the plasmid DNA's referred to by MEGABIOS as [*]
1.8 "Cystic Fibrosis Field" means the subject matter of Cystic Fibrosis
---------------------
Agents, the disease cystic fibrosis, and methods and compounds to prevent or
treat cystic fibrosis, including the CFTR gene.
1.9 "Cystic Fibrosis Information" means any and all present and future
---------------------------
information relating to the Cystic Fibrosis Field, including but not limited to
techniques, inventions, designs, practices, knowledge, know-how, skill and
experience, test data (including pharmacological and clinical test data),
analytical and quality control data, and marketing, sales and manufacturing
data.
2
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
1.10 "Development Costs" means the costs to find the desired formulation
-----------------
of a Cystic Fibrosis Agent and to prove its safety and efficacy prior to it
being approved by a governmental agency for sale in the prevention or treatment
of cystic fibrosis, including, without Limitation, the costs of toxicology
studies, clinical safety studies and clinical efficacy studies.
1.11 "Effective Date" means the date first written above.
--------------
1.12 "Glaxo Nucleotide Sequence" means a nucleotide sequence as to which
-------------------------
(i) Glaxo has filed one or more patent applications or has been issued one or
more patents in the United States and the European Patent Office containing one
or more claims covering such sequence or its use, or (ii) Glaxo has some other
demonstrable market exclusivity for the commercialization of, including, orphan
drug status, in both the United States and the EEC.
1.13 "Joint Research Policy Committee" or "JRPC" means a committee of
-------------------------------
MEGABIOS and Glaxo employees as described in Article II of this Agreement.
1.14 "Lipid" means[ * ]amphiphile of a hydrophilic
headgroup and one or more attached hydrophobic moieties, which amphiphile
spontaneously forms multimolecular structures of various forms on dispersion in
aqueous media, including naturally occurring compounds, derivatives thereof, or
compounds that do not occur in nature. Naturally occurring compounds include,
without limitation, phospholipids, sphingolipids, glycolipids, sterols,
glycerides, and other known structures. The headgroup may contain the following
in any desired or preferred combination:
1.[ * ]
2.[ * ]
3.[ * ]
4.[ * ]
3
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
5. [ * ]
The hydrophobic moieties of the molecule may be composed, without
limitation, of one or more of the following:
1.[ * ]most likely composed of between [ * ] carbon atoms,
with between [ * ]
2.[ * ]most likely composed of between [ * ] carbon atoms,
with between
3. [*]
The hydrophobic moieties of the molecule may be linked to the headgroup via
a number of possible chemical bonds, including, but not limited to, ester bonds,
ether bonds, and amide bonds.
1.15 "Michigan License" means the form of license agreement entitled
----------------
"License Agreement/Michigan File 492c2 Technology/Therapeutic License" offered
by the University of Michigan, a copy of which is attached hereto as Appendix 1.
1.16 "Net Sales Revenue" means the gross receipts from sales in the
-----------------
Territory by Glaxo, or its Affiliates or sublicensees, as appropriate, of Cystic
Fibrosis Agents to Third Parties less deductions for, to the extent specifically
allocated to sales of such Agents, (i) direct transportation charges, including
transit insurance, of transport of the Agent to the customer, (ii) sales and
excise taxes and duties and any other governmental charges imposed upon
production, importation, use or sale of such Agent all to the extent paid or
allowed by Glaxo, its Affiliate or sublicensee (iii) normal and customary trade,
quantity and cash rebates, credits or discounts actually allowed or incurred,
(iv) actual allowances or credits to customers on account of
4
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
rejection or return of Cystic Fibrosis Agents to Glaxo its Affiliates or
sublicensees and (v) royalties and fees payable to Third Parties under Section
9.5.
1.17 "Patent" means a valid and enforceable patent including any
------
extension, registration, confirmation, supplementary protection certificate,
reissue or renewal thereof.
1.18 "Patent Application" means an application for a Patent.
------------------
1.19 "Patent Rights" means the rights granted by any governmental
-------------
authority under those claims of a Patent which cover a method or material in the
Cystic Fibrosis Field, which Patent is owned or Controlled by MEGABIOS or an
Affiliate of MEGABIOS, provided that such Patent issues from (i) a Patent
--------
Application filed at any time prior to one year following the termination of the
Research Term or (ii) a Patent Application which claims priority from or has an
effective filing date of any Patent Application disclosing the same method or
material and filed at any time prior to one year following termination of the
Research Term.
1.20 "Research Term" means the period commencing on the Effective Date
-------------
and ending on such date as determined pursuant to Section 12.9.
1.21 "Sublicensing Revenue" means the gross revenues actually received by
--------------------
Glaxo as a result of the sublicensing of any Cystic Fibrosis Agents, including
upfront fees and milestone payments, but excluding royalty payments.
1.22 "Territory" means all countries of the world, including nations,
---------
states, provinces and territories.
1.23 "Third Party" means any party other than MEGABIOS or Glaxo or an
-----------
Affiliate of MEGABIOS or Glaxo.
1.24 "UCSF Option" means the option to license granted to MEGABIOS
-----------
pursuant to the Option to an Exclusive License for In Vivo Gene Therapy
agreement dated as of April 30,
5
<PAGE>
1992, by and between the Regents of the University of California and MEGABIOS,
attached hereto as Appendix 2.
ARTICLE II - RESEARCH
---------------------
2.1 MEGABIOS Research. MEGABIOS will conduct research in the Cystic
-----------------
Fibrosis Field for the Research Term with the goal of identifying Cystic
Fibrosis Agents as outlined in the research plan attached as Appendix 3.
MEGABIOS will expend reasonable efforts in the conduct of such research and
maintain laboratories and offices necessary to carry out the goals of the
research plan, as determined by the JRPC. Except as provided in Article III,
MEGABIOS will bear all of its own expenses incurred in connection with such
research and will manage and compensate its employees and consultants assigned
to such research as it deems appropriate.
2.2 Responsibilities of the JRPC. Scientific aspects of the research under
----------------------------
Section 2.1 will be reviewed by the JRPC, which will be comprised of four
members with two being appointed and replaced by Glaxo and two being appointed
and replaced by MEGABIOS. The JRPC shall establish the research objectives to be
achieved by the Parties. It will be the responsibility of the JRPC to establish
such research objectives in a manner that advances compounds to exploratory
development as rapidly as possible, consistent with Article 2.1 and subject to
the requirements of responsible drug development. The initial members of the
JRPC will be appointed by the Parties within 30 days following the Effective
Date. The JRPC, in establishing the research objectives, will consider such
scientific aspects of the research as scientific direction, allocation of
resources within the scope of Section 2.1, and selection of compounds for
further evaluation. The JRPC will meet at least four times per year at
locations and times to be determined by the JRPC, with each Party to bear all
travel and related costs for
6
<PAGE>
its members. A chair of the JRPC will be nominated alternatively by Glaxo and
MEGABIOS to twelve month terms.
2.3 Disagreements. Any disagreement among members of the JRPC will be
-------------
resolved within the JRPC based on the efficient achievement of the objects of
this Agreement. Should the members maintain their disagreement and MEGABIOS or
Glaxo request a resolution, the Chief Executive Officer of MEGABIOS and the
Senior Science Officer of Glaxo will confer and use their best efforts to
resolve the disagreement.
ARTICLE III - RESEARCH FEES
---------------------------
3.1 Research Fees. On the Effective Date Glaxo will pay MEGABIOS[ * ]and
-------------
on the first days of July and October in 1994, and on the first days of January,
April, July and October of up to and including October 1, 1998, Glaxo will pay
MEGABIOS[ * ] for research to be conducted by MEGABIOS under Section 2.1.
ARTICLE IV - INFORMATION, REPORTS AND SAMPLES
---------------------------------------------
4.1 Disclosure by MEGABIOS. During the Research Term, MEGABIOS will make
----------------------
available and, upon request, disclose to Glaxo all Cystic Fibrosis Information
known and Controlled by MEGABIOS as of the Effective Date and at any time during
the Research Term, as provided in this Section 4.1. It is understood and
acknowledged by the Parties that personnel from Glaxo and MEGABIOS shall
informally confer with respect to efforts conducted in the Cystic Fibrosis
Field. With respect to Cystic Fibrosis Information which MEGABIOS desires that
Glaxo not use outside the Cystic Fibrosis Field, MEGABIOS shall deliver to
Glaxo, in writing, a non-confidential (for purposes of Section 10.5) summary of
such Cystic Fibrosis
7
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<PAGE>
Information. Upon receipt of such summary, Glaxo shall request or decline, in
writing, receipt of the Cystic Fibrosis Information so summarized. Should Glaxo
request receipt, MEGABIOS shall set forth such Cystic Fibrosis Information in
full, in writing and marked as confidential. All Cystic Fibrosis Information
disclosed to Glaxo in writing and marked confidential as provided above will not
be disclosed by MEGABIOS to any Third Party for use in the Cystic Fibrosis
Field. During the Research Term MEGABIOS will deliver a semi-annual report
presenting a summary of its research in the Cystic Fibrosis Field pursuant to
Section 2.1. MEGABIOS will also communicate through the JRPC to inform Glaxo of
research conducted pursuant to Section 2.1. MEGABIOS will provide Glaxo with
[ * ] or photocopies thereof for any and all work carried out under this
Agreement, as reasonably requested by Glaxo Any publication of Cystic Fibrosis
Information will be subject to Section 10.4. MEGABIOS agrees that during the
term of this Agreement it will not enter into any arrangement with any Third
Party with the purpose of developing Cystic Fibrosis Agents.
4.2 Use of Cystic Fibrosis Information. Glaxo may use all Cystic Fibrosis
----------------------------------
Information conveyed to Glaxo by MEGABIOS under Section 4.1 in any manner it
wishes, at its sole discretion, consistent with the license to Patent Rights
granted with respect thereto under Article VI and subject to the restrictions
and limitations on use set forth in Section 10.5. The disclosure by Glaxo to any
Third Party of Cystic Fibrosis Information disclosed by MEGABIOS to Glaxo will
be subject to Section 10.1 of this Agreement.
4.3 Testing of Samples. Upon request, during the Research Term samples
------------------
of all compounds reasonably believed by either Party to be Cystic Fibrosis
Agents or to be useful in the design of Cystic Fibrosis Agents shall be tested
for such utility by Glaxo. Glaxo shall communicate the results of such testing
to MEGABIOS and such results will be considered
8
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<PAGE>
Cystic Fibrosis Information to be maintained under obligations of
non-disclosure under Section 10.1 of this Agreement. Any such samples delivered
to Glaxo by MEGABIOS shall be subject to Section 10.3.
ARTICLE V - DEVELOPMENT, MARKETING AND SALES
--------------------------------------------
5.1 Development. Based on research conducted under Article II and Cystic
-----------
Fibrosis Information disclosed under Article IV, the JRPC will recommend to
Glaxo and Glaxo will select Cystic Fibrosis Agents to be developed to the stage
of being approved by relevant regulatory authorities for sale in the Territory.
Glaxo will carry out its responsibilities outlined in the research plan attached
hereto as Appendix 3 including the funding of the Development Costs after such
selection for such development for sales in various countries of the Territory
with the amount of such funding and the selection of countries being at Glaxo's
sole discretion. Glaxo will promptly notify MEGABIOS of any decision not to
----------------------------------------------------------
develop a particular Cystic Fibrosis Agent.
- ---------------------------
5.2 Marketing. Glaxo will evaluate and position Cystic Fibrosis Agents
---------
as it deems appropriate m its sole discretion; provided, however, that Glaxo
shall discuss and consider contributions from MEGABIOS regarding such evaluation
and positioning.
5.3 Sales. Glaxo will sell Cystic Fibrosis Agents in quantities and
-----
packaging to buyers and with sales, detailing, advertising and promotional
efforts as it deems appropriate in its sole discretion; provided, however, that
Glaxo shall discuss and consider contributions from MEGABIOS regarding such
sales, detailing, advertising and promotional efforts, including co-promotion
with Glaxo of a Cystic Fibrosis Agent.
9
<PAGE>
5.4 Pricing. It is the mutual objective of the Parties to develop Cystic
-------
Fibrosis Agents and make them available to the medical community as rapidly as
practical, consistent with each Parties' internal standards, and to derive
overall profits from the sale of such Agents consistent with industry standards.
Consistent with the foregoing, Glaxo will sell Cystic Fibrosis Agents at prices
it deems appropriate in its sole discretion. In determining price, Glaxo will
adhere to all state and federal laws and regulations regarding discriminatory
pricing, predatory pricing, bundling and dumping, including the Robinson-Patman
Act and the Sherman Anti-Trust Act.
5.5 Non-Exclusivity. It is recognized by the Parties that Glaxo may wish
---------------
to enter into agreements with Third Parties regarding products to treat diseases
other than cystic fibrosis, including products which contain [*]
Glaxo shall have the right to enter into such agreements, providing Glaxo
adheres to the provisions of Article X.
ARTICLE VI - GRANT OF CYSTIC FIBROSIS LICENSES AND SUBLICENSES
--------------------------------------------------------------
6.1 Research License to Glaxo. MEGABIOS grants Glaxo a sole license, with
-------------------------
the right to grant sublicenses only as set forth in Article 6.3, under its
Patent Rights to make and use materials to conduct research solely in the Cystic
Fibrosis Field and in the Territory. MEGABIOS shall retain the right under its
Patent Rights to make and use all materials in the Cystic Fibrosis Field to the
extent necessary to perform its obligations under this Agreement. MEGABIOS
retains all rights under its patent rights to conduct research outside the
Cystic Fibrosis Field.
6.2 Commercialization License to Glaxo. MEGABIOS grants Glaxo the
----------------------------------
exclusive, even as to MEGABIOS, license, with the right to grant sublicenses
only as set forth in Section
10
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<PAGE>
6.3 below under MEGABIOS' Patent Rights, in the Territory, to make, have made,
use, sell, supply and import Cystic Fibrosis Agents in the Cystic Fibrosis
Field.
6.3 Sublicensing. Glaxo may grant a sublicense of any of its rights under
------------
Sections 6.1 and 6 2 to an Affiliate of Glaxo upon prior written notice to
MEGABIOS, and to a Third Party upon grant of written permission by MEGABIOS,
which permission shall not be unreasonably withheld, based solely upon the
ability of the sublicensee to achieve reasonable sales volumes of Cystic
Fibrosis Agents on which payments are to be made to MEGABIOS under Article VIII.
Any sublicenses granted hereunder shall be consistent with the terms and
conditions in this Agreement, and as a condition of the effectiveness of any
sublicense hereunder, the sublicensee shall agree in writing to be bound by the
terms and conditions of this Agreement to which Glaxo is bound, without
limitation.
6.4 Third Party License to Glaxo. MEGABIOS grants Glaxo a sublicense under
----------------------------
any license it Controls which is granted to MEGABIOS by a Third Party and which
concerns a method or material in the Cystic Fibrosis Field, including the UCSF
Option, such sublicense herein granted to Glaxo to be effective only upon
MEGABIOS' exercise, where applicable, of an option for such Third Party license.
Such sublicense shall be on terms substantially identical to the license granted
to MEGABIOS by such Third Party and shall be limited to the Cystic Fibrosis
Field. Glaxo understands and acknowledges that it has the sole responsibility
for obtaining a license under the Michigan License, and for making all payments
due in connection therewith.
6.5 Disclosure; Research License to MEGABIOS. During the Research Term,
----------------------------------------
Glaxo will make available and, upon request, disclose to MEGABIOS information
controlled by Glaxo regarding Cystic Fibrosis Agents. Glaxo hereby grants to
MEGABIOS a royalty-free, non-
11
<PAGE>
exclusive license, under Glaxo's patent rights, to make and use any materials
solely for the conduct of research by MEGABIOS in the Cystic Fibrosis Field
pursuant to Article II.
ARTICLE VII - GRANT OF ASTHMA OPTION
------------------------------------
7.1 Option MEGABIOS grants Glaxo the right to negotiate with MEGABIOS
------
regarding a non-exclusive, worldwide license, with the right to grant
sublicenses, solely to develop, manufacture and sell Asthma Agents in the Asthma
Field under MEGABIOS patent rights (and/or using MEGABIOS know-how) covering
such Asthma Agents. The terms of such license shall include a royalty payment at
a rate [ * ] of net sales, minimum royalty obligations and milestone
payments (the "Asthma Option"). The Asthma Option shall expire on the earlier of
(i) the [ * ]anniversary of the Effective Date, (ii) the termination of this
Agreement pursuant to Article XII, or (iii) thirty (30) days written notice of
unilateral termination of the option by Glaxo to MEGABIOS (the "Option Term").
The disclosure to Glaxo of any information regarding Complexes designed or
constructed primarily to be Asthma Agents shall be governed by separate
agreement between the parties. If, upon expiration of the Option Term, the
Parties have not entered into a license agreement with respect to Asthma Agents,
then Glaxo's rights with respect to such Agents shall terminate, and MEGABIOS
shall be free to enter into any arrangement with any Third Party regarding such
Agents.
7.2 Option Fees. In consideration for the option granted in Section 7.1
-----------
above, Glaxo shall pay to MEGABIOS the amounts set forth below in each of the
years of the Research Term so indicated:
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<PAGE>
Year 1 [ * ]
Year 2 [ * ]
Year 3 [ * ]
Year 4 [ * ]
Year 5 [ * ]
Such amounts shall be payable in advance, 30 days prior to the commencement of
the relevant Year for which payment is due, with "Year 1" commencing on the
Effective Date and each "Year" thereafter commencing upon the respective
anniversary thereof.
ARTICLE VIII - PAYMENT OBLIGATIONS
----------------------------------
8.1 Royalty Payments. Glaxo will pay MEGABlOS a royalty equal to [*] of
-----------------
the Net Sales Revenue for Cystic Fibrosis Agents sold by Glaxo, its Affiliates
or sublicensees. In addition, Glaxo shall pay to MEGABIOS an amount equal to [*]
of all Sublicensing Revenue. Glaxo shall pay to MEGABIOS the payments provided
in this Section 8.1 for
8.2 Minimum Royalties. Glaxo agrees that in each of the first [ * ]
------- ----------
following first commercial sale of a Cystic Fibrosis Agent in any country, Glaxo
shall pay to MEGABIOS a minimum royalty as follows:
First Year [ * ]
Second Year [ * ]
Third Year [ * ]
All such minimum royalties shall be paid quarterly, beginning in the quarter
following the quarter during which such first commercial sale occurs, in U.S.
dollars, within 60 days after the
13
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<PAGE>
end of each calendar quarter. Any failure of Glaxo to pay to MEGABIOS the
applicable minimum royalty shall be deemed a material breach of this Agreement
by Glaxo, subject to the remedies of Section 12.7.
8.3 Milestone Payment. Within 30 days prior to its initiation of the first
-----------------
Phase III clinical trials to be conducted with respect to a Cystic Fibrosis
Agent, Glaxo will deliver to MEGABIOS written notice of such initiation. Within
60 days following such notice, Glaxo will pay MEGABIOS [ * ] Glaxo shall be
entitled to credit [ * ] of such milestone payment (i.e.,:[*] against the
royaltiesowed pursuant to Sections 8.1 and 8.2 for a period of [ * ] provided
that the credit allowable in any year shall not exceed [*]
8.4 Third Party Royalties. In addition to and not in lieu of any other
----------------------
payments provided for in this Agreement, Glaxo shall pay to MEGABIOS, or to the
Regents of the University of California on behalf of MEGABIOS, the royalties
owed by MEGABIOS to the Regents of the University of California pursuant to any
license taken under the UCSF Option, as set forth in Section 5.1(d) of the UCSF
Option. Such royalties and payments shall be made according to the terms and
subject to the conditions of such license agreement and the UCSF Option.
8.5 Royalty Calculation; Reports. Within 60 days after the end of each
----------------------------
calendar quarter, Glaxo will deliver to MEGABIOS a report of its Net Sales
Revenue and Sublicensing Revenue, a report of the accounting used to calculate
Net Sales Revenue and Sublicensing Revenue, including line items for each
deduction, and payment due to MEGABIOS under Section 8.1 and 8.2, in the
currency in which such Net Sales Revenue or Sublicensing Revenue takes place.
Each payment and report shall be accompanied by a certificate of a financial
officer of Glaxo stating that the payment calculation is correct.
14
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<PAGE>
8.6 Records Retention. Glaxo shall keep, and shall cause its Affiliates
-----------------
and sublicensees to keep, complete and accurate records pertaining to the sale
of Cystic Fibrosis Agents in sufficient detail to enable MEGABIOS to confirm the
accuracy of calculations of all payments hereunder. Such records shall be
maintained for a two year period following the year in which such payments were
made to MEGABIOS
8.7 Audit Request. At the request and expense of MEGABIOS, Glaxo shall
-------------
permit MEGABIOS or a certified public accountant designated by MEGABIOS
reasonably acceptable to Glaxo, at reasonable times and upon reasonable notice
to examine Glaxo records to determine the correctness of any report or payment
made hereunder.
8.8 Tax Withholding. In the event that Glaxo is required to withhold
---------------
taxes imposed upon MEGABIOS for any payment under this Agreement by virtue of
the statutes, laws, codes or governmental regulations of a country in which
Cystic Fibrosis Agents are sold, then such payments will be made by Glaxo on
behalf of MEGABIOS by deducting from the payment due MEGABIOS and remitting such
taxes to the proper authorities on a timely basis and the payments provided for
under this Agreement will be adjusted appropriately, provided that Glaxo
supplies MEGABIOS with official documentation and/or tax receipts of such
withholdings supporting such taxes and such payments as may be required by
MEGABIOS for its tax records on or before the date on which such payment is due
MEGABIOS under this Agreement.
15
<PAGE>
ARTICLE IX - OWNERSHIP, PATENTS AND INFRINGEMENT
------------------------------------------------
9.1 Ownership.
---------
(a) Inventions. As determined in accordance with the rules of
----------
inventorship under U.S. law, each Party shall have sole ownership of all
inventions invented, discovered or developed solely by it, its employees or
agents during the term of this Agreement which cover a method or material in the
Cystic Fibrosis Field. Glaxo and MEGABIOS shall own jointly all inventions
invented, discovered or developed jointly by the parties, their employees or
agents.
(b) Know-How. All non-patented or non-patentable inventions, know-
--------
how, techniques, processes and the like invented, discovered or developed
jointly by Glaxo and MEGABIOS shall be considered prior knowledge of each Party
under Sections 10.2(a) and 10.6(a).
9.2 Filing of MEGABIOS Patent Applications. MEGABIOS will have full
--------------------------------------
responsibility to file, prosecute and maintain Patent Applications in the Cystic
Fibrosis Field according to its own internal standards and in its own name, so
as to obtain Patents covering inventions which it owns under Section 9.1(a),
including Cystic Fibrosis Agents, their preparation, formulation and use. Should
MEGABIOS not wish to proceed with any such filing, Glaxo may request such filing
and MEGABIOS will make such filing in any country of the Territory. All of the
out-of-pocket expenses of such filing, prosecution, maintenance and issue in a
particular country shall be [* ] by MEGABIOS and Glaxo, except that if MEGABIOS
or Glaxo does not wish to pay for any such expenses, the Party paying the
entirety of such expenses in such country will recover such amount not paid by
the other Party from the
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<PAGE>
other Party's share of Net Sales Revenue for a Cystic Fibrosis Agent covered by
Patent Rights resulting from such filing in the applicable jurisdiction and
marketed by Glaxo.
9.3 Filing of Glaxo Patent Applications. Glaxo will have full
-----------------------------------
responsibility to file, prosecute and maintain Patent Applications in the Cystic
Fibrosis Field according to its own internal standards and in its own name, so
as to obtain Patents covering inventions which it owns under Section 9.1(a),
including Cystic Fibrosis Agents, their preparation, formulation and use. All
of the out-of-pocket expenses of such filings, prosecution, maintenance and
issue shall be paid by Glaxo, except that if Glaxo does not wish to proceed with
any such filings, MEGABIOS may request such filing and Glaxo will make such
filing in any country of the Territory at the expense of MEGABIOS and MEGABIOS
will recover such amount paid in a like manner to Section 9.2 in addition to any
payments made pursuant to Articles III and VIII hereof.
9.4 Joint Patent Applications. The Parties will discuss and agree as to
-------------------------
which Party shall have the primary responsibility for the application and
prosecution of Patent Applications and maintenance of patent rights worldwide
for those inventions owned jointly under Section 9.1(a).
9.5 Third Party Technology. Should Glaxo determine that an additional
----------------------
license from a Third Party is reasonably necessary to sell Cystic Fibrosis
Agents, Glaxo will negotiate with the Third Party in good faith [*] any bona
fide royalties or fee payable to such Third Party.
9.6 Patent Application Files, Assistance. Glaxo and MEGABIOS will provide
------------------------------------
each other with copies of Patent Applications filed under Sections 9.2 and 9.3
and such will be maintained under the obligations of Article X. Each Party
agrees to assist the other in every proper way in the application, prosecution,
and maintenance of Patent Applications and Patent
17
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<PAGE>
Rights under this Article IX, including the execution of all proper documents
requested by the filing Party.
9.7 Enforcement of Patent Rights. Glaxo and MEGABIOS shall promptly
----------------------------
notify the other in writing of any infringement of a Patent within the Patent
Rights of which they become aware. MEGABIOS may, but shall not be required to,
prosecute any alleged infringement or threatened infringement of a Patent within
the Patent Rights of which it is aware or which is brought to its attention. In
the event MEGABIOS brings such action, Glaxo shall, at MEGABIOS' expense,
cooperate fully with MEGABIOS, including if required to bring such action, the
furnishing of a power of attorney. MEGABIOS shall act in its own name and at its
own expense unless, with respect to alleged infringement or threatened
infringement of such a Patent in the Cystic Fibrosis Field, Glaxo or its
Affiliate elects to pay a percentage of all MEGABIOS reasonable out-of-pocket
costs. Any recovery obtained shall belong to MEGABIOS unless Glaxo pays some
percentage of said costs, in which case Glaxo shall receive [ * ]
9.8 Glaxo Right to Enforce Patent Rights. If MEGABIOS fails to commence
------------------------------------
prosecution of an alleged or threatened infringement under Section 9.7 above
within six months after it has been brought to MEGABIOS' attention, Glaxo may,
but shall not be required to, prosecute such alleged or threatened infringement.
Glaxo shall act in its own name and at its own expense. In such event, MEGABIOS
shall cooperate fully with Glaxo, at Glaxo's expense, including if required in
order to bring such an action, the furnishing to Glaxo of a power of attorney.
Any recovery obtained shall be applied first to reimburse Glaxo for its out of
pocket expenses incurred in such action. Any remaining sums, unless specified as
punitive damages, shall be [ * ]
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<PAGE>
ARTICLE X - CONFIDENTIALITY
---------------------------
10.1 Obligation of Non-Disclostire. Any Cystic Fibrosis information
-----------------------------
communicated by the Parties under this Agreement shall be maintained by the
receiving Party in strict confidence and shall not be disclosed by either Party
to any Third Party, except as provided in Section 10.2 or 10.4 or the following
sentence. Such information may be disclosed by a Party to an Affiliate of the
Party, to a consultant retained by the Party or retained by an Affiliate of the
Party, or any other person or entity, provided that such Affiliate, consultant
or other person or entity agrees to be bound substantially to the same extent as
the Parties under this Article X.
10.2 Exceptions. The Section 10.1 obligation of non-disclosure of Cystic
----------
Fibrosis Information will apply to all such Information except that which:
(a) is known by the receiving Party prior to its disclosure as
demonstrated by written evidence; or
(b) becomes known to the receiving Party from a Third Party who was under
no obligation of non-disclosure regarding such Information; or
(c) is public knowledge or later becomes public knowledge through no act
on the part of the receiving Party, provided such disclosure occurs
only after such Information becomes public knowledge.
The disclosing Party shall use its best efforts to summarize in writing and
deliver to the other Party within 90 days following disclosure any Cystic
Fibrosis Information that is disclosed orally or visually and which the
disclosing Party wishes the receiving Party to maintain under an obligation of
non-disclosure under Section 10.1. Nothing in this Article X shall prevent a
Party from disclosing to government authorities information received hereunder
or generated by such Party by itself which is necessary, in the good faith
opinion of such Party, to receive
19
<PAGE>
government permission to make, have made, use, sell, supply or import Cystic
Fibrosis Agents, or as permitted by Article XIV.
10.3 Samples. Any samples delivered to Glaxo by MEGABIOS pursuant to
-------
Section 4.3, or any other biological or chemical materials delivered to Glaxo,
shall be used by Glaxo solely in the Cystic Fibrosis Field, unless such samples
or materials are freely available from a Third Party or are already in the
possession of Glaxo from sources other than MEGABIOS. Title to such samples and
materials shall remain with MEGABIOS, and their physical conveyance by MEGABIOS
to Glaxo in and of itself shall not convey upon Glaxo any rights to MEGABIOS's
intellectual property rights. Any samples submitted to a Party under Article IV
which have apparent applicability only in the Cystic Fibrosis Field will not be
transferred by such Party to any Third Party, including transfer to another
research partner of such Party, except as directed by the JRPC. The foregoing
restriction shall end with respect to a particular sample when its structure is
properly made public, including disclosure by publication under Section 10.4.
Any samples submitted to a Party under Article IV which have apparent
applicability inside and outside, or only outside, the Cystic Fibrosis Field may
be disclosed or transferred by such Party to a Third Party only under the
conditions of Section 10.1 or 10.4.
10.4 Publications. MEGABIOS shall submit to Glaxo manuscripts, including
------------
abstracts, and texts of poster presentations and other presentations, of any of
its research applicable to the Cystic Fibrosis Field at least 30 days prior to
presentation or submission for publication for purposes of allowing Glaxo to
comment on the manuscript or text, request filing by MEGABIOS of a Patent
Application under Section 9.2, or initiate filing of a Patent Application under
Section 9.3. Glaxo will make decisions on such publications and filing of
Patent Applications at its sole
20
<PAGE>
discretion. MEGABIOS will make such submission to Glaxo until one year
following the end of the Research Term.
10.5 Obligation of Non-Use. Any Cystic Fibrosis Information disclosed by
---------------------
MEGABIOS in writing and marked as confidential pursuant to Section 4.1, or
disclosed by Glaxo and marked as confidential, shall not be used by the
receiving Party outside of the Cystic Fibrosis Field, except as provided under
Section 10.6.
10.6 Exceptions. The Section 10.5 obligation of non-use of Cystic Fibrosis
----------
Information will apply to all such Information except that which:
(a) is known by the receiving Party prior to its disclosure as
demonstrated by written evidence; or
(b) becomes known to the receiving Party from a Third Party who was
under no obligation of non-use regarding such Information; or
(c) is public knowledge or later becomes public knowledge through no
act on the part of the receiving Party, provided such use occurs
only after such Information becomes public knowledge.
10.7 Termination of Prior Agreements. The Confidential Disclosure
-------------------------------
Agreement by and between Glaxo and MEGABIOS dated as of April 26, 1993, is
hereby terminated with respect to the disclosure and use of Cystic Fibrosis
Information only and all such Information to be kept confidential under such
agreements as of the Effective Date shall be maintained by the receiving Party
under the obligations of nondisclosure and non-use set forth in this Agreement.
21
<PAGE>
ARTICLE XI - WARRANTIES AND COVENANTS
-------------------------------------
11.1 No Conflict. Each Party represents and warrants that (i) it has not
-----------
granted any license rights, or committed itself to grant any license rights, to
any Third Party within the Cystic Fibrosis Field, and (ii) its execution,
delivery and performance of this Agreement will not conflict with the terms of
any other agreement to which it is or becomes a party or by which it is or
becomes bound.
11.2 Disclaimer of Warranties. The Parties understand that research under
------------------------
this Agreement will involve technologies that have not been approved by any
regulatory authority and that neither Party guarantees the safety or usefulness
of any Cystic Fibrosis Agent. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
THE PARTIES DISCLAIM ALL WARRANTIES OF ANY NATURE, EXPRESS OR IMPLIED, INCLUDING
THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR THAT ANY
CYSTIC FIBROSIS AGENTS OR CYSTIC FIBROSIS INFORMATION ARE FREE FROM ANY THIRD
PARTY INFRINGEMENT CLAIM. Without limiting the generality of the foregoing,
MEGABIOS expressly does not warrant (i) the patentability or usefulness of any
Cystic Fibrosis Information, or (ii) that the research conducted by MEGABIOS
pursuant to Article II will yield any Useful or patentable results or
inventions.
11.3 Indemnification. Glaxo hereby agrees to save, defend and hold
---------------
MEGABIOS and its agents and employees harmless from and against any and all
suits, claims, actions, demands, liabilities, expenses and/or loss, including
reasonable legal expense and attorneys fees ("Losses") resulting directly or
indirectly from the manufacture, use, handling, storage, sale or other
disposition of chemical agents, including Cystic Fibrosis Agents, by Glaxo, its
Affiliates or sublicensees, except to the extent such Losses result from the
negligence of MEGABIOS.
22
<PAGE>
In the event MEGABIOS seeks indemnification under this Section 11.3, it
shall inform Glaxo of a claim as soon as reasonably practicable after it
receives notice of the claim, shall permit Glaxo to assume direction and control
of the defense of the claim (including the right to settle the claim solely for
monetary consideration), and shall cooperate as requested (at the expense of
Glaxo) in the defense of the claim.
11.4 Thirty Party Licenses. MEGABIOS warrants that it is and will
---------------------
continue to be an optionee under the UCSF Option until the earlier of April 30,
1995 or expiration or termination of that certain Research Agreement between
MEGABIOS and the Regents of the University of California dated April 30,1992.
MEGABIOS warrants that it is empowered to, and will upon request of Glaxo, grant
the sublicenses to Glaxo thereunder as set forth in Section 6.4, without
compensation to MEGABIOS for the granting of such sublicense.
ARTICLE XII - TERM AND TERMINATION
----------------------------------
12.1 Term. Unless sooner terminated as provided in this Article XII, the
----
term of this Agreement will be from the Effective Date until Glaxo, its
Affiliates and sublicensees ceases selling Cystic Fibrosis Agents for which
payments are due MEGABIOS in accordance with Article VIII, in every country of
the Territory.
12.2 Termination by Mutual Agreement. By mutual written agreement, the
----------- -- ------ ---------
Parties may at any time terminate this entire Agreement or the Research Term.
12.3 Termination by Glaxo for Cause. Upon 90 days notice, Glaxo may
------------------------------
terminate this Agreement, under any of the following circumstances:
(i) The issuance of a Patent in the United States or the European Patent
Office owned or Controlled by a Third Party which contains a claim that covers a
Cystic
23
<PAGE>
Fibrosis Agent which the JRPC recommends for development under this Agreement or
its use and for which there is not a viable alternative, provided Glaxo or
MEGABIOS have obtained a bona fide opinion from an independent patent attorney
who has analyzed such Patent and concluded that the Patent is more likely than
not valid and infringed by the making, using or selling of such Cystic Fibrosis
Agents; or
(ii) The regulatory approval in the United States or the EEC, of a
pharmaceutical containing a nucleotide sequence to treat cystic fibrosis,
including a Cystic Fibrosis Agent, under laws, including the Orphan Drug
Statutes of the United States, or circumstances which make it unlikely that
Glaxo will be able to obtain regulatory approval of a Cystic Fibrosis Agent in
the U.S. or the EEC containing a CFTR gene within [ * ]after the end of the
Research Term, in the opinion of independent regulatory counsel approved by both
parties.
In the event of termination by Glaxo under this Section 12.3, all licenses
granted to Glaxo under Article VI will terminate, Glaxo will convey and assign
all Cystic Fibrosis Information in its possession to MEGABIOS, and Glaxo will
not use such Information in any research and Glaxo will not conduct any research
in the area of [ * ] until the [ * ] anniversary of the date of such
termination.
12.4 Glaxo Unilateral Termination. Following the tenth anniversary of the
----------------------------
Effective Date, Glaxo shall have the right, for any or no reason, to terminate
this Agreement upon 12 months written notice, provided that during such time
Glaxo shall use its good faith efforts to transfer to MEGABIOS all aspects of
the manufacture, marketing and sale of the Cystic Fibrosis Agents, at Glaxo's
expense. In the event of such termination, Glaxo shall assign to MEGABIOS any
and all regulatory filings and approvals for commercial sale of such Cystic
24
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Fibrosis Agents, and shall License and/or assign to MEGABIOS all rights
necessary for MEGABIOS to continue to manufacture, market and sell such Cystic
Fibrosis Agents in the countries in which such Agents had been sold by Glaxo, at
Glaxo's expense.
12.5 Termination by MEGABIOS.
-----------------------
(a) In the event Glaxo, its Affiliates or sublicensees cease to conduct
research, development or commercialization efforts with respect to Cystic
Fibrosis Agents for a period of [ * ] then MEGABIOS shall have the right to
-----------
terminate this Agreement upon written notice, whereupon the licenses granted to
Glaxo under Article VI shall terminate, and MEGABIOS shall be free to enter into
any arrangement with any Third Party with respect to the development and
commercialization of Cystic Fibrosis Agents.
(b) In the event Glaxo fails to file an IND or its equivalent in the
United States or the United Kingdom within [ * ] from the Effective Date, then
MEGABIOS shall have the right to terminate this Agreement upon written notice,
whereupon the licenses granted to Glaxo under Article VI shall terminate,
MEGABIOS shall be free to enter into any arrangement with any Third Party with
respect to the development and commercialization of Cystic Fibrosis Agents, and
Glaxo's obligation to pay Research Fees under Article III shall terminate;
provided, however, that such [ * ] period shall be suspended for a period
equal to the time of any delay incurred by Glaxo in attempting to file any such
IND, which delay arose solely from Force Majeure, as defined under Section 15.1.
12.6 Termination after the Research Term. In the event Glaxo, its
-----------------------------------
Affiliates or sublicensees obtain IND approval but fail to commence clinical
trials with respect to one or more Cystic Fibrosis Agents during the Research
Term in any country of the Territory, then MEGABIOS shall have the right to
terminate this Agreement upon written notice to Glaxo. In
25
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
the event of any termination under this Section 12.6, the licenses granted to
Glaxo under Article VI shall terminate, and MEGABIOS shall be free to enter into
any arrangement with any Third Party with respect to the development and
commercialization of Cystic Fibrosis Agents.
12.7 Material Breach. MEGABIOS or Glaxo may terminate this Agreement
---------------
because of a material breach of this Agreement by the other Party upon 90 days
written notice of such termination setting forth in reasonable detail the
specifics of the breach; provided, however, that if within such 90 day period
the Party in breach cures the deficiency, then termination of the Agreement
shall not occur; and provided further, that in the event of nonpayment of
amounts due hereunder such notice and cure period shall be 30 days. In the event
of termination of this Agreement pursuant to this Section 12.7, all licenses
granted under Article VI shall terminate, and Glaxo will return to MEGABIOS all
MEGABIOS Cystic Fibrosis Information, and in the case of breach by Glaxo, Glaxo
will convey and assign all Cystic Fibrosis Information in its possession to
MEGABIOS.
12.8 Survival of Confidentiality Article. The provisions of Article X
-----------------------------------
with respect to Cystic Fibrosis Information or samples generated or conveyed
prior to the end of the term of this Agreement or the termination thereof shall
survive the end of such term or termination.
12.9 End of Research Term. The Research Term will commence on the
--------------------
Effective Date and, unless this Agreement is sooner terminated as provided in
Section 12.2, 12.3, 12.5 or 12.7, will continue until the 5 year anniversary
thereof; provided, however, that Glaxo's obligations to pay Research Fees to
MEGABIOS under Article III shall survive any termination of this Agreement,
except termination by Glaxo under Section 12.7 or by MEGABIOS under Section
12.5(b).
26
<PAGE>
ARTICLE XIII - ASSIGNMENT
-------------------------
13.1 Successor. Neither this agreement nor the obligation of the Parties
---------
hereunder shall be assignable except upon the prior written permission of the
other Party; provided, however, that either Party shall each have the right to
assign its respective obligations hereunder to any successive owner or any
Affiliate without such consent.
ARTICLE XIV - PUBLICITY
-----------------------
14.1 Publicity Review. Glaxo and MEGABIOS will jointly discuss and agree,
----------------
based on the principles of Section 14.2, on any statement to the public
regarding the execution and the subject matter of this Agreement, the research
to be conducted by the Parties under this Agreement, or any other aspect of this
Agreement, except with respect to disclosures required by law or regulation;
provided, however, that MEGABIOS shall be free to discuss the existence and
general terms of this Agreement with potential investors of MEGABIOS. Promptly
following the Effective Date, the Parties shall issue the press release attached
hereto as Appendix 4. Subject to Section 10.2, any of such statements may be
made to a Third Party providing any such Third Party is bound under obligations
of confidentiality substantially similar to those of Article X.
14.2 Standards. In the discussion and agreement referred to in Section
---------
14.1, the principles observed by Glaxo and MEGABIOS will be accuracy, the
requirements for confidentiality under Article X, the advantage a competitor of
Glaxo or MEGABIOS may gain from any public statements or statements to Third
Parties under Section 14.1, the requirements of disclosure under any securities
laws or regulations of the United States or the United Kingdom, including those
associated with public offerings, and the standards and custom in the
27
<PAGE>
pharmaceutical industry for such disclosures by Companies comparable to Glaxo
and MEGABIOS.
ARTICLE XV - MISCELLANEOUS
--------------------------
15.1 Force Majeure. Neither party shall lose any rights hereunder or be
-------------
Liable to the other party for damages or losses on account of failure of
performance by the defaulting Party if the failure is occasioned by government
action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or
any other similar cause beyond the control of the defaulting Party, provided
that the Party claiming force majeure has exerted all reasonable efforts to
avoid or remedy such force majeure.
15.2 Notices. Any notices or communications provided for in this
-------
Agreement to be made by either of the parties to the other shall be in writing,
in English, and shall be made by prepaid courier service with return receipt
addressed to the other at its address set forth above. Any such notice or
communication may also be given by hand, or facsimile to the appropriate
destination, followed by a mailing. Either Party may by like notice specify an
address to which notices and communications shall thereafter be sent. Notices
sent by mail, facsimile or cable shall be effective upon receipt and notices
given by hand shall be effective when delivered.
15.3 Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Delaware, as such laws are applied to contracts entered into and to be
performed within such state.
15.4 Waiver. Except as specifically provided for herein, the waiver from
------
time to time by either of the Parties of any of their rights or their failure to
exercise any remedy shall not
28
<PAGE>
operate or be construed as a continuing waiver of same or of any other of such
Party's rights or remedies provided in this Agreement.
15.5 Severability. If any term, covenant or condition of this Agreement
------------
or the application thereof to any Party or circumstance shall, to any extent, be
held to be invalid or unenforceable, then (i) the remainder of this Agreement,
or the application of such term, covenant or condition to Parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law;
and (ii) the parties hereto covenant and agree to renegotiate any such term,
covenant or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this Agreement or
the application thereof that is invalid or unenforceable, it being the intent of
the Parties that the basic purposes of this Agreement are to be effectuated.
15.6 Entire Agreement. This Agreement sets forth all the covenants,
----------------
promises, agreements, warranties, representations, conditions and understandings
between the Parties hereto and supersedes and terminates all prior agreements
and understanding between the Parties regarding the subject matter hereof. There
are no covenants, promises, agreements, warranties, representations, conditions
or understandings, either oral or written, between the Parties other than as set
forth herein or therein. No subsequent alteration, amendment, change or addition
to this Agreement shall be binding upon the Parties hereto unless reduced to
writing and signed by the respective authorized officers of the Parties.
29
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate
originals by their proper officers as of the date and year first above written.
MEGABIOS CORP GLAXO GROUP LIMITED
/s/WILLIAM L. BROWN /s/RICHARD B. LYKER
By _____________________________ By____________________________
Vice President
Title: ___________________________ Title:__________________________
April 11, 1994
Date: __________________________ Date:__________________________
30
<PAGE>
APPENDIX 1
----------
[MICHIGAN FORM OF LICENSE]
31
<PAGE>
LICENSE AGREEMENT
MICHIGAN FILE 492c2 TECHNOLOGY
THERAPEUTIC LICENSE
This is an Agreement, effective as of the _____ day of ______ 1992 (the
"Effective Date"), entered into by __________________, a corporation
incorporated in the State of ______________ with offices located at
______________________________ ("LICENSEE") , the Regents of the University
of Michigan, a constitutional corporation of the State of Michigan
("MICHIGAN"), and HSC Research and Development Limited Partnership, a
Partnership Organized and subsisting under the laws of the Province of
Ontarion, Canada ("RDLP"). LICENSEE, MICHIGAN and RDLP agree as follows:
1. BACKGROUND.
----------
1.1 Michigan and the Research Institute of the Hospital for Sick Children of
Toronto, Ontario, Canada, ("HSC") have conducted research relating to
cystic fibrosis. As a result of that research, MICHIGAN and RDLP have
developed rights in the "Licensed Patents" defined below.
1.2 LICENSEE desires to obtain, and MICHIGAN and RDLP, consistent with their
missions of education and research, desire to grant a license of the
Licensed Patents on the terms and conditions listed below.
2. DEFINITIONS.
-----------
2.1 "TECHNOLOGY", as used in this Agreement, shall mean the information,
manufacturing techniques, data, designs or concepts developed by MICHIGAN
and HSC, Covering the gene for cystic fibrosis and uses thereof as [ * ]
2.2 "Parties", in singular or plural usage as required by the context, shall
mean LICENSEE, MICHIGAN and/or RDLP.
2.3 "Affiliate(s)" shall mean any individual, corporation, Partnerships,
proprietorship or other entity controlled by, controlling, or under common
control with LICENSEE through equity ownership, ability to elect directors,
or by virtue of a majority of overlapping directors, and shall include any
individual, corporation, partnership, proprietorship or other entity
directly or indirectly owning, owned by or under common ownership with
LICENSEE to the extent of thirty percent 30% or more of the voting
shares, including shares owned beneficially by such party.
2.4 "Licensed Patent(s)" shall mean [ * ] and all foreign
equivalent patent applications and Patent Cooperation Treaty filings, and
all patents issuing therefrom in which MICHIGAN
1
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
and/or RDLP has or acquires a properly interest. "Licensed Patent(s)" shall
also include any divisional, continuation (excluding continuations-in-
part), reissue, reexamination or extension of the above-described patent
applications and resulting patents, along with any extended or restored
term, and any confirmation patent, registration patent, or patent of
addition.
2.5 "Valid Claim(s)" means any claim(s) in an unexpired patent or pending in a
patent application included within the Licensed Patents which has not been
held unenforceable, unpatentable, or invalid by a decision of a court or
other governmental agency of competent jurisdiction, unappealable or
unappealed within the time allowed for appeal, and which has not been
admitted to be invalid or unenforceable through reissue or disclaimer. If
in any country there should be two or more such decisions conflicting with
respect to the validity of the same claim, the decision of the higher or
highest tribunal shall thereafter control; however, should the tribunals be
of equal rank, then the decision or decisions upholding the claim shall
prevail when the conflicting decisions are equal in number, and the
majority of decisions shall prevail when the conflicting decisions are
unequal in number.
2.6 "Product(s)" shall mean any product(s) whose manufacture, use or sale in
any country would, but for this Agreement, comprise an infringement,
including contributory infringement, of one or more Valid Claims.
2.7 "Field of Use" shall refer to the field for which Products may be designed,
manufactured, used and/or marketed under this Agreement, and shall mean
solely Products to be used for the therapeutic treatment of the disease
cystic fibrosis.
2.8 "Net Sales" shall mean the sum, over the term of this Agreement, of all
amounts received and all other consideration received (or, when in a form
other than cash or its equivalent, the fair market value thereof when
received) by LICENSEE and its Affiliates from persons or entities due to or
by reason of the sale or other distribution of Products, or the use of
Products, including any use by LICENSEE and Affiliates in the performance
of services for their customers; less the following deductions and offsets,
but only to the extent such sums are otherwise included in the computation
of Net Sales, or are paid by LICENSEE and not otherwise reimbursed:
refunds, rebates, replacements or credits actually allowed and taken by
purchasers for return of Products; customary trade, quantity and cash
discounts actually allowed and taken; excise, value-added, and sales taxes
actually paid by LICENSEE for Products; and shipping and handling charges
actually paid by LICENSEE for Products.
2
<PAGE>
2.9 "Royalty Quarter(s)" shall mean the three-month periods ending on the last
day of March, June, September and December of each year.
2.10 "Territory" means all Countries of the world.
2.11 "First Therapeutic Sale" shall mean the first sale of any Product
(including any sale of a service using a Product in the Field of Use) by
LICENSEE or an Affiliate, other than for use in clinical trials being
conducted to obtain FDA or other governmental approvals to market Products.
3. GRANT OF LICENSE.
----------------
3.1 MICHIGAN and RDLP hereby grant to LICENSEE a non-exclusive license under
the Licensed Patents to make, have made, use (including use in the
performance of services for its customers), market and sell, in the
Territory, Products designed and marketed solely for use in the Field of
Use.
3.2 MICHIGAN and RDLP reserve the right to license and use all aspects of the
TECHNOLOGY and the Licensed Patents for any use or purpose, including the
right to develop and produce Products.
3.3 The license granted to LICENSEE herein shall be without the right to
sublicense, except that LICENSEE may sublicense Affiliate(s) who agree to
be and are bound in writing to the terms and conditions of this Agreement
to the same extent as LICENSEE. LICENSEE agrees to strictly monitor and
enforce compliance with the terms and conditions of this Agreement by all
Affiliate sublicensees.
4. CONSIDERATION.
4.1 LICENSEE shall pay to MICHIGAN a one-time license issue fee of [*]
forthwith following the Effective Date. Notwithstanding any other terms of
this Agreement, this Agreement and the license granted hereunder shall not
become effective until such issue fee is received by MICHIGAN.
4.2 LICENSEE shall also pay MICHIGAN, with respect to each Royalty Quarter, a
royalty equal to [ * ] of the Net Sales of LICENSEE and Affiliates.
4.3 The obligation to pay MICHIGAN a royalty under this Article 4 is imposed
only once with respect to the same unit of Product regardless of the
number of Valid Claims or Licensed Patents covering the same; however, for
purposes of determination of Payments due hereunder, whenever the term
"Product" may apply to a property during various stages of manufacture, use
or sale, Net Sales, as otherwise defined, shall be derived from the sale,
distribution or use of such Product by LICENSEE or Affiliates at the stage
of its highest invoiced value to unrelated third parties.
3
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
4.4 LICENSEE shall pay to MICHIGAN an annual license maintenance fee. This
annual fee shall accrue in the Royalty Quarter ending in March of the years
specified below, and shall be due and payable and included with the report
for that quarter.
If LICENSEE defaults in the payment of any annual license maintenance fee,
and fails to remedy that default within thirty (30) days after written
notice of it by MICHIGAN, then this Agreement and the license rights
conveyed herein shall terminate.
The annual license maintenance fees shall be as follows:
(1) In 1994 and 1995: [ * ]
(2) In 1996, 1997 and 1998: [ * ]
(3) In 1999, and in each year thereafter during the term of this Agreement
up to and including the year in which LICENSEE first obtains FDA
approval or other governmental approval to distribute or use Products
in the Field of Use: [ * ]
Also, notwithstanding (1-3) above (and in place of the amounts therein
listed, when applicable):
(4) In the first calendar year following the year in which LICENSEE
obtains the approval described in (3) above, and in each year
thereafter during the term of this Agreement up to and including the
year in which the First Therapeutic Sale occurs: [ * ]
Also, notwithstanding (1-4) above (and in place of the amounts therein
listed, when applicable):
(5) In the first calendar year following the First Therapeutic Sale: [*]
(6) In the second year following the First Therapeutic Sale: U.S. [*]
(7) In the third year following the First Therapeutic Sale:
U.S. [ * ] and
(8) In the fourth year following the First Therapeutic Sale, and in each
year thereafter during the term of this Agreement; [ * ]
Each annual fee paid under (5-8) above may be credited by LICENSEE in full
against all earned royalties otherwise to be paid to MICHIGAN under
Paragraph 4.2 for the calendar year in which the specific annual fee is
paid. The year for which such credits against royalties may be taken
includes the
4
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Royalty Quarter in which the annual fee accrues and the next three Royalty
Quarters.
Each annual fee paid under (1-4) above may be credited by LICENSEE in full
against all earned royalties otherwise to be paid to MICHIGAN under
Paragraph 4.2 after such annual fee is paid.
4.5 If it is necessary for LICENSEE to take any license(s), in a given country,
under valid third party patents which would be infringed by the practice of
Licensed Patents in that country, then LICENSEE can deduct [ * ]
of the royalties otherwise due and payable in each Royalty Quarter under
Paragraph 4.2 above for Net Sales in that country, until such time as
LICENSEE has recovered an amount equal to [ * ] of the
royalty paid to such third parties; provided that in no event shall such
deducted amounts be applied to reduce or require reimbursement of the
annual fees required under Paragraph 4.4. This Paragraph is not intended
to imply an obligation upon MICHIGAN to reimburse LICENSEE's above-
described third-party royalties; the rights granted to LICENSEE in this
Paragraph shall not exceed the ability of the above-described mechanism
(i.e., a deduction of [ * ] due upon Net Sales in the
country in question) to reimburse such expenses. LICENSEE shall make an
accounting to MICHIGAN of all such third-party royalties, and all resulting
deduction from royalties otherwise due and payable to MICHIGAN, as part of
its reporting obligations under Article 5 below.
5 REPORTS.
-------
5.1 Within sixty (60) days after the close of each Royalty Quarter during the
term of this Agreement (including the close of any Royalty Quarter
immediately following any termination of this Agreement), LICENSEE shall
report to MICHIGAN all royalties accruing to MICHIGAN during such Royalty
Quarter. Such quarterly reports shall indicate for each Royalty Quarter
the gross sales and Net Sales of Products by LICENSEE and Affiliates, and
any other revenues with respect to which payments are due, and the amount
of such payments, as well as the various calculations used to arrive at
said amounts, including the quantity, description (nomenclature and type
designation), country of manufacture and country of sale of Products. In
case no payment is due for any such period, LICENSEE shall so report.
5.2 LICENSEE covenants that it will promptly establish and consistently employ
a system of specific nomenclature and type designations for Products so
that various types can be identified and segregated, where necessary;
LICENSEE and Affiliates shall consistently employ such system when
rendering invoices thereon and henceforth agree to inform MICHIGAN, or its
auditors, when requested as to the details
5
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
concerning such nomenclature system as well as to all additions thereto and
changes therein.
5.3 LICENSEE shall keep, and shall require its Affiliates to keep, true and
accurate records and books of account containing data reasonably required
for the computation and verification of payments to be made as provided by
this Agreement, which records and books shall be open for inspection upon
reasonable notice during business hours by either MICHIGAN auditor(s) or an
independent certified accountant selected by MICHIGAN, for the purpose of
verifying the amount of payments due and payable. Said right of inspection
will exist for six (6) years from the date of origination of any such
record, and this requirement and right of inspection shall survive any
termination of this Agreement. MICHIGAN shall be responsible for all
expenses of such inspection, except that if such inspection reveals an
underpayment of royalties to MICHIGAN in excess of ten percent (10%), then
said inspection shall be at LICENSEE's expense and such underpayment shall
become immediately due and payable to MICHIGAN.
5.4 The reports provided for hereunder shall be certified by an authorized
representative of LICENSEE to be correct to the best of LICENSEE's
knowledge and information.
6. TIMES AND CURRENCIES OF PAYMENTS.
--------------------------------
6.1 Payments accrued during each Royalty Quarter shall be due and payable in
Ann Arbor, Michigan on the date each quarterly report is due (as provided
in Paragraph 5.1), shall be included with such report and shall be paid in
United States dollars. LICENSEE agrees to make all payments due hereunder
to MICHIGAN by check made payable to "The Regents of The University of
Michigan," and sent by prepaid, certified or registered mail, return
receipt requested, to the address for notices set forth in Article 19
herein.
6.2 On all amounts outstanding and payable to MICHIGAN, interest shall accrue
from the date such amounts are due and payable at two percentage points
above the prime lending rate as established by the Chase Manhattan Bank,
N.A., in New York City, New York, or at such lower rate as may be required
by law.
6.3 Where Net Sales are generated in foreign currency, such foreign currency
shall be converted into its equivalent in United States dollars at the
exchange rate of such currency as reported (or if erroneously reported, as
subsequently corrected) in the Wall Street Journal on the last business day
of the Royalty Quarter during which such payments are received by LICENSEE
or Affiliates (or if not reported on that date, as quoted by the Chase
Manhattan Bank, N.A., in New York City, New York).
6
<PAGE>
6.4 Except as provided in the definition of Net sales, all royalty payments to
MICHIGAN under this Agreement shall be without deduction for sales, use,
excise, personal property or other similar taxes or other duties imposed on
such payments by the government of any country or any political subdivision
thereof; and any and all such taxes or duties shall be assumed by and paid
by LICENSEE.
7. COMMERCIALIZATION.
-----------------
7.1 It is understood that LICENSEE has the responsibility to do all that is
necessary for any governmental approvals to manufacture and/or sell
Products.
7.2 LICENSEE agrees to use reasonable efforts to develop Products, obtain any
government approvals necessary, and manufacture and sell Products at the
earliest possible date; and to effectively exploit, market and manufacture
in sufficient quantities to meet anticipated customer demand and to make
the benefits of the Products reasonably available to the public.
7.3 Within fifteen (15) days of the First Therapeutic Sale, LICENSEE shall
report by written letter to MICHIGAN the date and general terms of that
sale.
7.4 LICENSEE shall promptly inform MICHIGAN of any patent applications or
similar applications relating to the TECHNOLOGY filed by or on behalf of
LICENSEE or Affiliates anywhere in the world.
8. PATENT APPLICATIONS AND MAINTENANCE.
-----------------------------------
MICHIGAN and RDLP shall control all aspects of filing, prosecuting, and
maintaining Licensed Patents, including foreign filings and Patent
Cooperation Treaty filings. MICHIGAN and RDLP may in their sole discretion
decide to refrain from or to cease prosecuting or maintaining any of the
Licensed Patents, including any foreign filing or any Patent Cooperation
Treaty filing.
9. INFRINGEMENT.
------------
If LICENSEE becomes aware of or reasonably suspects infringement of
Licensed Patents by third parties, LICENSEE agrees to promptly notify
MICHIGAN of such alleged infringement. MICHIGAN and RDLP, at their sole
discretion and at their own expense, may initiate proceedings in response
to alleged infringement.
10. NO WARRANTIES; LIMITATION ON MICHIGAN'S and RDLP'S LIABILITY.
------------------------------------------------------------
10.1 MICHIGAN and RDLP, including their fellows, officers, employees and agents,
make no representations or warranties that any Licensed Patent is or will
be held valid, or that the manufacture, use, sale or other distribution of
any
7
<PAGE>
Products will not infringe upon any patent or other rights not vested in
MICHIGAN or RDLP.
10.2 MICHIGAN AND RDLP, INCLUDING THEIR FELLOWS, OFFICERS, EMPLOYEES AND
AGENTS, MAKE NO REPRESENTATIONS, EXTEND NO WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES or
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ASSUME NO
RESPONSIBILITIES WHATEVER WITH RESPECT TO DESIGN, DEVELOPMENT,
MANUFACTURE, USE, SALE On OTHER DISPOSITION BY LICENSEE OR AFFILIATES OF
PRODUCTS.
10.3 THE ENTIRE RISK AS TO THE DESIGN, DEVELOPMENT, MANUFACTURE, OFFERING FOR
SALE, SALE OR OTHER DISPOSITION, AND PERFORMANCE OF PRODUCTS IS ASSUMED BY
LICENSEE AND AFFILIATES. In no event shall MICHIGAN, RDLP or HSC,
including their fellows, officers, employees and agents, be responsible or
liable for any direct, indirect, special, incidental, or consequential
damages or lost profits to LICENSEE, Affiliates or any other individual or
entity regardless of legal theory. The above limitations on liability
apply even though MICHIGAN, RDLP, or HSC, including their fellows,
officers, employees or agents, may have been advised of the possibility of
such damage.
10.4 LICENSEE shall not, and shall require that its Affiliates do not, make any
statements, representations or warranties or accept any liabilities or
responsibilities whatsoever to or with regard to any person or entity
which are inconsistent with any disclaimer or limitation included in this
Article 10.
10.5 Regardless of any testing that may have been done at HSC or MICHIGAN, HSC,
MICHIGAN and RDLP make no representations regarding how Products can or
should be used in the therapeutic treatment of the disease cystic
fibrosis.
10.6 IT IS UNDERSTOOD THAT THE TECHNOLOGY AND THE LICENSED PATENTS DO NOT
IDENTIFY THE PRESENCE OF THE CYSTIC FIBROSIS DISEASE IN ALL CASES.
11. INDEMNITY; INSURANCE.
--------------------
11.1 LICENSEE shall defend, indemnify and hold harmless and shall require its
affiliates to defend, indemnify and hold harmless MICHIGAN, RDLP and HSC,
as well as their fellows, officers, trustees, directors, employees and
agents, for and against any and all claims, demands, damages, losses, and
expenses of any nature (including attorneys' fees and other litigation
expenses), resulting from, but not limited to, death, personal injury,
illness, property damage, economic loss or products liability arising from
or in connection with, any of the following:
(l) Any manufacture, use, sale or other disposition by LICENSEE,
Affiliates or transferees of Products;
8
<PAGE>
(2) The direct or indirect use by any person of Products made, used, sold
or otherwise distributed by LICENSEE or Affiliates;
(3) The use by LICENSEE or Affiliates of any invention related to the
TECHNOLOGY or the Licensed Patents.
11.2 MICHIGAN and RDLP shall be entitled to participate at their option and
expense through counsel of its own selection, and may join in any legal
actions related to any such claims, demands, damages, losses and expenses
under Paragraph 11.1 above.
11.3 LICENSEE shall purchase and maintain in effect a policy of product
liability insurance covering all claims with respect to any Products
manufactured, sold, licensed or otherwise distributed by LICENSEE and
Affiliates, and shall specify MICHIGAN, RDLP and HSC, including their
fellows, officers, trustees, directors and employees, as an additional
insured. LICENSEE shall furnish certificate(s) of such insurance to
MICHIGAN, upon request.
12. TERM AND TERMINATION.
--------------------
12.1 Upon any termination of this Agreement, and except as provided herein to
the contrary, all rights and obligations of the Parties hereunder shall
cease, except as follows:
(1) Obligations t6 pay royalties and other sums accruing hereunder up
to the day of such termination;
(2) MICHIGAN's rights to inspect books and records as described in
Article 5, and LICENSEE's obligations to keep such records for
the required time;
(3) Obligations of defense and indemnity under Article 11;
(4) Any cause of action or claim of LICENSEE or MICHIGAN accrued or
to accrue because of any breach or default by the other Party
hereunder;
(5) The general rights, obligations, and understandings of Articles
2, 10, 15, 17, 26 and 27; and
(6) All other terms, provisions, representations, rights and
obligations contained in this Agreement that by their sense and
context are intended to survive until performance thereof.
12.2 This Agreement will become effective on its Effective Date and, unless
terminated under another, specific provision of this Agreement, will
remain in effect until and terminate upon the last to expire of Licensed
Patents.
9
<PAGE>
12.3 If LICENSES shall at any time default in the payment of any royalty or the
making of any report hereunder, or shall make any false report, or shall
commit any material breach of any covenant or promise herein contained,
and shall fail to remedy any such default, breach or report within thirty
(30) days after written notice thereof by MICHIGAN specifying such
default, then MICHIGAN and RDLP may, at their option, terminate this
Agreement and the license rights granted herein by notice in writing to
such effect. Any such termination shall be without prejudice to any
Party's other legal rights for breach of this Agreement.
12.4 LICENSEE may terminate this Agreement by giving MICHIGAN a notice of
termination, which shall include a statement of the reasons, whatever they
may be, for such termination and the termination date established by
LICENSEE, which date shall not be sooner than ninety (90) days after the
date of the notice. Such notice shall be deemed by the Parties to be
final.
12.5 In the event LICENSEE shall at any time during the term of this Agreement
deal with the TECHNOLOGY or Products in any manner which violates the
laws, regulations or similar legal authority of any jurisdiction
including, but not limited to, the public health requirements relating to
the TECHNOLOGY or Products or the design, development, manufacture,
offering for sale, sale or other disposition of Products, the license
granted herein shall terminate immediately with respect to such Products
within the territory encompassed by such jurisdiction.
13. ASSIGNMENT
----------
Due to the unique relationship between the Parties, this Agreement shall
not be assignable by LICENSEE without the prior written consent of
MICHIGAN and RDLP. Any attempt to assign this Agreement without such
consent shall be void from the beginning. MICHIGAN and RDLP shall not
unreasonably withhold consent for LICENSEE to assign this Agreement to a
purchaser of all or substantially all of LICENSEE's business. No
assignment shall be effective unless and until the intended assignee
agrees in writing with RDLP and MICHIGAN to accept all of the terms and
conditions of this Agreement. Further, LICENSEE shall refrain from
pledging any of the license rights granted in this Agreement as security
for any creditor.
14. REGISTRATION AND RECORDATION.
----------------------------
14.1 If the terms of this Agreement, or any assignment or license under this
Agreement are or become such as to require that the Agreement or license
or any part thereof be registered with or reported to a national or
supranational agency of any area in which LICENSEE or Affiliates would do
business, LICENSEE will, at its expense, undertake such registration or
10
<PAGE>
report. Prompt notice and appropriate verification of the act of
registration or report or any agency ruling resulting from it will be
supplied by LICENSEE to MICHIGAN.
14.2 Any formal recordation of this Agreement or any license herein granted
which is required by the law of any country, as a prerequisite to
enforceability of the Agreement or license in the courts of any such
country or for other reasons, shall also be carried out by LICENSEE at its
expense, and appropriately verified proof of recordation shall be promptly
furnished to MICHIGAN.
15. LAWS AND REGULATIONS OF THE UNITED STATES AND CANADA; EXPORT.
------------------------------------------------------------
15.1 Activities under this Agreement shall be subject to all appropriate United
States and Canadian laws and regulations now or hereafter applicable.
15.2 LICENSEE shall comply, and shall require its Affiliates to comply, with
all provisions of any applicable laws, regulations, rules and orders
relating to the license herein granted and to the testing, Production,
transportation, export, packaging, labeling, sale or use of Products, or
otherwise applicable to LICENSEE'S or its Affiliates activities
hereunder.
15.3 LICENSEE shall obtain, and shall require its Affiliates to obtain, such
written assurances regarding export and reexport of technical data
(including Products made by use of technical data) as may be required by
the United States Office of Export Administration Regulations, and
LICENSEE hereby gives such written assurances as may be required under
those Regulations to MICHIGAN.
15.4 LICENSEE shall obtain, and shall require its Affiliates to obtain, such
authorization regarding export and re-export of technical data (including
Products made by use of technical data) as may be required by the
Department of External Affairs, Export Controls Division, or any
authorization necessary for export from or import into Canada, and
LICENSEE hereby gives written assurances as may be required under those
regulations to RDLP.
16. BANKRUPTCY
----------
If during the term of this Agreement, LICENSEE shall make an assignment
for the benefit of creditors, or if proceedings in voluntary or
involuntary bankruptcy shall be instituted on behalf of or against
LICENSEE, or if a receiver or trustee shall be appointed for the property
of LICENSEE, MICHIGAN and RDLP may, at their option terminate this
Agreement and revoke the license herein granted by written notice to
LICENSEE.
11
<PAGE>
17. PUBLICITY
---------
LICENSEE agrees to refrain from using and to require Affiliates to refrain
from using the name of MICHIGAN, RDLP and HSC in publicity or advertising
without the prior written approval of that entity.
18. PRODUCT MARKING.
---------------
LICENSEE agrees to mark, and to require Affiliates to mark, Products with
the appropriate patent notice as approved by MICHIGAN (when appropriate),
such approval not to be unreasonably withheld.
19. NOTICES.
-------
Any notice, request, report or payment required or permitted to be given or
made under this Agreement by a Party shall be given by sending such notice
by certified or registered mail, return receipt requested, to the address
set forth below or such other address as such Party shall have specified by
written notice given in conformity herewith. Any notice not so given shall
not be valid unless and until actually received, and any notice given in
accordance with the provisions of this Paragraph shall be effective when
mailed.
To LICENSEE: ____________________________
____________________________
____________________________
Attn: _______________________
To MICHIGAN: The University of Michigan
Intellectual Properties Office
475 E. Jefferson St., Room 2354
Ann Arbor, MI 48109-1248
U.S.A.
Attn: File No. 492c2
with a copy to: Research and Development
Limited Partnership
- 88 Elm Street
Toronto, Ontario M5G 1X8
CANADA
Attn: Barbara Lavers
20. INVALIDITY.
-----------
In the event that-any term, provision, or covenant of this Agreement shall
be determined by a court of competent jurisdiction to be invalid, illegal
or unenforceable, that term will be curtailed, limited or deleted, but only
to the extent necessary to remove such invalidity, illegality or
12
<PAGE>
unenforceability, and the remaining terms, provisions and covenants shall
not in any way be affected or impaired thereby.
21. ENTIRE AGREEMENT AND AMENDMENTS.
This Agreement contains the entire understanding of the Parties with
respect to the matter contained herein. The Parties may, from time to time
during the Continuance of this Agreement, modify, vary or alter any of the
provisions of this Agreement, but only by an instrument duly executed by
authorized officials of all Parties hereto.
22. WAIVER.
No waiver by a Party of any breach of this Agreement, no matter how long
continuing or how often repeated, shall be deemed a waiver of any
subsequent breach thereof, nor shall any delay or omission on the part of a
Party to exercise any right, power, or privilege hereunder be deemed a
waiver of such right, power or privilege.
23. ARTICLE HEADINGS.
The Article headings herein are for purposes of convenient reference only
and shall not be used to construe or modify the terms written in the text
of this Agreement.
24. NO AGENCY RELATIONSHIP.
The relationship between the Parties is that of independent contractor and
contractees. LICENSEE shall not be deemed to be an agent of MICHIGAN or
RDLP in connection with the exercise of any rights hereunder, and shall not
have any right or authority to assume or create any obligation or
responsibility on behalf of MICHIGAN or RDLP.
25. FORCE MAJEURE.
-------------
No Party hereto shall be deemed to be in default of any provision of this
Agreement, or for any failure in performance, resulting from acts or events
beyond the reasonable control of such Party, such as Acts of God, acts of
civil or military authority, civil disturbance, war, strikes, fires, power
failures, natural catastrophes or other "force majeure" events.
26. GOVERNING LAW.
-------------
This Agreement and the relationships of the Parties shall be governed in
all respects by the law of the State of Michigan (notwithstanding any
provisions governing conflict of laws under such Michigan law to the
contrary), except that questions affecting the construction and effect of
any patent shall be determined by the law of the country in which the
patent has been granted.
13
<PAGE>
27. JURISDICTION AND FORUM.
----------------------
LICENSEE hereby consents to the jurisdiction of the courts of the State of
Michigan over any dispute concerning this Agreement or the relationship of
the Parties. Should LICENSEE bring any claim, demand or other action
against MICHIGAN or RDLP, including their fellows, officers, employees or
agents, arising cut of this Agreement or the relationship between the
Parties, LICENSEE agrees to bring said action only in an appropriate court
of the State or Province of that Party.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in
triplicate originals by their duly authorized officers or representatives.
FOR LICENSEE
By _____________________________
(authorized representative)
Typed Name_____________________
Title__________________________
Date_______________________
FOR RESEARCH AND DEVELOPMENT FOR THE REGENTS OF
LIMITED PARTNERSHIP THE UNIVERSITY or MICHIGAN
By ________________________ By _________________________
(authorized representative) (authorized representative)
Typed Name__________________ Typed Name____________________
Title_______________________ Title__________________________
Date________________________ Date____________________________
14
<PAGE>
APPENDIX 2
[UCSF Option Agreement]
<PAGE>
APPENDIX 2
OPTION TO AN EXCLUSIVE LICENSE
FOR
IN VIVO GENE THERAPY
THIS OPTION AGREEMENT ("Agreement") effective this 30TH day of April, 1992,
by and between THE REGENTS OF THE UNIVERSITY OF CALIFORNIA, a California
corporation, having its statewide administrative offices at 22nd Floor, 300
Lakeside Drive, Oakland, California 94612-3550 ("THE REGENTS") and MEGABIOS
Corp., a California corporation, having a principal place of business at Suite
410, Two Embarcadero Center, San Francisco,; California 94111, ("OPTIONEE").
RECITALS
--------
WHEREAS, certain inventions, generally characterized as a IN VIVO GENE
THERAPY, hereinafter collectively referred to as the "Invention", were made in
the course of research at the University of California, San Francisco, by Dr.
Robert J. Debs and are covered by Regents' Patent Rights as defined below;
WHEREAS, THE REGENTS is desirous that the Invention be developed and
utilized to the fullest extent so that the benefits can be enjoyed by the
general public; and
WHEREAS, OPTIONEE is desirous of obtaining certain rights from THE REGENTS
which would allow it to explore the commercial potential of the Invention, and
THE REGENTS is willing to grant such rights; and
WHEREAS, OPTIONEE wishes to support a program of research in Dr. Debs'
laboratory at the University of California, San
1
<PAGE>
Francisco, with Dr. Debs as the Principal Investigator ("Research Project") as
provided in the sponsored research agreement ("Research Agreement") of even date
between the parties herein; and
WHEREAS, OPTIONEE is desirous of obtaining Tangible Research Product which
are owned by the Regents and are not a part of the public domain of information;
and
WHEREAS, THE REGENTS has no obligation to prevent such Tangible Research
Product from becoming a part of the public domain of information.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
-----------
1.1 "Regents' Patent Rights" means patent rights to any subject
----------------------
matter claimed in or covered by any of the following: (a) pending U.S. Patent
Application, [*
](b) any continuing or continuation-in-part applications thereof
including divisions and substitutions; (c) to the extent not expressly
prohibited by past agreements between the Regents and third parties any patent
applications that cover IN VIVO GENE THERAPY naming Dr. Debs or scientists
working in Dr. Debs' laboratory or under his supervision and which applications
such scientists are under a
12
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
duty to assign to THE REGENTS and which are conceived or reduced to practice
during the term of the Research Agreement as amended; (d) any patents issuing on
said applications or continuing application including reissues; (e) all
patentable inventions developed as part of the Research Project during the term
of the Research Agreement for which OPTIONEE has elected to obtain rights; and
(f) any corresponding foreign patents or patent applications.
1.2 "Licensed Product" means any material either that is covered by
----------------
Regents' Patent Rights or whose manufacture, use, or sale by an unlicensed third
party would constitute an infringement of any pending or issued claim within
Regents' Patent Rights.
1.3 "Licensed Method" means any method either that is covered by
---------------
Regents' Patent Rights or whose use or practice by an unlicensed third party
would constitute an infringement of any pending or issued claim within Regents'
Patent Rights.
1.4 "License Agreement" means the license agreement between THE
-----------------
REGENTS and OPTIONEE that shall result if OPTIONEE exercises its option pursuant
to Article 4.
1.5 "Research Agreement" means the Research Agreement between the
------------------
parties hereto dated this date.
1.6 "Tangible Research Product" means all know-how inventions, data,
-------------------------
technology and information (other than Regents' Patent Rights) developed in Dr.
Debs' laboratory and owned by THE REGENTS, or concerning which they have
the right to license, which is useful in connection with Licensed Product or
Licensed Method, including, but not limited
3
<PAGE>
to, (i) medical, clinical, toxicological or other Scientific data, (ii)
processes and analytical methodology used in development, testing, analysis and
manufacture, and (iii) materials developed under the Research Agreement
including any cell line or derivatives, progenies or materials derived from it;
("Biological Materials").
1.7 "In Vivo Gene Therapy" means administration of genes,
--------------------
transgenes, or other nucleic acids directly into the human or animal body by any
means of delivery for the prevention, mitigation or treatment of diseases or
conditions of the human or animal body.
2. OPTION FOR EXCLUSIVE LICENSE.
----------------------------
2.1 Subject to the limitations set forth in this Agreement, THE
REGENTS hereby grant to OPTIONEE an option to acquire an exclusive license (with
right to sublicense) under Regents' Patent Rights (or any part thereof that
OPTIONEE desires) to make, have made, use and sell Licensed Products and to
practice Licensed Methods.
2.2 Said option shall commence on the effective date of this
Agreement and shall have an expiration date of the later of (i) three (3) years
from the effective date or (ii) expiration or termination of the Research
Agreement.
2.3 This Agreement does not constitute a license to make, have made,
use or sell Licensed Products or to practice the Licensed Method except for the
sole purpose of evaluating OPTIONEE's interest in exercising the option. See
also Article 6 (Due Diligence).
4
<PAGE>
3. OPTION FEE
----------
As Consideration for this Agreement, OPTIONEE agrees to pay to THE
REGENTS an Option Fee of Twelve Thousand Dollars ($12,O00.00) per year to be
paid within thirty (30) days from the effective date of this Agreement and
within thirty (30) days from each subsequent anniversary date thereof during the
term of this Agreement. This Option Fee is neither refundable nor deductible
nor an advance against future royalties.
4. EXERCISE OF THE OPTION.
----------------------
4.1 If OPTIONEE elects to exercise its option rights to a License
Agreement under paragraph 2.1 hereof, OPTIONEE shall notify THE REGENTS in
writing pursuant to Article 14 (Notices) prior to the expiration of this
Agreement. Failure of OPTIONEE to so notify THE REGENTS shall be deemed to be
an election by OPTIONEE not to secure a license.
4.2 When OPTIONEE notifies THE REGENTS pursuant to paragraph 4.1, it
shall specify in writing those particular patent applications, fields of use and
territory for which it desires a license from THE REGENTS and those in which it
has no interest.
5. TERMS OF PROPOSED LICENSE.
-------------------------
5.1 If OPTIONEE exercises its option under Article 4, OPTIONEE and
THE REGENTS shall thereupon negotiate in good faith to arrive at mutually
agreeable, reasonable terms and conditions for the license. The terms of the
License Agreement shall include, but not be limited to, the following
provisions, all of which shall be fair and reasonable as compared with the then
5
<PAGE>
contemporary license terms offered by THE REGENTS far biotechnology of similar
value:
a. a worldwide, exclusive license under Regents' Patent Rights
and, to the extent THE REGENTS is legally able, Tangible
Research Product to make, have made, use, and sell Licensed
Products and to practice the Licensed Method for the life of
Regents' Patent Rights on a country-by-country basis;
b. a right to sublicense THE REGENTS' Patent Rights and
Tangible Research Product worldwide;
c. a one-time license issue fee of [ * ] for all Licensed
Products and Licensed Methods;
d. a royalty rate based upon OPTIONEE's net receipts from Net
Sales (sales less customary allowances, charges and credits)
of Licensed Products, such rate to be [*
]
e. diligence terms; and
f. indemnification, infringement and warranty terms as set
forth in Exhibit 5.1 attached hereto.
-----------
5.2 If the parties are unable to reach agreement on the terms and
conditions of a proposed License Agreement in accordance with paragraph 5.1, the
parties shall resolve any
6
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
unsettled terms, other than those covered by Exhibit 5 1, by arbitration
-----------
pursuant to Article 19 hereof.
6. DUE DILIGENCE.
-------------
6.1 Subject to paragraph 2.3, OPTIONEE shall diligently undertake the
requisite research and testing of Licensed Products necessary to evaluate its
interest in exercising the option. It is understood between the parties that
OPTIONEE may meet its diligence obligation by its continued funding of the
Research Project.
6.2 OPTIONEE shall be entitled to exercise prudent and reasonable
business judgment in meeting its due diligence obligations hereunder.
6.3 OPTIONEE shall provide THE REGENTS with a progress report
covering its activities relating to the development and testing of Licensed
Products semi-annually on or before the following dates of each calendar year:
February 28
August 31
6.4 In addition to the obligations set forth above OPTIONEE shall
spend an aggregate of not less than Seven Hundred Forty-One Thousand Four
Hundred Three ($741,403.00) for the direct and indirect costs of development of
Licensed Products during the first three (3) years of this Agreement pursuant
and subject to the provisions of the Research Agreement.
7
<PAGE>
7. PATENT PROSECUTION AND MAINTENANCE.
----------------------------------
7.1 THE REGENTS shall prosecute and maintain the United States and
foreign patent applications and patents in THE REGENTS' Patent Rights using
counsel of its choice and after due consultation with OPTIONEE. THE REGENTS
shall provide OPTIONEE with copies of all relevant documentation so that
OPTIONEE may be informed and apprised of the continuing prosecution, and
OPTIONEE agrees to keep this documentation Confidential.
7.2 THE REGENTS shall use reasonable efforts to amend any patent
application to include claims requested by OPTIONEE and required to protect the
products contemplated to be sold under the License Agreement.
7.3 All past direct costs (not to exceed $25,000) and all future
direct costs incurred by THE REGENTS in the filing, prosecuting and maintaining
of the United States patent applications and patents in Regents' Patent Rights
shall be borne by OPTIONEE.
7.4 THE REGENTS shall obtain patent protection on the invention in
foreign countries if available and if OPTIONEE so desires. OPTIONEE must notify
THE REGENTS within seven (7) months of the filing of the corresponding United
States application of its decision to obtain foreign patents. This notice
concerning foreign filing shall be in writing, must identify the countries
desired, and reaffirm OPTIONEE's obligation to underwrite the costs thereof.
The absence of such a notice from OPTIONEE to THE REGENTS shall be considered an
election not to secure foreign rights.
8
<PAGE>
7.5 The preparation, filing and prosecuting of all foreign patent
applications filed at OPTIONEE'S request, as well as the maintenance of all
resulting foreign patents, shall be at the sole expense of OPTIONEE. Such
patents shall be held in the name of THE REGENTS and shall be obtained using
counsel selected by OPTIONEE from a list of three patent law firms proposed by
THE REGENTS.
7.6 OPTIONEE's obligation to underwrite and to pay patent prosecution
costs shall continue for so long as this Agreement remains in effect, provided,
however, that OPTIONEE may terminate its obligations with respect to any patent
application or patent upon three-(3) months' written notice to THE REGENTS. THE
REGENTS will use its best efforts to curtail the associated patent costs after
such notice is received from OPTIONEE. THE REGENTS may continue prosecution
and/or maintenance of such application(s) or patents(s) at its sole discretion
and expense; provided, however, that if THE REGENTS' unreimbursed expenditures
on account of any such application exceeds thirty-three (33) percent of the
amount reimbursed by OPTIONEE on account of said application or if OPTIONEE does
not reimburse THE REGENTS for such unreimbursed expenditures within thirty (30)
days after it receives written notice of granting of said application, OPTIONEE
shall have no further right or licenses thereunder.
8. LIFE OF THE AGREEMENT.
---------------------
8.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement shall be
in full force and effect from
9
<PAGE>
the effective date recited on page one and shall remain in effect for the
period specified in Article 2 (OPTION FOR EXCLUSIVE LICENSE).
8.2 Any termination of this Agreement shall not affect the rights and
obligations set forth in the following Articles:
Article 11 Use of Names, Trademarks and
Confidential Information
Article 13 Indemnification
Article 16 Late Payments
8.3 Any termination of this Agreement shall not relieve OPTIONEE of
its obligation to pay any monies due or owing at the time of such termination
and shall not impair any accrued right of THE REGENTS.
9. TERMINATION BY THE REGENTS.
--------------------------
9.1 If OPTIONEE should violate or fail to perform any term or
covenant of this Agreement, then THE REGENTS may give written notice of such
default (Notice of Default) to OPTIONEE. If OPTIONEE should fail to repair such
default within thirty (30) days of the effective date of such notice, THE
REGENTS shall have the right to terminate this Agreement by a second written
notice (Notice of Termination) to OPTIONEE; provided, however, that if such
default inherently requires additional time to cure then OPTIONEE will request
in writing an extension from THE REGENTS, such extension shall not be
unreasonably withheld. For events of default not involving the payment of money
by Optionee which cannot be cured within thirty (30) days, THE REGENTS will
grant a reasonable extension of time within which to cure such default based
upon the circumstances present at the time such extension
10
<PAGE>
is requested by Optionee. If a proper Notice of Termination is sent to
OPTIONEE, this Agreement shall automatically terminate on the effective date of
such notice. These notices shall be subject to Article 14 (Notices). No
termination of this Exclusive Option Agreement shall affect any licenses granted
hereunder prior to the effective date of termination.
9.2 THE REGENTS shall also have the right and option to terminate
this Agreement if the Research Project, under the Research Agreement, sponsored
by OPTIONEE on the Invention at the University of California, San Francisco
under Dr. Robert Debs is prematurely terminated by OPTIONEE and there has been
no breach thereof by THE REGENTS. Said termination of this Agreement shall be
carried out in the manner set forth in paragraph 9.1.
10. TERMINATION By OPTIONEE.
-----------------------
OPTIONEE shall have the right at any time to terminate this Agreement
in whole or as to any portion of Regents' Patent Rights by giving notice in
writing to THE REGENTS. Such Notice of Termination shall be subject to Article
14 (Notices) and such termination shall be effective thirty (30) days from the
effective date of such notice.
11. USE OF NAMES, TRADEMARKS, AND CONFIDENTIAL INFORMATION.
------------------------------------------------------
11.1 Nothing contained in this Agreement shall be construed as
conferring any right to use in advertising, publicity, or other promotional
activities any name, trade name, trademark, or other designation of either party
hereto (including contraction, abbreviation or simulation of any of the
foregoing). Unless required by law, the use of the name, "THE REGENTS of the
11
<PAGE>
University of California" or the name of any campus of the University of
California by the Optionee is expressly prohibited.
11.2 It is understood that THE REGENTS shall be free to release to
the inventors and Senior administrative officials employed by THE REGENTS the
terms and conditions of this Agreement upon their request. If such release is
made, THE REGENTS shall request that such terms and conditions not be disclosed
to others. It is further understood that should a third party inquire whether a
license to Regents' Patent Rights is available, THE REGENTS may disclose the
existence of this Agreement and the Extent of the grant in Article 2 to such
third party, but shall not disclose the name of the Licensee, except where THE
REGENTS is required to release such information under either the California
Public Records Act or other applicable law.
11.3 With regard to confidential information ("Data"), which can be
oral or written or both, received from THE REGENTS regarding this invention,
OPTIONEE agrees:
(a) not to use the Data except for the sole purpose of
performing under the terms of this Agreement;
(b) to safeguard Data against disclosure to others with the same
degree of care as it exercises with its own data of a
similar nature; and
(c) not to disclose Data to others (except to its employees,
agents or consultants who are bound to OPTIONEE by a like
obligation of
12
<PAGE>
confidentiality) without the express written permission of
THE REGENTS,
except that OPTIONEE shall not be prevented from using or disclosing any of the
Data:
(i) which OPTIONEE can demonstrate by written records was
previously known to it;
(ii) which is now, or becomes in the future, public
knowledge other than through acts or omissions of
OPTIONEE; or
(iii) which is lawfully obtained by OPTIONEE from sources
independent of THE REGENTS; and
(d) that the secrecy obligations of OPTIONEE with respect to
Data shall continue for a period ending five (5) years from the termination date
of this Agreement.
With regard to Biological Material received from THE REGENTS,
OPTIONEE hereby agrees:
(e) not to use Biological Material except for the sole purpose
of performing under the terms of this Agreement;
(f) not to transfer Biological Material to others (except to its
employees, agents or consultants who are bound to the
Licenses by like obligations conditioning and restricting
access, use and continued use of Biological Material)
without the express written permission of THE REGENTS,
except that OPTIONEE shall not be prevented from
transferring Biological Material which:
13
<PAGE>
(i) becomes publicly available other than through acts or
omissions of OPTIONEE, or
(ii) is lawfully obtained by OPTIONEE from sources
independent of THE REGENTS;
(g) to safeguard Biological Material against disclosure and
transmission to others with the same degree of care as it
exercises with its own biological materials of a similar
nature;
(h) to destroy all copies of Biological Material at the
termination of this Agreement.
12. LIMITED WARRANTY.
----------------
12.1 THE REGENTS warrant to OPTIONEE that it has the lawful right to
grant this option and that there is no conflict between this option and any
other grant of rights by THE REGENTS.
12.2 Except as set forth in paragraph 12.1, this Agreement and the
associated Invention are provided WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. THE REGENTS
MAKE NO REPRESENTATION OR WARRANTY THAT THE LICENSED PRODUCTS OR LICENSED
METHODS WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT.
12.3 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS AGREEMENT OR
THE USE OF THE INVENTION OR LICENSED PRODUCTS.
14
<PAGE>
12.3 Nothing in this Agreement shall be construed as:
(12.3a) a warranty or representation by THE REGENTS as to the
validity or Scope of any Regents' Patent Rights; or
(12.3b) a warranty or representation that anything made, used,
sold or otherwise disposed of under any license of
Regents' Patent Rights is or will be free from
infringement of patents of third parties; or
(12.3c) an obligation to bring or prosecute actions or suits
against third parties for patent infringement; or
(12.3d) conferring by implication, estoppel or otherwise any
license or rights under any patents of THE REGENTS
other than Regents' Patent Rights as defined herein,
regardless of whether such patents are dominant or
subordinate to Regents' Patent Rights; or
(12.3e) an obligation to furnish any know-how not provided in
Regents' Patent Rights or Tangible Research Product.
13. INDEMNIFICATION; INSURANCE.
--------------------------
13.1 Except as set forth in paragraph 12.1, the OPTIONEE agrees to
indemnify hold harmless and defend THE REGENTS, its officers, employees, and
agents; the sponsors of the
15
<PAGE>
research that lead to the Invention; and the inventors of the patents and
patent application in Regents' Patent Rights and their employers against any and
all claims, suits, losses, damages, costs, fees, and expenses resulting from or
arising out of exercise of this Agreement.
13.2 THE REGENTS shall promptly notify OPTIONEE in writing of any
claim or suit brought against THE REGENTS in respect of which THE REGENTS intend
to invoke the provisions of this Article 13. OPTIONEE will keep THE REGENTS
informed on a current basis of its defense of any claims pursuant to this
Article 13.
13.3 At such time as OPTIONEE commences research activities in its
own facilities utilizing its own employees, OPTIONEE, at its sole cost and
expense, shall insure its activities in connection with the work under this
Agreement and obtain, keep in force and maintain insurance as follows, or an
equivalent program of self insurance;
Comprehensive or Commercial Form General Liability Insurance
(contractual liability included) with limits as follows:
(a) Each occurrence $1,000,000
(b) Personal injury $1,000,000
(c) General aggregate (commercial form only) $3,000,000
It should be expressly understood, however, that the coverages
and limits referred to under the above shall not in
16
<PAGE>
any way limit the liability of OPTIONEE. OPTIONEE shall furnish THE REGENTS
with certificates of insurance evidencing compliance with all requirements.
Such certificates shall:
(a) Provide for thirty-(30) day advance written notice to THE
REGENTS of any modification.
(b) Indicate that THE REGENTS has been endorsed as an additional
Insured under the coverages referred to under the above.
(c) Include a provision that the coverages will be primary and
will not participate with nor will be excess over any valid and collectible
insurance or program of self-insurance carried or maintained by THE REGENTS.
13.4 THE REGENTS shall promptly notify OPTIONEE in writing of any
claim or suit brought against THE REGENTS in respect of which THE REGENTS
intends to invoke the provisions of this Article 13. OPTIONEE will keep THE
REGENTS informed on a current basis of its defense of any claims pursuant to
this Article 13.
14. NOTICES.
Any notice or payment required to be given to either party shall be deemed
to have been properly given and to be effective (a) on the date of delivery if
delivered in person or (b) five (5) days after mailing if mailed by certified
mail, postage paid, to the respective addresses given below or to such other
address as shall be designated by written notice given to the other party.
17
<PAGE>
To OPTIONEE MEGABIOS Corp.
Suite 410
Two Embarcadero Center
San Francisco, California 94111
Attention: William L. Brown
Vice President
To THE REGENTS: The Regents of the University
of California (Case No. 91-281-1)
Office of Technology Transfer
1320 Harbor Bay Parkway, Suite 150
Alameda, California 9451
Attention: Director
15. ASSIGNABILITY.
-------------
This Agreement is binding upon and shall inure to the benefit of THE
REGENTS, their successors and assigns, but shall be personal to OPTIONEE and
assignable by OPTIONEE only with the written consent of THE REGENTS, which
consent shall not be unreasonably withheld.
16. LATE PAYMENTS.
-------------
In the event fees or payments are not received by THE REGENTS when due,
OPTIONEE agrees to pay THE REGENTS interest charges at a rate per annum of Ten
(10) percent. Such interest shall be calculated from the date payment was due
until actually received by THE REGENTS.
17. WAIVER.
------
It is agreed that no waiver by either party hereto of any breach or
Default of any of the covenants or agreements herein set forth shall be deemed a
waiver as to any subsequent and/or similar breach or default.
18. GOVERNING LAWS.
--------------
THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA.
18
<PAGE>
NOTWITHSTANDING, THE SCOPE AND VALIDITY OF ANY PATENT APPLICATION SHALL BE
GOVERNED BY THE APPLICABLE LAWS OF THE COUNTRY OF SUCH PATENT OR PATENT
APPLICATION.
19. ARBITRATION
-----------
Except for the provisions of Section 9.2, any controversy or claim
arising out of or relating to this contract, or the breach thereof, shall be
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof.
20. MISCELLANEOUS.
-------------
20.1 The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretations of this Agreement.
20.2 This Agreement will not be binding upon the parties until it has
been signed below on behalf of each party, in which event, it shall be effective
as of the date recited on page one.
20.3 No amendment or modification hereof shall be valid or binding
upon the parties unless made in writing and signed on behalf of each party.
20.4 Except for the Research Agreement, this Agreement embodies the
entire understanding of the parties relating to the subject matter hereof and
shall supersede all previous
19
<PAGE>
communications, representations or understandings, either oral or written,
between the parties relating to such subject matter.
20.5 In case any of the provisions contained in this Agreement shall
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, but
this Agreement shall be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
IN WITNESS WHEREOF, both THE REGENTS and OPTIONEE have executed this
Agreement, in duplicate originals, by their respective officers hereunto duly
authorized as of the day and year first set forth above.
OPTIONEE THE REGENTS:
MEGABIOS Corp. THE REGENTS OF THE UNIVERSITY OF
CALIFORNIA
/s/WILLIAM L. BROWN /s/
By: ____________________________ By: _______________________________
(Signature) (Signature)
Name: William L. Brown Name: Carl B. Wotten
Title: Vice President Title: Director, Office of Technology
Transfer
Approval as to legal form /s/MARTY SIMPSON, JR. 5/1/92
_______________________________________ ______
P. Martin Simpson, Jr. Resident Counsel Date
Office Of Technology Transfer
University of California
20
<PAGE>
EXHIBIT 5.1
-----------
A. LIMITED WARRANTY.
----------------
l. The Regents warrant to LICENSEE that it has the lawful right to
grant this License and that such grant does not conflict with any other grant of
rights by The Regents.
2. Except as set forth in paragraph 12.1, this Agreement and the
associated Invention are provided WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. THE REGENTS
MAKE NO REPRESENTATION OR WARRANTY THAT THE LICENSED PRODUCTS OR LICENSED
METHODS WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT.
3. IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS AGREEMENT OR
THE USE OF THE INVENTION OR LICENSED PRODUCTS.
4. Nothing in this Agreement shall be construed as:
(a) a warranty or representation by The Regents as to the validity or
scope of any Regents' Patent Rights; or
(b) a warranty or representation that anything made, used, sold or
otherwise disposed of under any license of Regents' Patent Rights
is or will be free from infringement of patents of third parties;
or
(c) an obligation to bring or prosecute actions or suits against
third parties for patent infringement; or
1
<PAGE>
(d) conferring by implication, estoppel or otherwise any license or
rights under any patents of The Regents other than Regents'
Patent Rights as defined herein, regardless of whether such
patents are dominant or subordinate to Regents' Patent Rights; or
(e) an obligation to furnish any know-how not provided in Regents'
Patent Rights or Tangible Research Product.
B. INDEMNIFICATION; INSURANCE.
--------------------------
l. The LICENSEE agrees to indemnify, hold harmless and defend The
Regents, their officers, employees, and agents; the sponsors of the research
that lead to the Invention; and the inventors of the patents and patent
application in Regents' Patent Rights and their employers against any and all
claims, suits, losses, damages, costs, fees, and expenses resulting from or
arising out of exercise of this Agreement.
2. The Regents shall promptly notify LICENSEE in writing of any
claim or suit brought against The Regents in respect of which The Regents intend
to invoke the provisions of this Article. LICENSEE will keep The Regents
informed on a current basis at its defense of any claims pursuant to this
Article.
3. At such time as LICENSEE commences research activities in its own
facilities utilizing its own employees, LICENSEE, at its sole cost and expense,
shall insure its activities in connection with the work under this Agreement and
2
<PAGE>
obtain, keep in force and maintain insurance as follows, or an equivalent
program of self insurance:
Comprehensive or Commercial Form General Liability Insurance
(contractual liability included) with limits as follows:
(a) Each occurrence $1,000,000
(b) Products/Comprehensive Operations Aggregate $3,000,000
(c) Personal injury $1,000,000
(d) General aggregate (commercial form only) $3,000,000
It should be expressly understood, however, that the coverages and
limits referred to under the above shall not in any way limit the liability of
LICENSEE. LICENSEE shall furnish The Regents with certificates of insurance
evidencing compliance with all requirements. Such certificates shall:
(a) Provide for thirty-(30) day advance written notice to The
Regents of any modification.
(b) Indicate that The Regents has been endorsed as an additional
Insured under the coverages referred to under the above.
(c) Include a provision that the coverages will be primary and will
not participate with nor will be excess over any valid and collectible insurance
or program of self-insurance carried or maintained by The Regents.
Licensee shall further obtain insurance for products liability hazards
and for general aggregate with limits of $5,000,000 each prior to the first use
of a Licensed Product
3
<PAGE>
or Licensed Method in commerce or Licensee shall maintain a comparable Self-
insurance program at such time.
4. The Regents shall promptly notify LICENSEE in writing of any
claim or suit brought against The Regents in respect of which The Regents
intends to invoke the provisions of this Article. LICENSEE will keep The
Regents informed on a current basis of its defense of any claims pursuant to
this Article.
C. PATENT INFRINGEMENT.
-------------------
l. In the event that the LICENSEE shall learn of the substantial
infringement of any patent licensed under this Agreement, the LICENSEE shall
call The Regents' attention thereto in writing and shall provide The Regents
with reasonable evidence of such infringement. Both parties to this Agreement
agree that during the period and in a jurisdiction where the LICENSEE has
exclusive rights under this Agreement, neither will notify a third party of the
infringement of any of The Regents' Patent Rights without first obtaining
consent of the other party, which consent shall not be unreasonably denied.
Both parties shall use their best efforts in cooperation with each other to
terminate such infringement without litigation.
2. The LICENSEE may request that The Regents take legal action
against the infringement of The Regents' Patent Rights. Such request shall be
made in writing and shall include reasonable evidence of such infringement and
damages to the LICENSEE. If the infringing activity has not been abated within
ninety (90) days following the effective date of such request.
The Regents shall have the right to:
4
<PAGE>
(a) commence suit on its own account; or
(b) refuse to participate in such suit, and The Regents shall
give notice of its election in writing to the LICENSEE by the end of the one-
hundredth (100th) day after receiving notice of such request from the LICENSEE.
The LICENSEE may thereafter bring suit for patent infringement if and only if
The Regents elects not to commence suit (other than as nominal party plaintiff)
and if the infringement occurred during the period and in a jurisdiction where
the LICENSEE had exclusive rights under this Agreement. However, in the event
the LICENSEE elects to bring suit in accordance with this paragraph, The Regents
may thereafter join such suit at its own expense.
3. Such legal action as is decided upon shall be at the expense of
the party on account of whom suit is brought and all recoveries recovered
thereby shall belong to such party, provided, however, that legal action
brought jointly by The Regents and the LICENSEE and fully participated in by
both shall be at the joint expense of the parties and all recoveries shall be
shared jointly by them in proportion to the share of expense paid by each party.
4. Each party agrees to cooperate with the other in litigation
proceedings instituted hereunder but at the expense of the party on account of
whom suit is brought. Such litigation shall be controlled by the party bringing
the suit, except that The Regents may be represented by counsel of its choice
pursuant to The Regents' determination in any suit brought by the LICENSEE.
5
<PAGE>
APPENDIX 3
Research Plan
Glaxo and MEGABIOS will collaborate on the basic research programs
indicated below:
Glaxo Responsibilities:
- ----------------------
. Preclinical and clinical development of [*
]
. Preclinical and clinical development of other Cystic Fibrosis Agents
constructed by MEGABIOS
. Develop systems for the detection of [* ] as part of an overall
toxicology program.
MEGABIOS Responsibilities:
- --------------------------
. Construct novel plasmids, of which [ * ] shall be one, containing the
cystic fibrosis transmembrane regulator coding sequence and:
. -- At least [ * ] different promoter elements, [ * ] of which
shall be intended to give lung-specific expression.
-- At least [ * ] vectors with alternative 5' and 3' untranslated
regions.
-- A variety of E. coil host/strain backgrounds.
. Evaluate the novel plasmids in mice for:
-- Efficiency of transfection and expression of the CFTR protein.
-- Tissue specific expression.
-- The quantity of CFTR protein expressed.
. Evaluate up to [ * ] lipid formulations in conjunction with the
novel plasmids reference above for efficiency, specificity and
quantification of CFTR protein expression.
6
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
APPENDIX 4
To be revised and released within 60 days
after the Effective Date
DRAFT
Announcement of agreement
Between Glaxo and Megabios
LONDON (DATE XX, 1994) -- Glaxo Holdings p.l.c. and Megabios Corp. today
announced they have agreed to collaborate on the development of a gene therapy
product for the prevention and treatment of cystic fibrosis.
The agreement represents Glaxo's first foray into the field gene therapy. Gene
therapy is any therapy in which a DNA fragment is introduced into cells to
direct the production of a protein which in turn, produces a therapeutic effect.
Leveraging Megabios' gene therapy program, the two corporations will collaborate
on the development and commercialization of a product designed to produce a
healthy protein in the cells lining the airways of cystic fibrosis patients with
the hope alleviating the disease in the lungs.
"The collaboration with Megabios should provide a model system for gaining
knowledge, experience and expertise in this rapidly emerging approach to
therapeutic treatment," said (GLAXO PERSON - ANDO?) "Glaxo has long been a
leader in developing medicines to treat respiratory disease, and this
collaboration gives us the opportunity to apply our expertise to the area of
gene therapy, and benefit of thousands of young people around the world whose
lives are threatened by this disease."
(Quote from a Megabios person -- call William Brown at -Megabios, 415-434-3333
Liza is his secretary.)
The gene therapy product has potential to deliver into lung cells of cystic
fibrosis patients the molecular machinery to replace defective cystic fibrosis
proteins. It will combine proprietary lipids and cDNA fragments which code for
the cystic fibrosis transmembrane regulator protein (CFTR).
Cystic fibrosis affects about 33,000 people in the United States and Canada, and
about 20,000 in Europe. It is the most common lethal hereditary disease
affecting Caucasian
7
<PAGE>
populations, and occurs in about one of every 2,000 births. The average life
span of a person with CF is less than 30 years. The disease results from defects
in CFTR proteins that regulate the transport of salt through cell walls. The
transport defect causes the mucus in the lining of the lung, pancreas and liver
to accumulate and become abnormally thick and sticky, and significantly impair
the organ's function.
Present treatments help thin the mucus or treat infections associated with the
mucous load, but don't correct the genetic flaw. Gene therapy would represent a
significant advance over currently therapies.
London-based Glaxo Holdings, p.l.c., is a leader in research and treatment of
respiratory disease as well as gastrointestinal, central nervous system,
cardiovascular and infectious diseases. Glaxo is an integrated research-based
group of companies whose corporate purpose is to create, discover, develop,
manufacture and market throughout the world safe, effective medicines of the
highest quality which will bring benefit to patients through improved longevity
and quality of life, and to society in general through economic value.
Megabios Corp., located in San Carlos, Calif., is a privately-held
biopharmaceutical company formed to develop and commercialize lipid-based in
vivo gene therapeutics for the treatment of life-threatening disorders. The
company's unique knowledge of gene delivery and expression, lipid synthesis,
DNA/lipid complex formulation and multiple routes of administration is the basis
for the development of new therapeutics.
8
<PAGE>
AMENDMENT NO. 1
TO
RESEARCH AND LICENSE AGREEMENT
THIS AMENDMENT NO. 1 (the "Amendment") is entered into as of this 31st
----
day of May, 1996, by and between MEGABIOS CORP., a California corporation,
having offices at 863A Mitten Road, Burlingame, California 94010 ("MEGABIOS")
and GLAXO GROUP LIMITED, a corporation organized under the laws of England and
Wales having offices at Glaxo House, Berkeley Avenue, Greenford, Middlesex,
UB60NN, England ("Glaxo"), each of MEGABIOS and Glaxo being referred to herein
as a "Party" and both being referred to herein as "Parties."
WHEREAS, the Parties entered into a Research and License Agreement dated
April 11, 1994 (the "Original Agreement") to foster research in delivery systems
for DNA fragments, particularly the Cystic Fibrosis Transmembrane Regulator
("CFTR") gene, for the treatment of cystic fibrosis and to provide a mechanism
for the commercialization of products resulting therefrom; and
WHEREAS, the Parties desire to amend the Original Agreement on the terms
and conditions provided below;
NOW, THEREFORE, in consideration of the premises and mutual promises set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which the Parties acknowledge by their signatures below, the
Parties, intending to be legally bound, agree as follows:
<PAGE>
1. Section 2.1 of the Original Agreement shall be deleted in its entirety and
the following Section 2.1 shall be inserted in lieu thereof:
2.1 MEGABIOS Research The Parties concur that the responsibilities of
-----------------
MEGABIOS described in Appendix 3: Part I: Research Plan for Period
Commencing On the Effective Date and Ending on April 1, 1996, have been
fulfilled. During each applicable period of the Research Term identified in
Appendix 3, MEGABIOS will conduct development studies in the Cystic
Fibrosis Field as outlined in the work plan attached as Appendix 3 for such
period. MEGABIOS will expend reasonable efforts in the conduct of such work
and maintain laboratories and offices necessary to carry out the goals of
Appendix 3, as determined by the JRPC. Except as provided in Article III,
MEGABIOS will bear all of its own expenses incurred in connection with such
research and will manage and compensate its employees and consultants
assigned to such research as it deems appropriate.
2. Section 3.1 of the Original Agreement shall be deleted in its entirety and
the following Section 3.1 shall be inserted in lieu thereof:
3.1 Research Fees Glaxo will pay MEGABIOS during the term of this
-------------
Agreement Research Fees up to a total amount of [*] according to the
following payment schedule for research to be conducted by MEGABIOS under
Article III:
2
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
------------------------------------------------
Payment Due Date Payment Amount
------------------------------------------------
Effective Date [ * ]
------------------------------------------------
July 1, 1994 [ * ]
------------------------------------------------
October 1, 1994 [ * ]
------------------------------------------------
January 1, 1995 [ * ]
------------------------------------------------
April 1, 1995 [ * ]
------------------------------------------------
July 1, 1995 [ * ]
------------------------------------------------
October 1, 1995 [ * ]
------------------------------------------------
January 1, 1996 [ * ]
------------------------------------------------
April 1, 1996 [ * ]
------------------------------------------------
July 1, 1996 [ * ]
------------------------------------------------
October 1, 1996 [ * ]
------------------------------------------------
January 1, 1997 [ * ]
------------------------------------------------
Upon Execution of the [ * ]
Agreement
------------------------------------------------
3. Section 12.5(b) shall be amended by removing the period at the end of
Section 12.5(b) and inserting the following language:
;and provided further that, in the event of the occurrence of a
circumstance(s) which MEGABIOS and Glaxo mutually acknowledge to be
completely beyond the control of MEGABIOS and Glaxo, and which results in a
delay in the filing of an IND or its equivalent in the United States or the
United Kingdom within 3 years from the Effective Date, then MEGABIOS and
Glaxo shall use good faith efforts to agree upon an appropriate extension,
if any, of such 3 year period taking into account such circumstance(s).
3
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
4. Section 12.9 of the Original Agreement shall be deleted in its entirety and
the following Section 12.9 shall be inserted in lieu thereof:
12.9 End of Research Term. The Research Term will commence on the Effective
--------------------
Date and, unless this Agreement is sooner terminated as provided in Section
12.2, 12.3, 12.5, or 12.7, shall expire as of April 1, 1997; provided,
however, that Glaxo's obligations to pay Research Fees to MEGABIOS under
Article III shall survive any termination of this Agreement, except
termination by Glaxo under Section 12.7.
5. A new Article 16 shall be added to read as follows:
ARTICLE XVI - POST RESEARCH PERIOD DEVELOPMENT SERVICES
-------------------------------------------------------
After the end of the Research Term, Glaxo shall have the option to enter
into discussions with MEGABIOS for the performance of consulting services with
respect to the development of Cystic Fibrosis Agents and MEGABIOS agrees to
enter into good faith negotiations with Glaxo to agree upon reasonable terms and
conditions for the provision of such services and to provide such services
pursuant to such agreed-upon terms and conditions.
6. The existing Appendix 3 shall be retitled "Appendix 3: Part 1: Research
Plan for Period Commencing on the Effective Date and Ending on April 1, 1996"
and the attached Part II shall be added to Appendix 3.
4
<PAGE>
7. Except as provided above, the Original Agreement shall remain in full
force and effect. IN WITNESS WHEREOF, the Parties have executed this Agreement
in duplicate originals by their proper officers as of the date and year first
above written.
MEGABIOS CORP. GLAXO GROUP LIMITED
By: /s/ Benjamin F. McGraw By: /s/ T. Eaves
------------------------- ------------------------
Name: /s/ Benjamin F. McGraw Name: /s/ T. Eaves
----------------------- ----------------------
Title: /s/ President & CEO Title: /s/ Director
---------------------- ---------------------
5
<PAGE>
APPENDIX 3: Part II
Research Plan for Period
Commencing April 2, 1996
and Ending April 1, 1997
During the period commencing April 2, 1996 and ending on April 1, 1997, Megabios
will provide general assistance to Glaxo Wellcome, as further described below,
in the submission of an [ * ]
The goal for this program is to submit the [ * ]
Preclinical Testing
- -------------------
. [ * ]
. Performance of model as needed for R&D
. Technology transfer to contract toxicology house (excluding out-of-
pocket costs associated with the use of a contract toxicology house).
. [ * ] to contract toxicology house (excluding
out-of-pocket costs associated with the use of a contract toxicology house).
. [ * ] performance as necessary.
Manufacturing
- -------------
. Production of [ * ] of DNA for GLP studies (excluding supplies, reagents and
other raw materials).
. Production of liposomes [ * ] and complexes [ * ] for use in [ * ]
toxicology study (excluding supplies, reagents and other raw materials).
. Preparation for [ * ] excluding out-of-pocket costs associated
with use of [ * ] which will be required to prepare for [ * ]
. Production of [ * ] (excluding supplies, reagents and other raw
material).
. Assist Glaxo Wellcome with production of [ * ]
(excluding out-of-pocket costs and any costs associated with the use of a
contract manufacturer).
. Preliminary [ * ] studies [ * ] on material for GLP studies.
. Provision of information and technical assistance (including up to one week
of [ * ] in the UK) in transferring the technology for
the [ * ] to Glaxo Wellcome.
Documentation
- -------------
. [ * ]
. [ * ]
. Preparation of [ * ] together with Glaxo Wellcome regulatory
specialists.
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
EXHIBIT 10.18
COLLABORATIVE RESEARCH AGREEMENT
This COLLABORATIVE RESEARCH AGREEMENT is entered into as of May 31, 1996 by and
between PFIZER INC., a Delaware corporation, having an office at 235 East 42nd
Street, New York, New York 10017 and its Affiliates ("Pfizer"), and MEGABIOS
CORP. ("MEGABIOS"), a California corporation, having an office at 863A Mitten
Road, Burlingame, CA 94010.
WHEREAS, Megabios has expertise in lipid-based gene delivery and expression; and
WHEREAS, Megabios has filed the patent applications set forth in Exhibit A
attached to and made part of this Agreement with respect to gene therapy and
---
lipid-based delivery of genes to vascular endothelium; and
WHEREAS, Pfizer has the capability to undertake research for the discovery and
evaluation of agents for treatment of disease and also the capability for
clinical analysis, manufacturing and marketing with respect to cancer;
WHEREAS, the parties plan to seek patent protection for all Products which make
up the subject matter of this Agreement and the License and Royalty Agreement
("License Agreement") between the parties of even date;
NOW, THEREFORE, the parties agree as follows:
1. Definitions
-----------
Whenever used in this Agreement, the terms defined in this Section 1 shall have
the meanings specified.
<PAGE>
2
1.1 "Affiliate" means any corporation or other legal entity owning,
---------
directly or indirectly, fifty percent (50%) or more of the voting capital shares
or similar voting securities of Pfizer or Megabios; any corporation or other
legal entity fifty percent (50%) or more of the voting capital shares or similar
voting rights of which is owned, directly or indirectly, by Pfizer or Megabios
or any corporation or other legal entity fifty percent (50%) or more of the
voting capital shares or similar voting rights of which is owned, directly or
indirectly, by a corporation or other legal entity which owns, directly or
indirectly, fifty percent (50%) or more of the voting capital shares or similar
voting securities of Pfizer or Megabios.
1.2 "Annual Commitment" means the maximum amount to be paid to
-----------------
Megabios by Pfizer to fund the Research Program for any Commitment Year.
1.3 "Annual Research Plan" means the written plan describing the
--------------------
research and budgets in the Area to be carried out during each Commitment Year
by Pfizer and Megabios pursuant to this Agreement. Each Annual Research Plan
will be attached to and made a part of this Agreement as Exhibit B.
1.4 "Research Program" is the collaborative research program in the
----------------
Area conducted by Pfizer and Megabios pursuant to the Annual Research Plans in
effect during the Contract Period.
1.5 "Effective Date" is May 31, 1996.
--------------
1.6 "Contract Period" means the period beginning on the Effective
---------------
Date and ending on the date on which this Agreement terminates or expires
pursuant to Section 9.
1.7 "Commitment Year" means a twelve-month period commencing on the
---------------
Effective Date and each anniversary of that date during the Contract Period.
1.8 "Area" means research and development with respect to
----
angiogenesis inhibition for cancer gene therapy indications with targeting to
vascular
<PAGE>
3
endothelium in human beings as is set forth in the Annual Research Plans.
"Angiogenesis inhibition" includes [*_______________________________________]
genes to inhibit or to kill cells.
1.9 "Technology" means and includes all materials, technology,
----------
technical information know-how, expertise and trade secrets within the Area.
1.10 "Megabios Technology" means Technology that is or was:
-------------------
(a) developed by employees of or consultants to Megabios alone
or jointly with third parties prior to the Effective Date; or
(b) acquired by purchase, license, assignment or other means
from third parties by Megabios prior to the Effective Date, excluding Technology
licensed by Megabios from Stanford University (see Section 7 below).
1.11 "Joint Technology" means Technology that is or was:
----------------
(a) developed by employees of or consultants to Pfizer or
Megabios solely or jointly with each other during the Contract Period; or
(b) acquired by purchase, license, assignment or other means
from third parties by Megabios or Pfizer during the Contract Period as agreed by
the parties pursuant to Section 7 below.
1.12 "Pfizer Technology" means Technology that is or was:
-----------------
(a) developed by employees of or consultants to Pfizer alone or
jointly with third parties prior to the Effective Date; or
(b) acquired by purchase, license, assignment or to other
means from third parties by Pfizer prior to the Effective Date.
1.13 "Megabios Confidential Information" means all information about
---------------------------------
any element of the Megabios or Joint Technology which is disclosed by Megabios
to Pfizer and designated "Confidential" in writing by Megabios at the time of
disclosure to Pfizer to the extent that such information as of the date of
disclosure to Pfizer is not (i) known to Pfizer other than by virtue of a prior
confidential
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELTY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
4
disclosure to Pfizer by Megabios; or (ii) disclosed in published literature, or
otherwise generally known to the public through no fault or omission of Pfizer;
or (iii) obtained from a third party free from any obligation of confidentiality
to Megabios.
1.14 "Pfizer Confidential Information" means all information about any
-------------------------------
element of Pfizer or Joint Technology which is disclosed by Pfizer to Megabios
and designated "Confidential" in writing by Pfizer at the time of disclosure to
Megabios to the extent that such information as of the date of disclosure to
Megabios is not (i) known to Megabios other than by virtue of a prior
confidential to Megabios by Pfizer; or (ii) disclosed in published literature,
or otherwise generally known to the public through no fault or omission of
Megabios; or (iii) obtained from a third party free from any obligation of
confidentiality to Pfizer.
1.15 "Valid Claim" means a claim within Patent Rights so long as such
-----------
claim shall not have been disclaimed by either Pfizer or Megabios or both, as
the case may be, or shall not have been held invalid in a final decision
rendered by a tribunal of competent jurisdiction from which no appeal has been
or can be taken.
1.16 "Patent Rights" shall mean:
-------------
(a) the Valid Claims of Megabios' patent applications listed
in Exhibit A, and patents issuing on them, including any division, continuation,
continuation-in-part renewal, extension, reexamination, reissue or foreign
counterpart thereof; and
(b) all inventions deemed patentable within Pfizer Technology,
Megabios Technology and Joint Technology including all the Valid Claims of
patent applications, whether domestic or foreign, claiming such patentable
inventions, including all continuations, continuations-in-part, divisions, and
<PAGE>
5
renewals, all letters patent granted thereon, and all reissues, reexaminations
and extensions thereof.
1.17 "Product" means a particular DNA sequence coding for the
-------
expression of a protein in a particular formulation of lipids, useful in the
treatment or management of a disease state in human beings, the manufacture, use
or sale of which would infringe a Valid Claim within Patent Rights in the
absence of a license.
1.18 "DNA Manufacture" means manufacture or purification of plasmid
---------------
DNA by any current or future manufacturing method which uses proprietary
technology or know-how of Megabios.
1.19 "Major Market" means France, Japan, Italy, Spain, Germany and
------------
England.
2. COLLABORATIVE RESEARCH PROGRAM
------------------------------
2.1.1 Purpose. Megabios and Pfizer shall conduct the Research
-------
Program throughout the Contract Period. All Technology in the Area developed in
the Research Program will become part of the Joint Technology. Technology to be
acquired in any manner from third parties shall be acquired in accordance with
Section 7. The objective of the Research Program is to discover and develop
Products.
2.1.2 Annual Research Plan. The Annual Research Plan for the first
--------------------
Commitment Year is described in the attached Exhibit B. For each Commitment Year
after the first, the Annual Research Plan shall be prepared by the Research
Committee for submission to and approval by Pfizer and Megabios no later than
ninety (90) days before the end of the prior Commitment Year. Each new Annual
<PAGE>
6
Research Plan for each succeeding Commitment Year shall be appended to Exhibit B
and made part of this Agreement.
2.1.3 Exclusivity. Megabios agrees that during the Contract
-----------
Period, and in the Area as defined by the Annual Research Plan, neither Megabios
nor any of its Affiliates shall conduct research itself or sponsor any other
research, or engage in any research sponsored by any third party without
Pfizer's consent.
2.2 Research Committee
------------------
2.2.1 Purpose. Pfizer and Megabios shall establish a Research
-------
Committee (the "Research Committee"):
(a) to review and evaluate progress under each Annual
Research Plan;
(b) to prepare the Annual Research Plan for each Commitment
Year; and
(c) to coordinate and monitor publication of research
results obtained from and the exchange of information
and materials that relate to the Research Program. (This
function shall survive the termination of this
Agreement.)
2.2 Membership. Pfizer and Megabios each shall appoint, in its sole
----------
discretion, four members to the Research Committee. Substitutes may be appointed
at any time.
The members initially shall be:
Pfizer Appointees: Dr. Susan Froshauer
Dr. Jeff Hanke
Dr. Martin MacKay
Dr. Michael Morin
Megabios Appointees: Dr. Rodney Pearlman
Dr. Cori Gorman
Dr. Jackie Papkoff
Ms. Helen Jenkins
<PAGE>
7
2.2.3 Chair. The Research Committee shall be chaired by two
-----
co-chairpersons, one appointed by Pfizer and the other appointed by Megabios.
2.2.4 Meetings. The Research Committee shall meet at least
--------
quarterly, at places and on dates selected by each party in turn.
Representatives of Pfizer or Megabios or both, in addition to members of the
Research Committee, may attend such meetings at the invitation of either party.
2.2.5 Minutes. The Research Committee shall keep accurate
-------
minutes of its deliberations which record all proposed decisions and all actions
recommended or taken. Drafts of the minutes shall be delivered to all Research
Committee members within five (5) business days after each meeting. The party
hosting the meeting shall be responsible for the preparation and circulation of
the draft minutes. Draft minutes shall be edited by the co-chairpersons and
shall be issued in final form only with their approval and agreement.
2.2.6 Decisions. All decisions of the Research Committee shall
---------
be made by consensus.
2.2.7 Expenses. Pfizer and Megabios shall each bear all expenses
--------
of their respective members related to their participation on the Research
Committee.
2.3 Reports and Materials
---------------------
2.3.1 Reports. During the Contract Period, Pfizer and Megabios
-------
each shall furnish to the Research Committee:
(a) summary written reports within fifteen (15) days after
the end of each three-month period commencing on the Effective Date, describing
its progress under the Annual Research Plan; and
<PAGE>
8
(b) comprehensive written reports within thirty (30) days
after the end of each Commitment Year, describing in detail the work
accomplished by it under the Annual Research Plan during the Commitment Year and
discussing and evaluating the results of such work.
2.3.2 Materials. Megabios and Pfizer shall, during the Contract
---------
Period, as a matter of course as described in the Annual Research Plan, or upon
each other's written or oral request, furnish to each other samples of
biochemical, biological or synthetic chemical materials which are part of Pfizer
Technology, Megabios Technology or Joint Technology and which are necessary for
each party to carry out its responsibilities under the Annual Research Plan. To
the extent that the quantities of materials requested by either party exceed the
quantities set forth in the Annual Research Plan, the requesting party shall
reimburse the other party for the reasonable costs of such materials if they are
furnished.
2.4 Laboratory Facilities and Personnel. Megabios shall provide suitable
-----------------------------------
laboratory facilities, equipment and personnel for the work to be done by
Megabios in carrying out the Research Program.
2.5 Diligent Efforts. Pfizer and Megabios each shall use reasonably
-----------------
diligent efforts to achieve the objectives of the Research Program. Megabios
will use reasonably diligent efforts to achieve the objectives listed in each
Annual Research Plan attached as Exhibit B and Pfizer will use reasonably
diligent efforts to assist Megabios in each Annual Research Plan attached as
Exhibit B in the pursuit of those objectives and in the establishment of a
development plan for the Products, if any.
2.6 Key Investigators. If [*_________________________________________]
-----------------
association with Megabios ends for any reason and the parties are unable to
agree on a successor
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
9
acceptable to Pfizer within one hundred and eighty (180) days of Pfizer may
terminate this Agreement pursuant to Section 9.3.1.
3. Funding the Research Program.
----------------------------
3.1 The maximum Annual Commitment for each Commitment Year is as
follows:
Commitment Year Annual Commitment
--------------- -----------------
1 [* ]
2 [* ]
3 [* ]
4 [* ]
3.2 Pfizer shall make all payments quarterly in advance for research
and development activities scheduled to be performed by Megabios during any
three (3) month quarterly period, against Megabios' invoice for such three (3)
month quarterly period at the agreed upon rate of [*____] per FTE. Any payments
for expenses incurred from studies conducted by a third-party or from
consultantships in connection with the Research Program will be paid by Pfizer
directly to the third party. Megabios shall submit invoices from third-parties
to Pfizer for payment. Adjustments as necessary to reflect the research and
development activities actually performed by Megabios shall be made within
ninety (90) days of the end of each three (3) month quarterly period and shall
be reflected in Megabios' next invoice.
3.3 Each payment shall be paid by Pfizer in U.S. currency by check or
by other mutually materially acceptable means on the first day of the quarter or
thirty (30) days after receipt of invoice, whichever is later.
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
10
3.4 Megabios shall keep for three (3) years from the conclusion of
each Commitment Year complete and accurate records of its expenditures under the
Research Program. The records shall conform to good accounting principles as
applied to a similar company similarly situated. Pfizer shall have the right at
its own expense during the term of this Agreement and during the subsequent
three-year period to appoint an independent certified public accountant
reasonably acceptable to Megabios to inspect said records to verify the accuracy
of such expenditures, pursuant to each Annual Research Plan. Upon reasonable
notice by Pfizer, Megabios shall make its records available for inspection by
the independent certified public accountant during regular business hours at the
place or places where such records are customarily kept, to verify the accuracy
of the expenditures. This right of inspection shall not be exercised more than
once in any calendar year and not more than once with respect to records
covering any specific period of time. All information concerning such
expenditures, and any information learned in the course of any audit or
inspection, shall be deemed to be Megabios Confidential Information, except to
the extent that it is necessary for Pfizer to reveal the information in order to
enforce any rights it may have pursuant to this Agreement or if disclosure is
required by law. The failure of Pfizer to request verification of any
expenditures before or during the three-year period shall be considered
acceptance by Pfizer of the accuracy of such expenditures, and Megabios shall
have no obligation to maintain any records pertaining to such report or
statement beyond such three-year period. The results of such inspection, if any,
shall be binding on the parties.
4. Treatment of Confidential Information
-------------------------------------
4.1 Confidentiality
---------------
<PAGE>
11
4.1.1 Pfizer and Megabios each recognize that the other's
Confidential Information constitutes highly valuable, confidential information.
Subject to the terms and conditions of the License Agreement, the obligations
set forth in Section 4.3 and the publication rights set forth in Section 4.2,
Pfizer and Megabios each agree that during the term of this Agreement and for
five (5) years thereafter, it will keep confidential, and will cause its
Affiliates to keep confidential, all Megabios Confidential Information or Pfizer
Confidential Information, as the case may be, that is disclosed to it, or to any
of its Affiliates pursuant to this Agreement. Neither Pfizer nor Megabios nor
any of their respective Affiliates shall use such Confidential Information
except as expressly permitted in this Agreement.
4.1.2 Pfizer and Megabios each agree that any disclosure of
the other's Confidential Information to any officer, employee or agent of the
other party or of any of its Affiliates shall be made only if and to the extent
necessary to carry out its responsibilities under this Agreement and shall be
limited to the maximum extent possible consistent with such responsibilities.
Pfizer and Megabios each agree not to disclose the other's Confidential
Information to any third parties under any circumstance without written
permission from the other party. Each party shall take such action, and shall
cause its Affiliates to take such action, to preserve the confidentiality of
each other's Confidential Information as it would customarily take to preserve
the confidentiality of its own Confidential Information. Each party, upon the
other's request, will return all the Confidential Information disclosed to the
other party pursuant to this Agreement, including all copies and extracts of
documents, within sixty (60) days of the request upon the termination of this
Agreement except for one (1) copy which may be kept for the purpose of complying
with continuing obligations under this Agreement.
<PAGE>
12
4.1.3 Megabios and Pfizer each represent that all of its
employees, and any consultants to such party, participating in the Research
Program who shall have access to Pfizer Technology, Megabios Technology or Joint
Technology and Pfizer Confidential Information and Megabios Confidential
Information are bound by agreement to maintain such information in confidence.
4.2 Publication. Notwithstanding any matter set forth with
-----------
particularity in this Agreement to the contrary, results obtained in the course
of the Research Program may be submitted for publication following scientific
review by the Research Committee and subsequent approval by Megabios' and
Pfizer's managements, which approval shall not be unreasonably withheld. After
receipt of the proposed publication by both Pfizer's and Megabios' managements
written approval or disapproval shall be provided within thirty (30) days for a
manuscript, within fourteen (14) days for an abstract for presentation at or
inclusion in the proceedings of a scientific meeting, and within fourteen (14)
days for a transcript of an oral presentation to be given at a scientific
meeting.
4.3 Publicity. Except as required by law, neither party may disclose
---------
the terms of this Agreement nor the research described in it without the written
consent of the other party, which consent shall not be unreasonably withheld.
4.4 Disclosure of Inventions. Each party shall promptly inform the
------------------------
other about all inventions in the Area that are conceived, made or developed in
the course of carrying out the Research Program by employees of, or consultants
to, either of them solely, or jointly with employees of, or consultants to the
other.
4.5 Restrictions on Transferring Materials. Pfizer and Megabios
--------------------------------------
recognize that the biological synthetic chemical and biochemical materials
which are part of Pfizer Technology, Megabios Technology or Joint Technology,
represent valuable commercial assets. Therefore, throughout the Contract Period
and for five (5) years thereafter, Megabios and Pfizer agree not to transfer
such materials
<PAGE>
13
to any third party, unless prior written consent for any such transfer is
obtained from the other party; provided, however, that, this provision to the
contrary notwithstanding, Pfizer and Megabios shall each be free to transfer as
it sees fit materials included in its own Technology.
5. Intellectual Property Rights. The following provisions relate to
----------------------------
rights in the intellectual property developed by Megabios or Pfizer, or both,
during the course of carrying out the Research Program.
5.1 Ownership. All Megabios Confidential Information and Megabios
---------
Technology shall be owned by Megabios. All Pfizer Confidential Information and
Pfizer Technology shall be owned by Pfizer. All Joint Technology and Patent
Rights described in Section 1.l6(b) shall be owned jointly by Megabios and
Pfizer.
5.2 Grants of Research Licenses. Megabios and Pfizer each grants to
---------------------------
the other a nonexclusive, irrevocable, worldwide, royalty-free, perpetual
license, including the right to grant sublicenses to Affiliates, to make and use
Confidential Information, Technology and Patent Rights (other than that
pertaining to DNA Manufacture) for all research purposes other than the sale or
manufacture for sale of products or processes.
6. Provisions Concerning the Filing, Prosecution and Maintenance of
----------------------------------------------------------------
Patent Rights. The following provisions relate to the filing, prosecution and
- -------------
maintenance of Patent Rights during the term of this Agreement:
6.1 Filing, Prosecution and Maintenance by Megabios. With respect to
-----------------------------------------------
Patent Rights in which Megabios' employees or consultants, alone or together
with Pfizer employees, or consultants are named as inventors, Megabios shall
have the exclusive right and obligation:
<PAGE>
14
(a) to file applications letters patent on any invention
deemed patentable included in Patent Rights; provided, however, that Megabios
shall consult with Pfizer regarding countries in which such patent applications
should be filed and shall file patent applications in those countries where
Pfizer requests that Megabios file such applications; and, further provided,
that Megabios, at its option and expense, may file in countries where Pfizer
does not request that Megabios file such applications;
(b) to take all reasonable steps to prosecute all pending and
new patent applications included within Patent Rights;
(c) to respond to oppositions, nullity actions, re-examinations,
revocation actions and similar proceedings filed by third parties against the
grant of letters patent for such applications;
(d) to maintain in force any letters patent included in Patent
Rights by duly filing all necessary papers and paying any fees required by the
patent laws of the particular country in which such letters patent were granted;
and
(e) to cooperate fully with, and take all necessary actions
requested by, Pfizer in connection with the preparation, prosecution and
maintenance of any letters patent included in Patent Rights.
Megabios shall notify Pfizer in a timely manner of any decision to abandon a
pending patent application or an issued patent included in Patent Rights.
Thereafter, Pfizer shall have the option, at its expense, of continuing to
prosecute any such pending patent application or of keeping the issued patent in
force.
6.1.1 Copies of Documents. Megabios shall provide to Pfizer
-------------------
copies of all patent applications that are part of Patent Rights prior to
filing, for the purpose of obtaining substantive comment of Pfizer patent
counsel. Megabios shall also provide to Pfizer copies of all documents relating
to prosecution of all such patent applications in a timely manner and shall
provide to Pfizer every six
<PAGE>
15
(6) months a report detailing their status. Pfizer shall provide to Megabios
every six (6) months a report detailing the status of all patent applications
that are a part of Patent Rights in which Pfizer employees or consultants alone
are named as inventors.
6.1.2 Reimbursement of Costs for Filing, Prosecuting and
--------------------------------------------------
Maintaining Patent Rights. Within thirty (30) days of receipt of invoices from
- -------------------------
Megabios, Pfizer shall reimburse Megabios for all the costs of filing,
prosecuting, responding to opposition and maintaining patent applications and
patents in countries where Pfizer requests that patent applications be filed,
prosecuted and maintained. Such reimbursement shall be in addition to Funding
Payments. However, Pfizer may, upon sixty (60) days notice, request that
Megabios discontinue filing or prosecution of patent applications in any country
and discontinue reimbursing Megabios for the costs of filing, prosecuting,
responding to opposition or maintaining such patent application or patent in any
country. Megabios shall pay all costs in those countries in which Pfizer does
not request that Megabios file, prosecute or maintain patent applications and
patents, but in which Megabios, at its option, elects to do so.
6.1.3 Pfizer shall have the right to file on behalf of and as
an agent for Megabios all applications and take all actions necessary to obtain
patent extensions pursuant to 35 USC Section 156 and foreign counterparts for
Patent Rights described in this Section 6.1 licensed to Pfizer. Megabios agrees,
to sign, at Pfizer's expense, such documents and take such further actions as
may be requested by Pfizer in this regard.
6.2 Filing, Prosecution and Maintenance by Pfizer. With respect to
---------------------------------------------
Patent Rights in which Pfizer employees or consultants alone are named as
inventors, Pfizer shall have those rights and duties ascribed to Megabios in
Section 6.1; provided, however, that Pfizer shall be responsible for all costs.
<PAGE>
16
6.3 Neither party may disclaim a Valid Claim within Patent Rights
without the consent of the other.
7. Acquisition of Rights from Third Parties. During the Contract Period,
----------------------------------------
Megabios and Pfizer shall each promptly notify each other of any and all
opportunities to acquire in any manner from third parties, technology or patents
or information which may be useful in or may relate to the Research Program.
Megabios and Pfizer shall decide if such rights should be acquired in connection
with the Research Program and, if so, whether by Megabios, Pfizer or both. If
acquired as part of the Research Program such rights shall become part of the
Confidential Information, Technology or Patent Rights, whichever is appropriate
of the acquiring party or Joint Technology, as the case may be, if the parties
do not agree on how to acquire such technology, either party may acquire the
technology at its own expense and the technology will not become part of the
Confidential Information, Technology or Patent Rights. The parties agree that
the Technology licensed by Megabios from Stanford University prior to the
Effective Date shall be subject to this Section 7. It shall not be part of the
Research Program or be licensed to Pfizer unless separately agreed by both
parties.
8. Other Agreements. Concurrently with the execution of this Agreement,
----------------
Megabios and Pfizer shall enter into the License Agreement appended to and made
part of this Agreement as Exhibit C and the Stock Purchase Agreement appended to
and made a part of this Agreement as Exhibit D. This Agreement, the Stock
Purchase Agreement and the License Agreement are the sole agreements with
respect to the subject matter and supersede all other agreements and
understandings between the parties with respect to same.
<PAGE>
17
9. Term Termination and Disengagement.
----------------------------------
9.1 Term. Unless sooner terminated or extended, this Agreement shall
----
expire on the fourth anniversary of the Effective Date.
9.2 Events of Termination. The following events shall constitute
---------------------
events of termination ("Events of Termination").
(a) any material written representation or warranty by Megabios
or Pfizer, or any of its officers, made under or in connection with this
Agreement shall prove to have been incorrect in any material respect when made.
(b) Megabios or Pfizer shall fail in any material respect to
perform or observe any material term, covenant or understanding contained in
this Agreement or in any of the other documents or instruments delivered
pursuant to, or concurrently with, this Agreement, and any such failure shall
remain unremedied for ninety (90) days after written notice to the failing
party.
9.3 Termination
-----------
9.3.1 Upon the occurrence of any Event of Termination, the
party not responsible may, by notice to the other party, terminate this
Agreement.
9.3.2 If Pfizer terminates this Agreement pursuant to
Section 9.3.1, the License Agreement shall continue according to its terms. If
Megabios terminates this Agreement pursuant to Section 9.3.1, the License
Agreement shall terminate immediately.
9.4 Termination by Pfizer.
---------------------
After this Agreement has been in effect for a period of eighteen
(18) months, Pfizer may terminate this Agreement, with or without cause, upon
six (6) months notice to Megabios. If Pfizer terminates this Agreement pursuant
to this Section, it will make the payments which would
<PAGE>
18
otherwise have been due for such six (6) month period and will retain all rights
and duties set forth in the License Agreement.
9.5 Termination of this Agreement by either party, with or without
cause, will not terminate the licenses granted pursuant to Section 5.2.
9.6 Expiration or termination of this Agreement for any reason shall
be without prejudice to:
(a) the rights and obligations of the parties provided in
Sections 4 and 12;
(b) Megabios' right to receive all payments accrued under
Section 3; or
(c) any other remedies which either party may otherwise have.
10. Representations and Warranties. Megabios and Pfizer each represents
------------------------------
and warrants as follows:
10.1 It is a corporation duly organized, validly existing and is in
good standing under the laws of the State of California and the State of
Delaware, respectively, is qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the conduct of its business or
the ownership of its properties requires such qualification and has all
requisite power and authority, corporate or otherwise, to conduct its business
as now being conducted, to own, lease and operate its properties and to execute,
deliver and perform this Agreement.
10.2 The execution, delivery and performance by it of this Agreement
have been duly authorized by all necessary corporate action and do not and will
not (a) require any consent or approval of its stockholders, (b) violate any
provision of any law, rule, regulations, order, writ, judgment, injunctions,
decree, determination award presently in effect having applicability to it or
any
<PAGE>
19
provision of its certificate of incorporation or by-laws or (c) result in a
breach of or constitute a default under any material agreement, mortgage, lease,
license, permit or other instrument or obligation to which it is a party or by
which it or its properties may be bound or affected.
10.3 This Agreement is a legal, valid and binding obligation of it
enforceable against it in accordance with its terms and conditions, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws, from time to time in effect,
affecting creditor's rights generally.
10.4 It is not under any obligation to any person, or entity,
contractual or otherwise, that is conflicting or inconsistent in any respect
with the terms of this Agreement or that would impede the diligent and complete
fulfillment of its obligations.
10.5 It has good and marketable title to or valid leases or licenses
for; all of its properties, rights and assets necessary for the fulfillment of
its responsibilities under the Research Program, subject to no known claim of
any third party other than any relevant lessors or licensors.
11. Covenants of Megabios and Pfizer Other Than Reporting Requirements.
------------------------------------------------------------------
Throughout the Contract Period, Megabios and Pfizer each shall:
11.1 maintain and preserve its corporate existence, rights, franchises
and privileges in the jurisdiction of its incorporation, and qualify and remain
qualified as a foreign corporation in good standing in each jurisdiction in
which such qualification is from time to time necessary or desirable in view of
their business and operations or the ownership of their properties
11.2 comply in all material respects with the requirements of all
applicable laws, rules, regulations and orders of any government authority to
the extent
<PAGE>
20
necessary to conduct the Research Program, except for those laws, rules,
regulations, and orders it may be contesting in good faith.
12. Indemnification. Each party will indemnify the other for damages,
---------------
settlements costs legal fees and other expenses incurred in connection with a
claim against a party based on any action or omission of the other party, its
agents or employees related to the obligations of the other party under this
Agreement: provided, however, that the foregoing shall not apply (i) if the
claim is found to be based upon the negligence, recklessness or willful
misconduct of the party seeking indemnification or (ii) if such party fails to
give the other prompt notice of any claim it receives and such failure
materially prejudices the indemnifying party with respect to any claim or action
to which its obligation pursuant to this Section applies. The indemnifying
party, in its sole discretion shall choose legal counsel, shall control the
defense of such claim or action and shall have the right to settle same on such
terms and conditions it deems advisable.
13. Notices. All notices shall be in writing mailed via certified mail,
-------
return receipt requested, courier, or facsimile transmission addressed as
follow, or to such other address as may be designated from time to time:
If to Pfizer: To Pfizer at its address as set forth
at the beginning of this Agreement
Attention: President Central Research
with copy to: Office of the General Counsel.
If to Megabios Megabios at its address as set forth at the
beginning of this Agreement
Attention: President
Notices shall be deemed given as of the date received.
<PAGE>
21
14. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York.
15. Miscellaneous
-------------
15.1 Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of the parties and their respective legal representatives,
successors and permitted assigns.
15.2 Headings. Paragraph headings are inserted for convenience of
--------
reference only and do not form a part of this Agreement
15.3 Counterparts. This Agreement may be executed simultaneously
------------
two or more counterparts, each of which shall be deemed an original.
15.4 Amendment Waiver. This Agreement may be amended, modified
----------------
superseded or canceled, and any of the terms may be waived, only by a written
instrument executed by each party or, in the case of waiver, by the party or
parties waiving compliance. The delay or failure of any party at any time or
times to require performance of any provisions shall in no manner affect the
rights at a later time to enforce the same. No waiver by any party of any
condition or of the breach of any term contained in this Agreement, whether by
conduct, or otherwise, in any one or more instances, shall be deemed to be, or
considered as, a further or continuing waiver of any such condition or of the
breach of such term or any other term of this Agreement.
15.5 No Third Party Beneficiaries. No third party including any
----------------------------
employee of any party to this Agreement, shall have or acquire any rights by
reason of this Agreement. Nothing contained in this Agreement shall be deemed to
constitute the parties' partners with each other or any third party.
<PAGE>
22
15.6 Assignment and Successors. This Agreement may not be assigned by
-------------------------
either party, except that each party may assign this Agreement and the rights
and interests of such party, in whole or in part, to any of its Affiliates, any
purchaser of all or substantially all of its assets or to any successor
corporation resulting from any merger or consolidation of such party with or
into such corporations.
15.7 Force Majeure. Neither Pfizer nor Megabios shall be liable for
-------------
failure of or delay in performing obligations set forth in this Agreement, and
neither shall be deemed in breach of its obligations, if such failure or delay
is due to natural disasters or any causes reasonably beyond the control of
Pfizer or Megabios.
15.8 Severability. If any provision of this Agreement is or becomes
------------
invalid or is ruled invalid by any court of competent jurisdiction or is deemed
unenforceable, it is the intention of the parties that the remainder of the
Agreement shall not be affected.
<PAGE>
23
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
PFIZER INC
By ___________________________
MEGABIOS CORP
By /s/ Benjamin F. McGraw
---------------------------
cc: Pfizer Inc. Legal Division, Groton. CT 06340
<PAGE>
24
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
PFIZER INC
By /s/
---------------------------
MEGABIOS CORP
By ___________________________
cc: Pfizer Inc. Legal Division, Groton. CT 06340
<PAGE>
Exhibit A
1. UCSF Patent Applications Licensed to Megabios [* ]
1. US Serial Number [* ]
2. US Serial Number [* ]
3. WO Serial Number [* ]
and foreign counterparts [* ]
4. US Serial Number [* ]
2. Megabios Patent Applications: [* ]
1. US Serial Number [* ]
2. WO Serial Number [* ]
3. Megabios Patent Applications: [* ]
1. US Serial Number [* ]
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
EXHIBIT B
ANNUAL RESEARCH PLAN - YEAR 1
1. OVERALL PURPOSE. The overall purpose of this collaboration is to discover
----------------
and develop gene therapy products to treat non-small cell lung carcinoma via
angiogenesis inhibition, using Megabios; proprietary gene delivery technology to
target therapeutic gene(s) to the vascular endothelium of the lung. The
following outline of activities to be undertaken by Megabios defines the scope
of the collaboration between the two parties. This outline may be amended with
the consent of the Research Committee.
2. RESEARCH PLAN - YEAR 1. The goals and tasks of the collaboration in year 1
----------------------
are outlined below.
2.1 PROJECT TEAM 1 - CLONING AND FUNCTIONAL STUDIES [* ]
-----------------------------------------------
PROJECT TEAM GOALS
[* ]
[* ]
[* ]
Megabios' DNA:lipid delivery technology is sufficiently flexible to
allow rapid examination of many different genes for expression in endothelial
cells. A major advantage is the cassette-like nature of the delivery systems, in
which the gene component is largely interchangeable. As such, the preparation of
several versions of MB 102, each incorporating the gene for a distinct
anti-angiogenic factor, to "screen" for the relative therapeutic utility of the
several genes is feasible.
Our goal is [*________________________________________________________________]
and this inhibit angiogenesis. [*
]
The path to be followed here will be to [*__________________________]
which will be selected by the Research Committee. [*
]
OBJECTIVE 1.[* ]
[* ]
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
3. BUDGET FOR YEAR 1
-----------------
3.1 FULL TIME EQUIVALENTS AT MEGABIOS
---------------------------------
Megabios will allocate [* ] Full Time Equivalents ("FTEs") to the project in
year 1. Pfizer will reimburse Megabios at a rate of [*________] per FTE per
year.
3.2 ANTICIPATED ADDITIONAL COSTS
----------------------------
In addition to funding [* ] FTEs at Megabios, Pfizer will reimburse third
parties for certain specific additional cost as outlined below:
Estimated Maximum Additional costs
- ----------------------------------
Cost of [*________________________________________] at Megabios (headcount and
cost of materials are covered in FTE calculation):
Additional external costs
- -------------------------
Costs for [* ] $ [* ]
Costs covering [* ]
[* ]
$ [* ]
$ [* ]
$ [* ]
$ [* ]
TOTAL ADDITIONAL EXTERNAL COSTS $ [* ]
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.19
LICENSE AND ROYALTY AGREEMENT
This LICENSE AND ROYALTY AGREEMENT is entered into as of June 1, 1996 (the
"Effective Date") by and between PFIZER INC, a Delaware corporation, having an
office at 235 East 42nd Street, New York, New York 10017 and its Affiliates
("Pfizer") and MEGABIOS CORP ("Megabios"), a California corporation, having an
office at 863A Mitten Road, Burlingame, CA 94010.
WHEREAS, Pfizer desires to obtain licenses to Megabios' right, title and
interest in the Patent Rights so that Pfizer can manufacture, use or sell the
Licensed Products; and
WHEREAS, Megabios is willing to grant such license;
Therefore, in consideration of the mutual covenants and promises set forth in
this Agreement, the parties agree as follows:
1. DEFINITIONS. The capitalized terms used in this Agreement and not defined
elsewhere in it shall have the meanings specified for such terms in this Section
1 and in the Research Agreement.
1.1 "RESEARCH AGREEMENT" means the Collaborative Research Agreement
between Pfizer and Megabios effective the Effective Date.
1.2 "NET SALES" means the gross amount invoiced by Pfizer or any
sublicensee of Pfizer for sales to a third party or parties of Licensed
Products, less normal and customary trade discounts actually allowed, rebates,
returns, credits, taxes the legal incidence of which is on the purchaser and
separately
<PAGE>
2
shown on Pfizer's or any sublicensee of Pfizer's invoices and transportation,
insurance and postage charges, if prepaid by Pfizer or any sublicensee of Pfizer
and billed on Pfizer's or any sublicensee of Pfizer's invoices as a separate
item.
1.3 "LICENSED PRODUCT" means any Product arising from the Research
Program, the manufacture, use or sale of which would infringe a Valid Claim
within Patent Rights in the absence of a license.
2. GRANT OF LICENSE, TERM, RIGHTS AND OBLIGATIONS.
2.1 LICENSES GRANTED TO PFIZER UNDER THE PATENT RIGHTS.
(a) Megabios grants to Pfizer a non-exclusive, worldwide license or sublicense,
as the case may be, including such right to grant sublicenses that Megabios may
have, to manufacture, use, offer for sale and import Licensed Products under all
Megabios' right, title and interest in the Patent Rights described in Section
1.16 (a) of the Research Agreement (the "1.16 (a) License").
(b) Megabios grants to Pfizer the exclusive, worldwide license, including the
right to grant sublicenses, to manufacture (subject to Section 8), use, sell,
offer for sale an import Licensed Products under all Megabios' right, title and
interest in the Patent Rights described in Section 1.16 (b) of the Research
Agreement (the "1.16 (b) License").
(c) Pfizer acknowledges and agrees that its rights granted under this Agreement
and the Research Agreement, with respect to such aspects of the Megabios
Technology and Patent Rights licensed from the University of California are
subject to the terms and conditions contained in the UC License Agreement
including provisions related to the reservation of certain rights in the
technology licensed under such UC License Agreement, disclaimers of liability,
indemnification of the licensor by sublicensees, and provisions regarding the
right to prosecute, maintain and defend patent rights in such technology;
<PAGE>
3
provided, however, that Megabios agrees and acknowledges that, to the extent any
royalty payments are owed, pursuant to the UC License Agreement, to the Regents
of the University of California ("The Regents") based upon sale of Licensed
Products by Pfizer for consideration other than cash, Megabios will be solely
liable for the payment of such royalties to The Regents, and Pfizer will be
under no obligation to pay to Megabios any royalty on Licensed Products sold by
Pfizer for consideration other than cash; and further provided that Megabios
further agrees and acknowledges that, in the event that currency restrictions
imposed by a foreign government prevent the prompt remittance of part or all of
any royalty payments owed, pursuant to the UC License Agreement, to The Regents
based upon the sale of Licensed Products by Pfizer with respect to any country
where a Licensed Product is sold or distributed, Megabios will be solely liable
for the timely payment of such royalties to The Regents, and Pfizer will not be
required to convert the amount owed into U.S. funds as is required under the UC
License.
2.2 TERM OF LICENSE GRANT AND PAYMENT OF ROYALTIES. Unless terminated
earlier as provided below, the License shall commence on the Effective Date and
shall terminate on the date of the last to expire of the Patent Rights.
2.3 PFIZER OBLIGATIONS.
2.3.1 Pfizer shall use reasonably diligent efforts to exploit Licensed
Products commercially, including conducting clinical trials and obtaining
regulatory approvals.
2.3.2 If Pfizer grants a sublicense pursuant to Section 2, Pfizer
shall guarantee that any sublicensee fulfills all of Pfizer's obligations under
this Agreement; provided, however, that Pfizer shall not be relieved of its
obligations pursuant to this Agreement.
<PAGE>
4
2.4 TECHNICAL ASSISTANCE. Megabios shall provide to Pfizer or any
sublicensee of Pfizer, at Pfizer's request and expense, any technical assistance
reasonably necessary to enable Pfizer or such sublicensee to manufacture, use or
sell each Licensed Product and to enjoy fully all the rights granted to Pfizer
pursuant to this Agreement; provided, however, that Megabios is reasonably
capable of providing that assistance.
2.5 REVERSION OF RIGHTS. If Pfizer discontinues the development of any
Licensed Product; and if such discontinuance results from circumstances other
than U.S. Food and Drug Administration, or other regulatory body action, or, in
Pfizer's sole and unfettered judgment, lack of efficacy or safety of such
Licensed Product; and if, at the time of discontinuance, Pfizer has not begun
development of another Licensed Product, the licenses granted to Pfizer pursuant
to this Agreement shall terminate with respect to the discontinued Licensed
Product. In such event, Megabios shall have the right to develop and
commercialize such Licensed Product alone or with third parties pursuant to the
terms of a license agreement to be negotiated in good faith by the parties.
Such agreement shall provide that Pfizer shall grant Megabios an exclusive,
worldwide, royalty-bearing license at the rate of [ * ] of Net
Sales, with the right to grant sublicenses, under Pfizer Technology and other
Patent rights necessary for the manufacture, use and sale of such Licensed
Product, and shall provide that Megabios shall have access to and the right to
use any regulatory filings made by Pfizer with respect to such Licensed Product.
3. ROYALTIES, PAYMENTS OF ROYALTIES, ACCOUNTING FOR ROYALTIES, RECORDS,
MILESTONE PAYMENTS.
3.1 PATENT RIGHTS. Pfizer shall pay Megabios a royalty based on the Net
Sales of each Licensed Product. Such royalty shall be paid with respect to each
country of the world from the date of the first commercial sale (the date of
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
5
the invoice of Pfizer or any sublicensee of Pfizer with respect to such sale) of
such Licensed Product in each such country until the expiration of the last
Patent Right to expire with respect to each such country and each such Licensed
Product.
3.2 ROYALTY RATES.
3.2.1 Pfizer shall pay Megabios a royalty for the sale of each
Licensed Product under Section 2.1 as set forth in Section 3.2.2.
3.2.2 The royalty paid by Pfizer to Megabios with respect to the
1.16(b) License shall be [ * ] of Net Sales; provided, however,
that, if, with respect to the 1.16(a) License or 1.16(b) License it becomes
necessary or desirable for Megabios or Pfizer to take a license from a third
party in any country, including the UC License Agreement license [ * ]
of any resulting royalty unless the royalty rate payable
to Megabios in any such country would be less than [ * ] of Net Sales.
In such event, [ * ] which would otherwise [ *
]
3.2.3 Section 3.2.2 to the contrary notwithstanding, if Pfizer's
manufacturing cost of goods including royalties, as determined by generally
acceptable accounting principles consistently applied, [ *
] of Net Sales for a particular Licensed Product, then Megabios' royalty
rate for that Licensed Product shall be adjusted downward to a royalty rate of
no less than [ * ] as follows:
MANUFACTURING COST OF GOODS ROYALTY RATE
- --------------------------- ------------
[ * ]
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
6
[ * ]
It is understood by the parties that the cumulative application of this Section
and Section 3.3.2 shall in no event operate to reduce the royalty rate payable
to Megabios to less than [ * ] Net Sales.
3.2.4 If both the manufacture and sale of a Product which employs
Joint Technology takes place in countries in which there are no Patent Rights,
Pfizer shall pay Megabios a royalty of [ * ] based on the Net Sales
of each Product in each such country beginning on the date of the first
commercial sale in each country and ending ten (10) years later.
3.3 PAYMENT DATES. Royalties shall be paid by Pfizer on Net Sales within
sixty (60) days after the end of each calendar quarter in which such Net Sales
are made. Such payments shall be accompanied by a statement showing the Net
Sales of each Licensed Product by Pfizer or any sublicensee of Pfizer in each
country, the applicable royalty rate for such Licensed Product, and a
calculation of the amount of royalty due.
3.4 ACCOUNTING. The Net Sales used for computing the royalties payable to
Megabios by Pfizer shall be computed and paid in U.S. dollars by check or other
mutually acceptable means. For purposes of determining the amount of royalties
due, the amount of Net Sales in any foreign currency shall be computed by (a)
converting such amount into dollars at the prevailing commercial rate of
exchange for purchasing dollars with such foreign currency as quoted by Citibank
in New York on the last business day of the calendar quarter for which the
relevant royalty payment is to be made by Pfizer and (b) deducting the amount of
any governmental tax, duty, charge, or other fee actually paid in respect of
such conversion into, and remittance of dollars.
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
7
3.5 RECORDS. Pfizer shall keep for three (3) years from the date of each
payment of royalties complete and accurate records of sales by Pfizer of each
Licensed Product in sufficient detail to allow the accruing royalties to be
determined accurately. Megabios shall have the right for a period of three (3)
years after receiving any report or statement with respect to royalties due and
payable to appoint at its expense an independent certified public accountant
reasonably acceptable to Pfizer to inspect the relevant records of Pfizer to
verify such report or statement. Pfizer shall make its records available for
inspection by such independent certified public accountant during regular
business hours at such place or places where such records are customarily kept,
upon reasonable notice from Megabios, to verify the accuracy of the reports and
payments. Such inspection right shall not be exercised more than once in any
calendar year nor more than once with respect to sales in any given period.
Megabios agrees to hold in strict confidence all information concerning royalty
payments and reports, and all information learned in the course of any audit or
inspection, except to the extent necessary for Megabios to reveal such
information in order to enforce its rights under this Agreement or if disclosure
is required by law. The failure of Megabios to request verification of any
report or statement during said three-year period shall be considered acceptance
of the accuracy of such report, and Pfizer shall have no obligation to maintain
records pertaining to such report or statement beyond said three-year period.
The results of each inspection, if any, shall be binding on both parties.
3.6 MILESTONE PAYMENTS. Pfizer shall pay Megabios, within thirty (30)
days of the completion of each respective event for the Licensed Product set
forth below ("Event"), the payment listed opposite that Event. Payments shall
be made in U.S. dollars by check or other mutually acceptable means. Pfizer
shall be obligated to make each payment only once with respect to the first
indication
<PAGE>
8
of a Licensed Product affected by an Event so that the occurrence of that same
Event with respect to additional indications described in each subsection will
not require Pfizer to make an additional payment with respect to that Event.
One hundred percent (100%) of all payments made by Pfizer pursuant to this
Section 3.8 shall be credited against all sums due to Megabios pursuant to
Section 3.2 of this Agreement; provided, however, that the sums due pursuant to
Section 3.2 in any calendar year shall not be reduced by virtue of this credit
by more than [ * ]
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
9
EVENT PAYMENT
- ----- -------
[ *
]
Notwithstanding anything to the contrary in this Section, if an additional
indication with respect to a Licensed Product which has received PLA/NDA
approval, receives PLA/NDA approval or its equivalent in a Major Market, Pfizer
will pay Megabios [ * ] within 30 days of such event. If
Phase III trials are not conducted, but Pfizer or its sublicensee nonetheless
pursues regulatory approval of the Licensed Product based upon the Phase II
trial results, the Phase III "Event" will be deemed to have occurred at the end
of such Phase II trials.
4. LEGAL ACTION.
4.1 ACTUAL OR THREATENED DISCLOSURE OR INFRINGEMENT. When information
comes to the attention of Pfizer to the effect that any Patent Rights relating
to a Licensed Product to which Pfizer has an exclusive license under Section
2.1 (b) have been or are threatened to be unlawfully infringed, Pfizer shall
have the right at its expense to take such action as it may deem necessary to
prosecute or prevent such unlawful infringement, including the right to bring or
defend any suit, action or proceeding involving any such infringement. Pfizer
shall notify Megabios promptly of the receipt of any such information and of the
commencement of any such suit, action or proceeding. If Pfizer determines that
it is necessary or desirable for Megabios to join any such suit, action or
proceeding, Megabios shall, at Pfizer's expense, execute all papers and perform
such other acts as may be reasonably required to permit Pfizer to act in
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
10
Megabios' name. If Pfizer brings a suit, it shall have the right first to
reimburse itself out of any sums recovered in such suit or in its settlement for
all costs and expenses, including attorney's fees, related to such suit or
settlement, and [ * ] of any funds that shall remain
from said recovery shall be paid to Megabios and the balance of such funds shall
be retained by Pfizer. If Pfizer does not, within one hundred twenty (120) days
after giving notice to Megabios of the above-described information, notify
Megabios of Pfizer's intent to bring suit against any infringer, Megabios shall
have the right to bring suit for such alleged infringement, but it shall not be
obligated to do so, and may join Pfizer as party plaintiff, if appropriate, in
which event Megabios shall hold Pfizer free, clear and harmless from any and all
costs and expenses of such litigation, including attorney's fees, and any sums
recovered in any such suit or in its settlement shall belong to Megabios.
However [ * ] of any such sums received by Megabios,
after deduction of all costs and expenses related to such suit or settlement,
including attorney's fees paid, shall be paid to Pfizer. Each party shall always
have the right to be represented by counsel of its own selection and at its own
expense in any suit instituted by the other for infringement under the terms of
this Section. If Pfizer lacks standing and Megabios has standing to bring any
such suit, action or proceeding, then Megabios shall do so at the request of
Pfizer and at Pfizer's expense.
4.2 DEFENSE OF INFRINGEMENT CLAIMS. Megabios will cooperate with Pfizer at
Pfizer's expense in the defense of any suit, action or proceeding against Pfizer
or any sublicensee of Pfizer alleging the infringement of the intellectual
property rights of a third party by reason of the use of Patent Rights in the
manufacture, use or sale of the Licensed Product. Pfizer shall give Megabios
prompt written notice of the commencement of any such suit, action or proceeding
or claim of infringement and will furnish Megabios a copy of each
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
11
communication relating to the alleged infringement. Megabios shall give to
Pfizer all authority (including the right to exclusive control of the defense of
any such suit, action or proceeding and the exclusive right after consultation
with Megabios, to compromise, litigate, settle or otherwise dispose of any such
suit, action or proceeding), information and assistance necessary to defend or
settle any such suit, action or proceeding; provided, however, Pfizer shall
obtain Megabios' prior consent to such part of any settlement which requires
payment or other action by Megabios or has a material adverse effect on
Megabios' business. If the parties agree that Megabios should institute or join
any suit, action or proceeding pursuant to this Section, Pfizer may, at Pfizer's
expense, join Megabios as a defendant if necessary or desirable, and Megabios
shall execute all documents and take all other actions, including giving
testimony, which may reasonably be required in connection with the prosecution
of such suit, action or proceeding.
4.3 HOLD HARMLESS. Megabios agrees to defend, protect, indemnify and hold
harmless Pfizer and any sublicensee of Pfizer, from and against any loss or
expense arising from any proved claim of a third party that it has been granted
rights by Megabios that Pfizer or any sublicensee of Pfizer in exercising their
rights granted to Pfizer by Megabios pursuant to this Agreement, has infringed
upon such rights granted to such third party by Megabios.
5. REPRESENTATION AND WARRANTY. Megabios represents and warrants to Pfizer
that it has the right to grant the License granted pursuant to this Agreement,
and that the License so granted does not conflict with or violate the terms of
any agreement between Megabios and any third party.
6. TREATMENT OF CONFIDENTIAL INFORMATION.
<PAGE>
12
6.1 CONFIDENTIALITY.
6.1.1 Pfizer and Megabios each recognize that the other's Confidential
Information constitutes highly valuable, confidential information. Subject to
Pfizer's rights and obligations pursuant to this Agreement, Pfizer and Megabios
each agree that during the term of the Research Agreement and for five (5) years
thereafter, it will keep confidential, and will cause its Affiliates to keep
confidential, all Megabios Confidential Information or Pfizer Confidential
Information, as the case may be, that is disclosed to it or to any of its
Affiliates pursuant to this Agreement.
6.1.2 Subject to Pfizer's rights and obligations pursuant to this
Agreement, Pfizer and Megabios each agree that any disclosure of the other's
Confidential Information to any officer, employee or agent of the other party or
of any of its Affiliates shall be made only if and to the extent necessary to
carry out its responsibilities under this Agreement and shall be limited to the
maximum extent possible consistent with such responsibilities. Subject to
Pfizer's rights and obligations pursuant to this Agreement, Pfizer and Megabios
each agree not to disclose the other's Confidential Information to any third
parties under any circumstance without written permission from the other party.
Each party shall take such action, and shall cause its Affiliates to take such
action, to preserve the confidentiality of each other's Confidential Information
as it would customarily take to preserve the confidentiality of its own
Confidential Information. Each party, upon the other's request, will return all
the Confidential Information disclosed to the other party pursuant to this
Agreement, including all copies and extracts of documents, within sixty (60)
days of the request upon the termination of this Agreement except for one (1)
copy which may be kept for the purpose of complying with continuing obligations
under this Agreement.
<PAGE>
13
6.2 PUBLICITY. Except as required by law, neither party may disclose the
terms of this Agreement without the written consent of the other party, which
consent shall not be unreasonably withheld.
6.3 DISCLOSURE OF INVENTIONS. Each party shall promptly inform the other
about all inventions in the Area that are conceived, made or developed in the
course of carrying out the Research Program by employees of, consultants to,
either of them solely, or jointly with employees of, or consultants to the
other.
7. PROVISIONS CONCERNING THE FILING, PROSECUTION AND MAINTENANCE OF PATENT
RIGHTS. The following provisions relate to the filing, prosecution and
maintenance of Patent Rights during the term of this Agreement and after the
termination or expiration of the Research Agreement:
7.1 FILING, PROSECUTION AND MAINTENANCE BY MEGABIOS. Subject to Section
2.1 (c), with respect to Patent Rights in which Megabios employees or
consultants, alone or together with Pfizer employees, or consultants are named
as inventors, Megabios shall have the exclusive right and obligation:
(a) to file applications for letters patent on any patentable
invention included in Patent Rights; provided, however, that Megabios shall
consult with Pfizer regarding countries in which such patent applications should
be filed and shall file patent applications in those countries where Pfizer
requests that Megabios file such applications; and, further provided, that
Megabios, at its option and expense, may file in countries where Pfizer does not
request that Megabios file such applications;
(b) to prosecute all pending and new patent applications included
within Patent Rights;
<PAGE>
14
(c) to respond to oppositions, nullity actions, re-examinations,
revocation actions and similar proceedings filed by third parties against the
grant of letters patent for such applications; and
(d) to maintain in force any letters patent included in Patent Rights
by duly filing all necessary papers and paying any fees required by the patent
laws of the particular country in which such letters patent were granted.
Megabios shall notify Pfizer in a timely manner of any decision to abandon
a pending patent application or an issued patent included in Patent Rights.
Thereafter, Pfizer shall have the option, at its expense, of continuing to
prosecute any such pending patent application or of keeping the issued patent in
force.
7.1.1 COPIES OF DOCUMENTS. Megabios shall provide to Pfizer copies of all
patent applications that are part of Patent Rights prior to filing, for the
purpose of obtaining substantive comment of Pfizer patent counsel. Megabios
shall also provide to Pfizer copies of all documents relating to prosecution of
all such patent applications in a timely manner and shall provide to Pfizer
every six (6) months a report detailing their status. Pfizer shall provide to
Megabios every six (6) months a report detailing the status of all patent
applications that are a part of Patent Rights in which Pfizer employees or
consultants alone are named as inventors.
7.1.2 REIMBURSEMENT OF COSTS FOR FILING, PROSECUTING AND MAINTAINING PATENT
RIGHTS. Within thirty (30) days of receipt of invoices from Megabios, Pfizer
shall reimburse Megabios for all the costs of filing, prosecuting, responding to
opposition and maintaining patent applications and patents in countries where
Pfizer requests that patent applications be filed, prosecuted and maintained.
Such reimbursement shall be in addition to funding payments under the Research
Agreement. However, Pfizer may, upon sixty (60) days +/- notice, request that
Megabios discontinue filing or prosecution of patent
<PAGE>
15
applications in any country and discontinue reimbursing Megabios for the costs
of filing, prosecuting, responding to opposition or maintaining such patent
application or patent in any country. Megabios shall pay all costs in those
countries in which Pfizer does not request that Megabios file, prosecute or
maintain patent applications and patents, but in which Megabios, at its options,
elects to do so.
7.1.3 Pfizer shall have the right to file on behalf of Megabios all
applications and take all actions necessary to obtain patent extensions pursuant
to 35 USC Section 156 for Patent Rights described in this Section 7.1 licensed
to Pfizer. Megabios agrees to sign, at Pfizer's expense, such further documents
and take such further actions as may be requested by Pfizer in this regard.
7.2 FILING, PROSECUTION AND MAINTENANCE BY PFIZER. With respect to Patent
Rights in which Pfizer employees or consultants alone are named as inventors,
Pfizer shall have those rights and duties ascribed to Megabios in Section 7.1.
7.3 Neither party may disclaim a Valid Claim within Patent Right without
the consent of the other.
8. MANUFACTURING.
(a) Megabios will manufacture final dosage form of all Licensed Products
through the end of [ * ] with respect to each such Product at a negotiated
price [ * ] Pfizer understands and acknowledges that Megabios
does not, as of the Effective Date, have the capability to undertake
manufacturing of Licensed Products in accordance with GMP in excess of the
requirements of Licensed Products for the conduct of [ * ] clinical trials.
Accordingly, the obligation of Megabios to supply Licensed Product manufactured
in accordance with GMP for the conduct of [ * ]
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
16
clinical trials is subject to the limitations of its then current manufacturing
facility and Megabios will be under no obligation to construct a new facility,
buy additional manufacturing equipment or reserve third party manufacturing
capacity in order to supply such GMP materials, unless Pfizer has agreed in
advance to pay all costs, plus a negotiated profit margin, associated with
procuring or constructing such facilities and the production of such GMP
material, pursuant to a separate supply agreement.
(b) When Pfizer decides to take any Product to [ * ] it will so notify
Megabios. Upon receipt of such notice, Pfizer and Megabios will attempt to
negotiate a manufacturing agreement for supplies of Product for [ * ] and
commercial use. The parties acknowledge that Pfizer can probably manufacture the
requisite DNA more inexpensively than Megabios and that Pfizer shall have no
obligation to enter an agreement for any component of the Product which it can
obtain more inexpensively or reliably from itself or one or more third parties
or both. Any provision in this Agreement to the contrary notwithstanding, Pfizer
shall be free to obtain additional Product from one or more additional vendors
or to establish back-up facilities to assure itself of adequate supplies of each
Product throughout the world.
(c) Pfizer will, at reasonable times during normal working hours and with
reasonable notice, have the right, by itself or through third parties under
confidential obligation to Pfizer and Megabios, to conduct quality
assurance/quality control audits of Megabios facility and manufacturing
procedures with respect to Product. Failure to maintain adequate standards in
Pfizer's sole, unfettered judgment shall be treated as an Event of Termination
pursuant to Section 10.1(b), but only with respect to this Section 8. No other
provision of this Agreement will be affected by termination of this section.
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
17
9. OTHER AGREEMENTS. Concurrently with the execution of this Agreement,
Megabios and Pfizer shall enter into the Research Agreement and the Stock
Purchase Agreement. This Agreement, the Stock Purchase Agreement and the
Research Agreement are the sole agreements with respect to the subject matter
and supersede all other agreements and understandings between the parties with
respect to same. In addition, if Pfizer decides to continue the Research
Agreement beyond the initial two Commitment Years, within [ * ] of the
eighteenth-month anniversary of the effective Date, the parties will execute a
second stock purchase agreement whereby Pfizer purchases the lesser of an
additional $10,000,000.00 in Megabios securities or that number of additional
shares such that Pfizer's aggregate ownership of Megabios stock is 19.99%, on
substantially those terms set forth in the Stock Purchase Agreement. The
purchase price of such securities shall be 137.5% of the value of each share of
similar Megabios stock as determined by its most recent private offering or the
closing price on the exchange on which it is traded on the date (such date not
to be earlier than sixteen months following the Effective Date) on which Pfizer
decides to continue to Research Agreement, as the case may be (the "Base
Price"). Megabios stock must be traded at or above the premium price [
* ] following the date of the
second stock purchase by Pfizer (or, if not publicly traded, Megabios stock must
be traded at or above the premium price [ * ] following
an initial public offering of Megabios stock). If not, Megabios will issue
additional shares to Pfizer to cover the balance of the premium. Such share
adjustment will be equal to (a) the actual dollar amount of Pfizer's second
stock purchase divided by the greater of (i) the highest average [ *
] trading price (or, if Megabios stock is not publicly traded, the
highest [ * ] during the [ * ]
following the second stock
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
18
purchase by Pfizer or (ii) the Base Price, minus (b) the number of shares
purchased by Pfizer under this Section 9.
10. TERMINATION AND DISENGAGEMENT.
10.1 TERM; EVENTS OF TERMINATION. Unless earlier terminated as provided
in this Section 10, the term of this Agreement shall extend from the Effective
Date until the last to expire of the Patent Rights covering a Licensed Product
at which time Pfizer will have a fully paid up, perpetual license. The
following events shall constitute events of termination ("Events of
Termination"):
(a) Any material written representation or warranty by Megabios or
Pfizer, or any of its officers, made under or in connection with this Agreement
shall prove to have been incorrect in any material respect when made.
(b) Megabios or Pfizer shall fail in any material respect to perform
or observe any material term, covenant or understanding contained in this
Agreement or in any of the other documents or instruments delivered pursuant to,
or concurrently with, this Agreement, and any such failure shall remain
unremedied for ninety (90) after written notice to the failing party.
10.2 TERMINATION. Upon the occurrence of any Event of Termination, the
party not responsible may, by notice to the other party, terminate this
Agreement.
10.3 Termination of this Agreement by either party, with or without cause,
will not terminate the licenses granted pursuant to Section 5.2 of the Research
Agreement.
10.4 Termination of this Agreement for any reason shall be without
prejudice to:
(a) the rights and obligations of the parties provided in Sections 6
and 11;
<PAGE>
19
(b) Megabios' right to receive all royalty payments accrued
hereunder; or
(c) any other remedies which either party may otherwise have.
11. INDEMNIFICATION. Pfizer will indemnify Megabios for damages, settlements,
costs, legal fees and other expenses incurred in connection with a claim against
Megabios based on any action or omission of Pfizer whether such claim alleges
negligence, willful misconduct or strict liability, its agents or employees
related to the obligations of Pfizer under this Agreement; provided, however,
that the foregoing shall not apply (i) if the claim is found to be based upon
the negligence, recklessness or willful misconduct of Megabios, or (ii) if
Megabios fails to give Pfizer prompt notice of any claim it receives and such
failure materially prejudices Pfizer with respect to any claim or action to
which Pfizer's obligation pursuant to this Section applies. Pfizer, in its sole
discretion, shall choose legal counsel, shall control the defense of such claim
or action, and shall have the right to settle same on such terms and conditions
it deems advisable.
12. NOTICES. All notices shall be in writing mailed via certified mail, return
receipt requested, courier, or facsimile transmission addressed as follows, or
to such other address as may be designated from time to time:
If to Pfizer: To Pfizer at its address as set forth
at the beginning of this Agreement
Attention: President, Central Research
---------
with copy to: Office of the General Counsel
If to Megabios: Megabios at its address as set forth at the
beginning of this Agreement
<PAGE>
20
Attention: President
---------
Notices shall be deemed given as of the date received.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14. MISCELLANEOUS.
14.1 BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective legal representatives,
successors and permitted assigns.
14.2 HEADINGS. Paragraph headings are inserted for convenience of
reference only and do not form a part of this Agreement.
14.3 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original.
14.4 AMENDMENT, WAIVER. This Agreement may be amended, modified,
superseded or canceled, and any of the terms may be waived, only by a written
instrument executed by each party or, in the case of waiver, by the party or
parties waiving compliance. The delay or failure of any party at any time or
times to require performance of any provisions shall in no manner affect the
rights at a later time to enforce the same. No waiver by any party of any
condition or of the breach of any term contained in this Agreement, whether by
conduct, or otherwise, in any one or more instances, shall be deemed to be, or
considered as, a further or continuing waiver of any such condition or of the
breach of such term or any other term of this Agreement.
14.5 NO THIRD PARTY BENEFICIARIES. Subject to Section 2.1(c) an the
rights of third party licensors under the UC license Agreement, no third party
<PAGE>
21
including any employee of any party to this Agreement, shall have or acquire any
rights by reason of this Agreement. Nothing contained in this Agreement shall be
deemed to constitute the parties partners with each other or any third party.
14.6 ASSIGNMENT AND SUCCESSORS. This Agreement may not be assigned by
either party, except that each party may assign this Agreement and the rights
and interests of such party, in whole or in part, to any of its Affiliates, any
purchaser of all or substantially all of its assets or to any successor
corporation resulting from any merger or consolidation of such party with or
into such corporations.
14.7 FORCE MAJEURE. Neither Pfizer nor Megabios shall be liable for failure
of or delay in performing obligation set forth in this Agreement, and neither
shall be deemed in breach of its obligations, if such failure or delay is due to
natural disasters or any causes reasonably beyond the control of Pfizer or
Megabios.
14.8 SEVERABILITY. If any provision of this Agreement is or becomes invalid
or is ruled invalid by any court of competent jurisdiction or is deemed
unenforceable, it is the intention of the parties that the remainder of the
Agreement shall not be affected.
<PAGE>
22
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
PFIZER INC MEGABIOS CORP
By: /s/ George M. Milne, Jr. By:
--------------------------------- -----------------------------
Title: Vice President Title:
------------------------------ --------------------------
Date: 31 May 1996 Date:
------------------------------- ---------------------------
cc: Pfizer Inc, Legal Division, Groton, CT 06340
<PAGE>
23
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
PFIZER INC MEGABIOS CORP
By: By: /s/ Benjamin F. McGraw
--------------------------------- -----------------------------
Title: Title: President and CEO
------------------------------ --------------------------
Date: Date: May 30, 1996
------------------------------- ---------------------------
<PAGE>
EX 10.20
MEGABIOS CORP.
AND
PFIZER INC.
________________________________________________________________________________
STOCK PURCHASE AGREEMENT
________________________________________________________________________________
MAY 30, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. PURCHASE OF STOCK...................................................... 1
2. CLOSING DATE; DELIVERY................................................. 1
2.1 Closing; Closing Date............................................. 1
2.2 Delivery.......................................................... 1
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................... 2
3.1 Authorization..................................................... 2
3.2 No Conflict with Other Instruments................................ 2
3.3 Articles of Incorporation; By-laws................................ 2
3.4 Organization, Good Standing and Qualification..................... 2
3.6 Subsidiaries...................................................... 3
3.7 Valid Issuance of Shares.......................................... 3
3.8 Litigation, etc................................................... 3
3.9 Governmental Consents............................................. 4
3.10 No Brokers........................................................ 4
4. REPRESENTATIONS AND WARRANTIES OF PFIZER............................... 4
4.1 Legal Power....................................................... 4
4.2 Due Execution..................................................... 4
4.3 Investment Representations........................................ 5
4.4 No Brokers........................................................ 6
5. CONDITIONS To CLOSING.................................................. 6
5.1 Conditions to Obligations of Pfizer at Closing.................... 6
5.2 Conditions to Obligations of the Company at Closing............... 7
6. COVENANTS OF PFIZER.................................................... 7
6.1 Sale Restriction.................................................. 7
6.2 Right of First Refusal............................................ 8
6.3 Standstill Agreement.............................................. 8
6.4 "Market Stand-Off" Agreement...................................... 9
7. COVENANTS OF THE COMPANY............................................... 9
7.1 Registration...................................................... 9
7.2 Basic Financial Information....................................... 9
8. MISCELLANEOUS..........................................................10
8.1 Governing law.....................................................10
8.2 Publicity.........................................................10
8.3 Successors and Assigns............................................10
8.4 Entire Agreement..................................................10
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
8.5 Severability ...................................................... 10
8.6 Amendment and Waiver .............................................. 10
8.7 Notices ........................................................... 11
8.8 Fees and Expenses ................................................. 11
8.9 Titles and Subtitles .............................................. 11
8.10 Counterparts ...................................................... 11
</TABLE>
EXHIBITS
Exhibit A - Form of Third Amended and Restated Articles of Incorporation
Exhibit B - Bylaws
Exhibit C - Form of Opinion of Cooley Godward Castro Huddleson & Tatum
ii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of May 30, 1996, by and between MEGABIOS CORP., a
California corporation with its principal office at 863A Mitten Road,
Burlingame, California 94010 (the "Company"), and PFIZER INC., a Delaware
corporation with its principal office at 235 East 42nd Street, New York, New
York 10017 ("Pfizer").
RECITALS
WHEREAS, the Company and Pfizer have entered into a Collaborative Research
Agreement and a License and Royalty Agreement of even date herewith
(collectively, the "Collaboration Agreements"); and
WHEREAS, in connection with the Collaboration Agreements, the Company
desires to sell to Pfizer and Pfizer desires to purchase from the Company shares
of its capital stock, on the terms and subject to the conditions set forth in
this Agreement.
NOW, THEREFORE, In consideration of the foregoing recitals and the mutual
covenants and agreements contained herein, the parties hereto, intending to be
legally bound, do hereby agree as follows:
1. PURCHASE OF STOCK. Subject to the terms and conditions of this
Agreement, and in reliance on the representations and warranties contained
herein, at the Closing (as hereinafter defined) the Company agrees to sell to
Pfizer and Pfizer agrees to purchase from the Company, for a price of three
million five hundred thousand dollars ($3,500,000.00), one million four hundred
fifty-four thousand ninety-two (1,454,092) shares of the Company's Series D
Preferred Stock, representing a price of $2.407 per share. The rights and
preferences of the Series D Preferred Stock shall be as provided for in the
Company's Third Amended and Restated Articles of Incorporation, a form of which
is attached hereto as Exhibit A (the "Articles").
2. CLOSING DATE; DELIVERY.
2.1 CLOSING; CLOSING DATE. Subject to the terms of Section 5, the
closing of the sale and purchase of shares of Series D Preferred Stock under
Section 1 of this Agreement (the "Closing") shall be held at 9:00 a.m. (Pacific
Time) on the applicable closing date at the offices of Cooley Godward Castro
Huddleson & Tatum, Five Palo Alto Square, 4th Floor, Palo Alto, California, or
at such other time and place as the Company and Pfizer may agree. The date of
the Closing ("Closing Date") shall be as soon as practicable following the
signing of this Agreement, at such other date as the Company and Pfizer shall
agree.
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to Pfizer a stock certificate, in the name of
Pfizer, representing the shares
1.
<PAGE>
of Series D Preferred Stock deliverable at the Closing, dated as of the Closing,
against payment of the purchase price therefor by check or wire transfer.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to Pfizer as follows:
3.1 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement has been taken. The Company has the
requisite corporate power to enter into this Agreement and carry out and perform
its obligations under the terms of this Agreement. At the Closing, the Company
will have the requisite corporate power to sell the shares of Series D Preferred
Stock to be sold at the Closing. This Agreement has been duly authorized,
executed and delivered by the Company and, upon due execution and delivery by
Pfizer, this Agreement will be a valid and binding agreement of the Company,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by equitable principles.
3.2 NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery and
performance of this Agreement will not result in any violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice: (a) any provision of the Company's Articles or
Bylaws as either shall be in effect; (b) any provision of any judgment, decree
or order to which the Company is a party or by which it is bound; (c) any
material contract, obligation or commitment to which the Company is a party or
by which it is bound; or (d) to the Company's knowledge, any statute, rule or
governmental regulation applicable to the Company.
3.3 ARTICLES OF INCORPORATION; BY-LAWS. Attached hereto as Exhibit A
and B, respectively, are true, correct and complete copies of the Articles and
Bylaws of the Company, as in effect on the date hereof.
3.4 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
3.5 CAPITALIZATION. As of May 15, 1996, the authorized capital stock
of the Company consists of:
(A) PREFERRED STOCK. 30,000,000 shares of Preferred Stock, of
which (i) 3,087,666 have been designated Series A Preferred Stock, all
shares of which are issued and outstanding and convertible into 2,289,843
shares of Common Stock pursuant to the Articles, (ii) 3,267,250 shares of
Series B Preferred Stock, 3,167,250 shares of which are issued and
2.
<PAGE>
outstanding and convertible into 3,167,250 shares of Common Stock pursuant to
the Articles, (iii) 11,100,000 shares of Series C Preferred Stock, 9,553,274
shares of which are issued and outstanding and convertible into 9.553,274 shares
of Common Stock pursuant to the Articles, and (iv) 7,545,084 shares of Series D
Preferred Stock, none of which are issued and outstanding. The Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred Stock
have the rights, preferences, privileges and restrictions set forth in the
Articles. The Company has reserved 2,289,843 shares of Common Stock for issuance
upon conversion of the Series A Preferred Stock, 3,167,250 shares of Common
Stock for issuance upon conversion of the Series B Preferred Stock, 9,553,274
shares of Common Stock for issuance upon conversion of the Series C Preferred
Stock and 7,545,084 shares of Common Stock for issuance upon conversion of the
Series D Preferred Stock.
(B) COMMON STOCK. 40,000,000 shares of Common Stock, 3,518,429
of which are issued and outstanding. An additional 1,168,415 shares are issuable
upon exercise of outstanding stock options, and 308,127 shares are reserved for
future issuance to employees of and consultants of the Company under the
Company's 1993 Stock Option Plan, as amended.
(C) All of the issued and outstanding shares have been duty
authorized and validly issued, are fully paid and nonassessable and have been
issued in compliance with applicable federal and state securities law. Except as
described herein there are no other options, warrants, conversion privileges or
other rights (including preemptive rights) presently outstanding to purchase or
otherwise acquire any authorized but unissued shares of capital stock or other
securities of the Company.
3.6 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, and has no stock or other interest as owner or principal
in, any other corporation or partnership, joint venture, association or other
business venture or entity.
3.7 VALID ISSUANCE OF SHARES. The shares of Series D Preferred Stock
which will be purchased by Pfizer hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly authorized and issued, fully paid and nonassessable and, based
in part upon the representations of Pfizer in Section 4 of this Agreement, will
be issued in compliance with all applicable federal and state securities laws.
3.8 LITIGATION, ETC. There is no action, suit, proceeding nor, to
the best of its knowledge, any investigation pending or currently threatened
against the Company, nor, to the best of its knowledge, is there any basis
therefor, which might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or prospects of the
Company, financial or otherwise. The foregoing includes, without limitation, any
action, suit, proceeding or investigation, pending or threatened, that questions
the validity of this Agreement or any other agreement contemplated hereby or the
right of the Company to enter into such agreements.
3.
<PAGE>
3.9 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation. declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for notices required or
permitted to be filed with certain state and federal securities commissions,
which notices will be filed on a timely basis.
3.10 NO BROKERS. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based on arrangements made by the
Company.
3.11 FINANCIAL STATEMENTS. The Company has delivered to Pfizer its
audited balance sheet at June 30, 1995 and its unaudited balance sheet at
December 31, 1995 (the "December 1995 Balance Sheet"), together with the related
audited statement of operations and statement of cash flows for the year ended
June 30, 1995 and the unaudited statement of operations and statement of cash
flows for the six months ended December 31, 1995, (collectively, the "Financial
Statements"). The Financial Statements are complete and correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated and
with each other. The Financial Statements accurately set out and describe the
financial condition and operating results of the Company as of the dates
indicated therein, subject, in the case of the unaudited financial statements,
to normal year-end audit adjustments and the absence of footnotes. Except as set
forth on the December 1995 Balance Sheet, there are no other material
liabilities of the Company.
4. REPRESENTATIONS AND WARRANTIES OF PFIZER.
Pfizer hereby represents and warrants to the Company as follows:
4.1 LEGAL POWER. Pfizer has the requisite corporate power to enter into
this Agreement, to carry out and perform its obligations under the terms of this
Agreement and, at the Closing, will have the requisite corporate power to
purchase the shares of Series D Preferred Stock to be purchased at the Closing.
4.2 DUE EXECUTION. This Agreement his been duly authorized, executed and
delivered by Pfizer, and, upon due execution and delivery by the Company, this
Agreement will be a valid and binding agreement of Pfizer, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or by equitable
principles.
4.
<PAGE>
4.3 INVESTMENT REPRESENTATIONS. In connection with any sale of
shares under this Agreement, Pfizer makes the following representations:
(A) Pfizer is acquiring the shares of Series D Preferred Stock
under this Agreement for its own account, not as nominee or agent, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
of 1933, as amended (the "Act").
(B) Pfizer understands that (i) the shares of Series D Preferred
Stock to be purchased under this Agreement have not been registered under the
Securities Act by reason of a specific exemption therefrom, that such securities
must be held by Pfizer, and that Pfizer must, therefore, bear the economic risk
of such investment, until a subsequent disposition thereof is registered under
the Securities Act or is exempt from such registration; (ii) the certificate
representing such shares will be endorsed with the following legends:
(A) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
(B) THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING RESTRICTIONS ON
TRANSFERABILITY, OF THAT CERTAIN STOCK PURCHASE AGREEMENT, DATED MAY 30,
1996. A COPY OF SUCH STOCK PURCHASE AGREEMENT WILL BE FURNISHED TO THE
RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO
MEGABIOS CORP. AT ITS PRINCIPAL PLACE OF BUSINESS."
(C) Any legend required to be placed thereon by the
Company's Bylaws (and shown on Exhibit B hereto or as may hereafter be
added to such Bylaws with respect to all Series D Preferred Stock of the
Company) or under applicable state securities laws;
and (iii) the Company will instruct any transfer agent not to register the
transfer of the shares of Series D Preferred Stock purchased under this
Agreement (or any portion thereof) unless the conditions specified in the
foregoing legends are satisfied, until such time as a transfer is made, pursuant
to the terms of this Agreement, and in compliance with Rule 144 or pursuant to a
registration statement or, if the opinion of counsel referred to above is to the
further effect that such legend is not required in order to establish compliance
with any provisions of the Act or this Agreement.
5.
<PAGE>
(C) Pfizer has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of the
investment in the shares of Series D Preferred Stock purchased hereunder.
(D) Pfizer is an "accredited investor" as such term is defined
in Rule 501(a) of Regulation D of the General Rules and Regulations prescribed
by the Securities and Exchange Commission pursuant to the Act.
4.4 NO BROKERS. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based on arrangements made by
Pfizer.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO OBLIGATIONS OF PFIZER AT CLOSING. Pfizer's
obligation to purchase the shares of the Company's Series D Preferred Stock at
the Closing is subject to the fulfillment to Pfizer's satisfaction, on or prior
to the Closing, of all of the following conditions, any of which may be waived
by Pfizer:
(A) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section
3 hereof shall be true and correct in all material respects on the Closing Date
with the same force and effect as if they had been made on and as of said date
and the Company shall have performed and complied with all obligations and
conditions herein required to be performed or complied with by it on or prior to
the Closing, and a Certificate duly executed by an officer of the Company. to
the effect of the foregoing, shall be delivered to Pfizer.
(B) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to counsel to Pfizer, and counsel to Pfizer
shall have received all such counterpart originals or certified or other copies
of such documents as they may reasonably request.
(C) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the shares to be issued pursuant to this Agreement
shall have been duly obtained and shall be effective on and as of the Closing.
No stop order or other order enjoining the sale of the shares to be sold at the
Closing shall have been issued and no proceedings for such purpose shall be
pending or, to their knowledge of the Company, threatened by the Securities and
Exchange Commission, or any commissioner of corporations or similar officer of
any state having jurisdiction over this transaction. At the time of the Closing,
the sale and issuance of the shares of Series D Preferred
6.
<PAGE>
Stock to be sold thereat shall be legally permitted by all laws and regulations
to which Pfizer and the Company are subject.
(D) OPINION OF COUNSEL TO THE COMPANY. In connection with any
sale of shares hereunder, Pfizer shall have received from Cooley Godward Castro
Huddleson & Tatum, counsel to the Company, an opinion letter addressed to them,
dated as of the Closing, in substantially the form attached hereto as Exhibit C.
(E) IMPERIAL BANK ACKNOWLEDGMENT. The Company shall have
delivered to Pfizer a copy of a letter, dated May 13, 1996 and countersigned by
Imperial Bank, relating to certain provisions contained in loan agreements
entered into by the Company and Imperial Bank, in substantially the form
previously delivered to Pfizer.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AT CLOSING. The
Company's obligation to issue and sell the shares of its Series D Preferred
Stock to be sold at the Closing is subject to the fulfillment to the Company's
satisfaction, on or prior to the Closing of the following conditions, any of
which may be waived by the Company:
(A) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by Pfizer in Section 4 hereof shall be true and correct in
all material respects at the date of the Closing with the same force and effect
as if they had been made on and as of said date; provided, however, that the
representations and warranties shall be modified as required to reflect changes
occurring between the date hereof and the Closing Date.
(B) PERFORMANCE OF OBLIGATIONS. Pfizer shall have performed and
complied with all agreements and conditions herein required to be performed or
complied with by it on or before the Closing, and a Certificate duly executed by
an officer of Pfizer, to the effect of the foregoing, shall be delivered to the
Company.
(C) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the shares of Series D Preferred Stock to be sold
and issued pursuant to this Agreement shall have been duly obtained and shall be
effective on and as of the Closing. No stop order or other order enjoining the
sale of such shares shall have been issued and no proceedings for such purpose
shall be pending or, to the knowledge of the Company, threatened by the
Securities and Exchange Commission, or any commissioner of corporations or
similar officer of any state having jurisdiction over this transaction. At the
time of the Closing, the sale and issuance of the shares of Series D Preferred
Stock to be sold and issued at the Closing shall be legally permitted by all
laws and regulations to which Pfizer and the Company are subject.
6. COVENANTS OF PFIZER.
6.1 SALE RESTRICTION. Pfizer hereby covenants and agrees that it
will not contract to sell, sell or otherwise transfer, loan, pledge or grant any
rights with respect to any
7
<PAGE>
shares of the Company's Series D Preferred Stock acquired pursuant to this
Agreement (or purchase or sell any derivative security that has a similar effect
or enter into any contract that has a similar effect) until five (5) years after
the date such stock is first issued to Pfizer hereunder, without the prior
written consent of the Company; provided, that Pfizer shall be permitted to
tender and transfer any such shares (a) to a subsidiary of Pfizer controlled by
Pfizer, on the condition that any such subsidiary shall agree in writing to be
bound by the terms of this Agreement; and (b) to a tender offer or in connection
with a tender offer by any person or entity to acquire 33% or more of the
Company's outstanding voting equity securities.
6.2 RIGHT OF FIRST REFUSAL.
(A) Except as provided in Section 6.1(a) or (b), Pfizer shall
not transfer any shares of the Company's Series D Preferred Stock purchased
pursuant to this Agreement, whether or not for consideration, to a third party,
without complying with the provisions of this Section 6.2. The right of first
refusal herein shall be freely assignable by the Company.
(B) In the event Pfizer desires to transfer any shares of the
Company's stock then held by it, Pfizer shall give written notice to the
Secretary of the Company of its intention to transfer the shares (the "Company
Notice"). The Company Notice must name the proposed transferee (if a private
transaction), the number of shares involved in the proposed transfer, the
proposed purchase price per share (if a private transaction), and any other
terms and conditions of the proposed transfer. Within fifteen (15) days after
delivery of the Company Notice, the Company shall have the right to elect to
purchase all or part of the shares proposed to be transferred (the "Option
Shares") on substantially the same terms and conditions specified in the Company
Notice, by delivery to Pfizer of a written notice stating the number of Option
Shares the Company elects to purchase.
(C) In the event that the Company fails to exercise the right of
first refusal as to all the Option Shares within the period specified above,
Pfizer shall have sixty (60) days thereafter to sell the Option Shares at a
price and upon terms no more favorable to the purchaser thereof than specified
in the Company Notice. In the event that Pfizer has not sold such shares within
such sixty (60) day period, Pfizer shall not thereafter sell any of such shares
without first offering such shares to the Company in the manner provided above.
6.3 STANDSTILL AGREEMENT. Other than shares which it is purchasing
pursuant to this Agreement, Pfizer hereby covenants and agrees that it will not,
nor will it permit any of its affiliates (including parents, subsidiaries or
other related entities) to, purchase or otherwise acquire, directly or
indirectly, any equity securities of the Company (or rights or options to
purchase such securities) without the prior approval of the Company. This
provision shall terminate and be of no further force or effect five (5) years
from the date hereof or such earlier date as shall be agreed to by the Company;
provided, that the undertaking of this Section 6.3 shall automatically terminate
upon the occurrence of any of the following events: (a) the filing with the SEC
of a Schedule 13D by any person or entity indicating that a person or entity has
acquired (x) more than 33% of any class of the Company's voting equity
securities, or (y) has acquired at least 5% of any class of the Company's voting
equity securities which Schedule 13D
8
<PAGE>
expresses the filing party's intention to assume control of the Company, whether
by tender offer, merger, proxy contest or otherwise; (b) the commencement of a
tender offer by any person or entity to acquire 33% or more of the Company's
outstanding voting equity securities; or (c) the solicitation of proxies by any
party other than the Company to which Rule 14a-11 of the rules and regulations
under the Securities and Exchange Act of 1934, as amended, applies and is
intended to effect a change in the majority of members of the Company's Board of
Directors.
6.4 "MARKET STAND-OFF" AGREEMENT. The Company (or a representative
of the underwriters) may, in connection with the first underwritten registration
of the offering of any securities of the Company under the Act, require that
Pfizer not sell or otherwise transfer or dispose of any shares of Common Stock
or other securities of the Company during such period (not to exceed one hundred
eighty (180) days) following the effective date (the "Effective Date") of the
registration statement of the Company filed under the Act as may be requested by
the Company or the representative of the underwriters. For purposes of this
restriction Pfizer will be deemed to own securities which (i) are owned directly
or indirectly by Pfizer, including securities held for Pfizer's benefit by
nominees, custodians, brokers or pledgees; (ii) may be acquired by Pfizer within
sixty (60) days of the Effective Date; or (iii) are owned, directly or
indirectly, by or for a corporation, partnership, estate or trust of which
Pfizer is a shareholder, partner or beneficiary, but only to the extent of
Pfizer's proportionate interest therein as a shareholder, partner or beneficiary
thereof. Pfizer further agrees that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.
7. COVENANTS OF THE COMPANY.
7.1 REGISTRATION. At any time after the fifth (5th) anniversary of
the date hereof, if the Company proposes to register (including for this purpose
a registration effected by the Company for any shareholders) any of its Series D
Preferred Stock or Common Stock under the Securities Act in connection with a
firmly underwritten public offering solely of such Series D Preferred Stock or
Common Stock and solely for cash, the Company shall, at such time, promptly give
Pfizer written notice of such registration. Upon the written request of Pfizer
given within 10 days after mailing of such notice by the Company, the Company
shall cause to be registered under the Securities Act all of the Series D
Preferred Stock or Common Stock, as the case may be, that Pfizer his requested
to be registered. The Company shall pay all expenses in connection with any such
registration, exclusive of fees for counsel for Pfizer. The rights under this
Section 7.1 shall apply to the first registration following the fifth (5th)
anniversary of the date hereof only.
7.2 BASIC FINANCIAL INFORMATION. As soon as practicable after the
end of each fiscal year of the Company, and in any event within 120 days
thereafter, the Company will furnish Pfizer a balance sheet of the Company, as
at the end of such fiscal year, and a statement of income and a statement of
cash flows of the Company, for such year, all prepared in
9
<PAGE>
accordance with generally accepted accounting principles and setting forth in
each case in comparative form the figures for the previous fiscal year, all in
reasonable detail. Such financial statements shall be accompanied by a report
and opinion thereon by independent public accountants of national standing
selected by the Company's Board of Directors.
8. MISCELLANEOUS.
8.1 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the substantive laws of the State of New York and
the United States of America, without regard to choice of law rules.
8.2 PUBLICITY. Except as required by law, neither party may disclose
the terms of this Agreement without the written consent of the other party,
which consent shall not be unreasonably withheld.
8.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, and permitted assigns of the parties hereto.
8.4 ENTIRE AGREEMENT. This Agreement, the Collaboration Agreements
and the Exhibits hereto and thereto, and the other documents delivered pursuant
hereto, constitute the full and entire understanding and agreement among the
parties with regard to the subjects hereof and no party shall be liable or bound
to any other party in any manner by any representations, warranties, covenants,
or agreements except as specifically set forth herein or therein. Nothing in
this Agreement, express or implied, is intended to confer upon any party, other
than the parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.
8.5 SEVERABILITY. Whenever possible, each provision of the Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of the Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
the Agreement in the event of such invalidity, the parties shall seek to agree
on an alternative enforceable provision that preserves the original purpose of
this Agreement.
8.6 AMENDMENT AND WAIVER. Except as otherwise provided herein, any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company and Pfizer. Any amendment
or waiver effected in accordance with this Section shall be binding
10
<PAGE>
upon any holder of any securities purchased under this Agreement (including
securities into which such securities have been converted), each future holder
of all such securities, and the Company.
8.7 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
and received (a) upon personal delivery, (b) on the fifth day following mailing
by registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company and Pfizer at their respective addresses first above
written, (c) upon transmission of telegram or facsimile (with telephonic
notice), or (d) upon confirmed delivery by overnight commercial courier service.
8.8 FEES AND EXPENSES. The Company and Pfizer shall bear their own
expenses and legal fees incurred on their behalf with respect to this Agreement
and the transactions contemplated hereby.
8.9 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
8.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
11
<PAGE>
IN WITNESS WHEREOF, the foregoing Stock Purchase Agreement is hereby
executed as of the date first above written.
MEGABIOS CORP.
By: _____________________________
Name: ___________________________
Title: ___________________________
PFIZER INC.
By: _____________________________
Name: ___________________________
Title: ___________________________
12
<PAGE>
EXHIBIT A
FORM OF THIRD AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE>
EXHIBIT B
BYLAWS
<PAGE>
EXHIBIT C
FORM OF OPINION OF COOLEY GODWARD CASTRO HUDDLESON & TATUM
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of California.
2. All corporate action on the part of the Company, its directors and
shareholders necessary to authorize the execution, delivery and performance of
the Agreement by the Company and the sale, issuance and delivery of the Series D
Preferred Stock and the shares of Common Stock issuable upon conversion of the
Series D Preferred Stock has been taken. The Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to limitations
on availability of equitable relief, including specific performance.
3. The Company has the requisite corporate power to own its property and
assets and to conduct its business as it is currently being conducted and, to
the best of our knowledge, Ls qualified as a foreign corporation to do business
and is in good standing in each jurisdiction in the United States in which the
ownership of its property or the conduct of its business requires such
qualification and where any statutory fines or penalties or any corporate
disability imposed for the failure to qualify would materially and adversely
affect the Company, its assets, financial condition or operations.
4. The Company's authorized capital stock consists of (a) forty million
(40,000,000) shares of Common Stock, of which 3,518,429 shares are issued and
outstanding, and (b) twenty-five million (25,000,000) shares of Preferred Stock,
15,808,190 of which are issued and outstanding, and seven million five hundred
forty-five thousand eighty-four (7,545,084) shares of which have been designated
Series D Preferred Stock, none of which are outstanding prior to the Closing. To
the best of our knowledge, except as set forth in the Agreement and the
Schedules attached thereto, there are no options, warrants, conversion
privileges, preemptive rights or other rights presently outstanding to purchase
any of the authorized but unissued capital stock of the Company.
5. The execution and delivery of the Agreement by the Company and the
issuance of the Series D Preferred Stock pursuant thereto does not violate any
provision of the Company's Restated Articles of Incorporation or Bylaws, and
does not constitute a material default under the provisions of any material
agreement known to us to which the Company is a party or by which it is bound,
and does not violate or contravene (a) any governmental statute, rule or
regulation (which is limited to the laws of the State of California and the
federal laws of the United States of America) applicable to the Company or
(b)any order, writ, judgment, injunction, decree, determination or award which
has been entered against the Company and of
1
<PAGE>
which we are aware, the violation or contravention of which would materially and
adversely affect the Company, its assets, financial condition or operations.
6. To the best of our knowledge, there is no action, proceeding or
investigation pending or overtly threatened against the Company before any court
or administrative agency that questions the validity of the Agreement or might
result, either individually or in the aggregate, in any material adverse change
in the assets, financial condition or operations of the Company.
7. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with, any regulatory authority or governmental
body in the United States (which is limited to the laws of the State of
California and the federal laws of the United States of America) required for
the consummation by the Company of the transactions contemplated by the
Agreement, have been made or obtained, except for notices required or permitted
to be filed with the Commissioner of Corporations and Securities of California
under Section 25102(f) of the California Corporations Code.
8. The Shares have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms of the Agreement. the
Shares will be validly issued, outstanding, fully paid and nonassessable.
2
<PAGE>
IN WITNESS WHEREOF, the foregoing Stock Purchase Agreement is hereby
executed as of the date first above written.
MEGABIOS CORP.
By: /s/ Benjamin F. McGraw III
-----------------------------
Name: Benjamin F. McGraw III
---------------------------
Title: President & CEO
---------------------------
PFIZER INC.
By: _____________________________
Name: ___________________________
Title: ___________________________
12
<PAGE>
IN WITNESS WHEREOF, the foregoing Stock Purchase Agreement is hereby
executed as of the date first above written.
MEGABIOS CORP.
By: _____________________________
Name: ___________________________
Title: ___________________________
PFIZER INC.
By: /s/ George M Milne, Jr.
------------------------------
Name: George M Milne, Jr.
----------------------------
Title: Vice President
----------------------------
12
<PAGE>
EXHIBIT 10.21
EXCLUSIVE LICENSE AGREEMENT
BETWEEN
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
AND
MEGABIOS CORP.
FOR
EXPRESSION OF CLONED GENES IN THE LUNG
BY AEROSOL AND LIPOSOME BASED DELIVERY
AND HIGH LEVEL TRANSGENE EXPRESSION
U.C. Case Nos 91-O51-2,-3, -4, &-5 and 91-281-1, -2, -4 & -5; 95-222-1
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
ARTICLE NO. TITLE PAGE
- ---------- ----- ----
<C> <S> <C>
Recitals.................................................. 1
1. Definitions............................................... 3
2. Grant..................................................... 8
3. License Issue and Milestone Fees.......................... 10
4. Royalties................................................. 12
5. Due Diligence............................................. 16
6. Progress and Royalty Reports.............................. 20
7. Books and Records......................................... 22
8. Life of the Agreement..................................... 23
9. Termination by The Regents................................ 23
10. Termination by Licensee................................... 24
11. Disposition of Patent Products On Hand Upon Termination... 25
12. Use of Names and Trademarks............................... 25
13. Limited Warranty.......................................... 26
14. Patent Prosecution and Maintenance........................ 28
15. Patent Marking............................................ 31
16. Patent Infringement....................................... 31
17. Indemnification and Insurance............................. 35
18. Notices................................................... 37
19. Assignability............................................. 38
20. Late Payments............................................. 38
21. Waiver.................................................... 38
22. Failure to Perform........................................ 39
23. Governing Laws............................................ 39
24. Foreign Government Approval or Registration............... 39
25. Export Control Laws....................................... 40
26. Force Majeure............................................. 40
27. Confidentiality........................................... 41
28. Miscellaneous............................................. 43
</TABLE>
<PAGE>
U.C. Case Nos. 91-051-2, -3, -4, & -5, 91-281-1, -2, -4 & -5; and 95-222-1
Exclusive License Agreement
for
Expression of Cloned Genes in the Lung
by Aerosol and Liposome Based Delivery
and High Level Transgene Expression
This license agreement ("Agreement") is effective this 9th day of May 1996,
--- ---
by and between The Regents of the University of California ("The Regents"), a
California corporation, having its statewide administrative offices at 300
Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 and Megabios Corp.
("Licensee"), a California corporation, having a principal place of business at
863 A Mitten Road, Burlingame, California 94010.
Recitals
--------
Whereas, Licensee sponsored research in the laboratory of Dr. Robert J. Debs
at The University of California at San Francisco under a 3 year research
agreement effective April 30, 1992;
Whereas, Licensee entered into an Option Agreement ("Option Agreement"),
having U.C. Agreement Control No. 92-11-0192, effective
<PAGE>
April 30, 1992 that allowed Licensee to evaluate its interest in taking a
license to any inventions arising under the research agreement:
Whereas, certain inventions useful for gene delivery and therapy in the lung
were made under the research sponsored by Licensee at the University of
California, San Francisco ("UCSF") by Dr. Robert J. Debs, Mr. Ning Zhu, and
others, and are claimed in Patent Rights defined below ("Inventions");
Whereas, The Licensee is a "small business firm" as defined in 15 U.S.C.
Section 632;
Whereas, Licensee delivered a notice, dated January 23, 1995, electing to
exercise the option granted under the Option Agreement;
Whereas, both parties recognize that royalties due under this Agreement will
be paid on pending patent applications and issued patents;
Whereas, The Regents agree to grant the following rights to Licensee so that
the products and other benefits derived from the Inventions can be enjoyed by
the general public.
--oo0oo--
2
<PAGE>
The parties agree as follows:
1. Definitions
- -- -----------
As used in this Agreement, the following terms will have the meaning set
forth below:
1.1 "Patent Rights" means all U.S. patents and patent applications and
corresponding foreign patents and patent applications related to Inventions
assigned to The Regents, and in the case of foreign patents and patent
applications, those requested under Paragraph 14.4, including any reissues,
extensions, substitutions, continuations, divisions, and continuations-in-part
applications (only to the extent, however, that claims in the continuations-in-
part applications are entitled to the priority filing date of the parent patent
application) relating to any subject matter claimed in or covered by any of the
following:
1.1.1 U.S. Patent Application Serial Number[*
]
1.1.2 U.S. Patent Application Serial Number[*
]
1.1.3 U.S. Patent Application Serial Number[*
3
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
]
1.1.4 U.S. Patent Application Serial Number[*
]
1.1.5 U.S. Patent Application Serial Number[*
]
1.1.6 U.S. Patent Application Serial Number entitled "Transfection
of Lung Via Aerosolized[*
]
1.1.7 U.S. Patent Application Serial Number[*
]
1.1.8 U.S. Patent Application Serial Number[*
]
4
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
1.1.9 U.S. Patent Application Serial Number[*
]
1 .1.10 U.S. Patent Application Serial Number[*
]
1.1.11 any subject matter claimed in patent applications covering
University of California case file disclosure number[*
]
1.2 "Patent Products" means:
1.2.1 any kit, composition of matter, material, or product;
1.2.2 any kit, composition of manor, material, or product to be used
in a manner requiring the performance of the Patent Method; or
1.2.3 any kit, composition of matter, material, or product
produced by the Patent Method;
to the extent that the manufacture, use, or sale of such kit composition of
matter, material or product, in a particular country, would be covered by or
infringe, but for the license granted to Licensee pursuant to this Agreement.
5
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
an unexpired claim of an issued patent or a claim of a patent application under
Patent Rights in that country in which such patent has issued or application is
pending. This definition of Patent Products also includes a service either used
by Licensee or provided by Licensee to its customers when such service requires
the practice of the Patent Method.
1.3 "Patent Method" means any process or method covered by the claims of a
patent application or patent within Patent Rights, the use or practice of which
would be covered by or infringe in a particular country, but for the license
granted to Licensee pursuant to this Agreement an unexpired claim of an issued
patent or a pending claim of a patent application within Patent Rights in that
country in which the Patent Method is used or practiced.
1.4 "Net Sales" means the gross invoice prices from the sale of Patent
Products by Licensee, an Affiliate, a Joint Venture or a sublicensee to
independent third parties for cash or other forms of consideration in accordance
with Generally Acceptable Accounting Principles limited to the following
deductions (if not already deducted from the gross invoice prices): (a)
allowances (actually paid and limited to rejections, returns, and prompt payment
and volume discounts granted to customers of Patent Products, whether in cash or
Patent Products in lieu of cash); (b) freight, transport packing, insurance
charges associated with transportation; and (c) taxes,
6
<PAGE>
tariff, or import/export duties based on sales when included in gross sales, but
not value-added taxes or taxes assessed on income derived from such sales. Where
Licensee distributes Patent Products for end use to itself, an Affiliate, a
Joint Venture, or a sublicensee, then such distribution will be considered a
sale at list price normally charged to independent third parties, and The
Regents will be entitled to collect a royalty on such sale in accordance with
Article 4 (Royalties). Sales of Patent Products for use in research and
development, including human clinical trials, shall not be included within "Net
Sales."
1.5 "Affiliate(s)" of Licensee means any entity which, directly or
indirectly, controls Licensee, is controlled by Licensee, or is under common
control with Licensee ("control" for these purposes being defined as the actual,
present capacity to elect a majority of the directors of such affiliate, or if
not, the capacity to elect the members that control fifty percent (50%) of the
outstanding stock or other voting rights entitled to elect directors) provided,
however, that in any country where the local law will not permit foreign equity
participation of a majority, then an "Affiliate" will include any company in
which Licensee will own or control, directly or indirectly, the maximum
percentage of such outstanding stock or voting rights permitted by local law.
Each reference to Licensee herein will be meant to include its Affiliates.
7
<PAGE>
1.6 "Joint Venture" means any separate entity established pursuant to an
agreement between a third party and Licensee to constitute a vehicle for a joint
venture, in which the separate entity manufactures, uses, purchases, sells, or
acquires Patent Products from Licensee. Each reference to Licensee herein will
be meant to include its Joint Venture(s).
2. Grant
- -- -----
2.1 Subject to the limitations set forth in this Agreement, The Regents
hereby grants to Licensee exclusive licenses under Patent Rights relating to
Sub-paragraphs 1.1.1 to 1.1.10 to make, have made, use, import, offer for sale,
and sell Patent Products and to practice the Patent Method in the United States
and all countries where Patent Rights exist as designated by Licensee pursuant
to Paragraph 14.4.
2.2 Subject to the limitations set forth in this Agreement, The Regents
hereby grants to Licensee exclusive licenses in the undivided interest of The
Regents in the Patent Rights relating to Sub-paragraph 1.1.11 to make, have
made, use, import, offer for sale, and sell Patent Products and to practice the
Patent Method in the United States and all countries where Patent Rights exist
as designated by Licensee pursuant to Paragraph 14.4.
2.3 The Regents also grants to Licensee the right to issue sublicenses to
third parties to make, have made, use, import, offer for sale,
8
<PAGE>
and sell Patent Products and to practice the Patent Method, provided Licensee
retains current exclusive rights thereto under this Agreement prior to the grant
at the sublicense. Throughout the term of each such sublicense, Licensee shall
ensure compliance with, to the extent applicable, all of the rights due to The
Regents contained in this Agreement, including payment of royalties as provided
for in Article 4. (Royalties).
2.4 Subject to Paragraph 6.4 herein, Licensee will notify The Regents of
each sublicense granted hereunder and provide The Regents with a summary of the
major non-financial terms of each sublicense. Licensee will carry out and
guarantee the collection and payment from sublicensees of all royalties due The
Regents as set forth in Paragraph 4.1 herein. Licensee will require
sublicensees to provide it with progress and royalty reports in accordance with
the provisions herein, and Licensee will collect and deliver to The Regents all
such reports due from sublicensees.
2.5 Upon termination of this Agreement for any reason (including
termination under Paragraph 5.5 or any termination that might result from the
institution of any proceeding by or against Megabios in bankruptcy), or should
Licensee retain a non-exclusive license to any patent or patent application
pursuant to Paragraphs 5.4 and 5.5 herein, Licensee agrees that it will assign
to The Regents all sublicense agreements entered into by Licensee and its
sublicensees and The Regents agree to assume such
9
<PAGE>
assigned sublicenses. The Regents will not be bound by duties or obligations
contained in sublicenses that are not contained in this Agreement. The Regents
will not be bound by duties extending beyond this Agreement. This Paragraph 2.5
shall not apply to any sublicensee whose actions or omissions caused this
Agreement to be terminated by The Regents pursuant to Paragraph 9.1.
2.6 Nothing in this Agreement will be deemed to limit the right of The
Regents to publish any and all technical data resulting from any research
performed by The Regents relating to the Inventions and to make and use the
Inventions, Patent Product(s), Patent Method(s), and associated technology
solely for educational and non-commercial research purposes.
3. License Issue and Milestone Fees
- -- --------------------------------
3.1 As consideration for all the rights and licenses granted to Licensee,
Licensee will pay to The Regents a license issue fee of[*
]Dollars payable in three installments in the amounts and at the
times specified below:
3.1.1 $[* ]to be paid to The Regents within seven (7)
days after the execution of this Agreement by Licensee:
10
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
3.1.2[* ]to be paid to The Regents on or before
June 15th, 1997;
3.2 Licensee shall pay to The Regents milestone fees in the amounts and
upon the events specified below within 60 days after the occurrence of each
such event:
3.2.1 $[*][*]in the United States with the first Patent Product;
3.2.2 $[*][*]in the United States for the first Patent Product;
3.2.3 $[*][*]in the United States with the second Patent Product;
3.2.4 $[*][*]for the first Patent Product;
3.2.5 $[*][*]in the United States for the second Patent Product;
3.2.6 $[*][*]for the second Patent Product.
11
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
3.3 The fees and payments set forth in Paragraphs 3.1 and 3.2 above
are[* ]
4. Royalties
- -- ---------
4.1 As further consideration for all the rights and licenses granted to
Licensee, Licensee will also pay to The Regents an earned royalty at the rate of
[* ]based on the Net Sales of Patent Products.
4.2 Paragraphs 1.1, 1.2, and 1.3 define Patent Rights, Patent Products,
and Patent Method so that royalties will be payable on Patent Products and
Patent Methods covered by both issued patents and pending patent applications
included within Patent Rights. Earned royalties will accrue in each country for
the duration of Patent Rights in that country and will be payable to The Regents
when Patent Products are invoiced, or if not invoiced, when delivered to a third
party or to itself, an Affiliate, Joint Venture, or sublicensee in the case
where such delivery of the Patent Product to Licensee, an Affiliate, Joint
Venture, or sublicensee is intended for end use.
4.3 To the extent royalties are paid for Patent Products that have been
invoiced, but for which payment is not actually received by the seller within a
reasonable time, Licensee may credit the amount of such royalties
12
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
against future payments at the time Licensee writes-off as a bad debt monies due
it in association with such royalties.
4.4 Royalties accruing to The Regents will be paid to The Regents
quarterly on or before the following dates of each calendar year:
March 15 for the calendar quarter ending December 31
June 15 for the calendar quarter ending March 31
September 15 for the calendar quarter ending June 30
December 15 for the calendar quarter ending September 30
Each such payment will be for royalties which accrued up to Licensee's most
recently completed calendar quarter.
4.5 In the event that the amount of earned royalties provided for in
Paragraph 4.1 and based on Net Sales of Patent Products in the calendar years
set forth below is less than the corresponding minimum royalty amounts, Licensee
shall pay the amount of the difference to The Regents by March 15 of the
following calendar year:
[*]
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
In each succeeding calendar year after the year[* ]Licensee will pay a
minimum annual royalty of[* ]and thereafter for the life of this
Agreement.
4.6 All monies due The Regents will be payable in United States funds
collectible at par in San Francisco, California. When Patent Products are sold
for monies other than United States dollars, the earned royalties will first be
determined in the foreign currency of the country in which such Patent Products
were sold and then converted into equivalent United States funds. The exchange
rate will be that rate quoted in the Wall Street Journal on the last business
day of the reporting period.
4.7 Earned royalties based on sales of Patent Products occurring in any
country outside the United States will not be reduced by any taxes, fees, or
other charges imposed by the government of such country, except those taxes,
fees, and other charges allowed under the provisions of Paragraph 1.4 herein.
Notwithstanding the foregoing, if The Regents is required to pay taxes on its
royalties under the laws of any country, then Licensee will pay such amounts to
the proper authorities, withhold such amounts from royalties paid to The
Regents, and provide The Regents with all documents and assistance reasonably
necessary to enable The Regents to recover all or part of such amounts pursuant
to any double taxation treaty or otherwise. Licensee will also be responsible
for all bank transfer charges.
14
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
4.8 Should the claims in any of the Patent Rights be narrowed to the
extent that it is not obvious that Licensee is infringing the narrower Patent
Rights and Licensee has the option of either making, using or selling certain
Licensed Products within the scope of the narrower claims or making, using or
selling equivalent non-infringing products, The Regents will enter into good-
faith negotiations to appropriately reduce the royalty rate set forth in
Paragraph 4.1, provided that in no case will the royalty rate be less than[*
]based on the Net Sales of Patent Products.
The Regents will lower the minimum annual royalties by a percent amount equal to
the reduction in the royalty rate. In no case, however, will the minimum annual
royalties due The Regents fall below[* ]of the amounts listed in Paragraph
4.5 above. Further, Licensee must make a request to The Regents in writing for
such a reduction in the royalty rate and reduced minimum annual royalty payment
sixty (60) days prior to the beginning of the first calendar year in which such
reductions would apply.
4.9 Notwithstanding the provisions of Article 26 (Force Majeure), if at
any time legal restrictions prevent prompt remittance of part or all royalties
owed to The Regents by Licensee with respect to any country where a Patent
Product is sold or distributed, Licensee will convert the amount owed to The
Regents into United States funds and will pay The Regents directly from another
source of funds for the amount impounded.
15
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
4.10 In the event that any patent or any claim thereof included within the
Patent Rights is held invalid in a final decision by a court of competent
jurisdiction and from which no appeal has or can be taken, all obligation to pay
royalties based on, such patent or claim or any claim patentably indistinct
therefrom will cease as of the date of such final decision. Licensee will not,
however, be relieved from paying any royalties that accrued before such decision
or that are based on another patent or claim that has not expired or that is not
involved in such decision.
5. Due Diligence
- -- -------------
5.1 Licensee, upon execution of this Agreement, will diligently proceed
with the development, manufacture and sale of Patent Products in the United
States, France, Germany, Italy, and the United Kingdom, and will earnestly and
diligently market the same within a reasonable time after execution of this
Agreement and in quantities sufficient to meet the market demands therefor at
the price(s) established by Licensee or it sublicensee(s) in accordance with
applicable laws and regulations.
5.2 Licensee will be entitled to exercise prudent and reasonable business
judgment in the manner in which it meets its due diligence obligations
hereunder. In no case, however, will Licensee be relieved of its obligations to
meet the due diligence provisions of this Article 5. (Due
16
<PAGE>
Diligence). It is understood and agreed by The Regents, that, notwithstanding
anything to the contrary in this Agreement, the activities of Licensee's
sublicensees in the development, manufacture and sale of Patent Products will be
deemed activities of Licensee in meeting its obligations under this Article 5.
5.3 Licensee will obtain all necessary governmental approvals in each
country in which Patent Products are manufactured, used or sold.
5.4 If Licensee is unable to perform any of the following:
5.4.1 [* ]with the first Patent Product on
or before[* ];and
5.4.2 [*
]in the United States for the first Patent Product on or
before[* ];and
5.4.3 [* ]with the second Patent Product
on or before[* ];and
5.4.4 [*
]for the first Patent
Product on or before[* ]and
5.4.5 [*
]in the United States for the second Patent
Product on or before[* ]and
5.4.6 [*
]for the second Patent
Product on or before[* ]and
5.4.7 [*
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
]and
5.4.8[*
]
then The Regents will have the right and option to terminate this Agreement or
reduce Licensee's exclusive licenses to non-exclusive licenses in accordance
with Paragraph 5.5 hereof; provided, however, that if the first Patent Product
does not meet the diligence milestones referenced in subparagraphs[*
]but the second or a later Patent Product meets such diligence milestones,
Licensee will be deemed to be in compliance with this Paragraph 5.4 and
Licensee's licenses under Article 2 shall remain exclusive and in full force and
effect. The exercise of this right and option by The Regents supersedes the
rights granted in Article 2. (Grant).
5.5 To exercise either the right to terminate this Agreement or reduce the
exclusive licenses granted to Licensee to non-exclusive licenses for lack of
diligence required in this Article 5. (Due Diligence), The Regents will give
Licensee written notice of the deficiency. Licensee thereafter has 60 (sixty)
days to cure the deficiency. Licensee shall be entitled to extend each of the
dates set forth in Subparagraphs[* ]which have
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
not been met by Licensee by up to[*]additional years upon payment to The Regents
of a fee for each year a date is extended. The amounts of the extension fees due
The Regents for[*
]
and such extensions will be automatically granted by The Regents provided that
the corresponding extension-fee payment is received by The Regents within thirty
(30) days of Licensee's receipt of written notice from The Regents of Licensee's
deficiency. Each extension shall serve to extend by[* ]not just the
immediately applicable deadline, but all subsequent milestone deadlines
applicable to such Patent Product. If The Regents has not received the payment
for the[* ] extension within the thirty (30) day period or written
tangible evidence satisfactory to The Regents that the deficiency has been cured
by the end of the sixty (60) day period, then The Regents may, at its option,
terminate this Agreement or reduce the exclusive licenses granted to Licensee to
non-exclusive licenses by giving written notice to Licensee. These notices will
be subject to Article 18. (Notices). Notwithstanding the foregoing, if
Licensee's failure pertains to the second Patent Product, Licensee shall be
entitled to retain its exclusive licenses with respect to the first Patent
Product.
19
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
6. Progress and Royalty Reports
- -- ----------------------------
6.1 Beginning June 15, 1996 and semi-annually thereafter, Licensee will
submit to The Regents a progress report covering the activities of Licensee
related to the development and testing of all Patent Products and the obtaining
of the governmental approvals necessary for marketing. These progress reports
will be provided to The Regents to cover the progress of the research and
development of the Patent Products until their first commercial sale in the
United States. Notwithstanding the foregoing, Licensee shall not be required to
include in any reports to The Regents hereunder any confidential or proprietary
scientific information disclosed to Licensee by its sublicensees.
6.2 The progress reports submitted under Paragraph 6.1 will include, but
not be limited to, the following topics so that The Regents may be able to
determine the progress of the development of Patent Products and may also be
able to determine whether or not Licensee has met its diligence obligations set
forth in Article 5. (Due Diligence) above:
. summary of work completed
. key scientific discoveries
. summary of work in progress
. current schedule of anticipated events or milestones
20
<PAGE>
. the introduction date of Patent Products to the market
. activities of sublicensees, if any.
6.3 Licensee will also report to The Regents the date of its first
commercial sale of a given Patent Product in a given country in the progress and
royalty report immediately following the first commercial sale of a Patent
Product in a such country.
6.4 After the first commercial sale of a Patent Product, Licensee will
provide The Regents with quarterly royalty reports to The Regents on or before
each March 15, June 15, September 15 and December 15 of each year. Each such
royalty report will cover the most recently completed calendar quarter (October
through December, January through March, April through June, and July through
September) and will show:
6.4.1 the gross sales and Net Sales of Patent Products sold by
Licensee and reported to Licensee as sold by its
sublicensees during the most recently completed calendar
quarter;
6.4.2 the names and number of Patent Products sold or distributed
by Licensee and reported to Licensee as sold or distributed
by its sublicensees;
6.4.3 the royalties, in U.S. dollars, payable hereunder with
respect to Net Sales; and
6.4.4 the exchange rates used, if any.
21
<PAGE>
6.5 If no sales of Patent Products have been made during any reporting
period after the first commercial sale of a Patent Product, then a statement,
signed and dated by Licensee, is required.
7. Books and Records
- -- -----------------
7.1 Licensee will keep books and records accurately showing all Patent
Products manufactured, used, and/or sold under the terms of this Agreement. Such
books and records will be preserved for at least three (3) years from the date
of the royalty payment to which they pertain and will be open to inspection by a
certified public accountant designated by The Regents and reasonably acceptable
to Licensee at reasonable times to determine the accuracy of the books and
records and to determine compliance by Licensee with the terms of this
Agreement. Records regarding sales in any given period shall be subject to
inspection only once. All inspections shall be conducted under reasonable
confidentiality restrictions.
7.2 The fees and expenses of representatives performing such an
examination will be borne by The Regents. However, if an error in royalties of
more than five percent (5%) of the total royalties due for any year is
discovered, then the fees and expenses of these representatives will be borne by
Licensee.
22
<PAGE>
8. Life of the Agreement
- -- ---------------------
8.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement will be
in force from the effective date recited on page one and will remain in effect
for the life of the last-to-expire patent licensed under this Agreement, or
until the last patent application licensed under this Agreement is abandoned,
whichever is later.
8.2 Any termination of this Agreement will not affect the rights and
obligations set forth in the following Articles:
Article 7 Books and Records
Article 11 Disposition of Patent Products on Hand Upon
Termination
Article 12 Use of Names and Trademarks
Paragraph 14.6 Patent Prosecution and Maintenance
Article 17 Indemnification and Insurance
Article 22 Failure to Perform
Article 27 Confidentiality
9. Termination by The Regents
- -- --------------------------
9.1 If Licensee should materially violate or materially fail to perform
any term or covenant of this Agreement (other than Article 5), then The Regents
may give written notice of such default ("Notice of Default") to
23
<PAGE>
Licensee. If Licensee should fail to repair such default within sixty (60) days
of the date of such notice, The Regents will have the right to terminate this
Agreement and the licenses herein by a second written notice ("Notice of
Termination") to Licensee. If a Notice of Termination is sent to Licensee, this
Agreement will automatically terminate on the date such notice is delivered.
Such termination will not relieve Licensee of its obligation to pay any royalty
or license fees owing at the time of such termination and will not impair any
accrued right of The Regents. These notices will be subject to Article 18.
(Notices).
10. Termination by Licensee
- --- -----------------------
10.1 Licensee will have the right at any time to terminate this
Agreement in whole or as to any portion of Patent Rights by giving notice in
writing to The Regents. Such Notice of Termination will be subject to Article
18. (Notices) and termination of this Agreement will be effective sixty (60)
days from the effective date of such notice.
10.2 Any termination pursuant to the above paragraph will not relieve
Licensee of any obligation or liability accrued hereunder prior to such
termination or rescind anything done by Licensee or any payments made to The
Regents hereunder prior to the time such termination becomes effective, and such
termination will not affect in any manner any accrued rights or
24
<PAGE>
obligations of The Regents or Licensee arising under this Agreement prior to
such termination.
11. Disposition of Patent Products On Hand Upon Termination
- --- -------------------------------------------------------
11.1 Upon termination of this Agreement, Licensee will have the
privilege of disposing all previously made or partially made Patent Products,
but no more, within a period of one hundred and twenty (120) days, provided,
however, that the sale of such Patent Products will be subject to the terms of
this Agreement including, but not limited to the payment of royalties on the Net
Sales of Patent Products at the rates and at the times provided herein and the
rendering of reports in connection therewith.
12. Use of Names and Trademarks
- --- ---------------------------
12.1 Nothing contained in this Agreement will be construed as conferring
any right to use in advertising, publicity, or other promotional activities any
name, trade name, trademark, or other designation of either party hereto by the
other (including contraction, abbreviation or simulation of any of the
foregoing). Unless required by law, the use by Licensee of the name, "The
Regents of the University of California" or the name of any campus of the
University of California is expressly prohibited.
25
<PAGE>
12.2 It is understood that The Regents will be free to release to the
inventors and senior administrative officials employed by The Regents the terms
and conditions of this Agreement upon their request. If such release is made,
The Regents will request that such terms and conditions shall be treated in
accordance with the terms of Article 27 (Confidentiality) by such individuals,
but, in any event, The Regents shall remain responsible for continued compliance
with Article 27 (Confidentiality) with respect to disclosure of such information
by such individuals. It is further understood that should a third party inquire
whether a license to Patent Rights is available, The Regents may disclose the
existence of this Agreement and the extent of the grant in Article 2. (Grant) to
such third party, but will not disclose the name of Licensee or any of the
financial terms of this Agreement, except where The Regents is required to
release such information under either the California Public Records Act or other
applicable law.
13. Limited Warranty
- --- ----------------
13.1 The Regents warrants to Licensee that it has the lawful right to grant
this license and that such grant does not conflict with any other grant of
rights by The Regents.
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<PAGE>
13.2 Except as set forth in Paragraph 13.1 above, this license and the
associated Inventions are provided WITHOUT WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESSED OR IMPLIED.
THE REGENTS MAKES NO REPRESENTATION OR WARRANTY THAT THE INVENTIONS, PATENT
PRODUCTS, OR PATENT METHOD WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY
RIGHT.
13.3 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL; SPECIAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF THE
INVENTIONS, PATENT METHOD, OR PATENT PRODUCTS.
13.4 Nothing in this Agreement will be construed as:
13.4.1 a warranty or representation by The Regents as to the
validity, enforceability, or scope of any Patent Rights;
or
13.4.2 a warranty or representation that anything made, used,
sold or otherwise disposed of under any license granted
in this Agreement is or will be free from infringement
of patents of third parties; or
13.4.3 an obligation to bring or prosecute actions or suits
against third parties for patent infringement except as
provided in Article 16. (Patent Infringement); or
13.4.4 conferring by implication, estoppel or otherwise any
license or rights under any patents of The Regents other
than Patent Rights as defined herein, regardless of
whether such patents are dominant or subordinate to
Patent Rights; or
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<PAGE>
13.4.5 an obligation to furnish any know-how not provided in
Patent Rights.
14. Patent Prosecution and Maintenance
- --- ----------------------------------
14.1 The Regents will diligently prosecute and maintain the United
States and foreign patents comprising Patent Rights and any interference or
opposition proceedings relative to Patent Rights, using counsel of its choice.
In the event that The Regents changes counsel for any reason, The Regents shall
replace such counsel with new counsel of its choice that is reasonably
acceptable to Licensee, provided, however, that if Licensee rejects the choice
of new counsel by The Regents three times consecutively (i.e., three different
new attorneys), then The Regents shall be free, in its sole discretion, to
choose an attorney of its choice. The Regents will promptly provide Licensee
with copies of all relevant documentation so that Licensee may be currently and
promptly informed and apprised of the continuing prosecution and so that
Licensee may comment upon such documentation sufficiently in advance of any
initial deadline for filing a response, provided, however, that if Licensee has
not commented upon such documentation prior to the initial deadline for filing a
response with the relevant government patent office, The Regents will be free to
respond appropriately without waiting for Licensee's comments, if any. Both
parties hereto will keep this documentation in confidence in accordance with the
provisions of Article 27.
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<PAGE>
(Confidentiality) herein. The Regents' counsel will take instructions only from
The Regents.
14.2 The Regents will use all reasonable efforts to amend any patent
application to include claims requested by Licensee and required to protect the
Patent Products contemplated to be sold or Patent Method to be practiced under
this Agreement.
14.3 The Regents and Licensee will cooperate in applying for an extension
of the term of any patent included within Patent Rights, if appropriate, under
the Drug Price Competition and Patent Term Restoration Act of 1984. Licensee
will prepare all such documents, and The Regents will execute such documents and
will take such additional action as Licensee may reasonably request in
connection therewith.
14.4 The Regents will, at the request of Licensee, file, prosecute, and
maintain patent applications and patents covered by Patent Rights in foreign
countries if available. Licensee must notify The Regents within seven (7) months
of the filing of the corresponding United States application of its decision to
request The Regents to file foreign counterpart patent applications. This
notice concerning foreign filing must be in writing and must identify the
countries desired. The absence of such a notice from Licensee to The Regents
within the seven (7) month period will be considered an election by Licensee
not to request The Regents to secure
29
<PAGE>
foreign patent rights on behalf of Licensee. The Regents will have the right to
file patent applications at its own expense in any country Licensee has not
included in its list of desired countries, and such applications and resultant
patents, it any, will not be included in the licenses granted under this
Agreement.
14.5 All costs incurred after the effective date of this Agreement for
preparing, filing, prosecuting and maintaining all United States and foreign
patent applications and patents covered by Patent Rights in Paragraph 1.1 in
accordance with this Article 14 will be borne by Licensee. The parties
acknowledge that patent preparation and prosecution costs incurred by The
Regents for patent applications claiming Inventions prior to the execution of
this Agreement have been paid or are to be paid by Licensee. The costs of all
interferences and oppositions will be considered prosecution expenses and also
will be borne by Licensee. Licensee will reimburse The Regents for all costs and
charges covered by this Paragraph 14.5 within thirty (30) days following receipt
of an itemized invoice from The Regents for same.
14.6 Licensee's obligation to underwrite and to pay patent filing costs
(and related costs), prosecution and maintenance costs will continue for costs
incurred until three (3) months after receipt by either party of a Notice of
Termination. Licensee will reimburse The Regents for all patent costs incurred
during the term of the Agreement and for three (3) months
30
<PAGE>
thereafter. Licensee may with respect to any particular patent application or
patent terminate its obligations with the patent application or patent in any or
all designated countries upon three (3) months written notice to The Regents.
The Regents will use its best efforts to curtail the associated patent costs
after such notice is received from Licensee. The Regents may continue
prosecution and/or maintenance of such application(s) or patent(s) at its sole
discretion and expense, provided, however, that Licensee will have no further
right or licenses thereunder.
15. Patent Marking
- --- --------------
15.1 Licensee will mark all Patent Products made, used or sold under the
terms of this Agreement, or their containers, in accordance with the applicable
patent marking laws.
16. Patent Infringement
- --- -------------------
16.1 In the event that Licensee learns of the substantial infringement of
any patent licensed under this Agreement, Licensee will call The Regents'
attention thereto in writing and will provide The Regents with reasonable
evidence of such infringement. Both parties to this Agreement agree that during
the period and in a jurisdiction where Licensee has exclusive rights under this
Agreement, neither will notify a third party of the infringement of
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<PAGE>
any of Patent Rights without first obtaining consent of the other party, which
consent will not be unreasonably withheld. Both parties will use their best
efforts in cooperation with each other to terminate such infringement without
litigation.
16.2 Licensee may request that The Regents take legal action against the
infringement of Patent Rights. Such request must be made in writing and must
include reasonable evidence of such infringement and damages to Licensee. If the
infringing activity has not been abated within ninety (90) days following the
effective date of such request, The Regents will have the right to elect to:
16.2.1 commence suit on its own account; or
16.2.2 refuse to participate in such suit.
16.3 The Regents will give notice of its election in writing to Licensee by
the end of the one-hundredth (100th) day after receiving notice of Licensee's
request to bring suit; provided, however, that if suit must be brought earlier
pursuant to any applicable rule, regulation or policy of a governmental
authority and The Regents are made aware of such rule, regulation, policy or
governmental authority, then The Regents will give notice of its election
sufficiently in advance of any applicable deadline to permit suit to be brought
by The Regents or Licensee. In particular, counsel of The Regents will make
his/her best efforts either to obtain permission from
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<PAGE>
The Regents to enter into such law suit or to provide such notice to Licensee
within thirty (30) days of receiving any notice of the filing of an Abbreviated
New Drug Application (ANDA) for a Patent Product. Licensee may thereafter bring
suit for patent infringement if and only if The Regents elects not to commence
suit and if the infringement occurred during the period and in a jurisdiction
where Licensee had exclusive rights under this Agreement.
16.4 If suit is brought solely by The Regents, then Licensee may bring a
second, separate suit following the conclusion of any suit brought by The
Regents unless The Regents provides reasonable institutional or conflict-of-
interest grounds for precluding Licensee from filing a second, separate suit. In
such event Licensee shall not have the right to file such separate suit.
16.5 If either party elects to bring suit in accordance with this Article 16,
the other party may thereafter join suit at its own expense unless The Regents
provides reasonable institutional or conflict-of-interest grounds for precluding
Licensee from joining a suit filed solely by The Regents. In such event,
Licensee shall not have the right to join such suit.
16.6 If the parties bring suit jointly (seeking damages on behalf of both
parties) the parties will control the suit jointly, but, if the parties take
differing positions on the issue of validity of the Patent Rights, The Regents
may control the resolution of such issue. In such event, the parties will share
expenses equally, and all recoveries, whether through settlement or
33
<PAGE>
litigation, will be allocated in the following order: i) to each party
reimbursement in equal amounts of the attorneys' costs, fees, and other related
expenses to the extent each party paid for such costs, fees and expenses until
all such costs, fees, and expenses are reimbursed for each party; ii) all
remaining amounts other than enhanced damages will be allocated based on good
faith negotiations between The Regents and Licensee, taking into account lost
royalties due The Regents, lost profits due Licensee, or any other damages
theory utilized by the court; iii) enhanced damages will be paid one-half to The
Regents and one-half to Licensee.
16.7 If either party brings suit alone, then the other party will cooperate
in the proceedings but at the expense of the party on account of whom suit is
brought. Such litigation will be controlled by the party bringing the suit,
except that The Regents may be represented by counsel of its own choice in any
suit brought by Licensee. All recoveries (whether through settlement or
litigation) from such action will belong to the party bringing suit, provided
that neither party recovers damages suffered by the other or is compensated for
licensing rights that may only be granted to an infringing third party pursuant
to the terms and conditions of this Agreement. In case of The Regents decision
not to require an injunction or its failure to succeed on a claim for an
injunction, such non-requirement or failure shall not be deemed to be a license
grant.
34
<PAGE>
17. Indemnification and Insurance
- --- -----------------------------
17.1 Licensee will (and will require its sublicensees to) indemnify, hold
harmless, and defend The Regents, its officers, employees, and agents; the
sponsors of the research that led to the Inventions; the inventors of any
invention covered by patents or patent applications in Patent Rights (including
the Patent Products and Patent Method contemplated thereunder) and their
employers against any and all claims, suits, losses, damages, costs, fees, and
expenses resulting from or arising out of exercise of this license or any
sublicense. This indemnification will include, but will not be limited to any
product liability.
17.2 The Regents will promptly notify Licensee in writing of any claim or
suit which The Regents become aware of and which may be subject to the
provisions of this Article 17 (Indemnification and Insurance). Licensee will
have the sole right to control and settle any such claims or suits, provided
that The Regents' written consent, not to be unreasonably withheld, shall be
required for any settlement adversely affecting The Regents' rights under this
Agreement. The Regents shall cooperate as reasonably requested by Licensee in
handling any such claim or suit. Licensee shall reimburse The Regents for out-
of-pocket expenses incurred providing such assistance. Licensee will keep The
Regents informed on a
35
<PAGE>
current basis of its defense of any claims pursuant to this Article 17.
(Indemnification and Insurance).
17.3 Licensee, at its sole cost and expense, will insure its activities in
connection with the work under this Agreement and obtain, keep in force, and
maintain insurance (or an equivalent program of self insurance) as follows:
17.3.1 Comprehensive or Commercial Form General Liability Insurance
(contractual liability included) with limits as follows:
(a) Each Occurrence............................[* ]
(b) Products/Comprehensive Operations Aggregate[* ]
(c) Personal Injury............................[* ]
(d) General Aggregate (commercial form only)...[* ]
It should be expressly understood, however, that the coverages and limits
referred to under the above will not in any way limit the liability of
Licensee under Paragraph 17.1. Licensee will furnish The Regents with
certificates of insurance evidencing compliance with all such requirements.
Such certificates will:
(a) Provide for thirty (30) day advance written notice to The Regents
of any modification adversely affecting the rights of The Regents
hereunder.
(b) Indicate that The Regents has been endorsed as an additional
Insured under the coverages referred to under the above.
(c) Include a provision that the coverages will be primary and will
not participate with nor will be excess over any valid
36
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
and collectable insurance or program of self-insurance carried or
maintained by The Regents.
18. Notices
- --- -------
18.1 Any notice or payment required to be given to either party will be
deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person, by express mail service or by facsimile (in
each case with receipt confirmed) or (b) five (5) days after mailing if mailed
by first-class certified mail, postage paid, to the respective addresses given
below, or to another address as it may designate by written notice given to the
other party.
In the case of Licensee: MEGABIOS CORP.
863A Mitten Road
Burlingame, CA 94010
Attention: Chief Executive Officer
In the case of The Regents: THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
1320 Harbor Bay Parkway, Suite 150
Alameda, California 94502
Attention: Terence Feuerborn
Executive Director
Research Administration
and Technology Transfer
Referring to: U.C. Case Nos. 91-051,
91-281 and 95-222
37
<PAGE>
19. Assignability
- --- -------------
19.1 This Agreement may be assigned only with the written consent of the
non-assigning party, not to be unreasonably withheld, provided, however, that
Licensee may assign this Agreement in connection with a merger, sale of assets
or other change of control transaction involving the entire line of business to
which this Agreement relates. This Agreement is binding upon and will inure to
the benefit of each party, its successors and permitted assigns.
20. Late Payments
- --- -------------
20.1 In the event royalty payments or fees or patent prosecution costs
are not received by The Regents when due, Licensee will pay to The Regents
interest charges at a rate of ten percent (10%) simple interest per annum. Such
interest will be calculated from the date payment was due until actually
received by The Regents. Acceptance by The Regents of any late payment interest
from Licensee under this Paragraph 20.1 will in no way affect the provision of
Article 21. (Waiver) herein.
21. Waiver
- --- ------
21.1 It is agreed that no waiver by either party hereto of any breach
or default of any of the covenants or agreements herein set forth will be deemed
a waiver as to any subsequent and/or similar breach or default.
38
<PAGE>
22. Failure to Perform
- --- ------------------
22.1 In the event of a failure of performance due under the terms of
this Agreement and if it becomes necessary for either party to undertake legal
action against the other on account thereof, then the prevailing party will be
entitled to reasonable attorney's fees in addition to costs and necessary
disbursements of attorneys.
23. Governing Laws
- --- --------------
23.1 THIS AGREEMENT WILL SE INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, excluding any choice of law rules that
would direct the application of the laws of another jurisdiction, but the scope
and validity of any patent or patent application will be governed by the
applicable laws of the country of such patent or patent application.
24. Foreign Government Approval or Registration
- --- -------------------------------------------
24.1 If this Agreement or any associated transaction is required by the
law of any nation to be either approved or registered with any governmental
agency, Licensee will assume all legal obligations to do so. Licensee will
notify The Regents if it becomes aware that this Agreement is subject to a
39
<PAGE>
United States or foreign government reporting or approval requirement. Licensee
will make all necessary filings and pay all costs including fees, penalties, and
all other out-of-pocket costs associated with such reporting or approval
process.
25. Export Control Laws
- --- -------------------
25.1 Licensee will observe all applicable United States laws and laws
in countries outside of the United States with respect to the transfer of Patent
Products and related technical data to countries outside the United States,
including, without limitation, the International Traffic in Arms Regulations
(ITAR) and the Export Administration Regulations.
26. Force Majeure
- --- -------------
26.1 The parties to this Agreement will be excused from any performance
required hereunder it such performance is rendered impossible or unfeasible due
to any acts of God, catastrophes, or other major events beyond their reasonable
control, including, without limitation, war, riot, and insurrection; laws,
proclamations, edicts, ordinances, or regulations; strikes, lock-outs, or other
serious labor disputes; and floods, fires, explosions, or other natural
disasters. When such events have abated, the parties' respective obligations
hereunder shall resume. However, any party to this
40
<PAGE>
Agreement will have the right to terminate this Agreement upon thirty (30) days'
prior written notice if either party is unable to fulfill its obligations under
this Agreement due to any of the causes mentioned above and such inability
continues for a period of one (1) year. Notices will be subject to Article 18.
(Notices).
27. Confidentiality
- --- ---------------
27.1 Licensee and The Regents respectively will treat and maintain the
other party's proprietary business, financial, patent prosecution, process,
technical, research, development, regulatory, marketing and sales information,
and other proprietary information and the terms of this Agreement ("Proprietary
Information") in confidence using at least the same degree of care as that party
uses to protect its own proprietary information of a like nature from the date
of disclosure until five (5) years after the date of termination of this
Agreement, provided that all Proprietary Information will be labeled or marked
confidential by the disclosing party, or if the Proprietary Information is
orally disclosed, it will be reduced to writing or some other physically
tangible form, marked and labeled as set forth above by the disclosing party and
delivered to the receiving party within thirty (30) days of the oral disclosure
as a record of the disclosure and the confidential nature thereof.
Notwithstanding the foregoing, Licensee and The Regents
41
<PAGE>
may use and disclose Proprietary Information to their employees, agents,
consultants, contractors, and, in the case of Licensee, its sublicensees,
provided that any such parties are bound by a like duty of confidentiality.
27.2 Nothing contained herein will in any way restrict or impair the right
of Licensee or The Regents to use, disclose or otherwise deal with any
Proprietary Information:
27.2.1 that recipient can demonstrate by written records was
previously known to it;
27.2.2 that is now, or becomes in the future, public knowledge
other than through acts or omissions of recipient;
27.2.3 that is lawfully obtained without restrictions by recipient
from sources independent of the disclosing party who have
the right to disclose such information;
27.2.4 that is required to be disclosed to a governmental entity or
agency in connection with seeking any governmental or
regulatory approval, or pursuant to the lawful requirement
or request of a governmental entity or agency;
27.2.5 that is furnished to a third party by the recipient with
similar confidentiality restrictions imposed on such third
party, as evidenced in writing; or
27.2.5 that The Regents is required to disclose pursuant to the
California Public Records Act or other applicable law.
27.3 Upon termination of this Agreement, Licensee and The Regents will
destroy or return to the disclosing party Proprietary Information received
42
<PAGE>
from the other in its possession within thirty (30) days following the effective
date of termination. Licensee and The Regents will provide each other, within
thirty (30) days following termination, with a written notice that Proprietary
Information has been returned or destroyed. Each party may, however, retain one
copy of Proprietary Information for archival purposes in nonworking files.
28. Miscellaneous
- --- -------------
28.1 The headings of the several sections are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
28.2 This Agreement will not be binding upon the parties until it has
been signed below on behalf of each party, in which event, it will be effective
as of the date recited on page one.
28.3 No amendment or modification hereof will be valid or binding upon
the parties unless made in writing and signed on behalf of each party.
28.4 This Agreement embodies the entire understanding of the parties and
will supersede all previous communications, representations or understandings,
either oral or written, between the parties relating to the subject matter
hereof. The Option Agreement specified in the Recitals in this Agreement and
effective April 30, 1992 is hereby expired.
43
<PAGE>
28.5 In case any of the provisions contained in this Agreement are held
to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability will not affect any other provisions hereof, but
this Agreement will be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
In witness whereof, both The Regents and Licensee have executed this
Agreement, in duplicate originals, by their respective officers hereunto duly
authorized, on the day and year hereinafter written.
MEGABIOS CORP: THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA:
By /s/BENJAMIN F. MCGRAW By /s/ ^^
----------------------- ------------------------------
(Signature) (Signature)
for
Name Benjamin F. McGraw Name: Terence A. Feuerborn
-----------------------
(Please Print)
Title President & CEO Title: Executive Director
---------------------- Research Administration
and Technology Transfer
Date May 9, 1996 Date
----------------------- ----------------------------
44
<PAGE>
AMENDMENT TO EXCLUSIVE LICENSE AGREEMENT
BETWEEN THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
AND MEGABIOS CORP., DATED MAY 9, 1996
This Amendment, effective as of the date of last signature below, amends
the Exclusive License Agreement between The Regents of the University of
California ("The Regents") and Megabios Corp. ("Megabios") effective May 9, 1996
("License AGreement").
Whereas Megabios desires to enter into a collaborative research and
license agreement with Eli Lilly and Company ("Lilly"), pursuant to which
Megabios will grant to Lilly a sublicense to its rights under the License
Agreement ("Lilly AGreement");
Now, therefore, the parties hereby agree as follows:
1. The terms and conditions of the License Agreement remain in full effect,
except to the extent expressly modified herein. All terms used herein shall have
the definitions set forth in the License Agreement unless expressly stated
otherwise.
2. Solely with respect to any Patent Product sold by Lilly, its Affiliate or
sublicense pursuant to the sublicense granted by Megabios to Lilly under the
Lilly Agreement, the parties agree to amend the License Agreement as follows:
a) Paragraph 1.4 ("Net Sales") shall be deleted and Section 1.16 of the
Lilly Agreement (attached hereto as Exhibit A) shall be substituted therefore;
b) the second and third sentences of Paragraph 4.6 shall be deleted and
Section 6.11 of the Lilly Agreement (attached hereto as Exhibit B) shall be
substituted therefore; and
c) Paragraph 6.4.1 shall be amended to delete the words "gross sales."
Megabios' sublicense to Lilly shall require the auditing and reporting rights
specified in Section 6.9 of the Lilly Agreement (attached hereto as Exhibit C).
THE REGENTS OF THE UNIVERSITY MEGABIOS CORP.
OF CALIFORNIA
By: /s/ Candace L. Voelker By: /s/ Benjamin H. McGraw
----------------------------- ------------------------------
Name: Candace L. Voelker Name: Benjamin H. McGraw III
--------------------------- ----------------------------
Title: Associate Director Title: Chairman, President and CEO
-------------------------- ----------------------------
Date: 5/15/97 Date: 14 May 1997
--------------------------- -----------------------------
<PAGE>
EXHIBIT A
Section 1.16. "Net Sales" means, with respect to a product [ * ]by LILLY
-------------
or a LILLY Affiliate or sublicensee to unrelated third parties for the Product
(or as the case may be under Section 6.4, gross amount invoiced by MEGABIOS or
MEGABIOS Affiliate or sublicensee), less the following [ * ].
a. Trade, quantity and cash discounts [ * ].
b. Discounts, refunds, rebates, chargebacks and retroactive price
adjustments [ * ].
c. Product returns and allowances for Product returns;
d. That portion of the sales value (determined by the same methods
described below for combination products) associated with [ * ].
e. Any tax [ * ]
f. Allowances for distribution expenses, [ * ]
g. Any other similar, reasonable and customary deductions which are: [ * ]
Such amounts shall be determined from the books and records of LILLY, its
Affiliates or sublicensees [ * ] In the event that LILLY, its Affiliate(s), or
sublicensee(s) distributes Products for commercial human therapeutic end use to
itself or to another Affiliate, or sublicensee for commercial human therapeutic
end use itself (e.g. an Affiliate hospital), then [ * ].
In the event the Product is sold as part of a combination products
including one or more active agents in addition to Product, the Net Sales of the
Product, for the purposes of determining royalty payments, shall be determined
by multiplying [ * ] In the event that such average sale price cannot be
determined for both the Product and the other product(s) separately, Net Sales
of Products shall be determined by multiplying [ * ] If neither the Product nor
the other product(s) are sold separately in finished form or the mechanics
provided above are otherwise inapplicable, Net Sales of Products shall be
determined [ * ].
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
EXHIBIT B
Section 6.11. Exchange Rates. All payments to be made by one party to the
------------- --------------
other under this Agreement shall be made in United States dollars. In the case
of sales outside the United States, the rate of exchange to be used in computing
the amount of currency equivalent in United States dollars due to the other
party shall be made using payor's then current standard exchange rate
methodology consistently applied for payor's own internal accounting purposes,
which methodology shall be in conformity with generally accepted accounting
principles. Attached as Appendix IV is a general description of the exchange
rate methodology that is currently employed by LILLY any change to such
methodology would be applied to LILLY on a global basis.
<PAGE>
Appendix IV
METHODOLOGY FOR CONVERTING FOREIGN SALES TO US DOLLARS
------------------------------------------------------
The following is a description of how Eli Lilly and Company converts sales in
foreign countries to US dollars for external reporting:
Sales are transmitted directly to our corporate headquarters at the end of every
month. Our sales in several countries are made in US dollars, but most are made
in local currency. These sales are converted to US dollars [ * ]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
EXHIBIT C
Section 6.9. Records. Within the term of this Agreement and within one (1)
------------ --------
year after its termination, the party receiving the royalty shall not more than
once each year have the right to have the royalty payor's independent certified
accountant inspect the royalty payer's records for any of the three (3)
preceding years for the purpose of determining the accuracy of royalty payments
including reviewing gross sales and the deductions described in Section 1.16 of
this Agreement. The independent certified accountant shall keep confidential any
information obtained during such inspection and shall report to the party
receiving the royalty only the information necessary to make an accurate
calculation of amounts of royalties due and payable. For avoidance of any doubt,
the parties acknowledge that the audit rights described under this Section 6.9
shall not require LILLY to obtain records from its Affiliates other than those
records that it regularly receives from such Affiliates, however, the
independent certified accountant may inspect the records that LILLY possesses
and the records that its Affiliates possess at their respective locations to the
extent described in this Section 6.9 of the Agreement. The receiving party shall
bear the expenses of such audit, provided that, in the event of material
underpayment (in excess of 5%) of any royalties owing hereunder, the paying
party shall bear the reasonable expenses of such audit, in addition to
reimbursement for such underpayment.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
EXHIBIT 10.22
RESEARCH AND LICENSE AGREEMENT
THIS RESEARCH AND LICENSE AGREEMENT ("Agreement"), effective as of the last
date signed ("Effective Date") by and between MEGABIOS CORP., a California
corporation having its principal place of business at 863A Mitten Road,
Burlingame, California 94010 ("MEGABIOS")
AND
ELI LILLY AND COMPANY, a corporation organized under the laws of the State
of Indiana having its principal place of business at the Lilly Corporate Center,
Indianapolis, Indiana, 46285 acting through its division Lilly Research
Laboratories ("LILLY").
Recitals
--------
1. LILLY is in the business of developing, manufacturing and marketing
pharmaceutical and animal health products.
2. LILLY has certain rights pertaining to the BRCA1 Gene.
3. MEGABIOS has expertise in lipid-based gene delivery and expression,
and in the production and pre-clinical development of gene-based therapeutics.
4. LILLY AND MEGABIOS desire to collaborate in research regarding
lipid-based gene delivery of the BRCA1 Gene.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter recited, the parties agree as follows:
Article I
---------
Definitions
-----------
Section 1.1. General. When used in this Agreement, each of the following
------------ -------
terms shall have the meaning set forth in this Article.
Section 1.2. "Affiliate" means (a) any corporation or business entity,
------------
other than Competitive Distributors, of which LILLY or MEGABIOS, at the time in
question, directly or indirectly owns or controls fifty percent (50%) or more of
the stock having the right to vote for directors thereof or otherwise controls
the management of the corporation or business entity, or (b) any corporation,
individual or business entity which now or hereafter directly or indirectly owns
or controls fifty percent (50%) or more of the stock of LILLY or MEGABIOS having
the right to vote for directors thereof. Competitive Distributors shall mean
entities, owned or directly or indirectly controlled by LILLY through ownership
of at least fifty percent (50%) of the stock normally entitled to vote for
election of directors, that purchase Products for resale and that also purchase
pharmaceutical products from entities unrelated to LILLY; provided such
purchases of Products are pursuant to arms' length transactions.
<PAGE>
-2-
Section 1.3. "BLA" means with respect to any particular Product, the
------------
Biological License Application, or equivalent, filed with the FDA pursuant
to the Food and Drug Cosmetic Act and the regulations thereunder and any
other authoritative material that interprets such Act with respect to that
Product, together with all additions, deletions and supplements thereto or
any similar filing necessary for marketing or commercialization.
Section 1.4. "BRCA1 Gene" means the nucleotide sequence [ * ].
------------
Section 1.5. "Delivery Technology" means technical information,
------------
inventions, materials, data and know-how that relate to Lipid-based gene
delivery systems.
Section 1.6. "Field" means the use of Lipid-based gene delivery systems
------------
for the delivery of BRCA1 Gene to human cells.
Section 1.7. "Formulation" means a specific formulation, developed in
------------
the course of the Project, of components containing at least the BRCA1 Gene and
a Lipid, characterized by [ * ] included in the formulation.
Section 1.8. "FTE" means a full time equivalent scientific person year or
------------
a total of forty-seven (47) weeks or one thousand eight hundred eighty (1,880)
hours per year of scientific work on or directly related to the Project (or,
for purposes of Section 4.3, the Manufacturing Transfer), carried out by a
MEGABIOS employee ("MEGABIOS FTE"), having at least a Bachelors Degree in a
science. Scientific work on or directly related to the Project to be
performed by MEGABIOS employees can include, but is not limited to,
experimental laboratory work, recording and writing of results, reviewing
literature and references, holding scientific discussions, managing and
leading scientific staff, and carrying out Project management duties. The
Research Plan lists the initial schedule of key employees that shall be
responsible for scientific work under the Project. The parties acknowledge
that, from time to time, such schedule may change to meet the needs of the
Project, however, under no circumstances shall less then [ * ] of the employees
assigned to the Project by MEGABIOS have an educational level less then [ * ]
level except, in the case where the Project's focus is primarily manufacturing
or as the Committee may otherwise deem appropriate.
Section 1.9. "GLP" shall mean the current Good Laboratory Practice
------------
Standards promulgated or endorsed by the FDA (or in the case of foreign
jurisdictions, comparable regulatory standards), including those procedures
expressed or implied in the regulatory filings made with respect to the
Product with the FDA or foreign regulatory agents.
Section 1.10. "GMP" shall mean the current Good Manufacturing Practices
-------------
Standards promulgated or endorsed by the FDA (or in the case of foreign
jurisdictions, comparable regulatory standards), and all additional procedures
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
-3-
expressed or implied in the regulatory filings made with respect to the Product
with the FDA or foreign regulatory authorities.
Section 1.11. "LILLY Information" means all confidential and/or
-------------
proprietary technical information, data, know-how, biological materials, and
chemical substances (i) relating to the BRCA1 Gene for use in the Field and
developed or acquired (with the right to disclose to third parties for their
use) by LILLY prior to the Effective Date or (ii) developed or acquired by LILLY
outside the scope of the Project after the Effective Date, but disclosed by
LILLY to MEGABIOS for use in connection with the Project during the term of the
Project. All information that is developed or acquired by LILLY during the term
of the Project in connection with the Project that relates to the BRCA1 Gene or
the Formulation, comprises Delivery Technology or is otherwise useful to the
Project shall be Project Information and not LILLY Information. Subject to
Section 11.1, MEGABIOS acknowledges that notwithstanding the foregoing LILLY may
acquire or develop information during the term of but outside the Project in
connection with the BRCA1 Gene and useful in connection with the Project that
LILLY may choose not to use in connection with the Project or that LILLY may be
unable to disclose to MEGABIOS for use in connection with the Project due to
present or future contractual arrangements with-third parties. MEGABIOS agrees
that such information is specifically excluded from the definitions of LILLY
Information or Project Information under this Agreement.
Section 1.12. "LILLY Patent Right" means a Patent Right that is owned or
-------------
controlled by LILLY and a Patent Right as to which LILLY has the right to grant
licenses or sublicenses within the Field without violating the terms of any
agreement or other arrangement with a third party. LILLY Patent Rights are
specifically excluded from the definition of LILLY Information or Project
Information under this Agreement. LILLY Patent Rights include LILLY's interest
in Patent Rights claiming inventions included in Project Information, as
determined under Section 4.2.
Section 1.13. "Lipid" means [ * ] amphiphile having a hydrophilic headgroup
and one or more attached hydrophobic moieties, including naturally occurring
compounds, derivatives thereof, or compounds that do not occur in nature.
Section 1.14. "MEGABIOS Information" means all confidential and/or
-------------
proprietary technical information, data, know-how, biological materials, and
chemical substances which are (i) useful for the development of the Formulation
or otherwise related to the Project and developed or acquired (with the right to
disclose to third parties for their use) by MEGABIOS prior to the Effective
Date, or (ii) developed or acquired by MEGABIOS outside the scope of the
Project after the Effective Date, but disclosed by MEGABIOS to LILLY for use in
connection with the Project during the term of the Project. All information that
is developed or acquired by MEGABIOS during the term of the Project in
connection with the Project that relates to the BRCA1 Gene or the Formulation,
comprises Delivery Technology or is otherwise useful to the Project shall be
Project Information and not MEGABIOS Information. Subject to Section 11.1,
LILLY acknowledges that notwithstanding the foregoing MEGABIOS may acquire or
develop information during the term of, but outside the Project related to
Delivery Technology and possibly useful in connection with the Project that
MEGABIOS may choose not to use in connection with the Project or that MEGABIOS
may be unable to disclose to
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
-4-
LILLY for use in connection with the Project due to present or future
contractual arrangements with third parties. LILLY agrees that such information
is specifically excluded from the definitions of MEGABIOS Information or Project
Information under this Agreement.
Section 1.15. "MEGABIOS Patent Right" means a Patent Right that is owned or
-------------
controlled by MEGABIOS and a Patent Right as to which MEGABIOS has the right to
grant licenses or sublicenses within the Field without violating the terms of
any agreement or other arrangement with a third party. MEGABIOS Patent Rights
are specifically excluded from the definitions of MEGABIOS Information or
Project Information under this Agreement. MEGABIOS Patent Rights include
MEGABIOS' interest in Patent Rights claiming invention included in Project
Information, as determined under Section 4.2. A non-exhaustive list of
potentially relevant MEBAGIOS Patent Rights in existence as of the Effective
date is attached hereto as Appendix I.
Section 1.16. "Net Sales" means, with respect to a product [ * ]by LILLY
-------------
or a LILLY Affiliate or sublicensee to unrelated third parties for the Product
(or as the case may be under Section 6.4, gross amount invoiced by MEGABIOS or
MEGABIOS Affiliate or sublicensee), less the following [ * ].
a. Trade, quantity and cash discounts [ * ].
b. Discounts, refunds, rebates, chargebacks and retroactive price
adjustments [ * ].
c. Product returns and allowances for Product returns;
d. That portion of the sales value (determined by the same methods
described below for combination products) associated with [ * ].
e. Any tax [ * ]
f. Allowances for distribution expenses, [ * ]
g. Any other similar, reasonable and customary deductions which are: [ * ]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
Such amounts shall be determined from the books and records of LILLY, its
Affiliates or sublicensees [ * ] In the event that LILLY, its Affiliate(s), or
sublicensee(s) distributes Products for commercial human therapeutic end use to
itself or to another Affiliate, or sublicensee for commercial human therapeutic
end use itself (e.g. an Affiliate hospital), then [ * ].
In the event the Product is sold as part of a combination products
including one or more active agents in addition to Product, the Net Sales of the
Product, for the purposes of determining royalty payments, shall be determined
by multiplying [ * ] In the event that such average sale price cannot be
determined for both the Product and the other product(s) separately, Net Sales
of Products shall be determined by multiplying [ * ] If neither the Product nor
the other product(s) are sold separately in finished form or the mechanics
provided above are otherwise inapplicable, Net Sales of Products shall be
determined [ * ].
Section 1.17. "Patent Right" means a patent or patent application and all
-------------
divisions, continuations, continuations-in-part, reissues, extensions,
Supplementary Protection Certificates, foreign counterparts thereof, and any
similar intellectual property that is owned or controlled by MEGABIOS or by
LILLY, at least one claim of which covers the making, using or selling of the
BRCA1 Gene, Delivery Technology or a Product.
Section 1.18. "Phase I Clinical Trials" means human clinical trials
-------------
conducted in subjects to establish the safety profile of a Product.
Section 1.19. "Phase II Clinical Trials" means human clinical trials
-------------
conducted in patients to establish proof of concept in the particular indication
tested and clinical trials conducted in patients to establish proof of concept
in the particular indication tested and clinical trials conducted in patients to
achieve a statistically significant indication of efficacy in the particular
indication tested, as well as to obtain some indication of the dosage regimen
required.
Section 1.20. "Phase III Clinical Trials" means large scale human clinical
-------------
trials conducted in patients to establish product efficacy in the particular
indication tested and required to obtain Product registration with health
regulatory authorities.
Section 1.21. "Product" means a product for use as a human therapeutic that
incorporates a Formulation, in any form or dosage, for delivery by any route of
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
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administration. Product shall also include any Product the formulation contained
in which has been modified or adjusted so as to be a "Modified Formulation"
pursuant to Section 5.1(a).
Section 1.22. "Project" means the collaborative research and development
-------------
program to be conducted by MEGABIOS and LILLY in the Field in connection with
this Agreement. The Project is described more fully in a research plan (the
"Research Plan") that has been mutually agreed to and exchanged between the
parties concurrent with the execution of this Agreement. The Research Plan may
be modified by mutual agreement from time to time as provided in Section 2.4.
Section 1.23. "Project Information" means all confidential and/or
-------------
proprietary technical information, data, know-how, biological materials,
chemical substances and inventions (patentable or unpatentable) (which, in the
case of patentable inventions shall include inventions conceived in the course
of and within the scope of the Project and reduced to practice during the
Project or within [ * ] after its expiration) that are developed,
discovered, invented or otherwise generated by MEGABIOS or LILLY in the course
of the Project or are acquired by MEGABIOS or LILLY pursuant to Section 11.1,
with the right to disclose to the other party for its use in connection with the
Project; provided the same either: (i) relates to the BRCA1 Gene, Delivery
Technology or the Formulation or (ii) is otherwise useful to the Project.
MEGABIOS acknowledges that LILLY may acquire or develop information during the
term of but outside the Project in connection with the BRCA1 Gene and useful in
connection with the Project that LILLY may be unable to use in connection with
the Project due to present or future contractual arrangements with third
parties. MEGABIOS agrees that such information is specifically excluded from the
definition of Project information under this Agreement. LILLY acknowledges that
MEGABIOS may acquire or develop information during the term of, but outside the
Project relating to Delivery Technology and possibly useful in connection with
the Project that MEGABIOS may be unable to disclose to LILLY for use in
connection with the Project due to present or future contractual arrangements
with third parties. LILLY agrees that such information is specifically excluded
from the definition of Project Information under this Agreement.
Section 1.24. "Project Team Status" means [ * ].
-------------
Section 1.25. "Project Year" means a twelve-month period during the term of
-------------
the Project. The first Project Year shall commence on the Effective Date.
Section 1.26. "Valid Claim" means an unexpired, issued claim which has not
-------------
been found to be unpatentable, invalid or unenforceable by a court or other
authority in the subject country from which decision no appeal is taken or can
be taken.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
-7-
Article II
----------
Staffing, Planning and Execution of Project
-------------------------------------------
Section 2.1. Commencement and Reasonable Efforts. Upon the Effective Date,
------------ -----------------------------------
LILLY and MEGABIOS shall commence the work on the Project described in the
Research Plan. Both parties will carry out their respective roles and use
reasonable efforts in conducting work on the Project in order to achieve the
research goals set forth in the Research Plan.
Section 2.2. MEGABOIS Effort on the Project. During the first Project Year,
------------ ------------------------------
MEGABOIS shall devote [ * ] MEGABIOS FTEs to the Project. During the second
Project year, MEGABIOS shall devote [ * ] MEGABIOS FTEs to the Project. If the
Committee requests that any specific individual scientist be assigned to the
Project, MEGABIOS will use reasonable efforts to assign such person to the team
for at least [ * ], of his or her time. The names of the MEGABIOS key employees
who are initially scheduled to work on the Project are set forth in the Research
Plan. MEGABIOS will designate a project manager to serve as a primary contact to
LILLY for day-to-day coordination of the Project. MEGABIOS' directors of each
functional group will diligently oversee such group's activities related to the
Project.
SECTION 2.3. Steering Committee Formation. MEGABIOS AND LILLY shall each
------------ ----------------------------
have up to four (4) representatives serve as members of the Steering Committee
(the "Committee"). The respective individual representatives for each party may
be changed from time to time at the discretion of MEGABIOS or LILLY upon receipt
of written notification to the other party by the party making the change,
provided that any replacements shall be of the same general level of authority
and experience as the original members of the Committee. Each party may
designate advisory members to the Committee as each may reasonably deem
appropriate, however, such members shall only serve in an advisory capacity and
shall not have a vote in connection with decisions made by the Committee.
Section 2.4. Steering Committee Responsibilities. MEGABIOS and LILLY
------------ -----------------------------------
have agreed upon an initial plan for research tasks to be completed in the
first Project Year under the Project as set forth in the Research Plan. The
Committee shall: 1) review and approve all plans for research to be done
under the Project, and 2) review all results of work done under the Project.
The Committee shall meet at least once each calendar quarter, or from
time to time as agreed to by the Committee. At these meetings, the Committee
will. 1) review the Project, and 2) modify the scope and goals of the Project
if the Committee deems it necessary, and reallocate resources in accordance
with such modification, provided that the research program shall not be
reduced below the minimum number of MEGABIOS FTEs provided in Section 2.2 in
any Project Year unless the parties mutually agree otherwise. The Committee
must approve any modification to the scope and goals of the Project described in
the Research Plan (including any extra costs arising form work with third
parties) and prepare an appropriate written modification to the Research Plan
for signature by both parties' Committee representatives. Decisions with regards
to the Project shall require a unanimous approval of the Committee.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
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Section 2.5. Conduct of Studies. All work done in connection with the
------------ -------------------
Project shall be carried out in compliance with any federal, state, or local
laws, regulations, or guidelines governing the conduct of research at the site
where such work is being conducted. In addition, any laboratory animals covered
by this Agreement shall be provided humane care and treatment in accordance with
the most acceptable current veterinary practices.
Section 2.6. LILLY's Collaboration Work. LILLY will assign such personnel
------------ ---------------------------
as it deems appropriate in connection with the Project.
Section 2.7. Treatment of Chemical and Biological Materials. Each party
------------ -----------------------------------------------
agrees that it will not transfer to any third party the other party's chemical
or biological materials, unless a duly authorized representative of the other
party agrees in writing. Subject to Sections 4.2 and 7.1, such a transfer may
be made to any biological material depository for patent or other purposes in
accordance with this Agreement, or as required by law to any government agency
or body.
Section 2.8. Safety Concerns. Each party agrees to provide the other with
------------ ----------------
handling instructions, including all safety information known to such party
relating to chemical and biological material to be transferred to the other
party. This will include, but not to be limited to, all applicable Material
Safety Data Sheets (MSDS).
Section 2.9. Clinical Development and Marketing. Except as otherwise
------------ -----------------------------------
provided in this Agreement or as LILLY and MEGABIOS may agree in writing, LILLY,
at its sole discretion, shall have the exclusive right (and the funding and
other responsibilities related thereto) to handle either directly or through
third parties of its choice (subject to Sections 2.10 and 4.3 below) all matters
related to the Product after pre-clinical development including, but not limited
to, clinical development, regulatory registrations and filings, manufacturing
and commercialization of any Product under the terms of this Agreement. LILLY
may also, in its sole discretion, conduct further preclinical studies (including
toxicology studies) beyond those provided for in the Research Plan. LILLY agrees
to provide MEGABIOS with all data and information generated in such further
preclinical studies conducted by LILLY on Products, subject to the
confidentiality provisions of Article VII. For avoidance of any doubt, LILLY
may, in its sole discretion, discontinue clinical development and the
obligations related thereto if it deems it appropriate at anytime, subject to
the terms of this Agreement, including but not limited to Section 5.2(b) and
Articles III and VIII. LILLY shall notify MEGABIOS upon its decision to
discontinue development or commercialization efforts with respect to any
Product, [ * ]
Section 2.10. Manufacturing. Except as otherwise provided in this
------------- --------------
Agreement, the Research Plan or as LILLY and MEGABIOS may agree in writing,
MEGABIOS shall be responsible for the development, manufacture and supply of
Product material for preclinical testing and toxicology studies and material
suitable for use in Phase I Clinical Trials as contemplated under this
Agreement; [ * ] LILLY shall review, prior to Committee
approval, all protocols for toxicology studies conducted under the terms of the
Research Plan. All applicable manufacturing and toxicology facilities (and
materials made under this Agreement) shall comply with and be operated in
accordance with all applicable GMP, GLP, requirements specified in the IND, and
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
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other regulatory requirements. LILLY shall have the right to audit all
manufacturing and toxicology facilities described herein, including procedures
and practices, to verify their conformance with applicable GMP, GLP and other
regulatory requirements. MEGABIOS shall comply with all applicable governmental
requirements, and shall provide LILLY with all information pertinent to
regulatory approvals for manufacturing facilities. Additionally, a Manufacturing
Requirements Document will be developed and agreed to prior to the manufacture
and supply of the first Phase I Clinical Trial Product material. An outline of
the initial content for the Manufacturing Requirements Document is included in
Appendix II. MEGABIOS shall provide to LILLY, in the format reasonably specified
by LILLY, all information related to the chemistry manufacture and control of
the Product required for regulatory submissions. Notwithstanding the foregoing,
such manufacture and supply by MEGABIOS, together with other activities under
the Project, shall not require expenditure by MEGABIOS beyond the funding
provided in Section 3.1 below. MEGABIOS will operate under cGMP control which is
appropriate to its Phase I clinical trial manufacturing activity, as described
in the FDA Guideline on the Preparation of Investigational New Drug Products
(Human and Animal), March 1991, or any applicable successor thereto. MEGABIOS
will supply product manufactured in accordance with current GMP's and in
compliance with the requirements and specifications in LILLY's IND.
LILLY, at its discretion, shall have the sole right (and responsibility
related thereto) for the manufacture of all material, if any, related to the
Product(s) beyond Phase I Clinical Trials. LILLY may appoint any Affiliate or
third party to perform all or a portion of such manufacturing activities. Each
appointee shall be required to undertake in writing for the benefit of MEGABIOS
not to disclose any Manufacturing Information (as defined in Section 4.3) to any
third party or to use such Manufacturing Information outside the scope of the
license set forth in Section 5.1.
Article III
-----------
Funding of Project
------------------
Section 3.1. Duration and Amount of Funding. LILLY shall provide MEGABIOS
------------ ------------------------------
with financial support for the Project for the period commencing on the
Effective Date and expiring two years thereafter, unless the Project is
terminated early under Article VIII or extended by LILLY under Section 8.3 or by
mutual agreement between MEGABIOS and LILLY (the "Funding Term"). During the
Funding Term, LILLY shall provide MEGABIOS with financial support for FTEs at a
rate of [ * ] per MEGABIOS FTE per Project Year. Furthermore, during the Funding
Term, LILLY shall provide funding support of [ * ]. Except for the Funding
described herein or as otherwise provided in this Agreement or approved in
writing by the Committee, LILLY shall not be responsible for funding any other
cost or expense incurred by MEGABIOS for MEGABIOS' effort on the Project.
Section 3.2. Manner of Payments. LILLY shall pay MEGABIOS all funding
------------ -------------------
provided by LILLY during this Project in U.S. Dollars in four (4) quarterly
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
-10-
payments during each Project Year. Payment shall be made quarterly (i.e., on or
before April 15th, July 15th, October 15th and January 15th of each Project
Year) by wire transfer in immediately available funds to the account designated
in writing by MEGABIOS. Unless MEGABIOS and LILLY otherwise agree in writing,
the amount of such installment payment shall be the amount budgeted for the
upcoming quarter. An initial payment will be made within thirty (30) days of the
Effective Date, pro-rated to cover the period ending June 30, 1997. The last
payment for the Project shall be pro-rated to the end of the Project.
Section 3.3. Accounting. MEGABIOS shall maintain complete records in
------------ ----------
accordance with GAAP of all monies LILLY pays MEGABIOS for research under the
Project and shall, within sixty (60) days after the end of each calendar year
during the Project and at the end of the Project, provide LILLY with a report,
stating: a) the dollar amount of funds LILLY supplied for that year; b) the
research and manufacturing activities on segregated basis conducted during the
year which account for such support, including the MEGABIOS FTEs devoted to the
Project, using MEGABIOS' standard project accounting procedures; and c) any
supporting details as are reasonably required by LILLY. To the extent permitted
by law, LILLY shall be entitled to any tax credits due on account of research
and development expenses for the funds paid by LILLY. To the extent an average
of 1,880 hours per FTE of Project work has not been completed by the MEGABIOS
FTEs in Section 3.1, MEGABIOS shall give credit to LILLY at the rate of [ * ]
per hour for each hour of shortfall. Such credit shall either be reimbursed to
LILLY by wire transfer in a bank account designated by LILLY and/or applied to
LILLY's next quarterly minimum payment. Such credit shall be made within thirty
(30) days after the report is due. During the Funding Term and within one (1)
year after its termination, LILLY shall not more than once each year have the
right at its expense to have MEGABIOS' independent certified accountants inspect
and audit MEGABIOS' records and accompanying reports for any of the two
preceding years for the purpose of determining the accuracy of the reports and
associated costs of the Project.
Article IV
----------
Results of Project
------------------
Section 4.1. Reports. MEGABIOS and LILLY shall disclose any new Project
------------ -------
Information to the Committee reasonably promptly following its discovery,
generation, or acquisition. At LILLY's or MEGABIOS' request the disclosing
party shall make such Project Information available to the requesting party.
Such disclosure may take the form of visits by MEGABIOS or LILLY personnel to
the facilities being used for the Project to permit observation of the
procedures comprising such Project Information. Those visits will take place at
reasonable times and upon reasonable prior notice at the visitor's expense.
MEGABIOS and LILLY shall submit a detailed written report on the progress
of the Project to the Committee within sixty (60) days following each
semi-annual period of the term of the Project. Within ninety (90) days after
completion of the Project, each party shall provide the Committee with a
comprehensive final written report.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
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Section 4.2. Project Information; Patentable Inventions. If a
------------ ------------------------------------------
patentable invention is conceived in the course of and within the scope of the
Project and is reduced to practice during the Project or within [ * ] after its
expiration or termination, such invention shall be deemed Project Information
and the party making such invention shall notify the other party of such
invention. LILLY and MEGABIOS shall then discuss that invention and the
desirability of filing a United States patent application covering the
invention, as well as any foreign counterparts. If the parties cannot reach an
agreement about the filing of a patent application within ninety (90) days after
the notification by the party making such invention to the other party, then the
party owning the invention as determined pursuant to the following paragraph
shall make the final decision with respect to any such filings. If an invention
is owned jointly, the Committee shall be notified of such invention and shall
determine: (a) which party shall file and prosecute the application, and (b) how
the expenses will be allocated.
Notwithstanding anything to the contrary in this Agreement, LILLY shall own
all Project Information, and any patent applications or patents claiming
inventions included in Project Information, that are either: (a) solely related
to the BRCA1 Gene or (b) made solely by its employees (except for those
inventions solely related to the Delivery Technology). Similarly, MEGABIOS shall
own all Project Information, and any patent applications or patents claiming
inventions included in Project Information, that are either: (a) solely related
to the Delivery Technology or (b) made solely by its employees (except for those
inventions solely related to the BRCA1 Gene). Except as otherwise provided in
this paragraph, all Project Information, and any patent applications and patents
claiming inventions included in Project Information, made jointly by employees
of LILLY and employees of MEGABIOS shall be jointly owned by MEGABIOS and LILLY
and shall be subject to the licensing provisions set forth in Article V.
Each party shall bear its own expenses incurred in filing, prosecuting and
maintaining its patents and patent applications under this Section, including
the expenses of any interference or opposition proceedings in connection with
such prosecution.
Each party shall provide the other party with a copy of any patent
application which claims Project Information prior to the first filing of that
application for review and comment by the other party. The receiving party shall
maintain any such patent application in confidence, pursuant to Section 7.1. The
employees of both parties will cooperate in the preparation of all such patent
applications, including execution of assignments and other documents, and in the
defense of any patents issued on such patent applications. The prosecuting party
shall periodically update the other party regarding significant developments
concerning the prosecution and maintenance of such applications and patents.
If a party decides not to file or maintain an application or patent on any
invention made solely or jointly by such party claiming Project Information in
any country, it shall give the other party reasonable notice to this effect;
after that notice, the other party may, at its expense, file or maintain the
application or patent and such other party shall own all rights related to such
patent or patent applications, including any inventions claimed thereunder. Any
assignment under this paragraph may result in the reduction and/or elimination
of royalties paid with respect to a particular country to the extent that such
assignment results in the
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
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assignment of a Valid Claim with respect to such country as described in
Sections 6.5 and 6.6.
Section 4.3. Manufacturing Technology Transfer. Except as the Committee
------------ ---------------------------------
may otherwise agree in writing, in order to effectuate an orderly transition of
the uninterrupted availability of Product to LILLY for purposes contemplated
under this Agreement, MEGABIOS, at least ninety (90) days prior to completion of
the Project or completion of Phase I Clinical Trials, whichever is earlier,
shall transfer to LILLY all information and instructions concerning the
manufacturing process and related matters in MEGABIOS' possession which may be
necessary for LILLY to manufacture Product (including information regarding
obtaining necessary Lipids related thereto) for clinical trials and
commercialization as contemplated hereunder including, but not limited to,
analytical and manufacturing methods. MEGABIOS shall also provide assistance (in
the form of consultation) to LILLY with respect to manufacturing matters for a
period of [ * ] months after completion of the initial transfer of information
and instructions as provided below. Such transfer and assistance by MEGABIOS
will be referred to herein as the "Manufacturing Transfer." All such
information, methods and instructions transferred to LILLY under this Section
4.3 shall be referred to herein as the "Manufacturing Information," and shall be
maintained in confidence by LILLY pursuant to Section 7.1, except that LILLY's
obligation to maintain in confidence such Manufacturing Information shall
survive for ten (10) years following expiration or termination of this
Agreement. LILLY agrees that it will use all such transferred Manufacturing
Information only for the manufacture of the Products and shall not disclose or
transfer such Manufacturing Information to any third party manufacturer except
as provided in Section 2.10. MEGABIOS shall provide, and bear its costs for, up
to [ * ] FTEs for a period of up to [ * ] months [ * ] in aggregate) to
accomplish the Manufacturing Transfer. Such FTEs, at LILLY's request, shall
include visits to LILLY's facilities by MEGABIOS personnel including up to [ * ]
from MEGABIOS' head of manufacturing. MEGABIOS shall furnish any additional
reasonable assistance beyond the assistance described above regarding
manufacturing matters that LILLY may request and that MEGABIOS is able to
provide, for up to [ * ] after the initial transfer of Manufacturing
Information, providing that LILLY [ * ] incurred with respect to such additional
assistance.
Section 4.4. Publications. LILLY and MEGABIOS agree that, during the
------------ ------------
term of the Project and for one (1) year thereafter, neither party shall publish
the results of studies carried out under this Agreement without the opportunity
for prior review by the other party. During the term of the Project and for one
(1) year thereafter, each party agrees to provide the other party the
opportunity to review any proposed abstracts or manuscripts which relate to the
Project at least sixty (60) days prior to their intended submission for
publication and agrees, upon request, not to submit such an abstract or
manuscript for publication until the other party is given a reasonable period of
time to secure patent protection for any material in such publication which it
believes to be patentable. Upon request, confidential information of the non-
disclosing party shall be removed from such proposed publication. During the
term of the Project and for one (1) year thereafter, the parties agree that all
publications relating to the results of studies carried out under this Agreement
shall be submitted for review and approval by the Committee to ensure that, to
the extent appropriate, scientific credit is given to researchers at both LILLY
and MEGABIOS.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
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Article V
---------
Commercial Rights
-----------------
Section 5.1. License to LILLY.
------------ -----------------
(a) Subject to the terms and conditions set forth herein, MEGABIOS grants
LILLY an exclusive, worldwide license, with the right to sublicense, under
MEGABIOS Information, MEGABIOS Patent Rights, and MEGABIOS' interest in the
Project Information to discover, develop, make, have made (subject to Section
2.10), import, offer for sale, sell and have sold Products. MEGABIOS hereby
retains such rights under the MEGABIOS Information, MEGABIOS Patent Rights and
Project Information to discover, develop and make Products as are necessary for
it to fulfill its obligations under this Agreement. LILLY's right to develop
Products pursuant to the license in this Section 5.1(a) includes the right to
adjust or modify one or more components in the Formulation contained therein, as
necessary or desirable for the further development or commercialization of such
Products (a "Modified Formulation"); provided that any such Modified Formulation
shall nevertheless contain at least the BRCA1 Gene and a Lipid.
(b) Subject to the terms and conditions set forth in this paragraph and
the rest of this Agreement, MEGABIOS also grants to LILLY a non-exclusive,
worldwide, fully-paid license, with no right to sublicense, under MEGABIOS
Information and MEGABIOS' interest in Patent Rights (including, but not limited
to, MEGABIOS Patent Rights) and Project Information for LILLY's internal non-
commercial research purposes (the "Research License"). Such Research License
shall terminate [ * ] after the completion of the Project (including
extensions related thereto). Consistent with the terms of the Research License
granted herein, LILLY agrees that it shall not use the Research License to
commercialize a product except pursuant to a futher written agreement which may
be negotiated between LILLY and MEGABIOS. If LILLY requests and MEGABIOS agrees
to provide materials or assistance for use under the Research License and not in
the Project, then LILLY shall reimburse MEGABIOS for its reasonable costs of
providing such material or assistance.
Subject to the confidentiality provisions described herein and any
applicable confidentiality provisions set forth in agreements that LILLY may
have with third parties, LILLY shall disclose to MEGABIOS, [ * ]
(C) LILLY hereby covenants and agrees that it will not practice the
MEGABIOS Patent Rights, MEGABIOS Information or Project Information solely owned
by MEGABIOS except as licensed in this Section 5.1.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
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Section 5.2. License to MEGABIOS. Subject to the terms and conditions set
------------ --------------------
forth herein, LILLY grants MEGABIOS:
(a) During the term of the Project, a non-exclusive, worldwide license,
under the LILLY Information, LILLY Patent Rights, and LILLY's interest in
Project Information to discover, develop and make Products and otherwise to
comply with its obligations under this Agreement; and
(b) In the event of a "Trigger Event", as defined below in this Section
5.2(b), the licenses granted under Section 5.1 to LILLY shall terminate and
MEGABIOS shall have the right to retain from LILLY an exclusive, sublicensable,
worldwide license within the Field under LILLY's interest in the Project
Information, LILLY Information, and LILLY Patent Rights, to discover, develop,
make, have made, import, offer for sale, sell and have sold Products. A
"Trigger Event" shall occur upon the occurrence of either of the following
events:
1) the early termination of the Project by LILLY under Article VIII
and LILLY's, or LILLY's sublicensee's discontinuation of its research and
development, programs with respect to the BRCA1 Gene, including abandoning
its BRCA1 program related to [ * ] or
2) after the conclusion of the Project, LILLY's, or LILLY's
sublicensee's discontinuation of its research and development programs with
respect to the BRCA1 Gene, including abandoning its BRCA1 program related
to [ * ]
LILLY shall provide written notification to MEGABIOS of the occurrence of a
Trigger Event. MEGABIOS shall have ninety (90) days from the receipt of such
notification from LILLY to elect to retain the exclusive license referred to
above in this Section 5.2(b). Such election shall be made by written
notification to LILLY. If MEGABIOS elects to retain such an exclusive license,
such license shall be granted upon receipt by LILLY of MEGABIOS' written
election to retain such license. Such license shall be subject to the royalty
provisions of Section 6.4 together with milestone fees at [ * ] the amounts
described in Section 6.2, except that only [ * ] of the royalty rate shall apply
under circumstances where LILLY had discontinued development of the Product
prior to the initiation of Phase II Clinical Trials with respect to such Product
.
MEGABIOS covenants and agrees that it will not practice the LILLY Patent
Rights or LILLY Information except as licensed in this Section 5.2.
Section 5.3. Exclusivity. Except as provided for herein, during the term of
------------ ------------
the Project, neither party will participate with or fund any third party in any
research and/or development activity within the Field.
Section 5.4. Acknowledgement by MEGABIOS of Sublicensee Status.
------------ --------------------------------------------------
MEGABIOS acknowledges that the license granted to MEGABIOS by LILLY in Section
5.2 includes a limited sublicense of rights from [ * ] MEGABIOS acknowledges
receipt of a copy of an Agreement between LILLY and [ * ] and MEGABIOS agrees to
be bound by terms of this Agreement to the same extent that LILLY is bound.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
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MEGABIOS further acknowledges that [ * ] and LILLY own and control certain
information about the BRCA1 Gene which will not be shared with MEGABIOS.
Section 5.5. Acknowledgment by LILLY of Sublicensee Status. LILLY
------------ ----------------------------------------------
acknowledges that the license granted to LILLY by MEGABIOS in Section 5.1
includes a sublicense of the rights from the Regents of the University of
California ("UC"). LILLY acknowledges receipt of a copy of that certain License
Agreement dated May 9, 1996 between MEGABIOS and UC and LILLY agrees to be bound
by the terms of the UC License Agreement to the same extent that MEGABIOS is
bound, including provisions related to the reservation of certain rights in the
technology licensed thereunder, disclaimers of liability, indemnification of UC
by sublicensees, and provisions regarding the right to prosecute, maintain and
defend patent rights licensed thereunder. [ * ] Further, LILLY acknowledges and
understands that the license granted under Section 5.1 does not include a
sublicense of any rights granted to MEGABIOS pursuant to that certain Agreement
dated August 25, 1995 between MEGABIOS and Stanford University.
Article VI
----------
Equity Investments and Milestone Fees
-------------------------------------
Section 6.1. Equity Investment. Until December 31, 1997, MEGABIOS shall
------------ ------------------
have the right to require LILLY to purchase shares of MEGABIOS' capital stock in
one private transaction for an aggregate purchase price of three million dollars
($3,000,000), subject to the terms of this Section 6.1 and applicable securities
laws. Such equity purchase shall be concurrent with the first to occur of an
initial public offering ("IPO") or a Qualified Financing (defined below). If
MEGABIOS closes an initial public offering of MEGABIOS common stock under the
Securities Act of 1933, as amended, prior to such date, then LILLY shall
purchase shares of MEGABIOS common stock in a private transaction concurrently
with the closing of the IPO at the price at which shares are offered to the
public. Such purchase shall be made pursuant to a Stock Purchase Agreement
customary under such circumstances.
Alternatively, MEGABIOS may require LILLY, prior to December 31, 1997, to
purchase shares of MEGABIOS capital stock in a private equity financing raising
aggregate proceeds to MEGABIOS of at least $6.0 million ("Qualified
Financing"). The LILLY purchase shall take place pursuant to terms substantially
similar to those set forth in a Stock Purchase Agreement, Amended and Restated
Investors Rights Agreement and Fourth Amended and Restated Articles of Megabios
Corporation, all of which were furnished to LILLY on April 28, 1997, and May 7,
1997. The price paid by LILLY for such capital stock shall be [ * ] Any equity
investment made under this Section 6.1 shall be subject to applicable regulatory
requirements, including, if applicable, the notice provisions of the Hart Scott
Rodino Antitrust Improvements
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
-16-
Act, and the period for making such investments shall be adjusted as necessary
to permit the parties to comply with such regulatory requirements.
Section 6.2. Milestone Fees. Upon achievement of the respective milestone
------------ ---------------
events listed in paragraphs (a), (b) and (c) below, LILLY shall pay a milestone
fee to MEGABIOS as provided below. If MEGABIOS is in material breach of its
obligations under this Agreement at the time any such payment is due, LILLY may
notify MEGABIOS of such breach in writhing on or prior to such date in lieu of
making the payment. Such notice shall cite the breached section(s) of this
Agreement and the actions or omissions of MEGABIOS that constitute breach. If
and when MEGABIOS reasonably cures such breach, it shall notify LILLY in writing
of the cure and the milestone payment shall be due within thirty (30) days of
the date of such notice. For avoidance of any doubt, nothing in this paragraph
shall be construed as a wavier of any legal and/or equitable remedies available
to LILLY as a result of such breach.
(a) Ovarian Cancer. For each Product developed by LILLY for [ * ]
---------------
treatment of ovarian cancer LILLY shall pay to MEGABIOS:
(1) [ * ]
(2) [ * ]
(3) [ * ]
(4) [ * ]
(5) [ * ]
(b) Breast Cancer. For each Product developed by LILLY for [ * ]
--------------
treatment of breast cancer LILLY shall pay to MEGABIOS:
(1) [ * ]
(2) [ * ]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
-17-
(3)[ * ]
(4)[ * ]
(c) Other Indications. Subject to the last paragraph of this Section
-----------------
6.2(c), in addition to the milestone fees described above, for each Product
developed by LILLY for an indication other than cancers of the ovary or breast
[ * ] (the "Other Indications"), LILLY shall pay to MEGABIOS
additional milestone fees as follows:
(1) [ * ]
(2) [ * ]
Notwithstanding the foregoing in this Section 6.2, no milestone payment as
described hereunder shall be due if such Product[ * ] from a Product for which
a milestone payment has previously been made. For purposes of this Section
6.2(c),[ * ] shall mean that [ * ] For avoidance of any doubt, under no
circumstance shall any additional milestone fees be due for any Product where
milestone fees had been previously paid for such Product irrespective of the
number of indications that such Product is ultimately developed or used for nor
shall milestone fees be paid with respect to [ * ] provided such development
[ * ] and where such in a Product for which all milestone payments associated
with said Product set forth above have been paid.
(d) If LILLY begins the development of a Product and later ceases
development of said Product for any reason including, but not limited to, lack
of efficacy, potency or adverse reactions found in the course of human clinical
trials or the Product is not registered after the filing of a BLA (or its
equivalent in the European Union), then any milestone payment made under this
Article with respect to such Product shall be credited against any milestone
payments which otherwise
<PAGE>
-18-
would be payable if LILLY elects to develop another Product (including, but not
limited to, developing another Product derived from adjusting or modifying a
Formulation) for the same indication (i.e., ovarian cancer, breast cancer,
prostate cancer, et cetera).
(e) LILLY shall notify MEGABIOS upon the achievement of each milestone
event and make the applicable payment to MEGABIOS within thirty (30) days of the
achievement of such event.
Section 6.3. Royalty Payments To MEGABIOS on Products. In consideration for
the licenses granted and the services provided hereunder, with respect to each
calendar quarter, LILLY shall pay to MEGABIOS royalties equal to the following
[ * ] Net Sales of all Products on an annual basis: [ * ]
For example if during the fourth calendar quarter of a particular annual year
Net Sales were [ * ] which resulted in aggregate Net Sales for such year of
[ *] the royalty payment due MEGABIOS for such fourth calendar quarter would
equal [ * ] For purpose of this Agreement, annual year shall mean the 12 month
period commencing on January 1.
Section 6.4. Royalty Payments To LILLY on Products. In the event of a
Trigger Event and if MEGABIOS elects to retain an exclusive license from LILLY
under Section 5.2(b), and MEGABIOS thereafter develops and sells a Product or
Product(s), with respect to each calendar quarter, MEGABIOS shall pay to LILLY
royalties equal to the following [ * ] Net Sales of Products on
an annual basis: [ * ]
Only [ * ] of the royalty rates described above shall apply under circumstances
where LILLY has discontinued development of the Product prior to the initiation
of Phase II Clinical Trials with respect to such Product.
Section 6.5. Term of Royalty Payments by LILLY. Running royalties paid by
----------- ---------------------------------
LILLY pursuant to Sections 6.3 shall be paid [ * ] from the date of the first
commercial sale of each Product [ * ] until [ * ] Rights in that country for
which a Valid Claim thereof covers the manufacture, use [ * ] or (ii) [ * ] from
the first commercial sale of such Product [ * ] provided that in the [ * ] years
under (ii) above running royalties shall be due at [ * ] the percentage rates
set forth in Section 6.3. The parties recognize that there may be [ * ] in any
given royalty payment period. The parties
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
-19-
agree that [ * ] Attached as Appendix III, is an example of how royalties are to
be calculated under certain circumstances.
Section 6.6 Term of Royalty Payments by MEGABIOS. Running royalties paid
----------- ------------------------------------
by MEGABIOS pursuant to Section 6.4 shall be paid [ * ] from the date of the
first commercial sale of each Product [ * ] until [ * ] Patent Rights in that
country for which a Valid Claim thereof covers the [ * ] or (ii) [ * ] from the
first commercial sale of such Product [ * ] provided that in the [ * ] years
under (ii) above running royalties shall be due at [ * ] the percentage rates
set forth in Section 6.3 The parties recognize that there may be [ * ] in any
given royalty payment period. The parties agree that [ * ]
Section 6.7. MEGABIOS Obligations to [ * ]
------------ -----------------------------
In the event of a Trigger Event and if MEGABIOS elects to retain an exclusive
license from LILLY under Section 5.2(b), and MEGABIOS thereafter develops and
sells a Product or Product(s), in addition to the royalties owed to LILLY by
MEGABIOS under Section 6.4, MEGABIOS acknowledges its potential obligation to
pay a [ * ] royalty to [ * ] on the Net Sales of Products sold by MEGABIOS as
consideration for the sublicensed rights acquired from [ * ] through LILLY, as
set forth in Section 5.4. At LILLY's option, MEGABIOS shall pay such [ * ]
royalty directly to [ * ] or MEGABIOS shall pay such [ * ] royalty to LILLY in
addition to the royalty owed to LILLY under Section 6.4 and LILLY shall
thereafter be responsible for the royalty payment to [ * ] provided MEGABIOS, in
fact, makes and continues to make the payments to LILLY as described herein.
Section 6.8. Royalty Payment Reports. Royalty payments under this
------------ ------------------------
Agreement shall be made to the receiving party within sixty (60) days following
the end of each calendar quarter for which royalties are due. Each royalty
payment shall be accompanied by a statement detailing the Net Sales and royalty
calculations on a worldwide, country-by-country and Product-by-Product basis.
Section 6.9. Records. Within the term of this Agreement and within one (1)
------------ --------
year after its termination, the party receiving the royalty shall not more than
once each year have the right to have the royalty payor's independent certified
accountant inspect the royalty payer's records for any of the three (3)
preceding years for the purpose of determining the accuracy of royalty payments
including reviewing gross sales and the deductions described in Section 1.16 of
this Agreement. The independent certified accountant shall keep confidential any
information obtained during such inspection and shall report to the party
receiving the royalty only the information necessary to make an accurate
calculation of amounts of royalties due and payable. For avoidance of any doubt,
the parties acknowledge that the audit rights described under this Section 6.9
shall not require LILLY to obtain records from its Affiliates other than those
records that it regularly receives from such Affiliates, however, the
independent certified accountant may inspect the records that LILLY possesses
and the records that its Affiliates possess at their respective locations to the
extent described in this Section 6.9 of the Agreement. The receiving party shall
bear the expenses of such audit, provided that, in the event of material
underpayment (in excess of 5%) of any royalties owing hereunder, the paying
party shall bear the reasonable expenses of such audit, in addition to
reimbursement for such underpayment.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
at their respective locations to the extent described in this Section 6.9 of the
Agreement. The receiving party shall bear the expenses of such audit, provided
that, in the event of material underpayment (in excess of 5%) of any royalties
owing hereunder, the paying party shall bear the reasonable expenses of such
audit, in addition to reimbursement for such underpayment.
Section 6.10. Withholding Taxes. If either party is required by the United
------------- -----------------
States government or other authorities to withhold any tax on the amounts
payable by that party to the other party under this Agreement, that party shall
be allowed to do so, and shall in such case remit royalty payments to the other
party net of such withheld amount, provided, that the withholding party
furnishes the other party with reasonable evidence of such withholding payment
in electronic or written form as soon as practicable after such withholding in
order that the other party may use the withholding tax paid as a tax credit.
Section 6.11. Exchange Rates. All payments to be made by one party to the
------------- --------------
other under this Agreement shall be made in United States dollars. In the case
of sales outside the United States, the rate of exchange to be used in computing
the amount of currency equivalent in United States dollars due to the other
party shall be made using payor's then current standard exchange rate
methodology consistently applied for payor's own internal accounting purposes,
which methodology shall be in conformity with generally accepted accounting
principles. Attached as Appendix IV is a general description of the exchange
rate methodology that is currently employed by LILLY any change to such
methodology would be applied to LILLY on a global basis.
Article VII
-----------
Confidentiality
---------------
Section 7.1. Except as otherwise provided in writing by the parties, both
------------
parties shall use their best efforts to retain in confidence and not use, except
as provided in this Agreement, all MEGABIOS Information or LILLY Information, as
the case may be, disclosed under this Agreement and all Project Information of
either party. Such information may, however, be disclosed insofar as such
disclosure is necessary (where possible, with adequate safeguards for
confidentiality) to allow either party to defend against litigation with a
third-party, to file and prosecute patent applications or to comply with
governmental regulations, provided neither party shall use the other party's
Information (i.e., for MEGABIOS the LILLY Information and Project Information
owned solely by LILLY under Section 4.2, and for LILLY the MEGABIOS Information
and Project Information owned solely by MEGABIOS under Section 4.2) in any
patent application without written approval from the other party.
This obligation of confidentiality and non-use shall not apply to
information which (i) is in the public domain, (ii) comes into the public domain
through no fault of the receiving party, (iii) was known by the receiving party
prior to disclosure under this Agreement or under the prior confidentiality
agreement between LILLY and MEGABIOS, (iv) is disclosed to the receiving party
without an obligation of confidentiality by a third party having a lawful right
to make the disclosure, or (v) is independently developed by either party
outside of the Project and without use of the other party's Information.
<PAGE>
-21-
In furtherance of the objectives of the Project and with the approval of
the other party, either party may disclose Information of the other party or any
Project Information to a third party who has agreed in writing to be bound by
the same or similar obligations of confidence set forth in this Section,
provided the third party agrees not to use the Information without authorization
from the party owning the Information, except that such authorization shall not
be required in connection with the exercise of the rights granted under licenses
under Sections 5.1 and 5.2. This paragraph shall not apply to MEGABIOS
Information transferred to LILLY pursuant to Section 4.3 and disclosed by LILLY
to a third party, which such disclosure shall be governed by Section 2.10.
All obligations of confidentiality and non-use imposed upon the parties
under this Agreement shall expire on the later of (i) the date five (5) years
from the termination of the Project; or (ii) the expiration of all obligations
to pay royalties under Article VI, subject to Section 4.3 (ten (10) years for
Manufacturing Information).
LILLY agrees to mark all LILLY Information provided to MEGABIOS in
documentary form as "Confidential". If such LILLY Information is provided to
MEGABIOS in oral form, LILLY shall thereafter summarize the disclosure in
writing, mark it as "Confidential," and provide a copy to MEGABIOS within thirty
(30) days of the oral disclosure. In the same manner, MEGABIOS agrees to mark
all MEGABIOS Information provided to LILLY in documentary form as
"Confidential." If such MEGABIOS Information is provided to LILLY in oral form,
MEGABIOS shall thereafter summarize the disclosure in writing, mark it
"Confidential," and provide a copy to LILLY within thirty (30) days of the oral
discussion.
Article VIII
------------
Term and Termination
--------------------
Section 8.1 Term. This Agreement shall become effective on the Effective
----------- ----
Date and shall remain in effect until the expiration of all obligations of
Confidentiality under Article VII.
Section 8.2 Term and Extension of Project. Unless terminated early under
----------- -----------------------------
this Article VIII or extended by mutual agreement or extended in accordance with
Section 8.3, the obligation to fund and conduct research shall terminate after
two (2) years after the Effective Date (the "Initial Term").
Section 8.3 Project Extension. LILLY, at its sole discretion, may extend
----------- -----------------
the Initial Term for an additional term of at least one (1) year but not to
exceed two (2) years as it deems appropriate under the same terms and conditions
described herein, provided LILLY notifies MEGABIOS of its decision to extend the
Project (including the term of such extension) at least ninety (90) days prior
to expiration of the Initial Term of the Project. The activities to be
undertaken by the parties during any Project extension shall be as agreed by the
parties and the Research Plan will be amended to provide for such additional
activities.
<PAGE>
-22-
Section 8.4. Voluntary Termination of Project. LILLY may voluntarily
------------ --------------------------------
terminate the Project at any time after [ * ] after the Effective Date, upon
providing ninety (90) days advance written notice to MEGABIOS of its intention
to terminate. In the event that LILLY terminates under this Section 8.4, LILLY's
license (including any royalty obligations related thereto) granted under
Section 5.1 shall terminate. The rights granted MEGABIOS under Section 5.2 shall
survive any voluntary termination of the Project by LILLY under this Section
8.4.
Section 8.5. Termination for Default. If either party is in material breach
------------ -----------------------
of its obligations under this Agreement and fails to remedy that breach within
ninety (90) days after the other party sends written notice of the breach
(thirty (30) days in the event of failure to pay monies when due) the party not
in breach may terminate the Project or this Agreement immediately by giving
written notice of the termination. The termination date shall be the date of the
notice of termination. If MEGABIOS has defaulted, the licenses to LILLY
specified in Section 5.1 shall survive (subject to all payment and other
applicable obligations as provided in Section 8.8) and the licenses to MEGABIOS
in Section 5.2 shall terminate upon termination for default. If LILLY has
defaulted, the licenses to MEGABIOS specified in Section 5.2 shall survive and
the licenses to LILLY in Section 5.1 shall terminate upon termination for
default.
Section 8.6. Termination Due to Assignment. In the event MEGABIOS assigns
------------ -----------------------------
this Agreement, pursuant to Section 14.6, to an acquiring third-party which is a
pharmaceutical or biotechnology company, LILLY may terminate the Project upon
thirty (30) days written notice. In the event LILLY terminates the Project under
this Section 8.6, LILLY's license under Section 5.1 shall remain in effect and
MEGABIOS' license under Section 5.2(b) shall remain in effect.
Section 8.7. Key Personnel. During the term of the Project, if [ * ]
------------ -------------
leaves the employ of MEGABIOS, for any reason, or is otherwise unavailable [ * ]
LILLY may voluntarily terminate the Project upon thirty (30) days' written
notice to MEGABIOS if within [ * ] following his departure MEGABIOS is unable to
select a replacement that is [ * ] If the Project is voluntarily terminated
under this Section 8.7, all rights and obligations under this Agreement
concerning the making, using or selling of Products already produced during the
Project, and any future Products arising therefrom, shall not be affected by the
termination of the Project, nor shall MEGABIOS' rights under Section 5.2(b).
Section 8.8. Residual Rights. Upon expiration or termination of the Project
------------ ---------------
or this Agreement, except as provided herein to the contrary, all rights and
obligations of the parties shall cease, except as follows:
a) Obligations to pay royalties and other sums accruing hereunder up to
the date of termination;
b) The right to complete the manufacture and sale of Products, which
qualify as "work in process" under generally accepted cost accounting standards
or which are in stock at the date of termination, and the obligation to pay
royalties on Net Sales of such Products;
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
-23-
c) The obligation to pay milestones as achieved and royalties with
respect to Products;
d) All provisions regarding confidentiality shall continue in full force
and effect;
e) Obligations for record keeping and accounting reports for so long as
Products are sold, plus three (3) years. At such time after termination of this
Agreement when sales or other dispositions of Products have ceased, LILLY or
MEGABIOS, as the case may be, shall render a final report along with any royalty
payment due;
f) The parties' rights to inspect books and records as described in
Article VI;
g) Obligations of defense and indemnity under Articles XI and XII;
h) Obligations set forth in Article XI, but only with respect to those
causes of action which accrued prior to such termination;
i) Any cause of action or claim of MEGABIOS or LILLY accrued or to accrue
because of any breach or default by the other party hereunder;
j) All other terms, provisions, representations, rights and obligations
contained in this Agreement that by their sense and context are intended to
survive until performance thereof by either or both parties.
Article IX
----------
Disclosure of Agreement
-----------------------
Section 9.1. Disclosure of Agreement. Except as provided below, neither
----------- -----------------------
MEGABIOS nor LILLY shall release any information to any third party with respect
to the terms of this Agreement without the prior written consent of the other,
which shall not be unreasonably withheld. This prohibition includes, but is not
limited to, press releases, educational and scientific conferences, promotional
materials, governmental filings, and discussions with public officials, and the
media. In connection with the execution of this Agreement, the parties shall
mutually agree on the text of a joint press release regarding this Agreement.
Notwithstanding the terms and provisions of this Article IX, each party
shall be allowed to disclose the terms, and provide a copy of this Agreement to
its respective tax authorities if so requested. Furthermore, MEGABIOS
acknowledges receipt of a redacted copy of the Agreement to Myriad.
Section 9.2. Releases Required by Law. If either party determines a release
----------- -----------------------
of further information is required by law or governmental regulation, it shall
notify the other in writing as soon as practical (where possible 30 days) before
the time of the proposed release. The notice shall include the exact text of the
proposed release and the time and manner of the release.
<PAGE>
-24-
At the other party's request, and before the release, the party desiring to
release further information and its legal counsel shall consult with the other
party on the necessity for the disclosure and the text of the proposed further
release. In no event shall a release under this Section 9.2 include further
information regarding the existence or terms of this Agreement than is required
by law or governmental regulation. Promptly following the Effective Date the
parties shall prepare and mutually agree upon a redacted form of this Agreement
suitable for LILLY to provide to Myriad, Inc. and for MEGABIOS to file with the
Securities and Exchange Commission pursuant to federal securities laws. Once a
redacted version of the Agreement has been made publicly available, each party
shall be free to disclose any information that is not redacted in such agreement
without the consent of the other party.
Section 9.3. Other Releases. Notwithstanding these restrictions, LILLY
------------ --------------
recognizes MEGABIOS may need to disclose the terms of this Agreement to its
attorneys, bankers and their attorneys, accountants, and other MEGABOIS business
associates. LILLY hereby consents to such disclosures in accordance with this
Section 9.3. Furthermore, LILLY recognizes that MEGABIOS may need to disclose
previously undisclosed terms of this Agreement to prospective (sub) licensees or
other parties to commercial transactions. LILLY shall respond promptly to
requests from MEGABIOS to make such disclosures and shall not unreasonably
withhold its authorization. Any such disclosure under this Section 9.3 shall
include an obligation on the party receiving any confidential information to
maintain the same in confidence.
Article X
---------
Representations, Warranties and Acknowledgments
-----------------------------------------------
Section 10.1. Warranty of Title. MEGABIOS hereby warrants that it has the
------------- -----------------
unencumbered right to enter into this Agreement and to grant the license(s)
contained herein. LILLY hereby warrants that it has the unencumbered right to
enter into this Agreement and to grant the license(s) contained herein.
Section 10.2. Patents, Prior Art. Each party to this Agreement represents
------------- ------------------
and warrants that to the best of its knowledge, it has sufficient legal and/or
beneficial title, ownership or license rights under its intellectual property
rights necessary for its business as now conducted and as currently proposed to
be conducted under the Project contemplated herein. Each party is not aware of
any communications alleging that it has violated or, by conducting its business
as currently proposed under the Project contemplated herein, would violate any
of the intellectual property rights of any other person or entity relating to
the research to be carried out under the Agreement. To the best of each party's
knowledge, there is no material unauthorized use, infringement or
misappropriation of any of its intellectual property rights by any third party.
As used herein, the term "intellectual property rights" means all patent rights,
copyrights, trademarks, trade secret rights, chemical and biological material
rights, and know-how rights necessary or useful to make, use or sell any
Products.
Section 10.3. Employee Obligations. MEGABIOS represents and warrants that
------------- --------------------
all of its employees, officers, and consultants have executed agreements
requiring assignment to MEGABIOS of all inventions made during the course of
<PAGE>
-25-
and as the result of their association with MEGABIOS and obligating the
individual to maintain as confidential MEGABIOS' confidential information as
well as confidential information of a third party which MEGABIOS may receive.
LILLY represents and warrants that all of its consultants have executed
agreements requiring assignment to LILLY of all inventions made during the
course of and as the result of their association with LILLY and obligating the
individual to maintain as confidential LILLY's confidential information as well
as confidential information of a third party which LILLY may receive.
LILLY also represents and warrants that all of its employees and officers
are under a legal obligation of assignment to LILLY of all inventions made
during the course of and as the result of their association with LILLY and
obligating the individual to maintain as confidential LILLY's confidential
information as well as confidential information of a third party which LILLY may
receive.
Section 10.4. Acknowledgment of Other Research. MEGABIOS acknowledges and
------------- ---------------------------------
agrees that LILLY has substantial existing technology relating to other types of
compounds that may or may not be reactive with the BRCA1 Gene and that LILLY,
subject to Section 5.3, will continue to: a) maintain an ongoing independent
research effort in those other areas; b) contract with other parties for
technology and biological materials; and c) develop drugs useful in treating
disease states relating to the BRCA1 Gene. LILLY acknowledges and agrees that
MEGABIOS has substantial technology relating to non-viral gene delivery systems
that may or may not be useful with genes other that BRCA1 and that MEGABIOS,
subject to Section 5.3, will continue to: a) maintain ongoing research and
development efforts in those areas independently and in collaboration with third
parties; and b) develop products incorporating genes other than BRCA1 for use in
any disease state, including potentially disease states relating to the BRCA1
gene.
Article XI
----------
Infringement of Third Party's Rights
------------------------------------
Section 11.1. Third Party Intellectual Property.
------------- ---------------------------------
(a) During the Project term, MEGABIOS and LILLY shall each promptly notify
each other of any and all third party technology, patents or information which
either may be valuable in connection with the Project or which may be infringed
by either party by the conduct of the Project or the use of MEGABIOS
Information, LILLY Information, LILLY Patent Rights, MEGABIOS Patent Rights, or
Project Information in the Project. LILLY and MEGABIOS shall decide if such
rights or technology should be acquired in connection with the Project and, if
so, whether by MEGABIOS, LILLY or both, and how the cost of acquiring such
technology should be borne by the parties.
(b) If third party patent or other proprietary rights are infringed or
misappropriated by the practice of the inventions claimed in the MEGABIOS Patent
Rights or the use of MEGABIOS Information or Project Information owned solely by
MEGABIOS, in the Field, and if LILLY acquires the rights necessary to practice
such technology in the Field, then LILLY may offset payments made in
<PAGE>
-26-
consideration for such rights against royalties due to MEGABIOS pursuant to
Section 11.3.
If the parties agree to acquire such technology as part of the Project,
such technology or rights shall become part of the acquiring party's Information
or Patent Rights, whichever is appropriate, or, if jointly acquired, part of the
Project Information. If the parties do not agree on how to allocate the costs or
whether to acquire such technology or rights, either party may acquire such
technology or rights at its own expense and such technology or rights shall not
become part of the Information or Patent Rights of such party, or of the Project
Information.
Section 11.2. Litigation. If a third party asserts that a patent or other
------------- -----------
right owned by it is infringed or misappropriated by the practice of the
inventions claimed in the MEGABIOS Patent Rights or the use of MEGABIOS
Information or Project Information owned solely by MEGABIOS, in the Field, and
such assertion results in a claim against LILLY, the party to this Agreement
first having notice of that claim shall promptly notify the other party in
writing. The notice shall set forth the facts of the claim in reasonable detail
. MEGABIOS shall have the primary right, but not the obligation, to defend
against such claim. LILLY shall cooperate with MEGABIOS at MEGABIOS' request and
expense in such defense and shall have the right to be represented by counsel of
its own choice and at LILLY's expense. IF MEGABIOS shall fail to defend against
such claim within a period of one hundred twenty (120) days after receiving
written notice from LILLY or otherwise of such claim, LILLY shall have the right
to so defend by counsel of LILLY's own choice and MEGABIOS shall have the right,
at its own expense, to be represented by counsel of its own choice.
Section 11.3. Royalty Reduction. If, as a result of acquisition of third
------------- ------------------
party technology or rights under Section 11.1(b) or litigation (including
settlement thereof) under Section 11.2, LILLY is required to pay a third party a
royalty or make any payment of any kind as compensation for such rights, in a
particular country, then LILLY may deduct, from the amount of royalties owed to
MEGABIOS in connection with Net Sales in such country [ * ] of the amount of the
third party royalty or such other amount, including any initial payment, if any,
payable to the third party, up to, but no more than, [ * ] of the amounts
otherwise payable to MEGABIOS in connection with Net Sales in such country,
however the royalty payable to MEGABIOS shall not be less than [ * ]
Section 11.4. Third Party Infringement. If any patent in the MEGABIOS
------------- -------------------------
Patent Rights in the Field is infringed by a third party, the party to this
Agreement first having knowledge of such infringement shall promptly notify the
other in writing. The notice shall set forth the facts of that infringement in
reasonable detail. MEGABIOS shall have the primary right, but not the
obligation, to institute, prosecute, and control any action or proceeding with
respect to such infringement of the MEGABIOS Patent Rights, by counsel of its
own choice, and LILLY shall have the right, at its own expense, to be
represented in that action by counsel of its own choice. IF MEGABIOS fails to
bring an action or proceeding within a period of one hundred twenty (120) days
after receiving written notice from LILLY or otherwise having knowledge of that
infringement, LILLY shall have the right to bring and control any such action by
counsel of its own choice, and MEGABIOS shall have the right to be represented
in any such action by counsel of its own choice at its own expense.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
-27-
If one party brings any such action or proceeding, the second party agrees
to be joined as a party plaintiff and to give the first party reasonable
assistance and authority to file and prosecute the suit. The costs and expenses
(including reasonable attorney's fees) of all suits brought by MEGABIOS or LILLY
under this Section shall be reimbursed on a pro-rata basis to both parties out
of any damages or other monetary awards recovered therein in favor of MEGABIOS
and/or LILLY. Any remaining damages shall split [ * ] to the party initiating
and prosecuting the action to completion and [ * ] to the other party.
No settlement or consent judgment or other voluntary final disposition of a
suit under this Section may be entered into without the joint consent of
MEGABIOS and LILLY (which consent shall not be withheld unreasonably).
Notwithstanding anything to the contrary herein, this Section 11.4 shall
not apply to the extent it is inconsistent with the License Agreement dated May
9, 1996 between MEGABIOS and UC.
Section 11.5. Warranty and Indemnification. MEGABIOS shall defend,
------------- ----------------------------
indemnify and hold harmless LILLY against any direct loss or injury by reason of
any third party action in which it is determined or alleged that LILLY's
practice of the inventions claimed in the MEGABIOS Patent Rights, or the use of
MEGABIOS Information, or Project Information generated or developed by MEGABIOS,
in the Field misappropriates that third party's rights arising out of any
contractual obligation on the part of MEGABIOS to such third party. If MEGABIOS
is required to pay any such third party a royalty or make any payment of any
kind for LILLY's right to use MEGABIOS Patent Rights, MEGABIOS Information, or
Project Information in the Field, in a particular country, MEGABIOS shall be
solely responsible for the payment of such royalty or other payment.
In the event that LILLY is seeking indemnification under this Section 11.5,
it shall inform MEGABIOS of a claim as soon as reasonably practicable after it
receives notice of the claim, shall permit MEGABIOS to assume direction and
control of the defense of the claim (including the right to settle the claim
solely for monetary consideration to be paid by or on behalf of MEGABIOS), and
shall cooperate as requested (at the expense of MEGABIOS) in the defense of the
claim. LILLY may elect at any time to acquire the third party rights and offset
payments due to the third party for such rights against royalties due to
MEGABIOS pursuant to Sections 11.1 and 11.3, in lieu of the indemnification
provided for in this Section 11.5.
If, prior to or during the pendency of any action described in the first
paragraph of this Section 11.5 LILLY reasonably believes the indemnification
provided by MEGABIOS under this Section 11.5 is inadequate due to bankruptcy,
insolvency or otherwise, LILLY may withhold payment to MEGABIOS of [ * ] of
royalties owed to MEGABIOS in connection with Net Sales in the country(ies)
where such third party claims misappropriated rights. Such royalties shall be
paid to MEGABIOS upon conclusion of such action, or offset against any
outstanding obligation of MEGABIOS to indemnify LILLY, at LILLY's election.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
-28-
Article XII
-----------
Indemnification
---------------
Section 12.1. Product Liability Indemnification. LILLY hereby agrees to
------------- ---------------------------------
defend, indemnify and hold MEGABIOS and its agents and employees harmless from
and against any and all suits, claims, actions, demands, liabilities, expenses
and/or loss, including reasonable legal expense and attorneys' fees, other than
claims for infringement as provided in Section 11.2, claims as described in
Section 12.2 or otherwise due to MEGABIOS' negligence, resulting directly or
indirectly from the manufacture, use, handling, storage, sale or other
disposition of chemical agents or Products by LILLY, its Affiliates, agents or
sublicensees.
In the event that MEGABIOS is seeking indemnification under this Section
12.1, it shall inform LILLY of a claim as soon as reasonably practicable after
it receives notice of the claim, shall permit LILLY to assume direction and
control of the defense of the claim (including the right to settle the claim
solely for monetary consideration), and shall cooperate as requested (at the
expense of LILLY) in the defense of the claim.
Section 12.2. Indemnification of LILLY. MEGABIOS hereby agrees to defend,
------------- ------------------------
indemnify and hold LILLY and its agents and employees harmless from and against
any and all suits, claims, actions, demands, liabilities, expenses and/or loss,
including reasonable legal expense and attorneys' fees resulting directly or
indirectly from negligence by MEGABIOS, its employees or agents in the conduct
of preclinical toxicology studies pertaining to Products.
In the event that LILLY is seeking indemnification under this Section 12.2,
it shall inform MEGABIOS of a claim as soon as reasonably practicable after it
receives notice of the claim, shall permit MEGABIOS to assume direction and
control of the defense of the claim (including the right to settle the claim
solely for monetary consideration), and shall cooperate as requested (at the
expense of MEGABIOS) in the defense of the claim.
Article XIII
------------
Government Control
------------------
Section 13.1. Authority. This Agreement is made subject to any
------------- ---------
restrictions concerning the export of products or technical information from the
United States of America which may be imposed upon or related to MEGABIOS or
LILLY from time to time by the government of the United States of America.
Article XIV
-----------
Miscellaneous Provisions
------------------------
Section 14.1. No Agency. It is understood and agreed that MEGABIOS shall
------------- ---------
have the status of an independent contractor under this Agreement and that
nothing in this Agreement shall be construed as authorization for either LILLY
or MEGABIOS to act as agent for the other. Members of the Committee shall be,
and
<PAGE>
-29-
shall remain, employees of MEGABIOS or LILLY, as the case may be. LILLY shall
not incur any liability for any act or failure to act by employees of MEGABIOS,
including members of the Committee who are employees of MEGABIOS. MEGABIOS shall
not incur any liability for any act or failure to act by employees of LILLY,
including members of the Committee who are employees of LILLY.
Section 14.2. Force Majeure. Both parties to the Agreement shall be
------------- -------------
excused from the performance of their obligations under this Agreement if such
performance is prevented by Force Majeure and the nonperforming party promptly
provides notice of the prevention to the other party. Such excuse shall be
continued so long as the condition constituting Force Majeure continues and the
nonperforming party takes reasonable efforts to remove the condition.
For purposes of this Agreement, Force Majeure shall include conditions
beyond the control of the parties, including without limitation, an act of God,
voluntary or involuntary compliance with any regulation, law or order of any
government, war, civil commotion, epidemic, failure or default of public
utilities or common carries, destruction of production facilities or materials
by fire, earthquake, storm or like catastrophe.
Section 14.3. Amendment. This Agreement may not be amended, supplemented,
------------ ---------
or otherwise modified except by an instrument in writing signed by both parties.
Section 14.4. Notices. Any notice required or permitted to be given under
------------- -------
this Agreement shall be in writing and shall be deemed to have been sufficiently
given for all purposes if mailed by first class certified or registered mail,
postage prepaid. Unless otherwise specified in writing, the mailing addresses of
the parties shall be as described below.
For MEGABIOS: Megabios Corp.
863A Mitten Road
Burlingame, California 94010
Attention: Chief Executive Officer
For LILLY: Eli Lilly and Company
Lilly Corporation Center
Indianapolis, Indiana 46285
Attention: Vice President, Oncology Discovery and
Clinical Development Research
Copy to: General Counsel
Section 14.5. Governing Law. This Agreement shall be governed by, and
------------- -------------
construed in accordance with, the laws of the State of Indiana, excluding any
choice of law rules which may direct the application of the law of any other
jurisdiction. Questions effecting the construction and effect of any Patent
Rights shall be determined by the laws of the country in which the Patent Right
has been applied for and granted.
<PAGE>
-30-
Section 14.6. Assignment. Neither party may assign its rights and
------------- ----------
obligations under this Agreement without the prior written consent of the other,
except a party may make such an assignment without the other party's consent in
connection with any merger, reorganization or sale of all or substantially all
of its assets to which this Agreement relates. This Agreement shall be binding
upon and shall inure to the benefit of the successors and permitted assigns of
the parties.
Section 14.7. Consents Not Unreasonably Withheld. Whenever provision is
------------- ----------------------------------
made in this Agreement for either party to secure the consent or approval of the
other, that consent or approval shall not unreasonably be withheld, and whenever
in this Agreement provisions are made for one party to object to or disapprove a
matter, such objection or disapproval shall not unreasonably be exercised.
Section 14.8. No Strict Construction. This Agreement has been prepared
------------- ----------------------
jointly and shall not be strictly construed against either party.
Section 14.9. Headings. The captions or headings of the Sections or other
------------- --------
subdivisions hereof are inserted only as a matter of convenience or for
reference and shall have no effect on the meaning of the provisions hereof.
Section 14.10. Severance of Clauses/Insolvency. Each party agrees that
-------------- ------------------------------
should any provision of this Agreement be determined by a court of competent
jurisdiction to violate or contravene any applicable law or policy, such
provision will be severed or modified by the court to the extent necessary to
comply with the applicable law or policy, and such modified provision and the
remainder of the provisions hereof will continue in full force and effect. In
addition the parties hereto intend that the Agreement shall not be deemed an
executory contract under the Bankruptcy/Insolvency laws of the United States.
Section 14.11. No Waiver. The waiver of a breach hereunder may be
-------------- ---------
effected only by a writing signed by the waiving party and shall not constitute
a waiver of any other breach.
Section 14.12. Limitation of Liability. No party shall be liable to
-------------- -----------------------
another for indirect, incidental, consequential or special damages, including
but not limited to lost profits, arising from or relating to any breach of this
Agreement, regardless of any notice of the possibility of such damages. Nothing
in this Section is intended to limit or restrict the indemnification rights or
other obligations hereunder of any party.
Section 14.13. Entire Agreement. The Agreement institutes the entire
-------------- ----------------
agreement of the parties relating to the subject matter, and may not be amended,
modified or canceled except by written instrument executed by both MEGABIOS and
LILLY.
Section 14.14. Counterparts. This Agreement has been executed in two (2)
-------------- ------------
counterparts, all of which shall constitute and original, but which together
shall constitute are and the same instrument.
<PAGE>
-31-
IN WITNESS WHEREOF, the parties by their respective authorized officers,
have executed this Agreement.
MEGABIOS CORP. ELI LILLY AND COMPANY
By: /s/ Benjamin F.McGraw III By: /s/ August M. Watanabe
--------------------------- -------------------------
Benjamin F.McGraw III August M. Watanabe
Title: President and CEO Title: Executive Vice President
Date: 23 May 1997 Date: May 23, 1997
<PAGE>
APPENDIX I
Potentially relevant Megabios Patent Rights existing as of the Effective Date
include the following U.S. patent applications, related U.S. applications, and
foreign counterparts.
Title Serial Number Status
[ * ]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
APPENDIX II
MANUFACTURING REQUIREMENTS DOCUMENT
ELI LILLY AND COMPANY/MEGABIOS PHARMACEUTICALS, INC.
1.0 INTRODUCTION
The Manufacturing Requirements Document (MRD) shall be a manual containing
certain specifications, procedures, assay methods and personnel contacts
relating to the manufacturing and supplying of Product (Attachment __) by
MEGABIOS CORP. (MEGABIOS) to Eli Lilly and Company (LILLY). The following
elements of an MRD (Section 3.0 below) will be developed and understood by
both MEGABIOS and LILLY prior to the first manufacture of Phase I Clinical
-------------------------------------
Trial material.
--------------
2.0 ADMINISTRATION
The MRD will be considered a "living document". Sections of the MRD may be
added, deleted, or otherwise modified from time to time through the
issuance of a revised section incorporating the modification and stating
the effective date of the modification. Initial development, as well as
periodic review and revision, should be coordinated by one LILLY
representative and one MEGABIOS representative, yet to be determined. Each
revision shall be signed on behalf of LILLY and MEGABIOS by their
respective representatives, or by an authorized representative of equal
or greater management level.
3.0 MANUFACTURING REQUIREMENTS DOCUMENT ELEMENTS
MEGABIOS and LILLY will mutually agree on responsibilities and procedures
for the following:
3.1 QUALITY ASSURANCE/REGULATORY REQUIREMENT
3.1.0 Product Specifications
3.1.1 Incoming Component Inspections/Testing
3.1.2 Stability
3.1.3 Batch Documentation and Quality Records
3.1.4 Change Control
3.1.5 Reserve Samples
3.1.6 Material Storage/Control/Accountability
3.1.7 Laboratory Analysis
3.1.8 Regulatory Responsibility
3.1.9 Batch Release Responsibility
<PAGE>
3.2 SHIPMENT OF FINISHED GOODS
3.2.1 Packaging, Labeling
3.2.2 Transportation
3.3.3 Warehousing
3.3 KEY CONTACTS
3.3.1 Key Contact List
<PAGE>
Example 2
- ---------
1. Assume two Products are marketed by Lilly, one in ovarian cancer ("Product
O"), one in breast cancer ("Product B"). Assume also that the calculation
relates to the [ * ] year of commercial sale of each Product. Assume further
that [ * ]
2. Calculate annual worldwide Net Sales for Product O, calculate annual
worldwide Net Sales for Product B. Assume that worldwide Net Sales of Product
O were $250 million, and worldwide Net Sales of Product B were $800 million.
3. Add together Net Sales for Product O and Net Sales of Product B to calculate
aggregate worldwide Product Net Sales ("Annual Net Sales"). In this case, Annual
Net Sales = $1050 million.
4.[ * ]
5. Determine aggregate royalty amounts due for the entire year as follows,
[ * ] In this instance, Lilly would owe:
(i) [ * ]
(ii) [ * ]
(iii) [ * ]
Accordingly, Lilly would owe to Megabios for the year a total of [ * ] on
aggregate worldwide Annual Net Sales of $1050 million during the [ * ] year of
commercial sale of the Products.
Example 3
- ---------
1. Assume one Product is marketed by Lilly, and that it was launched on a
worldwide basis [ * ]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
2. [ * ] Assume Net Sales are reported on a monthly basis. Assume that worldwide
Net Sales of the Product in January were $45 million, in February were $50
million and in March were $55 million. [ * ]
3. [ * ] Assume that worldwide Net Sales of the Product for April
through December are $450 million. [ * ]
4. Determine aggregate royalty amounts due for the entire year as follows,
[ * ] In this instance, Lilly would owe:
(i) [ * ]
Accordingly, Lilly would owe to Megabios for the year a total of [ * ]
on aggregate worldwide Annual Net Sales of $600 million during the [ * ]
of commercial sale of the Product, where [ * ]
NOTE : MORE COMPLEXITY WOULD BE INTRODUCED WHERE THE PRODUCTS ARE APPROVED IN
DIFFERENT YEARS, AND, IN ADDITION, WHERE THE WORLDWIDE ROLL-OUT HAPPENS OVER
SEVERAL YEARS, RESULTING IN THE "FIRST YEAR FROM COMMERCIAL SALE" VARYING ON A
PRODUCT-BY PRODUCT [ * ] THE SAME LOGIC OF ALLOCATING NET SALES,
HOWEVER, WOULD APPLY, DEPENDING UPON [ * ]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
Appendix III
MEGABIOS/LILLY ROYALTY SCHEME
Royalty Rates
[ * ]
Procedure:
Example 1
- ---------
1. Assume two Products are marketed by Lilly, one in ovarian cancer ("Product
O"), one in breast cancer ("Product B"). Assume further that the calculation
relates to the second year of commercial sale of each Product [ * ]
2. Calculate annual worldwide Net Sales for Product O, calculate annual
worldwide Net Sales for Product B. Assume that worldwide Net Sales of Product O
were $250 million, and worldwide Net Sales of Product B were $800 million.
3. Add together Net Sales for Product O and Net Sales of Product B to
calculate aggregate worldwide Product Net Sales ("Annual Net Sales"). In this
case, Annual Net Sales = $1050 million.
4. Determine marginal royalty rates. In this instance, Lilly would owe:
(i) [ * ]
Accordingly, Lilly would owe to Megabios for such year a total of [ * ]
on the Annual Net Sales of $1050 million.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
Appendix IV
METHODOLOGY FOR CONVERTING FOREIGN SALES TO US DOLLARS
------------------------------------------------------
The following is a description of how Eli Lilly and Company converts sales in
foreign countries to US dollars for external reporting:
Sales are transmitted directly to our corporate headquarters at the end of every
month. Our sales in several countries are made in US dollars, but most are made
in local currency. These sales are converted to US dollars [ * ]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
EXHIBIT 10.23
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SERIES B PREFERRED STOCK IS REDEEMABLE UNDER CERTAIN
CIRCUMSTANCES AND MAY BE CONVERTED AT ANY TIME AT THE ELECTION OF THE
HOLDER INTO FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK AND
SHALL BE AUTOMATICALLY CONVERTED INTO SHARES OF COMMON STOCK UPON THE
OCCURRENCE OF CERTAIN SPECIFIED EVENTS DESCRIBED IN THE AMENDED AND
RESTATED ARTICLES OF INCORPORATION.
-------------------
WARRANT TO PURCHASE SHARES OF PREFERRED STOCK
May 13, 1994
------
THIS CERTIFIES THAT, for value received, Lease Management Services, Inc.,
("Holder") is entitled to subscribe for and purchase Eighty Four Thousand
Dollars ($84,000.00) of the fully paid and nonassessable Preferred Stock ("the
Shares") of MEGABIOS Corp., a California corporation (the "Company"), at the
Warrant Price (as hereinafter defined), subject to the provisions and upon the
terms and conditions hereinafter set forth. As used herein, the term "Preferred
Stock" shall mean the Company's Series B Preferred Stock, and the Warrant Price
shall initially be the per share price of the upcoming Series C financing,
subject to adjustment as provided in Section 7 below. In the event the Series C
Preferred Stock financing (defined as the Company's receipt of at least $3
million new equity raised predominately from institutional venture investors)
does not close prior to December 31, 1994, then Holder will be entitled to
subscribe for and purchase Eighty Four Thousand Dollars ($84,000) of the
Company's fully paid and nonassessable Series B Preferred Stock at the Series B
share price (ie. $84,000/$1.2945 = 64,890 shares), subject to adjustment as
provided in Section 7 below.
1. Warrant Price. The Warrant Price shall be as defined above.
-------------
2. Conditions to Exercise. The purchase right represented by this Warrant may
----------------------
be exercised at any time, or from time to time, in whole or in part during the
term commencing on the date hereof and ending on the earlier of:
(a) 5:00 P.M. California time on the sixth annual anniversary of this
Warrant Agreement; or
(b) 5:00 P.M. California time on the day prior to the effectiveness of a
registration statement filed in a bona fide firm commitment underwriting
under the Securities Act of 1933, as amended, covering any of the Company's
securities (as that term is defined under the Securities Act of 1933, as
then in effect) with aggregate gross proceeds to the
<PAGE>
LMSI/ MEGABIOS Corp. Warrant
Page 2 of 8
Company, at the public offering price, of at least $7,500,000; provided
that the Company shall notify the registered Holder of this Warrant of the
proposed registration of its securities on or prior to the date that the
registration statement is filed, but in any event at least 30 days prior to
the effectiveness of such registration, such notice to set forth the
proposed date of effectiveness of the subject registration statement; or
(c) the effective date of the merger of the Company with or into, the
consolidation of the Company with, or the sale by the Company of all or
substantially all of its assets to another corporation or other entity
(other than such a transaction wherein the shareholders of the Company
retain or obtain a majority of the voting capital stock of the surviving,
resulting, or purchasing corporation); provided that subject to any
applicable securities laws or confidentiality requirements, the Company
shall notify the registered Holder of this Warrant of the proposed
effective date of the merger, consolidation, or sale at least 30 days prior
to the effectiveness thereof.
In the event that, although the Company shall have given notice of a
transaction pursuant to subparagraph (b) or (c) hereof, the transaction
does not close within 30 days of the day specified by the Company, unless
otherwise elected by the Holder any exercise of the Warrant subsequent to
the giving of such notice shall be rescinded and the Warrant shall again be
exercisable until terminated in accordance with this Section 2.
3. Method of Exercise; Payment; Issuance of Shares; Issuance of New Warrant.
------------------------------------------------------------------------
(a) Cash Exercise. Subject to Section 2 hereof, the purchase right represented
-------------
by this Warrant may be exercised by the Holder hereof, in whole or in part, by
the surrender of this Warrant (with a duly executed Notice of Exercise in the
form attached hereto) at the principal office of the Company (as set forth in
Section 18 below) and by payment to the Company, by check, of an amount equal to
the then applicable Warrant Price per share multiplied by the number of shares
then being purchased. In the event of any exercise of the rights represented by
this Warrant, certificates for the shares of stock so purchased shall be in the
name of, and delivered to, the Holder hereof, or as such Holder may direct
(subject to the terms of transfer contained herein and upon payment by such
Holder hereof of any applicable transfer taxes). Such delivery shall be made
within 10 days after exercise of the Warrant and at the Company's expense and,
unless this Warrant has been fully exercised or expired, a new Warrant having
terms and conditions substantially identical to this Warrant and representing
the portion of the Shares, if any, with respect to which this Warrant shall not
have been exercised, shall also be issued to the Holder hereof within 10 days
after exercise of the Warrant.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section
------------------
3(a), Holder may elect to receive shares equal to the value of this Warrant
(or of any portion thereof remaining unexercised) by surrender of this
Warrant at the principal office of the Company together with notice of such
election, in which event the Company shall issue to Holder the number of
shares of the Company's Preferred Stock computed using the following
formula:
X = Y (A-B)
------
A
Where X = the number of shares of Preferred Stock to be issued to Holder.
Y = the number of shares of Preferred Stock purchasable under this Warrant
(at the date of such calculation).
2
<PAGE>
LMSI/ MEGABIOS Corp. Warrant
Page 3 of 8
A = the fair market value of one share of the COMPANY'S Preferred Stock
(at the date of such calculation).
B = Warrant exercise price (as adjusted to the date of such calculation).
(c) Fair Market Value. For purposes of this Section 3, Fair Market Value of one
-----------------
share of the Company's Preferred Stock shall mean:
(i) In the event of an Initial Public Offering pursuant to Section 2(b),
the per share Fair Market Value for the Preferred Stock shall be the
Offering Price at which the underwriters sell Common Stock to the public
multiplied by the number of shares of Common Stock into which each share of
Series B Preferred Stock is then convertible; or
(ii) If the Common Stock is traded on NASDAQ or Over-The-Counter or on an
exchange, the per share Fair Market Value for the Preferred Stock will be
the average of the closing bid and asked prices of the Common Stock quoted
in the Over-The Counter Market Summary or the closing price quoted on any
exchange on which the Common Stock is listed, whichever is applicable, as
published in the Western Edition of The Wall Street Journal for the ten
-----------------------
(10) trading days prior to the date of determination of Fair Market Value
multiplied by the number of shares of Common Stock into which each share of
Series B Preferred Stock is then convertible; or
(iii) If the Company shall be subject to a merger, acquisition or other
consolidation in which the Company is not the surviving entity, pursuant to
Section 2(c), the per share Fair Market Value for the Preferred Stock shall
be the value received per share of Preferred Stock by all holders of the
Preferred Stock as determined by the Board of Directors of the Company; or
(iv) In any other instance, the per share Fair Market Value for the
Preferred Stock shall be as determined by the Board of Directors of the
Company in its reasonable business judgment.
In the event of 3(c)(iii) or 3(c)(iv), above, the Company's Board of
Directors shall prepare a certificate, to be signed by an authorized
Officer of the Company, setting forth in reasonable detail the basis for
and method of determination of the per share Fair Market Value of the
Series B Preferred Stock. The Board will also certify to the Holder that
this per share Fair Market Value will be applicable to all holders of the
Company's Series B Preferred Stock. Such certification must be made to
Holder at least twenty (20) business days prior to the proposed effective
date of the merger, consolidation, sale, or other triggering event as
defined in 3(c)(iii) and 3(c)(iv).
4. Representations and Warranties of Holder and Restrictions on Transfer
---------------------------------------------------------------------
Imposed by the Securities Act of 1933.
- -------------------------------------
(a) Representations and Warranties by Holder. The Holder represents and
warrants to the Company with respect to this purchase as follows:
(i) The Holder has substantial experience in evaluating and investing in
private placement transactions of securities of companies similar to the
Company so that the Holder is capable of evaluating the merits and risks of
its investment in the Company and has the capacity to protect its
interests.
3
<PAGE>
LMSI/ MEGABIOS Corp. Warrant
PAGE 4 of 8
(ii) The Holder is acquiring the Warrant and the Shares of Preferred Stock
issuable upon exercise of the Warrant and any Common Stock issued upon
conversion thereof (collectively the "Securities") for investment for
its own account and not with a view to, or for resale in connection
with, any distribution thereof. The Holder understands that the Securities
have not been registered under the Act by reason of a specific exemption
from the registration provisions of the Act which depends upon, among other
things, the bona fide nature of the investment intent as expressed herein.
In this connection, the Holder understands that, in the view of the
Securities and Exchange Commission (the "SEC"), the statutory basis for
such exemption may be unavailable if this representation was predicated
solely upon a present intention to hold the Securities for the minimum
capital gains period specified under tax statutes, for a deferred sale, for
or until an increase or decrease in the market price of the Securities or
for a period of one year or any other fixed period in the future.
(iii) The Holder acknowledges that the Securities must be held indefinitely
unless subsequently registered under the Act or an exemption from such
registration is available. The Holder is aware of the provisions of Rule
144 promulgated under the Act ("Rule 144") which permits limited resale of
securities purchased in a private placement subject to the satisfaction of
certain conditions, including, in case the securities have been held for
less than three years, the existence of a public market for the shares, the
availability of certain public information about the Company, the resale
occurring not less than two years after a party has purchased and paid for
the security to be sold, the sale being through a "broker's transaction" or
in a transaction directly with a "market maker" (as provided by Rule
144(f)) and the number of shares or other securities being sold during any
three-month period not exceeding specified limitations.
(iv) The Holder further understands that at the time the Holder wishes to
sell the Securities there may be no public market upon which such a sale
may be effected, and that even if such a public market exists, the Company
may not be satisfying the current public information requirements of Rule
144, and that in such event, tile Holder may be precluded from selling the
Securities under Rule 144 unless a) a three-year minimum holding period has
been satisfied and b) the Holder was not at the time of the sale nor at any
time during the three-month period prior to such sale an affiliate of the
Company .
(v) The Holder has had an opportunity to discuss the Company's business,
management and financial affairs with its management and an opportunity to
review the Company's facilities . The Holder understands that such
discussions , as well as the written information issued by the Company,
were intended to describe the aspects of the Company's business and
prospects which it believes to be material but were not necessarily a
thorough or exhaustive description.
(b) Legends. Each certificate representing the Securities shall be endorsed
-------
with the following legend and such legends as the Company deems appropriate:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
4
<PAGE>
LMSI/ MEGABIOS Corp. Warrant
Page 5 of 8
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SERIES B PREFERRED STOCK IS REDEEMABLE UNDER CERTAIN
CIRCUMSTANCES AND MAY BE CONVERTED AT ANY TIME AT THE
ELECTION OF THE HOLDER INTO FULLY PAID AND NON-
ASSESSABLE SHARES OF COMMON STOCK AND SHALL BE
AUTOMATICALLY CONVERTED INTO SHARES OF COMMON STOCK
UPON THE OCCURRENCE OF CERTAIN SPECIFIED EVENTS
DESCRIBED IN THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION.
The Company need not register a transfer of Securities unless the conditions
specified in the foregoing legends are satisfied. The Company may also instruct
its transfer agent not to register the transfer of any of the Shares unless the
conditions specified in the foregoing legends are satisfied.
(c) Removal of Legend and Transfer Restrictions. The legend relating to the Act
-------------------------------------------
endorsed on a certificate pursuant to Section 4(b) of this Warrant and the stop
transfer instructions with respect to the Securities represented by such
certificate shall be removed and the Company shall issue a certificate without
such legend to the Holder of the Securities if (i) the Securities are registered
under the Act and a prospectus meeting the requirements of Section 10 of the Act
is available or (ii) the Holder provides to the Company an opinion of counsel
for the Holder reasonably satisfactory to the Company, or a no-action letter or
interpretive opinion of the staff of the SEC reasonably satisfactory to the
Company, to the effect that public sale, transfer or assignment of the
Securities may be without registration and without compliance with any
restriction such as Rule 144.
5. Condition of Transfer or Exercise of Warrant. Subject to Section 10, it
--------------------------------------------
shall be a condition to any transfer or exercise of this Warrant that at the
time of such transfer or exercise, the Holder shall provide the Company with a
representation in writing that the Holder or transferee is acquiring this
Warrant and the shares of Preferred Stock to be issued upon exercise and any
Common Stock issued upon conversion thereof for investment purposes only and not
with a view to any sale or distribution, or a statement of pertinent facts
covering any proposed distribution. As a further condition to any transfer of
this Warrant or any or all of the shares of Preferred Stock issuable upon
exercise of this Warrant or any Common Stock issued upon conversion thereof,
other than a transfer registered under the Act, the Company must have received a
legal opinion, in form and substance satisfactory to the Company and its
counsel, reciting the pertinent circumstances surrounding the proposed transfer
and stating that such transfer is exempt from the registration and prospectus
delivery requirements of the Act. Each certificate evidencing the shares issued
upon exercise of the Warrant or upon any transfer of the shares (other than a
transfer registered under the Act or any subsequent transfer of shares so
registered) shall, at the Company's option, contain legends in form and
substance satisfactory to the Company and its counsel, restricting the transfer
of the shares to sales or other dispositions exempt from the requirements of the
Act.
As further condition to each transfer, the transferee shall receive and
accept a Warrant, of like tenor and date, executed by the Company.
6. Stock Fully Paid: Reservation of Shares. All Shares which may be issued upon
---------------------------------------
the exercise of the rights represented by this Warrant will, upon issuance, be
fully paid and nonassessable, and free from all taxes, liens, and charges with
respect to the issue thereof. Subject to completion of the Company's upcoming
Series C Preferred Stock financing and
5
<PAGE>
LMSI/ MEGABIOS Corp. Warrant
Page 6 of 8
determination of the Series C pricing during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for issuance upon exercise of the purchase
rights evidenced by this Warrant, a sufficient number of shares of its
Preferred Stock to provide for the exercise of the rights represented by this
Warrant.
7. Adjustment for Certain Events. Subject to Section 8, in the event of
-----------------------------
changes in the outstanding Preferred Stock by reason of stock dividends, split-
ups, reclassifications, mergers, consolidations, combinations or exchanges of
shares, separations, reorganizations, liquidations, or the like, the number
and class of shares available under the Warrant in the aggregate and the Warrant
Price shall be correspondingly adjusted, as appropriate, by the Board of
Directors of the Company. The adjustment shall be such as will give the Holder
of this Warrant upon exercise for the same aggregate Warrant Price the total
number, class and kind of shares as he would have owned had the Warrant been
exercised prior to the event and had he continued to hold such shares until
after the event requiring adjustment. Nothing herein shall be construed as
providing Holder with antidilution rights greater than the antidilution rights,
if any, of the holders of the Series B Preferred Stock generally, as set forth
in the Company's Amended and Restated Articles of Incorporation, as amended. No
adjustment in the Warrant Price and/or the number of Shares need be made if such
adjustment would result in a change in the Warrant Price of less than one cent
($0.01) or a change in the number of Shares of less than one-hundredth (1/100th)
of a share. Any adjustment less than these amounts which is not made shall be
carried forward and shall be made at the time and together with any subsequent
adjustment which, on a cumulative basis, amounts to an adjustment of at least
these amounts.
8. Notice of Adjustments. Whenever any Warrant Price shall be adjusted
---------------------
pursuant to Section 7 hereof, the Company shall prepare a certificate signed by
an officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Warrant Price and number of shares issuable
upon exercise of the Warrant after giving effect to such adjustment, and shall
cause copies of such certificate to be mailed (by certified or registered mail,
return receipt required, postage prepaid) within thirty (30) days of such
adjustment to the Holder of this Warrant as set forth in Section 18 hereof.
9. "Market Stand-Off" Agreement. Holder hereby agrees that for a period of 180
----------------------------
days following the effective date of the first registration statement of the
Company covering Common Stock (or other securities) to be sold on its behalf in
an underwritten public offering, it will not, to the extent requested by the
Company and any underwriter, sell or otherwise transfer or dispose of (other
than to donees or transferees who agree to be similarly bound) any of the Shares
at any time during such period except Common Stock included in such
registration; provided, however, that all officers and directors of the Company
who hold securities of the Company or options to acquire securities of the
Company and all other persons with registration rights enter into similar
agreements.
10. Transferability of Warrant. This Warrant is transferable one time only, in
--------------------------
whole and not in part, on the books of the Company at its principal office by
the original registered Holder hereof upon surrender of this Warrant properly
endorsed, subject to compliance with applicable federal and state securities
laws (including the delivery of investment representation letters and legal
opinions reasonably satisfactory to the Company, if such are requested by the
Company); provided, however, that notwithstanding the foregoing, this Warrant
may be transferred to Holder's parent company or to an affiliate company as part
of a merger or consolidation and such transfer shall not count as the one
permitted transfer referred to above. After such one-time transfer, this Warrant
shall be non-transferable. The Company shall issue and deliver to the transferee
a new Warrant representing the Warrant so transferred. No
6
<PAGE>
LMSI/ MEGABIOS Corp. Warrant
Page 7 of 8
partial transfer of the Warrant shall be allowed. Holder shall not have any
right to transfer any portion of this Warrant to any direct competitor of the
Company.
11. No Fractional Shares. No fractional share of Preferred Stock will be
--------------------
issued in connection with any exercise hereunder, but in lieu of such fractional
share the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
12. Charges Taxes and Expenses. Issuance of certificates for shares of
--------------------------
Preferred Stock upon the exercise of this Warrant shall be made without charge
to the Holder for any United States or state of the United States documentary
stamp tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and reasonable expenses shall be paid by the
Company, and such certificates shall be issued in the name of the Holder.
13. No Shareholder Rights Until Exercise. This Warrant does not entitle the
------------------------------------
Holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof.
14. Registry of Warrant. The Company shall maintain a registry showing the name
-------------------
and address of the registered Holder of this Warrant. This Warrant may be
surrendered for exchange or exercise, in accordance with its terms, at such
office or agency of the Company, and the Company and Holder shall be entitled to
rely in all respects, prior to written notice to the contrary, upon such
registry.
15. Loss Theft. Destruction or Mutilation of Warrant. Upon receipt by the
------------------------------------------------
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft, or
destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant, having terms and conditions substantially identical to this
Warrant, in lieu hereof.
16. Miscellaneous.
-------------
(a) Issue Date. The provisions of this Warrant shall be construed and
----------
shall be given effect in all respect as if it had been issued and delivered
by the Company on the date hereof.
(b) Successors. This Warrant shall be binding upon any successors or
----------
assigns of the Company.
(c) Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California.
(d) Headings. The headings used in this Warrant are used for convenience
--------
only and are not to be considered in construing or interpreting this
Warrant.
(e) Saturdays Sundays Holidays. If the last or appointed day for the taking
--------------------------
of any action or the expiration of any right required or granted herein
shall be a Saturday or a Sunday or shall be a legal holiday in the State of
California, then such action may be taken or such right may be exercised on
the next succeeding day not a legal holiday.
17. No Impairment. The Company will not, by amendment of its Articles of
-------------
Incorporation or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder hereof against impairment.
7
<PAGE>
LMSI/ MEGABIOS Corp. WARRANT
Page 8 of 8
18. Addresses. Any notice required or permitted hereunder shall be in writing
---------
and shall be mailed by overnight courier, registered or certified mail, return
receipt required, and postage pre-paid, or otherwise delivered by hand or by
messenger, addressed as set forth below, or at such other address as the Company
or the Holder hereof shall have furnished to the other party.
If to the Company: MEGABIOS Corp.
871 Industrial Road, Suite J & K
San Carlos, CA 94070
Attn: Kathleen Z. Layendecker
If to the Holder: Lease Management Services, Inc.
2500 Sand Hill Road, Ste. 101
Menlo Park, CA 94025
Attn: Barbara B. Kaiser, Sr. VP/GM
IN WITNESS WHEREOF, MEGABIOS Corp. has caused this Warrant to be executed by
-------------
its Director of Corporate Development and thereunto duly authorized.
Dated as of May 13, 1994.
------------
----------------------------------
BY: Kathleen Z. Layendecker
----------------------------------
Director of Corporate Development
SIGNATURE: /s/ Kathleen Z. Layendecker
----------------------------
8
<PAGE>
EXHIBIT 10.24
[LETTERHEAD OF MEGABIOS CORP.]
January 3, 1996
Edgerton Scott, II
Senior Vice President
Imperial Bank
Special Markets Group
2460 Sand Hill Road, Suite 102
Menlo Park, California 94025
Via Federal Express
Dear Mr. Scott:
As you know, the Warrant to Purchase Shares of Preferred Stock entered into by
Imperial Bank and Megabios Corp. on June 1, 1995 (the Warrant"), provided for
the reduction of the value of the Warrant to be received by Imperial Bank under
certain conditions. In August 1995, Megabios Corp. completed a $7.0 million
financing through the sale of Series C Preferred Stock, thereby triggering a
reduction in the value of the Warrant. Since extenuating circumstances (force
majeure) prevented the final closing of this offering until after the deadline
of August 15, 1995, but all investors had been identified and processed as of
that time, Megabios Corp. and Imperial Bank have agreed that the exchange value
of the Warrant shall be $93,500 (72,422 shares of Series C Preferred Stock).
This figure represents the mid-point of $75,000, the lowest possible value of
the Warrant, and $112,500, the intermediate value of the Warrant established
based on Megabios Corp.'s raising $5.0 million in July 1995. Please note that
the Warrant shall convert into Series C Preferred stock, not Series D Preferred.
I have also attached a check in the amount of $10,270.00 for processing and
closing fees associated with the transaction. Please forward it to the
appropriate party within your organization.
Thank you for supporting Megabios Corp. and congratulations on becoming a
Megabios shareholder! I look forward to speaking with you soon.
Best regards,
/s/ Patrick Enright
Patrick Enright
cc: B. McGraw
M. Nibel
P. Martinson (Cooley Godward)
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") ANY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON OTHER WRITTEN
EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
THE SERIES C PREFERRED STOCK IS REDEEMABLE UNDER CERTAIN CIRCUMSTANCES AND
MAY BE CONVERTED AT ANY TIME AT THE ELECTION OF THE HOLDER INTO FULLY PAID
AND NON-ASSESSABLE SHARES OF COMMON STOCK AND SHALL BE AUTOMATICALLY
CONVERTED INTO SHARES OF COMMON STOCK UPON THE OCCURRENCE OF CERTAIN
SPECIFIED EVENTS DESCRIBED IN THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION.
_________________
WARRANT TO PURCHASE SHARES OF PREFERRED STOCK
June 1, 1995
THIS CERTIFIES THAT, for value received Imperial Bank ("Holder") is
entitled to subscribe for and purchase certain shares of the fully paid and
nonassessable Preferred Stock ("the Shares") of MEGABIOS CORP., a California
corporation (the "Company"), at the Warrant Price (as hereinafter defined),
subject to the provisions and upon the terms and conditions hereinafter set
forth. As used herein, the term "Preferred Stock" shall mean the Company's
Series C Preferred Stock, unless (i) the Company shall have issued shares of
Series D Preferred Stock prior to August 15, 1995 or such issuance shall be,
in the opinion of the Holder, imminent on such date, or (ii) the closing of a
major new corporate partnership shall be, in the opinion of the Holder, imminent
on August 15, 1995; then the term "Preferred Stock" shall mean the Company's
Series D Preferred Stock. The number of shares of Preferred Stock for which this
Warrant shall be exercisable is as follows:
(a) If this Warrant is exercised for Series C Preferred Stock, 115,875
shares;
(b) If this Warrant is exercised for Series D Preferred Stock, and
(i) the Company has, not later than June 15, 1995, soft-circled
from prospective investors the purchase of an aggregate of
$4,000,000 of Series D Preferred Stock, that number of shares
equal to $112,500 divided by the initial purchase price per
share of Series D Preferred Stock; or
1.
<PAGE>
(ii) the Company has deposited with Holder by August 15, 1995 at
least $7,000,000 in new equity or Holder is then of the
reasonable belief that such amount of funding is committed and
closing thereof is imminent, that number of shares equal to
$112,500 divided by the initial purchase price per share of
Series D Preferred Stock; or
(iii) the Company has, not later than June 15, 1995, soft-circled
from prospective investors the purchase of an aggregate of
$4,000,000 of Series D Preferred Stock and has deposited with
Holder by August 15,1995 at least $7,000,000 in new equity or
Holder is then of the reasonable belief that such amount of
funding is committed and closing thereof is imminent, that
number of shares equal to $75,000 divided by the initial
purchase price per share of Series D Preferred Stock; or
(iv) in all other cases, that number of shares equal to $150,000
divided by the initial purchase price per share of Series D
Preferred Stock.
1. WARRANT PRICE. The initial Warrant Price shall be, in the case of
Series D Preferred Stock, the purchase price per share of the Series D Preferred
Stock at the time it is first issued to a purchaser, and in the case of Series C
Preferred Stock, $1.2945 per share.
2. CONDITIONS TO EXERCISE. The purchase right represented by this Warrant
may be exercised at any time, or from time to time, in whole or in part during
the term commencing on the date hereof and ending on the earlier of:
(a) 5:00 P.M. California time on the fifth (5th) annual anniversary of
this Warrant Agreement; or
(b) the effective date of the merger of the Company with or into, the
consolidation of the Company with, or the sale by the Company of all or
substantially all of its assets to another corporation or other entity (other
than such a transaction wherein the shareholders of the Company retain or obtain
a majority of the voting capital stock of the surviving, resulting, or
purchasing corporation); provided that subject to any applicable securities laws
or confidentiality requirements, the Company shall notify the registered Holder
of this Warrant of the proposed effective date of the merger, consolidation, or
sale at least 30 days prior to the effectiveness thereof.
In the event that, although the Company shall have given notice of a
transaction pursuant to subparagraph (b)hereof, the transaction does not close
within 30 days of the day specified by the Company, unless otherwise elected by
the Holder any exercise of the Warrant subsequent to the giving of such notice
shall be rescinded and the Warrant shall again be exercisable until terminated
in accordance with this Section 2.
2.
<PAGE>
3. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF SHARES; ISSUANCE OF NEW WARRANT.
(a) CASH EXERCISE. Subject to Section 2 hereof, the purchase right
represented by this Warrant may be exercised by the Holder hereof, in whole or
in part, by the surrender of this Warrant (with a duly executed Notice of
Exercise in the form attached hereto) at the principal office of the Company (as
set forth in Section 18 below) and by payment to the Company, by check, of an
amount equal to the then applicable Warrant Price per share multiplied by the
number of shares then being purchased. In the event of any exercise of the
rights represented by this Warrant, certificates for the shares of stock so
purchased shall be in the name of, and delivered to, the Holder hereof, or as
such Holder may direct (subject to the terms of transfer contained herein and
upon payment by such Holder hereof of any applicable transfer taxes). Such
delivery shall be made within 10 days after exercise of the Warrant and at the
Company's expense and, unless this Warrant has been fully exercised or expired,
a new Warrant having terms and conditions substantially identical to this
Warrant and at the Company's expense and, unless this Warrant has been fully
exercised or expired, a new Warrant having terms and conditions substantially
identical to this Warrant and representing the portion of the Shares, if any,
with respect to which this Warrant shall not have been exercised, shall also be
issued to the Holder hereof within 10 days after exercise of the Warrant.
(b) NET ISSUE EXERCISE. In lieu of exercising this Warrant pursuant to
Section 3(a), Holder may elect to receive shares equal to the value of this
Warrant (or of any portion thereof remaining unexercised) by surrender of this
Warrant at the principal office of the Company together with notice of such
election, in which event the Company shall issue to Holder the number of shares
of the Company's Preferred Stock computed using the following formula:
X = Y (A-B)
-------
A
Where:
X = the number of shares of Preferred Stock to be issued to Holder.
Y = the number of shares of Preferred Stock purchasable under this Warrant
(at the date of such calculation).
A = the fair market value of one share of the Company's Preferred Stock (at
the date of such calculation).
B = Warrant exercise price (as adjusted to the date of such calculation).
(c) FAIR MARKET VALUE. For purposes of this Section 3, Fair Market Value
of one share of the Company's Preferred Stock shall mean:
3.
<PAGE>
(i) In the event of an Initial Public Offering pursuant to
Section 2(6), the per share Fair Market Value for the Preferred Stock shall be
the Offering Price at which the underwriters sell Common Stock to the public
multiplied by the number of shares of Common Stock into which each share of
Preferred Stock is then convertible; or
(ii) If the Common Stock is traded on NASDAQ or Over-The-
Counter or on an exchange, the per share Fair Market Value for the Preferred
Stock will be the average of the closing bid and asked prices of the Common
Stock quoted in the Over-The-Counter Market Summary or the closing price quoted
on any exchange on which the Common Stock is listed, whichever is applicable, as
published in the Western Edition of The Wall Street Journal, for the ten (10)
trading days prior to the date of determination of Fair Market Value, multiplied
by the number of shares of Common Stock into which each share of Preferred Stock
is then convertible; or
(iii) if the Company shall be subject to a merger, acquisition
or other consolidation in which the Company is not the surviving entity,
pursuant to Section 2(b), the per share Fair Market Value for the Preferred
Stock shall be the value received per share of Preferred Stock by all holders of
the Preferred Stock as determined by the Board of Directors of the Company; or
(iv) In any other instance, the per share Fair Market Value for
the Preferred Stock shall be as determined by the Board of Directors of the
Company in its reasonable business judgment.
In the event of 3(c)(iii) or 3(c)(iv), above, the Company's Board
of Directors shall prepare a certificate, to be signed by an authorized Officer
of the Company, setting forth in reasonable detail the basis for and method of
determination of the per share Fair Market Value of the Preferred Stock. The
Board will also certify to the Holder that this per share Fair Market Value will
be applicable to all holders of the applicable series of the Company's Preferred
Stock. Such certification must be made to Holder at least twenty (20) business
days prior to the proposed effective date of the merger, consolidation, sale, or
other triggering event as defined in 3(c)(iii) and 3(c)(iv).
4. REPRESENTATIONS AND WARRANTIES OF HOLDER AND RESTRICTIONS ON TRANSFER
IMPOSED BY THE SECURITIES ACT OF 1933.
(a) Representations and Warranties by Holder. The Holder represents
and warrants to the Company with respect to this purchase as follows:
(i) The Holder has substantial experience in evaluating and
investing in private placement transactions of securities of companies similar
to the Company so that the Holder is capable of evaluating the merits and risks
of its investment in the Company and has the capacity to protect its interests.
4.
<PAGE>
(ii) The Holder is acquiring the Warrant and the Shares of
Preferred Stock issuable upon exercise of the Warrant and any Common Stock
issued upon conversion thereof (collectively the "Securities") for investment
for its own account and not with a view to, or for resale in connection with,
any distribution thereof. The Holder understands that the Securities have not
been registered under the Act by reason of a specific exemption from the
registration provisions of the Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein. In this
connection, the Holder understands that, in the view of the Securities and
Exchange Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if this representation was predicted solely upon a present intention
to hold the Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities or for a period of one year or any other fixed
period in the future.
(iii) The Holder acknowledges that the Securities must be held
indefinitely unless subsequently registered under the Act or an exemption from
such registration is available. The Holder is aware of the provisions of Rule
144 promulgated under the Act ("Rule 144") which permits limited resale of
securities purchased in a private placement subject to the satisfaction of
certain conditions, including, in case the Securities have been held for less
than three years, the existence of a public market for the shares, the
availability of certain public information about the Company, the resale
occurring not less than two years after a party has purchased and paid for the
security to be sold, the sale being through a "broker's transaction" or in a
transaction directly with a "market maker" (as provided by Rule 144(f)) and the
number of shares or other securities being sold during any three-month period
not exceeding specified limitations.
(iv) The Holder further understands that at the time the Holder
wishes to sell the Securities there may be no public market upon which such a
sale may be effected, and that even if such a public market exists, the Company
may not be satisfying the current public information requirements of Rule 144,
and that in such event, the Holder may be precluded from selling the Securities
under Rule 144 unless (a) a three-year minimum holding period has been satisfied
and (b) the Holder was not at the time of the sale nor at any time during the
three-month period prior to such sale an affiliate of the Company.
(v) The Holder has had an opportunity to discuss the Company's
business, management and financial affairs with its management and an
opportunity to review the Company's facilities. The Holder understands that such
discussions, as well as the written information issued by the Company, were
intended to describe the aspects of the Company's business and prospects which
it believes to be material but were not necessarily a thorough or exhaustive
description.
(b) LEGENDS. Each certificate representing the Securities shall be
endorsed with the following legends and such other legends as the Company deems
appropriate:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT")
5.
<PAGE>
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPINION OF COUNSEL OR BASED ON OTHER WRITTEN EVIDENCE IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SERIES C PREFERRED STOCK IS REDEEMABLE UNDER CERTAIN
CIRCUMSTANCES AND MAY BE CONVERTED AT ANY TIME AT THE ELECTION OF
THE HOLDER INTO FULLY PAD AND NON-ASSESSABLE SHARES OF COMMON
STOCK AND SHALL BE AUTOMATICALLY CONVERTED INTO SHARES OF COMMON
STOCK UPON THE OCCURRENCE OF CERTAIN SPECIFIED EVENTS DESCRIBED
IN THE AMENDED AND RESTATED ARTICLES OF INCORPORATION.
The Company need not register a transfer of Securities unless the conditions
specified in the foregoing legends are satisfied. The Company may also instruct
its transfer agent not to register the transfer of any of the Shares unless the
conditions specified in the foregoing legends are satisfied.
(c) REMOVAL OF LEGEND AND TRANSFER RESTRICTIONS. The legend relating
to the Act endorsed on a certificate pursuant to Section 4(b) of this Warrant
and the stop transfer instructions with respect to the Securities represented by
such certificate shall be removed and the Company shall issue a certificate
without such legend to the Holder of the Securities if (i) the Securities are
registered under the Act and a prospectus meeting the requirements of Section 10
of the Act is available or (ii) the Holder provides to the Company an opinion of
counsel for the Holder reasonably satisfactory to the Company, or a no-action
letter or interpretive opinion of the staff of the SEC reasonably satisfactory
to the Company, to the effect that public sale, transfer or assignment of the
Securities may be without registration and without compliance with any
restriction such as Rule 144.
5. CONDITION OF TRANSFER OR EXERCISE OF WARRANT. Subject to Section 10,
it shall be condition to any transfer or exercise of this Warrant that at the
time of such transfer or exercise, the Holder shall provide the Company with a
representation in writing that the Holder or transferee is acquiring this
Warrant and the shares of Preferred Stock to be issued upon exercise and any
Common Stock issued upon conversion thereof for investment purposes only and not
with a view to any sale or distribution, or a statement of pertinent facts
covering any proposed distribution. As a further condition to any transfer of
this Warrant or any or all of the shares of preferred Stock issuable upon
exercise of this Warrant or any Common Stock issued upon conversion thereof;
other than a transfer registered under the Act, the Company must have received a
legal opinion, in form and substance satisfactory to the Company and its
counsel, reciting the pertinent circumstances surrounding the proposed transfer
and stating that such transfer is exempt from the registration and prospectus
delivery requirements of the Act.
6.
<PAGE>
Each certificate evidencing the shares issued upon exercise of the Warrant or
upon any transfer of the shares (other than a transfer registered under the Act
or any subsequent transfer of shares so registered) shall, at the Company's
option, contain legends in form and substance satisfactory to the company and
its counsel, restricting the transfer of the shares to sales or other
dispositions exempt from the requirements of the Act.
As further condition to each transfer, the transferee shall receive and
accept a Warrant, of like tenor and date, executed by the Company.
6. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens, and
charges with respect to the issue thereof. Subject to completion of the
Company's anticipated Series D Preferred Stock financing and determination of
the Series D Preferred Stock pricing, during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for issuance upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Preferred Stock
to provide for the exercise of the rights represented by this Warrant.
7. ADJUSTMENT FOR CERTAIN EVENTS. Subject to Section 8, in the event of
change in the outstanding Preferred Stock by reason of stock dividends, split-
ups, reclassifications, mergers, consolidations, combinations or exchanges of
shares, separations, reorganizations, liquidations, or the like, the number and
class of shares available under the Warrant in the aggregate and the Warrant
Price shall be correspondingly adjusted, as appropriate, by the Board of
Directors of the Company. The adjustment shall be such as will give the Holder
of this Warrant upon exercise for the same aggregate Warrant Price the total
number, class and kind of shares as he would have owned had the Warrant been
exercised prior to the event and had he continued to hold such shares until
after the event requiring adjustment. Nothing herein shall be construed as
providing Holder with antidilution rights greater than the antidilution rights,
if any, of the holders of the Series C or D Preferred Stock, as applicable,
generally, as set forth in the Company's Amended and Restated Articles of
Incorporation, as amended. No adjustment in the Warrant Price and/or the number
of Shares need be made if such adjustment would result in a change in the
Warrant Price of less than one cent ($0.01) or a change in the number of Shares
of less than one-hundredth (1/100th) of a share. Any adjustment less than these
amounts which is not made shall be carried forward and shall be made at the time
and together with any subsequent adjustment which, on a cumulative basis,
amounts to an adjustment of at least these amounts.
8. NOTICE OF ADJUSTMENTS. Whenever any Warrant Price shall be adjusted
pursuant to Section 7 hereof, the Company shall prepare a certificate signed by
an officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Warrant Price and number of shares issuable
upon exercise of the Warrant after giving effect to such adjustment, and shall
cause copies of such certificate to be mailed (by certified or registered mail,
return
7.
<PAGE>
receipt required, postage prepaid) within thirty (30) days of such adjustment to
the Holder of this Warrant as set forth in Section 18 hereof.
9. "MARKET STAND-OFF" AGREEMENT. Holder hereby agrees that for a period
of 180 days following the effective date of the first registration statement of
the Company covering Common Stock (or other securities) to be sold on its behalf
in an underwritten public offering, it will not, to the extent requested by the
Company and underwriter, sell or otherwise transfer or dispose of (other than to
donees or transferees who agree to be similarly bound) any of the Shares at any
time during such period except Common Stock included in such registration;
provided, however, that all officers and directors of the Company who hold
securities of the Company or options to acquire securities of the Company and
all other persons with registration rights enter into similar agreements.
10. TRANSFERABILITY OF WARRANT. This Warrant is transferable one time
only, in whole and not in part, on the books of the Company at its principal
office by the original registered Holder hereof upon surrender of this Warrant
properly endorsed, subject to compliance with applicable federal and state
securities laws (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company); provided, however, that notwithstanding the foregoing, this
Warrant may be transferred to Holder's parent company or to an affiliate company
as part of a merger or consolidation and such transfer shall not count as the
one permitted transfer referred to above. After such one-time transfer, this
Warrant shall be non-transferable. The Company shall issue and deliver to the
transferee a new Warrant representing the Warrant so transferred. No partial
transfer of the Warrant shall be allowed. Holder shall not have any right to
transfer any portion of this Warrant to any direct competitor of the Company.
11. NO FRACTIONAL SHARES. No fractional share of Preferred Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
share the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
12. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of
Preferred Stock upon the exercise of this Warrant shall be made without charge
to the Holder for any United States or state of the United States documentary
stamp tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and reasonable expenses shall be paid by the
Company, and such certificates shall be issued in the name of the Holder.
13. NO SHAREHOLDER RIGHTS UNTIL EXERCISE. This Warrant does not entitle
the Holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof.
14. REGISTRY OF WARRANT. The Company shall maintain a registry showing the
name and address of the registered Holder of this Warrant. this warrant may be
surrendered for exchange or exercise in accordance with its terms, at such
office or agency of the Company, and the Company and Holder shall be entitled to
rely in all respects, prior to written notice to the contrary, upon such
registry.
8.
<PAGE>
15. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft, or
destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant, having terms and conditions substantially identical to this
Warrant, in lieu hereof.
16. MISCELLANEOUS.
(a) ISSUE DATE. The provisions of this Warrant shall be construed and
shall be given effect in all respect as if it had been issued and delivered by
the Company on the date hereof.
(b) SUCCESSORS. This Warrant shall be binding upon any successors or
assigns of the Company.
(c) GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California.
(d) HEADINGS. The headings used in this Warrant are used for
convenience only and are not to be considered in construing or interpreting this
Warrant.
(e) SATURDAYS, SUNDAYS, HOLIDAYS. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday in the State
of California, then such action may be taken or such right may be exercised on
the next succeeding day not a legal holiday.
17. NO IMPAIRMENT. The Company will not, by amendment of its Amended and
Restated Articles of Incorporation or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder hereof against impairment.
18. ADDRESSES. Any notice required or permitted hereunder shall be in
writing and shall be mailed by overnight courier, registered or certified mall,
return receipt required, and postage pre-paid, or otherwise delivered by hand or
by messenger, addressed as set forth below, or at such other address as the
Company or the Holder hereof shall have furnished to the other party.
If to the Company: MEGABIOS Corp.
863A Mitten Road
Burlingame, CA 94010
Attn: Vice President,
Finance and Business Development
9.
<PAGE>
If to the Holder: Imperial Bank
226 Airport Parkway
San Jose, CA 95159
Attn: Senior Vice President & Manager
Special Markets
IN WITNESS WHEREOF, MEGABIOS Corp. has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated as of June 1, 1995
MEGABIOS CORP.
By: /s/ Benjamin F. McGraw
---------------------------
Title: President & CEO
-------------------------
10.
<PAGE>
EXHIBIT 10.25
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES
ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER
OF THESE SECURITIES MAY REQUIRE AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER
OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
WARRANT
TO PURCHASE SHARES OF SERIES C PREFERRED STOCK
AS HEREIN DESCRIBED
Dated April 30, 1996
This certifies that for value received:
PHOENIX LEASING INCORPORATED
or registered assigns, is entitled, subject to the terms set forth herein, to
purchase from MEGABIOS Corp., a California corporation (the "Company"), up
-------
to One Hundred Fourteen Thousand Seven Hundred Sixteen (114,716) fully paid and
non-assessable shares of the Company's Series C Preferred Stock, at the price of
$1.2945 per share. The initial purchase price of $1.2945 per share, and the
number of shares purchasable hereunder, are subject to adjustment in certain
events, all as more fully set forth under Article IV herein.
ARTICLE I
DEFINITIONS
-----------
"Articles of Incorporation" means the Second Amended and Restated Articles
--------------------------
of Incorporation of the Company, as filed with the California Secretary of State
on September 19, 1994, as amended by Certificate of Amendment of the Company, as
filed with the California Secretary of State on December 28, 1994, by
Certificate of Amendment of the Company, as filed with the California Secretary
of State on July 25, 1995, and by Certificate of Amendment of the Company, as
filed with the California Secretary of State on August 22, 1995.
1
<PAGE>
"Closing Date" means April 30, 1996.
------------
"Commission" means the Securities and Exchange Commission, or any other
----------
federal agency then administering the Exchange Act or the Securities Act, as
defined herein.
"Common Stock" means the Company's Common Stock, any stock into which such
------------
stock shall have been changed or any stock resulting from any reclassification
of such stock, and any other capital stock of the Company of any class or series
now or hereafter authorized having the right to share in distributions either of
earnings or assets of the Company without limit as to amount or percentage.
"Company" means MEGABIOS Corp., a California corporation, and any successor
-------
corporation.
"Convertible Securities" means evidences of indebtedness, shares of stock
----------------------
or other securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
------------
any successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Exercise Period" means the period commencing on the Closing Date and
---------------
terminating at the earlier to occur of: (i) 5:00 p.m., Pacific Time on the tenth
(10th) anniversary of the Closing Date, or (ii) 5:00 p.m., Pacific Time on the
fifth (5th) anniversary of the closing of the Company's initial sale and
issuance of shares of Common Stock in an underwritten public offering, pursuant
to a Registration.
"Exercise Price" means the price per share of Series C Preferred Stock set
--------------
forth in the Preamble to this Warrant, as such price may be adjusted pursuant to
Article IV hereof.
"Fair Market Value" means
-----------------
(i) If shares of Series C Preferred Stock or Common Stock, as the case
may be, are being sold pursuant to a Registration and Fair Market Value is being
determined as of the closing of the public offering, the "price to public"
specified for such shares in the final prospectus for such public offering;
(ii) If shares of Series C Preferred Stock or Common Stock, as the
case may be, are then listed or admitted to trading on any national securities
exchange or traded on any national market system and Fair Market Value is not
being determined as of the date described in clause (i) of this definition, the
average of the daily closing prices for the thirty (30) trading days before such
date, excluding any trades which are not bona fide, arm's length transactions.
The closing price for
2
<PAGE>
each day shall be the last sale price on such date or, if no such sale takes
place on such date, the average of the closing bid and asked prices on such
date, in each case as officially reported on the principal national securities
exchange or national market system on which such shares are then listed,
admitted to trading or traded;
(iii) If no shares of Series C Preferred Stock or Common Stock, as the
case may be, are then listed or admitted to trading on any national securities
exchange or traded on any national market system or being offered to the public
pursuant to a Registration, the average of the reported closing bid and asked
prices thereof on such date in the over-the-counter market as shown by the
National Association of Securities Dealers automated quotation system or, if
such shares are not then quoted in such system, as published by the National
Quotation Bureau, Incorporated or any similar successor organization, and in
either case as reported by any member firm of the New York Stock Exchange
selected by the Holder;
(iv) If no shares of Series C Preferred Stock or Common Stock, as the
case may be, are then listed or admitted to trading on any national exchange or
traded on any national market system, if no closing bid and asked prices thereof
are then so quoted or published in the over-the-counter market and if no such
shares are being offered to the public pursuant to a Registration, the Fair
Market Value of a share of Series C Preferred Stock or Common Stock, as the case
may be, shall be as mutually agreed by the Company and the Holder; provided,
--------
however, that if the Company and the Holder are unable to mutually agree upon
- -------
the Fair Market Value, and the value asserted by the Holder is not greater than
one hundred ten percent (110%) of the value asserted by the Company, then the
Fair Market Value shall be the sum of (1) the value asserted by the Company and
(2) fifty percent (50%) of the difference between the value asserted by the
Company and the value asserted by the Holder; provided further, however, that if
-------- ------- -------
the Company and the Holder are unable to mutually agree upon the Fair Market
Value and the immediately preceding proviso is not operative, the Company and
such Holder shall, within five (5) days from the date that either party
determines that they cannot agree or the value asserted by the Holder is greater
than one hundred ten percent (110%) of the value asserted by the Company,
jointly retain a valuation firm satisfactory to each of them. If the Company and
the Holder are unable to agree on the selection of such a firm within such five
(5) day period, the Company and the Holder shall, within twenty (20) days after
expiration of such five day period, each retain a separate independent valuation
firm. If either the Company or the Holder fail to retain such a valuation firm
during such twenty (20) day period, then the valuation firm retained by the
Holder or the Company, as the case may be, shall alone take the actions
described below. Such firms shall determine within thirty (30) days of being
retained the Fair Market Value of a share of Series C Preferred Stock or Common
Stock, as the case may be, and deliver their opinion in writing to the Company
and to the Holder as to the fair value. If such firms cannot jointly agree upon
the Fair Market Value, then, unless otherwise directed in writing by both the
Company and the Holder, such firms, in their sole discretion, shall choose
another firm independent of the Company and the Holder, which firm shall make
such determination and render such an opinion as promptly as practicable. In
either case, the determination so made shall
3
<PAGE>
be conclusive and binding on the Company and the Holder. The fees and expenses
for such determination made by such firms shall be paid by the Company. In the
determination of the Fair Market Value of a share of Series C Preferred Stock or
Common Stock, as the case may be, there shall not be taken into consideration
any premium for shares representing control of the Company or any discount
related to shares representing a minority interest therein or related to any
illiquidity or lack of marketability of shares arising from restrictions on
transfer under federal and applicable state securities laws or otherwise.
"Fiscal Year" means the fiscal year of the Company.
-----------
"Holder" means the person in whose name this Warrant is registered on the
------
books of the Company maintained for such purpose.
"Investor Rights Agreement" means the Amended and Restated Investor Rights
-------------------------
Agreement, dated as of September 23, 1994, by and among the Company and the
shareholders of the Company named therein, as amended by Amendment No. 1 to
Investor Rights Agreement, dated as of July 31, 1995, by and among the Company
and the shareholders of the Company named therein, attached hereto as
Exhibit "E".
- ----------
"Option" means any right, warrant or option to subscribe for or purchase
-------
shares of Common Stock or Convertible Securities.
"Person" means and includes natural persons, corporations, limited
------
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, government entities and authorities and other organizations, whether or
not legal entities.
"Preferred Stock" means the Preferred Stock of the Company, as defined in
---------------
the Articles of Incorporation.
"Principal Executive Office" means the Company's office at 863-A Mitten
--------------------------
Road, Burlingame, California 94010, or such other office as designated in
writing to the Holder by the Company.
"Register." "Registered" and "Registration" refer to a registration
---------- ---------- ------------
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"Rule 144" means Rule 144 as promulgated by the Commission under the
--------
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
4
<PAGE>
"Series C Preferred Stock" means the Series C Preferred Stock of the
------------------------
Company, as defined in the Articles of Incorporation.
"Shareholder" means a holder of one or more Warrant Shares or shares of
-----------
Common Stock acquired upon conversion of Warrant Shares.
"Warrant" means the warrant dated as of Closing Date issued to Holder and
-------
all warrants issued upon the partial exercise, transfer or division of or in
substitution for any Warrant.
"Warrant Shares" means the shares of Series C Preferred Stock issuable upon
--------------
the exercise of this Warrant provided that if under the terms hereof there shall
be a change such that the securities purchasable hereunder shall be issued by an
entity other than the Company or there shall be a change in the type or class of
securities purchasable hereunder, then the term shall mean the securities
issuable upon the exercise of the rights granted hereunder.
ARTICLE II
EXERCISE
--------
2.1 Exercise Right; Manner of Exercise. The purchase rights represented
----------------------------------
by this Warrant may be exercised by the Holder, in whole or in part, at any
time and from time to time during the Exercise Period upon (i) surrender of
this Warrant, together with an executed Notice of Exercise, substantially in the
form of Exhibit "A" attached hereto, at the Principal Executive Office, and (ii)
----------
payment to the Company of the aggregate Exercise Price for the number of Warrant
Shares specified in the Notice of Exercise (such aggregate Exercise Price the
"Total Exercise Price"). The Total Exercise Price shall be paid by check;
- ----------------------
provided, however, that if the Warrant Shares are acquired in conjunction with a
- --------- -------
Registration of such Warrant Shares or the Common Stock acquirable upon
conversion of such Warrant Shares, then Holder may arrange for the aggregate
Exercise Price for such Warrant Shares to be paid to the Company from the
proceeds of the sale of such Warrant Shares or the Common Stock acquirable upon
conversion of such Warrant Shares pursuant to such Registration. The Person or
Person(s) in whose name(s) any certificate(s) representing the Warrant Shares
which are issuable upon exercise of this Warrant shall be deemed to become the
holder(s) of, and shall be treated for all purposes as the record holder(s) of,
such Warrant Shares, and such Warrant Shares shall be deemed to have been
issued, immediately prior to the close of business on the date on which this
Warrant and Notice of Exercise are presented and payment made for such Warrant
Shares, notwithstanding that the stock transfer books of the Company shall then
be closed or that certificates representing such Warrant Shares shall not then
be actually delivered to such Person or Person(s). Certificates for the Warrant
Shares so purchased shall be delivered to the Holder within a reasonable time,
not exceeding fifteen (15) days after this Warrant is exercised. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, deliver a new Warrant evidencing the rights of the Holder to
purchase the balance of the Warrant Shares which Holder is entitled to purchase
hereunder. The issuance of Warrant Shares
5
<PAGE>
upon exercise of this Warrant shall be made without charge to the Holder for any
issuance tax with respect thereto or any other cost incurred by the Company in
connection with the exercise of this Warrant and the related issuance of Warrant
Shares.
2.2 Conversion of Warrant.
---------------------
(a) Right to Convert. In addition to, and without limiting, the
----------------
other rights of the Holder hereunder, the Holder shall have the right (the
"Conversion Right") to convert this Warrant or any part hereof into Warrant
- ------------------
Shares at any time and from time to time during the term hereof. Upon exercise
of the Conversion Right with respect to a particular number of Warrant Shares
(the "Converted Warrant Shares"), the Company shall deliver to the Holder,
-------------------------
without payment by the Holder of any Exercise Price or any cash or other
consideration, that number of Warrant Shares computed using the following
formula:
X= B-A
---
Y
Where: X= The number of Warrant Shares to be issued to the Holder
Y= The Fair Market Value of one Warrant Share as of the Conversion
Date
B= The Aggregate Fair Market Value (i.e., Fair Market Value x
--- -
Converted Warrant Shares)
A= The Aggregate Exercise Price (i.e., Exercise Price x Converted
---
Warrant Shares)
(b) Method of Exercise. The Conversion Right may be exercised by
------------------
the Holder by the surrender of this Warrant at the Principal Executive Office,
together with a written statement (the "Conversion Statement") specifying that
---------------------
the Holder intends to exercise the Conversion Right and indicating the number of
Warrant Shares to be acquired upon exercise of the Conversion Right. Such
conversion shall be effective upon the Company's receipt of this Warrant,
together with the Conversion Statement, or on such later date as is specified in
the Conversion Statement (the "Conversion Date") and, at the Holder's election,
----------------
may be made contingent upon the closing of the consummation of the sale of
Common Stock pursuant to a Registration. Certificates for the Warrant Shares so
acquired shall be delivered to the Holder within a reasonable time, not
exceeding fifteen (15) days after the Conversion Date. If applicable, the
Company shall, upon surrender of this Warrant for cancellation, deliver a new
Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares which Holder is entitled to purchase hereunder. The issuance of
Warrant Shares upon exercise of this Warrant shall be made without charge to the
Holder for any issuance tax with respect thereto or any
6
<PAGE>
other cost incurred by the Company in connection with the conversion of this
Warrant and the related issuance of Warrant Shares.
(c) Automatic Conversion. If, as of the last day of the Exercise
--------------------
Period, this Warrant has not been fully exercised, then as of such date this
Warrant shall be automatically converted, in full, in accordance with this
Section 2.2, without any action or notice by Holder. For purposes of such
automatic conversion, the date of automatic conversion shall be the Conversion
Date.
2.3 Fractional Shares. The Company shall not issue fractional shares of
-----------------
Series C Preferred Stock or Common Stock or scrip representing fractional shares
of Series C Preferred Stock or Common Stock upon any exercise or conversion of
this Warrant. As to any fractional share of Series C Preferred Stock or Common
Stock which the Holder would otherwise be entitled to purchase from the Company
upon such exercise or conversion, the Company shall purchase from the Holder
such fractional share at a price equal to an amount calculated by multiplying
such fractional share (calculated to the nearest 1/100th of a share) by the fair
market value of a share of Series C Preferred Stock or Common Stock, as
applicable, on the date of the Notice of Exercise or the Conversion Date, as
applicable, as determined in good faith by the Company's Board of Directors.
Payment of such amount shall be made in cash or by check payable to the order of
the Holder at the time of delivery of any certificate or certificates arising
upon such exercise or conversion.
ARTICLE III
REGISTRATION, TRANSFER, EXCHANGE AND REPLACEMENT
------------------------------------------------
3.1 Maintenance of Registration Books. The Company shall keep at the
---------------------------------
Principal Executive Office a register in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration, transfer
and exchange of this Warrant. The Company and any Company agent may treat the
Person in whose name this Warrant is registered as the owner of this Warrant for
all purposes whatsoever and neither the Company nor any Company agent shall be
affected by any notice to the contrary.
3.2 Restrictions on Transfers.
-------------------------
(a) Compliance with Securities Act. The Holder, by acceptance
------------------------------
hereof, agrees that this Warrant, the Series C Preferred Stock to be issued upon
exercise hereof and the shares of Common Stock to be issued upon conversion of
such shares of Series C Preferred Stock are being acquired for investment,
solely for the Holder's own account and not as a nominee for any other Person,
and that the Holder will not offer, sell or otherwise dispose of this Warrant,
any such shares of Series C Preferred Stock or any such shares of Common Stock
except under circumstances which will not result in a violation of the
Securities Act. Upon exercise of this Warrant, the Holder shall confirm in
writing, by executing the form attached as Exhibit "B" hereto, that the shares
----------
of Series C Preferred Stock or Common Stock purchased thereby are being acquired
for investment, solely for the Holder's
7
<PAGE>
own account and not as a nominee for any other Person, and not with a view
toward distribution or resale.
(b) Certificate Legends. This Warrant, all shares of Series C
-------------------
Preferred Stock issued upon exercise of this Warrant (unless Registered under
the Securities Act), and all shares of Common Stock issued upon conversion of
such shares of Series C Preferred Stock (unless Registered under the Securities
Act) shall be stamped or imprinted with a legend in substantially the following
form (in addition to any legends required by applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES
ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER
OF THESE SECURITIES MAY REQUIRE AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER
OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
(c) Disposition of Warrant or Shares. With respect to any offer,
--------------------------------
sale or other disposition of this Warrant, any shares of Series C Preferred
Stock issued upon exercise of this Warrant or shares of Common Stock acquired
pursuant to conversion of such shares of Series C Preferred Stock prior to
Registration of such shares, the Holder or the Shareholder, as the case may be,
agrees to give written notice to the Company prior thereto, describing briefly
the manner thereof, together with a written opinion of the Holder's or
Shareholder's counsel, if reasonably requested by the Company, to the effect
that such offer, sale or other disposition may be effected without Registration
under the Securities Act or qualification under any applicable state securities
laws of this Warrant or such shares, as the case may be, and indicating whether
or not under the Securities Act certificates for this Warrant or such shares, as
the case may be, to be sold or otherwise disposed of require any restrictive
legend as to applicable restrictions on transferability in order to insure
compliance with the Securities Act. Promptly upon receiving such written notice
and reasonably satisfactory opinion, if so requested, the Company, as promptly
as practicable, shall notify the Holder or the Shareholder, as the case may be,
that it may sell or otherwise dispose of this Warrant or such shares, as the
case may be, all in accordance with the terms of the notice delivered to the
Company. If a determination has been made pursuant to this subsection (c) that
the opinion of counsel for the Holder or the Shareholder, as the case may be, is
not reasonably
8
<PAGE>
satisfactory to the Company, the Company shall so notify the Holder or the
Shareholder, as the case may be, promptly after such determination has been made
and shall specify the legal analysis supporting any such conclusion.
Notwithstanding the foregoing, this Warrant or such shares, as the case may be,
may be offered, sold or otherwise disposed of in accordance with Rule 144,
provided that the Company shall have been furnished with such information as the
Company may reasonably request to provide reasonable assurance that the
provisions of Rule 144 have been satisfied. Each certificate representing this
Warrant or the shares thus transferred (except a transfer pursuant to Rule 144)
shall bear a legend as to the applicable restrictions on transferability in
order to insure compliance with the Securities Act, unless in the aforesaid
reasonably satisfactory opinion of counsel for the Holder or the Shareholder, as
the case may be, such legend is not necessary in order to insure compliance with
the Securities Act. The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.
(d) Warrant Transfer Procedure. Transfer of this Warrant to a third
--------------------------
party, following compliance with the preceding subsections of this Section 3.2,
shall be effected by execution of the Assignment Form attached hereto as Exhibit
-------
"C", and surrender for registration of transfer of this Warrant at the Principal
- ---
Executive Office, together with funds sufficient to pay any applicable transfer
tax. Upon receipt of the duly executed Assignment Form and the necessary
transfer tax funds, if any, the Company, at its expense, shall execute and
deliver, in the name of the designated transferee or transferees, one or more
new Warrants representing the right to purchase a like aggregate number of
shares of Series C Preferred Stock.
(e) Termination of Restrictions. The restrictions imposed under this
---------------------------
Section 3.2 upon the transferability of the Warrant, the shares of Series C
Preferred Stock acquired upon the exercise of this Warrant and the shares of
Common Stock issuable upon conversion of such shares of Series C Preferred Stock
shall cease when (i) a registration statement covering all shares of Common
Stock issued or issuable upon conversion of the Series C Preferred Stock becomes
effective under the Securities Act, (ii) the Company is presented with an
opinion of counsel reasonably satisfactory to the Company that such restrictions
are no longer required in order to insure compliance with the Securities Act or
with a Commission "no-action" letter stating that future transfers of such
securities by the transferor or the contemplated transferee would be exempt from
registration under the Securities Act, or (iii) such securities may be
transferred in accordance with Rule 144(k). When such restrictions terminate,
the Company shall, or shall instruct its transfer agent to, promptly, and
without expense to the Holder or the Shareholder, as the case may be, issue new
securities in the name of the Holder and/or the Shareholder, as the case may be,
not bearing the legends required under subsection (b) of this Section 3.2. In
addition, new securities shall be issued without such legends if such legends
may be properly removed under the terms of Rule 144(k).
3.3 Exchange. At the Holder's option, this Warrant may be exchanged for
--------
other Warrants representing the right to purchase a like aggregate number of
shares of Series C Preferred Stock upon surrender of this Warrant at the
Principal Executive
9
<PAGE>
Office. Whenever this Warrant is so surrendered to the Company at the Principal
Executive Office for exchange, the Company shall execute and deliver the
Warrants which the Holder is entitled to receive. All Warrants issued upon any
registration of transfer or exchange of Warrants shall be the valid obligations
of the Company, evidencing the same rights, and entitled to the same benefits,
as the Warrants surrendered upon such registration of transfer or exchange. No
service charge shall be made for any exchange of this Warrant.
3.4 Replacement. Upon receipt of evidence reasonably satisfactory to the
-----------
Company of the loss, theft, destruction or mutilation of this Warrant and (i) in
the case of any such loss, theft or destruction, upon delivery of indemnity
reasonably satisfactory to the Company in form and amount, or (ii) in the case
of any such mutilation, upon surrender of such Warrant for cancellation at the
Principal Executive Office, the Company, at its expense, shall execute and
deliver, in lieu thereof, a new Warrant.
ARTICLE IV
ANTIDILUTION PROVISIONS
-----------------------
4.1 Conversion of Series C Preferred Stock. If all of the Series C
--------------------------------------
Preferred Stock is converted into shares of Common Stock in connection with a
Registration, then this Warrant shall automatically become exercisable for that
number of shares of Common Stock equal to the number of shares of Common Stock
that would have been received if this Warrant had been exercised in full and the
shares of Series C Preferred Stock received thereupon had been simultaneously
converted into shares of Common Stock immediately prior to such event, and the
Exercise Price shall be automatically adjusted to equal the amount obtained by
dividing (i) the aggregate Exercise Price of the shares of Series C Preferred
Stock for which this Warrant was exercisable immediately prior to such
conversion, by (ii) the number of shares of Common Stock for which this Warrant
is exercisable immediately after such conversion.
4.2 Reorganization, Reclassification or Recapitalization of the Company.
-------------------------------------------------------------------
In case of (1) a capital reorganization, reclassification or recapitalization of
the Company's capital stock (other than in the cases referred to in of Section
4.4 hereof), (2) the Company's consolidation or merger with or into another
corporation in which the Company is not the surviving entity, or a reverse
triangular merger in which the Company is the surviving entity but the shares of
the Company's capital stock outstanding immediately prior to the merger are
converted, by virtue of the merger, into other property, whether in the form of
securities, cash or otherwise, or (3) the sale or transfer of the Company's
property as an entirety or substantially as an entirety, then, as part of such
reorganization, reclassification, recapitalization, merger, consolidation, sale
or transfer, lawful provision shall be made so that there shall thereafter be
deliverable upon the exercise of this Warrant or any portion thereof (in lieu of
or in addition to the number of shares of Series C Preferred Stock theretofore
deliverable, as appropriate), and without payment of any additional
consideration, the number of shares of stock or other securities or property to
which the holder of
10
<PAGE>
the number of shares of Series C Preferred Stock which would otherwise have been
deliverable upon the exercise of this Warrant or any portion thereof at the time
of such reorganization, reclassification, recapitalization, consolidation,
merger, sale or transfer would have been entitled to receive in such
reorganization, reclassification, recapitalization, consolidation, merger, sale
or transfer. This Section 4.2 shall apply to successive reorganizations,
reclassifications, recapitalization, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the Holder for shares of Series C Preferred Stock in
connection with any transaction described in this Section 4.2 is in a form other
than cash or marketable securities, then the value of such consideration shall
be determined in good faith by the Company's Board of Directors.
4.3 Splits and Combinations. If the Company at any time subdivides any of
-----------------------
its outstanding shares of Series C Preferred Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and, conversely if the outstanding shares of Series
C Preferred Stock are combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased. Upon any adjustment of the Exercise Price under this Section 4.3, the
number of shares of Series C Preferred Stock issuable upon exercise of this
Warrant shall equal the number of shares determined by dividing (i) the
aggregate Exercise Price payable for the purchase of all shares issuable upon
exercise of this Warrant immediately prior to such adjustment by (ii) the
Exercise Price per share in effect immediately after such adjustment.
4.4 Reclassifications. If the Company changes any of the securities as to
-----------------
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted. No adjustment shall be made
pursuant to this Section 4.4 upon any conversion described in Section 4.1
hereof.
4.5 Dividends and Distributions. If the Company declares a dividend or
---------------------------
other distribution on the Series C Preferred Stock or if a dividend or other
distribution on the Series C Preferred Stock occurs pursuant to the Articles of
Incorporation (other than a cash dividend or distribution), then, as part of
such dividend or distribution, lawful provision shall be made so that there
shall thereafter be deliverable upon the exercise of this Warrant or any portion
thereof, in addition to the number of shares of Series C Preferred Stock
receivable thereupon and without payment of any additional consideration, the
amount of the dividend or other distribution to which the holder of the number
of shares of Series C Preferred Stock obtained upon exercise hereof would have
been entitled to receive had the exercise occurred as of the record date for
such dividend or distribution.
11
<PAGE>
4.6 Liquidation; Dissolution. If during the Exercise Period the Company
------------------------
shall dissolve, liquidate or wind up its affairs, the Holder shall have the
right, but not the obligation, to exercise this Warrant effective as of the date
of such dissolution, liquidation or winding up. If any such dissolution,
liquidation or winding up would result in any cash distribution to the Holder in
excess of the aggregate Exercise Price for the shares of Series C Preferred
Stock for which this Warrant is exercisable, then, at the Holder's option, the
Company shall consider this Warrant to have been exercised and the aggregate
Exercise Price paid in full and the Company shall deduct an amount equal to such
aggregate Exercise Price from the amount payable to the Holder.
4.7 Maximum Exercise Price. At no time shall the Exercise Price exceed the
----------------------
amount set forth in the Preamble to this Warrant, unless the Exercise Price is
adjusted pursuant to Section 4.3 hereof.
4.8 Other Dilutive Events. If any event occurs as to which the other
---------------------
provisions of this Article IV are not strictly applicable but the failure to
make any adjustment would not fairly protect the purchase rights represented by
this Warrant in accordance with the essential intent and principles hereof,
then, in each such case, the Company shall appoint a firm of independent public
accountants of recognized national standing (which may be the Company's regular
auditors) which shall give their opinion upon the adjustment, if any, on a basis
consistent with the essential intent and principles established in this Article
IV, necessary to preserve, without dilution, the purchase rights represented by
this Warrant. Upon receipt of such opinion, the Company shall promptly mail a
copy thereof to the Holder and shall make the adjustments described therein.
4.9 Notice of Amendment of Articles of Incorporation. If (i) this Warrant
------------------------------------------------
is outstanding, (ii) no shares of Series C Preferred Stock are issued and
outstanding, and (iii) this Warrant has not become exercisable for Common Stock
or other securities pursuant to Sections 4.1, 4.2, 4.3 or 4.4 hereof, the
Company shall, prior to amending or otherwise taking any action that would
affect Section 4(f) of Article III of the Articles of Incorporation with respect
to the Series C Preferred Stock, provide the Holder with written notice of such
proposed action not less than ten (10) days prior to the record date for
determining the shareholders entitled to vote with respect to such proposed
action. If the Articles of Incorporation are amended in violation of this
Section 4.9, then the provisions of this Article IV shall be adjusted so that
the Holder shall receive with respect to the shares of Common Stock received
upon conversion of the shares of Series C Preferred Stock obtained upon exercise
of this Warrant thereafter, what would have been received had the Articles of
Incorporation not been so amended, upon payment of the same amount as would have
been required had the Articles of Incorporation not been so amended.
4.10 Certificates and Notices.
------------------------
(a) Adjustment Certificates. Upon any adjustment of the Exercise Price
-----------------------
and/or the number of shares of Series C Preferred Stock purchasable upon
12
<PAGE>
exercise of this Warrant, a certificate, signed by (i) the Company's President
and Chief Financial Officer, or (ii) any independent firm of certified public
accountants of recognized national standing the Company selects at its own
expense, setting forth in reasonable detail the events requiring the adjustment
and the method by which such adjustment was calculated, shall be mailed to the
Holder and shall specify the adjusted Exercise Price and the number of shares of
Series C Preferred Stock purchasable upon exercise of the Warrant after giving
effect to the adjustment.
(b) Extraordinary Corporate Events. If the Company, after the date
------------------------------
hereof, proposes to effect (i) any transaction described in Sections 4.2 or 4.4
hereof, (ii) a liquidation, dissolution or winding up of the Company described
in Section 4.6 hereof, or (iii) any payment of a dividend or distribution with
respect to Series C Preferred Stock or Common Stock, then, in each such case,
the Company shall mail to the Holder a notice describing such proposed action
and specifying the date on which the Company's books shall close, or a record
shall be taken, for determining the holders of Series C Preferred Stock or
Common Stock, as appropriate, entitled to participate in such action, or the
date on which such reorganization, reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution or winding up shall take place or
commence, as the case may be, and the date as of which it is expected that
holders of Series C Preferred Stock and Common Stock of record shall be entitled
to receive securities and/or other property deliverable upon such action, if any
such date is to be fixed. Such notice shall be mailed to the Holder at least
twenty (20) days prior to the record date for such action in the case of any
action described in clause (i) or clause (iii) above, and in the case of any
action described in clause (ii) above, at least twenty (20) days prior to the
date on which the action described is to take place and at least twenty (20)
days prior to the record date for determining holders of Series C Preferred
Stock or Common Stock, as appropriate, entitled to receive securities and/or
other property in connection with such action.
4.11 No Impairment. The Company shall not by amendment of the Articles of
-------------
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but shall
at all times in good faith assist in the carrying out of all the provisions of
this Article IV and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against impairment.
4.12 Application. Except as otherwise provided herein, all sections of
-----------
this Article IV are intended to operate independently of one another. If an
event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
13
<PAGE>
ARTICLE V
REGISTRATION RIGHTS
-------------------
Concurrent with the execution and delivery of this Warrant, the Company
shall cause the Holder to become a party to the Investor Rights Agreement and
the Holder shall be deemed an "Investor", as defined in the Investor Rights
Agreement for purposes of the Investor Rights Agreement and shall be entitled to
all the rights, and be subject to all the obligations, of an Investor under the
Investor Rights Agreement, the Warrant Shares shall be deemed "Shares", as
defined in the Investor Rights Agreement and the Common Stock issuable upon
conversion of the Warrant Shares shall be deemed "Registrable Securities", as
defined in the Investor Rights Agreement, for purposes of the Investor Rights
Agreement. Such actions shall be effected by the Company executing and
delivering to the Holder a fully-executed Amendment No. 2 to Investor Rights
Agreement substantially in the form of Exhibit "F" hereto.
-----------
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
----------------------------------------------------
6.1 Representations and Warranties. The Company represents and warrants
------------------------------
that:
(a) Legal Status; Qualification. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
California and is qualified or licensed to do business in all other countries,
states and provinces in which the laws thereof require the Company to qualify
and/or be licensed, except where failure to qualify or be licensed would not
have a material adverse effect on the business or assets of the Company taken as
a whole;
(b) Capitalization. The Company's authorized capital stock consists
--------------
of: (i) Thirty-One Million Six Hundred Thousand (31,600,000) shares of Preferred
Stock, of which (A) Three Million Eighty-Seven Thousand Six Hundred Sixty-Six
(3,087,666) shares are designated as Series A Preferred Stock, of which series
Three Million Eighty-Seven Thousand Six Hundred Sixty-Six (3,087,666) shares are
issued and outstanding, (B) Three Million Two Hundred Sixty-Seven Thousand Two
Hundred Fifty (3,267,250) shares are designated as Series B Preferred Stock, of
which series Three Million One Hundred Sixty-Seven Thousand Two Hundred Fifty
(3,167,250) shares are issued and outstanding, and (c) Eleven Million One
Hundred Thousand (11,100,000) shares are designated as Series C Preferred Stock,
of which series Nine Million Five Hundred Fifty-Three Thousand Two Hundred
Seventy-Four (9,553,274) shares are issued and outstanding; and (ii) Twenty-One
Million Six Hundred Thousand (21,600,000) shares of Common Stock, of which Two
Million Two Hundred Fifty Thousand Ninety-Six (2,250,096) shares are issued and
outstanding;
(c) Options. Except as described in Exhibit "D" hereto there are no
------- ----------
options, warrants or similar rights to acquire from the Company, or agreements
or
14
<PAGE>
other obligations by the Company, absolute or contingent, to issue or sell
Common Stock, whether on conversion or exchange of Convertible Securities or
otherwise;
(d) Preemptive Rights. Except as described in Exhibit "D", no
----------------- -----------
shareholder of the Company has any preemptive rights to subscribe for shares of
Common Stock;
(e) Authority. The Company has the right and power, and is duly
---------
authorized and empowered, to enter into, execute, deliver and perform this
Warrant;
(f) Binding Effect. This Warrant has been duly authorized, executed
--------------
and delivered and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms;
(g) No Conflict. The execution, delivery and/or performance by the
-----------
Company of this Warrant shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a breach of any
provision contained in the Company's Articles of Incorporation or By-laws or
contained in any agreement, instrument, or document to which the Company is a
party or by which it is bound;
(h) Consents. No consent approval, authorization or other order of any
--------
court regulatory body, administrative agency or other governmental body is
required for the valid issuance of the Warrant or for the performance of any of
the Company's obligations hereunder, except for the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended, and the
rules promulgated thereunder, which filing will be effected in accordance with
such section and rules;
(i) Offering. Neither the Company nor any agent acting on its behalf
--------
has, either directly or indirectly, sold, offered for sale or disposed of, or
attempted or offered to dispose of, this Warrant or any part hereof, or any
similar obligation of the Company, to, or has solicited any offers to buy any
thereof from, any person or persons other than the Holder. Neither the Company
nor any agent acting on its behalf will sell or offer for sale or dispose of, or
attempt or offer to dispose of, this Warrant or any part thereof to, or solicit
any offers to buy any warrant of like tenor from, or otherwise approach or
negotiate in respect thereof, with, any Person or Persons so as thereby to bring
the issuance of this Warrant within the provisions of Section 5 of the
Securities Act;
(j) Registration. It is not necessary in connection with the issuance
------------
and sale of this Warrant to the Holder to Register this Warrant under the
Securities Act; and
(k) Overall Representations and Warranties. The representations and
--------------------------------------
warranties of the Company contained in this Warrant, and the other provisions of
this Warrant, do not contain any untrue statement of material fact or omit any
15
<PAGE>
material fact necessary to make the statements contained herein, in view of the
circumstances under which they were made, not misleading.
6.2 Covenants. The Company covenants that:
---------
(a) Authorized Shares. The Company will at all times have authorized,
-----------------
and reserved for the purpose of issue or transfer upon exercise of the rights
evidenced by this Warrant, a sufficient number of shares of Series C Preferred
Stock to provide for the exercise of the rights represented by this Warrant (for
purposes of determining compliance with this covenant, the shares of Series C
Preferred Stock issuable upon exercise of all other options and warrants shall
be deemed issued and outstanding), and a sufficient number of shares of Common
Stock to provide for the conversion into Common Stock of all the shares of
Series C Preferred Stock issued and issuable upon the exercise of this Warrant
but theretofore unconverted (for purposes of determining compliance with this
covenant, the shares of Common Stock issuable upon exercise of all options and
warrants to acquire Common Stock and upon conversion of all instruments
convertible into Common Stock shall be deemed issued and outstanding);
(b) Proper Issuance. The Company, at its expense, will take all such
---------------
action as may be necessary to assure that the Series C Preferred Stock issuable
upon the exercise of this Warrant, and the Common Stock issuable upon the
conversion of such Series C Preferred Stock, may be so issued without violation
of any applicable law or regulation, or of any requirements of any domestic
securities exchange upon which any capital stock of the Company may be listed.
Such action may include, but not be limited to, causing such shares to be duly
registered or approved or listed on relevant domestic securities exchanges; and
(c) Fully Paid Shares. The Company will take all actions necessary or
-----------------
appropriate to validly and legally issue (i) fully paid and non-assessable
shares of Series C Preferred Stock upon exercise of this Warrant and (ii) fully
paid and non-assessable shares of Common Stock upon conversion of such shares of
Series C Preferred Stock. All such shares will be free from all taxes, liens and
charges with respect to the issuance thereof, other than any stock transfer
taxes in respect to any transfer occurring contemporaneously with such issuance.
ARTICLE VII
MISCELLANEOUS
-------------
7.1 Holder Not a Shareholder. Prior to the exercise of this Warrant as
------------------------
hereinbefore provided, the Holder shall not be entitled to any of the rights of
a shareholder of the Company including, without limitation, the right as a
shareholder (i) to vote on or consent to any proposed action of the Company or
(ii) except as provided herein, to receive (a) dividends or any other
distributions made to shareholders, (b) notice of or attend any meetings of
shareholders of the Company, or (c) notice of any other proceedings of the
Company.
16
<PAGE>
7.2 Like Tenor. All Warrants shall at all times be substantially identical
----------
except as to the Preamble.
7.3 Remedies. The Company stipulates that the remedies at law of the
--------
Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate to the fullest extent permitted by law, and that such terms
may be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
7.4 Enforcement Costs. If any party to, or beneficiary of this Warrant
-----------------
seeks to enforce its rights hereunder by legal proceedings or otherwise, then
the non-prevailing party shall pay all reasonable costs and expenses incurred by
the prevailing party, including, without limitation, all reasonable attorneys'
fees (including the allocable costs of in-house counsel).
7.5 Nonwaiver; Cumulative Remedies. No course of dealing or any delay or
------------------------------
failure to exercise any right hereunder on the part of the Holder and/or any
Shareholder shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of the Holder or such Shareholder. No single or
partial waiver by the Holder and/or any Shareholder of any provision of this
Warrant or of any breach or default hereunder or of any right or remedy shall
operate as a waiver of any other provision, breach, default right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
The rights and remedies provided in this Warrant are cumulative and are in
addition to all rights and remedies which the Holder and each Shareholder may
have in law or in equity or by statute or otherwise.
7.6 Notices. Any notice, demand or delivery to be made pursuant to this
-------
Warrant shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All such
communications shall be addressed to (a) the Holder and the Shareholders at
their last known addresses appearing on the books of the Company maintained for
such purpose or (b) the Company at its Principal Executive Office. The Holder,
the Shareholders and the Company may each designate a different address by
notice to the other pursuant to this Section 7.6.
7.7 Successors and Assigns. This Warrant shall be binding upon, the
----------------------
Company and any Person succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company with respect to the shares of Series C Preferred
Stock issuable upon exercise of this Warrant and the shares of Common Stock
issuable
17
<PAGE>
upon the conversion of such shares of Series C Preferred Stock, shall survive
the exercise, expiration or termination of this Warrant and all of the covenants
and agreements of the Company shall inure to the benefit of the Holder, each
Shareholder and their respective successors and assigns. The Company shall, at
the time of exercise of this Warrant, in whole or in part, upon request of the
Holder or any Shareholder but at the Company's expense, acknowledge in writing
its continuing obligations hereunder with respect to rights of the Holder or
such Shareholder to which it shall continue to be entitled after such exercise
in accordance with the terms hereof; provided that the failure of the Holder or
any Shareholder to make any such request shall not affect the continuing
obligation of the Company to the Holder or such Shareholder in respect of such
rights.
7.8 Modification; Severability.
--------------------------
(a) If, in any action before any court or agency legally empowered to
enforce any term, any term is found to be unenforceable, then such term shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency.
(b) If any term is not curable as set forth in subsection (a) above,
the unenforceability of such term shall not affect the other provisions of this
Warrant but this Warrant shall be construed as if such unenforceable term had
never been contained herein.
7.9 Integration. This Warrant replaces all prior and contemporaneous
-----------
agreements and supersedes all prior and contemporaneous negotiations between the
parties with respect to the transactions contemplated herein and constitutes the
entire agreement of the parties with respect to the transactions contemplated
herein.
7.10 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of the Company in this Warrant shall survive the execution and
delivery of this Warrant and the consummation of the transactions contemplated
hereby, notwithstanding any investigation by the Holder or its agents.
7.11 Amendment. This Warrant may not be modified or amended except by
---------
written agreement of the Company, the Holder and the Shareholder(s), if any.
7.12 Headings. The headings of the Articles and Sections of this Warrant
--------
are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
7.13 Meanings. Whenever used in this Warrant, any noun or pronoun shall be
--------
deemed to include both the singular and plural and to cover all genders; and the
words "herein," "hereof" and "hereunder" and words of similar import shall refer
to this instrument as a whole, including any amendments hereto.
18
<PAGE>
7.14 Governing Law. This Warrant shall be governed by, and construed in
-------------
accordance with, the laws of the State of California applicable to contracts
entered into and to be performed wholly within California by California
residents.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer as of April 30, 1996.
MEGABIOS CORP.
By: /s/ Patrick Enright
---------------------------
Title: Vice President Finance and
Business Development
19
<PAGE>
SCHEDULE OF EXHIBITS
--------------------
EXHIBIT "A" - Notice of Exercise (Section 2.1)
EXHIBIT "B" - Investment Representation Certificate (Section 3.2(a))
EXHIBIT "C" - Assignment Form (Section 3.2(d))
EXHIBIT "D" - Schedule of Options and Preemptive Rights (Sections 6.1(c) and
6.1(d))
EXHIBIT "E" - Investor Rights Agreement (Article I)
EXHIBIT "F" - Amendment No. 2 to Investor Rights Agreement (Article V)
20
<PAGE>
EXHIBIT "A"
-----------
NOTICE OF EXERCISE FORM
-----------------------
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant hereby irrevocably
exercises the within Warrant for and purchases shares of Series C Preferred
Stock of MEGABIOS CORP. and herewith makes payment therefor in the amount of
$_______, all at the price and on the terms and conditions specified in the
within Warrant and requests that a certificate (or _______ certificates in
denominations of shares) for the shares of Series C Preferred Stock of MEGABIOS
CORP. hereby purchased be issued in the name of and delivered to (choose one)
(a) the undersigned or (b) [NAME], whose address is and, if such shares of
Series C Preferred Stock shall not include all the shares of Series C Preferred
Stock issuable as provided in the within Warrant, that a new Warrant of like
tenor for the number of shares of Series C Preferred Stock of MEGABIOS CORP. not
being purchased hereunder be issued in the name of and delivered to (choose one)
(a) the undersigned or (b) [NAME], whose address is ______________________.
Dated: ________________, 199_
Signature Guaranteed ____________________________________
____________________________________
By: ________________________________
(Signature of Registered Holder)
Title: _____________________________
NOTICE: The signature to this Notice of Exercise must correspond with the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
The signature to this Notice of Exercise must be guaranteed by a
commercial bank or trust company in the United States or a member firm
of the New York Stock Exchange.
21
<PAGE>
EXHIBIT "B"
-----------
INVESTMENT REPRESENTATION CERTIFICATE
-------------------------------------
Purchaser:
Company: MEGABIOS CORP.
Security: Series C Preferred Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
- ------------- ----------
follows:
(a) The Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. The Purchaser is
purchasing the Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
----------
Act");
- -----
(b) The Purchaser understands that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefor, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. In this connection, the
Purchaser understands that, in the view of the Securities and Exchange
Commission ("SEC"), the statutory basis for such exemption may be unavailable if
the Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future;
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, the Purchaser
understands that the Company is under no obligation to register the Securities.
In addition, the Purchaser understands that the certificate evidencing the
Securities will be imprinted with the legend referred to in the Warrant under
which the Securities are being purchased;
(d) The Purchaser is aware of the provisions of Rule 144, promulgated under
the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from
22
<PAGE>
an affiliate of such issuer), in a non-public offering subject to the
satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the Company;
(ii) the resale occurring not less than two (2) years after the party has
purchased and paid for the securities to be sold; (iii) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934) and the amount of securities being sold during any three-
month period not exceeding the specified limitations stated therein;
(e) The Purchaser further understands that at the time it wishes to sell
the Securities there may be no public market upon which to make such a sale, and
that, even if such a public market upon which to make such a sale then exists,
the Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the Purchaser may be precluded from selling
the Securities under Rule 144 even if the two-year minimum holding period had
been satisfied; and
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Date: _____________, 199_
PURCHASER:
--------------------------------
23
<PAGE>
EXHIBIT "C"
-----------
ASSIGNMENT FORM
---------------
(To be executed only upon the
assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the within Warrant
hereby sells, assigns and transfers unto _______, whose address is _____________
all of the rights of the undersigned under the within Warrant, with respect to
shares of Series C Preferred Stock of MEGABIOS CORP. and, if such shares of
Series C Preferred Stock shall not include all the shares of Series C Preferred
Stock issuable as provided in the within Warrant, that a new Warrant of like
tenor for the number of shares of Series C Preferred Stock of MEGABIOS CORP. not
being transferred hereunder be issued in the name of and delivered to the
undersigned, and does hereby irrevocably constitute and appoint _______________
attorney to register such transfer on the books of MEGABIOS CORP. maintained for
the purpose, with full power of substitution in the premises.
Dated: _______________, 199_
Signature Guaranteed ____________________________________
____________________________________
By: ________________________________
(Signature of Registered Holder)
Title: _____________________________
NOTICE: The signature to this Assignment must correspond with the name
upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatever.
The signature to this Notice of Assignment must be guaranteed by
a commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
24
<PAGE>
EXHIBIT "D"
-----------
OUTSTANDING OPTIONS AND PREEMPTIVE RIGHTS
-----------------------------------------
(Sections 7.1(c) and 7.1(d))
25
<PAGE>
EXHIBIT "E"
-----------
INVESTOR RIGHTS AGREEMENT
-------------------------
(Article I)
26
<PAGE>
EXHIBIT "F"
-----------
AMENDMENT NO. 2 TO INVESTOR RIGHTS AGREEMENT
--------------------------------------------
(Article V)
27
<PAGE>
EXHIBIT 11.1
MEGABIOS CORP.
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
HISTORICAL NET LOSS PER SHARE
Net loss applicable to common
stock........................... $(2,153) $(5,429) $(6,901) $(5,496) $(2,861)
======= ======= ======= ======= =======
Weighted average shares of common
stock outstanding............... 601 635 809 714 1,409
Shares related to Staff
Accounting......................
Bulletin topic 4D:
Stock options and warrants... 336 336 336 336 336
Convertible preferred stock.. 1,333 1,333 1,333 1,333 1,333
------- ------- ------- ------- -------
1,669 1,669 1,669 1,669 1,669
------- ------- ------- ------- -------
Shares used in computing net loss
per share....................... 2,270 2,304 2,478 2,383 3,078
======= ======= ======= ======= =======
Net loss per share............... $ (0.95) $ (2.36) $ (2.78) $ (2.31) $ (0.93)
======= ======= ======= ======= =======
PRO FORMA NET LOSS PER SHARE
Net loss applicable to common
stock........................... $(2,153) $(5,429) $(6,901) $(5,496) $(2,861)
======= ======= ======= ======= =======
CALCULATION OF SHARES OUTSTANDING
FOR COMPUTING PRO FORMA NET LOSS
PER SHARE:
Shares used in computing net
loss per share................ 2,478 3,078
Adjustment to reflect the
effect of the assumed
conversion of preferred stock. 4,861 5,488
------- -------
Shares used in computing pro
forma net loss per share........ 7,339 8,566
======= =======
Pro forma net loss per share..... $ (0.94) $ (0.33)
======= =======
</TABLE>
<PAGE>
EXHIBIT 23.3
CONSENT OF MCDONNELL, BOEHNEN, HULBERT, BERGHOFF LTD.
We hereby consent to the reference to our firm contained in the
Registration Statement on Form S-1 of Megabios Corp. under the caption
"Experts."
MCDONNELL, BOEHNEN, HULBERT,
BERGHOFF LTD.
By:/s/ John McDonnell
------------------------
John McDonnell
July 31, 1997
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1997
<PERIOD-START> JUL-01-1995 JUL-01-1996
<PERIOD-END> JUN-30-1996 MAR-31-1997
<CASH> 5,253 2,595
<SECURITIES> 0 9,731
<RECEIVABLES> 51 283
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,544 12,903
<PP&E> 5,972 6,624
<DEPRECIATION> (1,881) (2,810)
<TOTAL-ASSETS> 9,956 17,064
<CURRENT-LIABILITIES> 1,976 2,196
<BONDS> 0 0
0 0
20,905 30,790
<COMMON> 442 1,141
<OTHER-SE> (15,261) (18,676)
<TOTAL-LIABILITY-AND-EQUITY> 9,956 17,064
<SALES> 0 0
<TOTAL-REVENUES> 1,890 4,586
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 8,656 7,578
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 365 288
<INCOME-PRETAX> (6,901) (2,861)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,901) (2,861)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,901) (2,861)
<EPS-PRIMARY> (.94) (.33)
<EPS-DILUTED> 0 0
</TABLE>
