<PAGE>
As filed with the Securities and Exchange Commission on February 7, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
Under THE SECURITIES ACT OF 1933
----------------
Exelixis, Inc.
(Exact name of registrant as specified in its charter)
----------------
Delaware 8731 04-3257395
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization) ----------------
260 Littlefield Avenue
South San Francisco, CA 94080
(650) 825-2200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
GEORGE A. SCANGOS
President and Chief Executive Officer
260 Littlefield Avenue
South San Francisco, CA 94080
(650) 825-2200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
ROBERT L. JONES, ESQ. DEBORAH A. ALISON S. RESSLER, ESQ. Sullivan &
MARSHALL, ESQ. Cooley Godward LLP Cromwell 1888 Century Park East Suite
Five Palo Alto Square 3000 El Camino 2100 Los Angeles, CA 90067-1725 (310)
Real Palo Alto, CA 94306-2155 (650) 712-6600
843-5000
----------------
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this registration statement as the underwriters
shall determine.
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, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Title of Securities to be Registered Aggregate Offering
Price(1) Amount of Registration Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value..... $100,000,000 $26,400
</TABLE>
- --------------------------------------------------------------------------------
(1) 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 which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. These +
+securities may not be sold until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell nor does it seek an offer to buy these securities in any +
+jurisdiction where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated February 7, 2000.
Shares
[LOGO OF EXELIXIS]
Common Stock
-----------
This is an initial public offering of shares of common stock of Exelixis,
Inc. All of the shares of common stock are being sold by Exelixis.
Prior to this offering, there has been no public market for our common stock.
We have filed an application to qualify our common stock for quotation on the
Nasdaq National Market under the symbol "EXEL." We expect the initial public
offering price to be between and per share.
See "Risk Factors" beginning on page 6 to read about factors you should
consider before buying shares of our common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to Exelixis.......................... $ $
</TABLE>
To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from Exelixis at the initial public offering price less the underwriting
discount.
-----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
Goldman, Sachs & Co.
Credit Suisse First Boston
SG Cowen
-----------
Prospectus dated , 2000.
<PAGE>
[Description of inside front cover graphics:
Pictures of Model Systems
and
an example of tumor
cell target identification]
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us, the sale of our common stock in this offering, our
consolidated financial statements and notes to those consolidated financial
statements that appear elsewhere in this prospectus.
Our Business
Overview
Exelixis is a leader in model system genetics and comparative genomics.
Recent advances in the genomics field have resulted in significant
opportunities to develop novel products for the life sciences industries. With
the sequencing of the human genome now substantially complete, the challenge
facing the life sciences industries is no longer the identification of genes,
but understanding their function and determining the consequences of their
modulation. We believe that we have developed a faster and more efficient
method to understand gene function and to select superior commercial product
targets for the life sciences industries.
Our proprietary technologies provide a rapid, efficient and cost-effective
way to move beyond DNA sequence data to understand the function of genes and
the proteins that they encode. These technologies take advantage of the
evolutionary conservation of genes and gene function among diverse species. We
exploit this conservation to perform genetic analyses quickly and
systematically in a variety of simple model organisms. Through these analyses,
we can characterize genes and related proteins whose modulation will lead to a
desired outcome. We then utilize our expertise in comparative genomics to
identify the corresponding genes in the commercially relevant organism, for
example humans or plants. We believe that our proprietary technologies are
commercially applicable to all industries whose products can be enhanced by an
understanding of DNA or proteins, including the pharmaceutical, agrochemical,
agricultural, diagnostic and biotechnology industries. We are conducting
research in more than 12 different programs for these industries.
We have established collaborations with Bayer, Pharmacia & Upjohn and
Bristol-Myers Squibb, as well as with U.S. government agencies and academic
centers worldwide. Committed funding from our commercial collaborations totals
over $180 million. We intend to continue to establish strategic collaborations
with leading companies in the life sciences industries. In addition, we invest
our own funds in proprietary programs, and we have retained significant rights
to the output of our research and to future applications of our technologies.
Our Technologies
We conduct our work primarily utilizing model system genetics, and we
interpret and apply the data through our expertise in comparative genomics.
Model system genetics is a process that takes advantage of the short life cycle
times, well-characterized biology, and ease of genetic manipulation in species
like the fruit fly, D. melanogaster, and nematode worm, C. elegans. These
attributes make it possible to scan the entire genome of these organisms for
genes capable of leading to a desired outcome. For example, we can identify
each gene in the model system that is capable of blocking the unregulated cell
growth characteristic of cancer cells when targeted by a pharmaceutical, or
each gene that will lead to the death of insect pests when targeted by an
agrochemical. Comparative genomics leverages functional information from one
biological system across other biological systems. We are a pioneer in the use
of comparative genomics and use this approach to move from the genes of
interest in our model systems directly to their functional counterparts in
target species such as humans, plant pests, or plants. Together these
technologies allow us to rapidly identify high quality targets for our
collaborative partners and for our internal programs.
1
<PAGE>
To establish and protect our proprietary technologies as well as the output
of our research programs, we rely on a combination of patents, copyrights and
trade secrets. We have two issued U.S. patents relating to our proprietary
model genetic systems and comparative genomics technologies and have submitted
49 U.S. and foreign patent applications. We have developed proprietary
technologies for use in target identification, signal transduction network
identification and assay design, and we have identified proprietary targets.
Our Commercial Collaborations
We have established collaborations with Bayer, Pharmacia & Upjohn and
Bristol-Myers Squibb. Our relationship with Bayer is focused on the discovery
and development of novel insecticides and nematicides for crop protection. The
initial collaboration was signed in May 1998. In January 2000, this
relationship was substantially expanded and the term was extended for eight
additional years. We have delivered targets to Bayer and have received
milestone payments for those targets.
Our five-year collaboration with Pharmacia & Upjohn was signed in February
1999. We are working exclusively with Pharmacia & Upjohn in the fields of
Alzheimer's disease, Type II diabetes and associated complications of metabolic
syndrome. In October 1999, this collaboration was expanded to include mechanism
of action research designed to identify the molecular targets of biologically-
active compounds already identified by Pharmacia & Upjohn. We have delivered a
target to Pharmacia & Upjohn and have received a milestone payment for that
target.
In September 1999, we entered into a three-year collaboration with Bristol-
Myers Squibb to identify the mechanism of action of compounds delivered to us
by Bristol-Myers Squibb. We also entered into a non-exclusive cross-license of
research technology.
Committed funding under our corporate collaborations totals over $180
million. In addition, we have received performance-based milestone payments
from both our Bayer and Pharmacia & Upjohn collaborations, and we anticipate
that we will receive substantial additional milestone payments in the future.
We will receive royalty income from all of our collaborations should our
research lead to marketed products.
Our Accomplishments
We have already delivered targets to each of our corporate collaborators,
and we have used our technologies to identify targets for our internal programs
such as cancer and animal health. We have attracted an outstanding team of
leading researchers in the fields of comparative genomics and model system
genetics. We have expertise in genetics, genomics, bioinformatics, computer-
aided biology, biology, assay development and chemistry. We have built a broad
proprietary infrastructure of tools, reagents, libraries of organisms,
databases and software that has resulted in a substantial increase in the
speed, quality and scope of our analyses. As a result, experiments that take a
year or more in complex systems can be carried out in one to two weeks in our
simple model systems. We have also been able to scale these processes in a
cost-effective manner. We have developed multiple fungal, nematode, insect,
plant and vertebrate genetic systems. In addition, we have established
technologies for the development of our proprietary compounds by acquiring the
assets of MetaXen, LLC, a privately-held biotechnology company focusing on
molecular genetics, by licensing proprietary combinatorial chemistry technology
from Bristol-Myers Squibb and by broadening our biological expertise.
2
<PAGE>
Our Strategy
Our strategy has four major components:
. We will continue to develop our technology platform to enhance our
leadership in comparative genomics and model system genetics by
investing significantly in research and development programs, entering
into partnerships and acquiring new technology.
. We will maximize our product opportunities by broadly leveraging our
technologies to address several multi-billion dollar industries,
including the pharmaceutical, agrochemical, agricultural, diagnostics,
and biotechnology industries. We will continue to establish
collaborations with leading companies in each of these industries.
. We have retained and plan to continue to retain significant rights to
use targets, assays and other technologies developed in each of our
collaborations for use in our proprietary programs. These rights will
enable us to use the information developed within those collaborations
for our other proprietary or partnered programs in different fields.
. We will continue to invest our funds in discovering and developing our
own proprietary products. These potential products will be available for
licensing to our collaborative partners or retained by us for further
development and commercialization.
Company Information
Exelixis was incorporated in Delaware in 1994 as Exelixis Pharmaceuticals,
Inc., and we changed our name to Exelixis, Inc. in February 2000. Our executive
offices and laboratories are located at 260 Littlefield Avenue, South San
Francisco, California 94080. Our telephone number is (650) 825-2200 and our
internet address is www.exelixis.com. The information on this web site is not a
part of this prospectus.
Exelixis and the Exelixis logo are two of our trademarks and service marks.
Other trademarks, trade names and service marks referred to in this prospectus
are the property of their respective owners.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered by Exelixis......................... shares
Shares outstanding after this offering............. shares
Nasdaq National Market symbol...................... EXEL
Use of proceeds.................................... For research and development
activities, capital
expenditures, financing
possible acquisitions and
investments in technology,
working capital and other
general corporate purposes.
See "Use of Proceeds."
</TABLE>
----------------
The above information is based on the number of shares outstanding as of
January 31, 2000 and excludes:
. 7,046,914 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $0.34 per
share;
. 851,786 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $1.30 per share;
. shares of common stock issuable upon conversion of an
outstanding promissory note (assuming an initial offering price of
$ );
. 5,607,197 shares of common stock available for issuance or future grant
under our stock option plans; and
. 300,000 shares of common stock available for issuance under our employee
stock purchase plan.
Except as otherwise noted, we have presented the information in this
prospectus based on the following assumptions:
. the underwriters do not exercise their over-allotment option; and
. the outstanding shares of preferred stock convert into shares of common
stock upon the closing of this offering.
4
<PAGE>
Summary Consolidated Financial Data
The following tables summarize our consolidated financial data. The pro
forma as adjusted column of the consolidated balance sheet data reflects the
conversion of our preferred stock into common stock and the sale of
shares of our common stock in this offering at an assumed initial public
offering price of $ per share, after deducting the estimated underwriting
discounts and offering expenses payable by us.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
License revenues............... $ -- $ -- $ -- $ 1,250 $ 3,050
Contract revenues.............. -- -- -- 2,133 9,464
------- ------- -------- -------- --------
Total revenues............... -- -- -- 3,383 12,514
------- ------- -------- -------- --------
Operating expenses:
Research and development...... 1,890 3,845 8,198 11,539 19,412
General and administrative.... 1,096 1,426 3,743 5,304 6,343
Amortization of deferred stock
compensation................. -- 324 25 725 3,522
------- ------- -------- -------- --------
Total operating expenses..... 2,986 5,595 11,966 17,568 29,277
------- ------- -------- -------- --------
Loss from operations........... (2,986) (5,595) (11,966) (14,185) (16,763)
Interest income (expense), net. 33 284 470 (50) 46
------- ------- -------- -------- --------
Loss before equity in net loss
of affiliated company......... (2,953) (5,311) (11,496) (14,235) (16,717)
Equity in net loss of
affiliated company............ -- -- -- (320) --
------- ------- -------- -------- --------
Net loss....................... $(2,953) $(5,311) $(11,496) $(14,555) $(16,717)
======= ======= ======== ======== ========
Basic and diluted net loss per
share......................... $ (1.86) $ (3.30) $ (6.25) $ (2.66) $ (2.28)
Shares used in computing basic
and diluted net loss per
share......................... 1,587 1,611 1,840 5,480 7,325
Pro forma basic and diluted net
loss per share................ $ (0.45)
Shares used in computing pro
forma basic and diluted net
loss per share................ 37,468
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------
Pro Forma
Actual As Adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments......... $ 6,904 $
Working capital........................................... 553
Total assets.............................................. 18,901
Long-term obligations, less current portion............... 11,132
Mandatorily redeemable convertible preferred stock........ 46,780
Deferred stock compensation............................... (14,167)
Accumulated deficit....................................... (51,612)
Total stockholders' (deficit) equity...................... (46,490)
</TABLE>
5
<PAGE>
RISK FACTORS
An investment in our common stock is risky. You should carefully consider
the risks described below, together with all of the other information included
in this prospectus, before deciding whether to invest in our common stock. The
occurrence of any of the following risks could harm our business, financial
condition or results of operations. In such case, the trading price of our
common stock could decline, and you may lose all or part of your investment.
The risks and uncertainties described below are not exhaustive. Additional
risks and uncertainties not presently known to us, or that we currently
consider immaterial, may also harm our business.
We have a history of net losses. We expect to continue to incur net losses, and
we may not achieve or maintain profitability.
We have incurred net losses each year since our inception, including a net
loss of approximately $16.7 million for the year ended December 31, 1999. As of
that date, we had an accumulated deficit of approximately $51.6 million. We
expect these losses to continue and anticipate negative cash flow for the
foreseeable future. The size of these net losses will depend, in part, on the
rate of growth, if any, in our license and contract revenues and on the level
of our expenses. Our research and development expenditures and general and
administrative costs have exceeded our revenues to date, and we expect to spend
significant additional amounts to fund research and development in order to
enhance our core technologies and undertake product development. As a result,
we expect that our operating expenses will increase significantly in the near
term and, consequently, we will need to generate significant additional
revenues to achieve profitability. Even if we do increase our revenues and
achieve profitability, we may not be able to sustain or increase profitability.
We are dependent on our collaborations with major companies. If we are unable
to achieve milestones or develop products or are unable to renew or enter into
new collaborations, our revenues may decrease and our activities may fail to
lead to commercialized products.
Substantially all of our revenues to date have been derived from
collaborative research and development agreements. Revenues from research and
development collaborations depend upon continuation of the collaborations, the
achievement of milestones and royalties derived from future products developed
from our research. If we are unable to successfully achieve milestones or our
collaborators fail to develop successful products, we will not earn the
revenues contemplated under such collaborative agreements. Our current
collaborative agreements expire after a fixed period of time and two of our
agreements are subject to termination at an earlier date if we fail to retain
key personnel. In addition, some of our collaborations are exclusive and
preclude us from entering into additional collaborative arrangements with other
parties in the area or field of exclusivity. If existing agreements are not
renewed or if we are unable to enter into new collaborative agreements on
commercially acceptable terms, our revenues may decrease and our activities may
fail to lead to commercialized products.
Conflicts with our collaborators could harm our business.
We intend to conduct proprietary research programs in specified disease and
agricultural product areas. Our pursuit of opportunities in agricultural and
pharmaceutical markets could result in conflicts with our collaborators.
Moreover, disagreements with our collaborators could develop over rights to our
intellectual property. In addition, our collaborative agreements may have
provisions that give rise to disputes regarding the rights and obligations of
the parties. Any conflict with our collaborators could lead to the termination
of our collaborative agreements, delay collaborative activities, reduce our
ability to renew agreements or obtain future collaboration agreements or result
in litigation or arbitration and would negatively impact our relationship with
existing collaborators, which could harm our business.
6
<PAGE>
We have limited or no control over the resources that our collaborators may
choose to devote to our joint efforts. Our collaborators may breach or
terminate their agreements with us or fail to perform their obligations
thereunder. Further, our collaborators may elect not to develop products
arising out of our collaborative arrangements or may fail to devote sufficient
resources to the development, manufacture, market or sale of such products.
Certain of our collaborators could also become our competitors in the future.
If our collaborators develop competing products, preclude us from entering into
collaborations with their competitors, fail to obtain necessary regulatory
approvals, terminate their agreements with us prematurely or fail to devote
sufficient resources to the development and commercialization of our products,
our product development efforts and business could be harmed.
We are deploying unproven technologies, and we may not be able to develop
commercially successful products.
You must evaluate us in light of the uncertainties and complexities
affecting a biotechnology company. Our technologies are still in the early
stages of development. Our research and operations thus far have allowed us to
identify a number of product targets for use by our collaborators and our own
internal development programs. We are not certain, however, of the commercial
value of any of our current or future targets. Further, we cannot assure you
that we will be successful in expanding the scope of our research into new
fields of pharmaceutical or pesticide research, or other agricultural
applications such as trait enhancement. Significant research and development,
financial resources and personnel will be required to capitalize on our
technology, develop commercially viable products and obtain regulatory approval
for such products.
We have no experience in developing, manufacturing and marketing products and
may be unable to commercialize proprietary products.
Initially, we will rely on our collaborators to develop and commercialize
products based on our research and development efforts. We have no experience
in using the targets that we identify to develop our own proprietary products.
Even if we develop potential products, we have no experience in selecting among
product candidates or manufacturing or marketing our own products. In order for
us to commercialize products, we would need to significantly enhance our
capabilities with respect to product development, and establish manufacturing
and marketing capabilities, either directly or through outsourcing or licensing
arrangements. There can be no assurance that we will able to enter into such
outsourcing or licensing agreements on commercially reasonable terms, or at
all. If we cannot obtain or develop the necessary capabilities to manufacture
and market products, we may be unable to commercialize products resulting from
our proprietary programs.
Since our technologies have many potential applications and we have limited
resources, our focus on a particular area may result in our failure to
capitalize on more profitable areas.
We have limited financial and managerial resources. Because our technologies
and identified targets have applications across numerous diverse industries, we
are required to apply our resources to selective efforts. This requires us to
focus on product candidates in specific industries and forego opportunities
with regard to other products and industries. For example, depending on our
ability to allocate resources, a decision to concentrate on a particular
agricultural program may mean that we will not have resources available to
apply the same technology to a pharmaceutical project. While our technologies
may permit us to work in both areas, resource commitments may require trade-
offs resulting in delays in the development of certain programs or research
areas, which may place us at a competitive disadvantage. Our decisions
impacting resource allocation may not lead to the development of viable
commercial products and may divert resources from more profitable market
opportunities.
7
<PAGE>
Our competitors may develop products and technologies that make ours obsolete.
The biotechnology industry is highly fragmented and is characterized by
rapid technological change. In particular, the area of gene research is a
rapidly evolving field. We face, and will continue to face, intense competition
from large biotechnology and pharmaceutical companies, as well as academic
research institutions, clinical reference laboratories and government agencies
that are pursuing other model systems, genome sequencing and signal
transduction research. Some of our competitors have entered into collaborations
with leading companies within our target markets, including some of our
existing collaborators. Our future success will depend on our ability to
maintain a competitive position with respect to technological advances. Rapid
technological development by others may result in our technologies and future
products becoming obsolete.
Any products that are developed through our technologies will compete in
highly competitive markets. Further, our competitors may be more effective at
using their technologies to develop commercial products. Many of the
organizations competing with us have greater capital resources, larger research
and development staffs and facilities, more experience in obtaining regulatory
approvals, and more extensive product manufacturing and marketing capabilities.
As a result, our competitors may be able to more easily develop technologies
and products that would render our technologies and products, and those of our
collaborators, obsolete and noncompetitive.
If we are unable to adequately protect our proprietary technologies, third
parties may be able to use our technology, which could adversely affect our
ability to compete in the market.
Our success will depend in part on our ability to obtain patents and
maintain adequate protection of the intellectual property related to our
technologies and products. The patent positions of biotechnology companies,
including our patent position, are generally uncertain and involve complex
legal and factual questions. We will be able to protect our proprietary rights
from unauthorized use by third parties only to the extent that our proprietary
technologies are covered by valid and enforceable patents or are effectively
maintained as trade secrets. The laws of some foreign countries do not protect
proprietary rights to the same extent as the laws of the U.S., and many
companies have encountered significant problems in protecting and defending
their proprietary rights in foreign jurisdictions. We will apply for patents
covering our technologies and products as and when we deem appropriate.
However, these applications may be challenged or may fail to result in issued
patents. Our existing patents and any future patents we obtain may not be
sufficiently broad to prevent others from practicing our technologies or from
developing competing products. Furthermore, others may independently develop
similar or alternative technologies or design around our patents. In addition,
our patents may be challenged, invalidated or fail to provide us with any
competitive advantages.
We rely on trade secret protection for our confidential and proprietary
information. We have taken security measures to protect our proprietary
information and trade secrets, but these measures may not provide adequate
protection. While we seek to protect our proprietary information by entering
into confidentiality agreements with employees, collaborators and consultants,
we cannot assure you that our proprietary information will not be disclosed, or
that we can meaningfully protect our trade secrets. In addition, our
competitors may independently develop substantially equivalent proprietary
information or may otherwise gain access to our trade secrets, which could
adversely affect our ability to compete in the market.
Litigation or third party claims of intellectual property infringement could
require us to spend substantial time and money and adversely affect our ability
to develop and commercialize products.
Our commercial success depends in part on our ability to avoid infringing
patents and proprietary rights of third parties, and not breaching any licenses
that we have entered into with regard to our
8
<PAGE>
technologies. Other parties have filed, and in the future are likely to file,
patent applications covering genes and gene fragments, techniques and
methodologies relating to model systems, and products and technologies that we
have developed or intend to develop. If patents covering technologies required
by our operations are issued to others, we may have to rely on licenses from
third parties. There can be no assurance that such licenses will be available
on commercially reasonable terms, or at all.
Third parties may accuse us of employing their proprietary technology
without authorization. In addition, third parties may obtain patents that
relate to our technologies and claim that use of such technologies infringe
these patents. Regardless of their merit, such claims could require us to incur
substantial costs, including the diversion of management and technical
personnel, in defending ourselves against any such claims or enforcing our
patents. In the event that a successful claim of infringement is brought
against us, we may be required to pay damages and obtain one or more licenses
from third parties. We may not be able to obtain these licenses at a reasonable
cost, or at all. Defense of any lawsuit or failure to obtain any of these
licenses could adversely affect our ability to develop and commercialize
products.
The loss of key personnel or the inability to attract and retain additional
personnel could impair the growth of our business.
We are highly dependent on the principal members of our management and
scientific staff, the loss of whose services might adversely impact the
achievement of our objectives and the continuation of existing collaborations.
In addition, recruiting and retaining qualified scientific personnel to perform
future research and development work will be critical to our success. We do not
currently have sufficient executive management and technical personnel to fully
execute our business plan. There is currently a shortage of skilled executives
and employees with technical expertise, and this shortage is likely to
continue. As a result, competition for skilled personnel is intense and
turnover rates are high. Although we believe we will be successful in
attracting and retaining qualified personnel, competition for experienced
scientists from numerous companies, academic and other research institutions
may limit our ability to do so.
Our business operations will require additional expertise in specific
industries and areas applicable to products identified and developed through
our technologies. These activities will require the addition of new personnel,
including management and technical personnel and the development of additional
expertise by existing employees. The inability to attract such personnel or to
develop this expertise could impair the growth of our business.
Our collaborations with outside scientists may be subject to restriction and
change.
We work with scientific advisors and collaborators at academic and other
institutions who assist us in our research and development efforts. These
scientists are not our employees and may have other commitments that would
limit their availability to us. Although our scientific advisors and
collaborators generally agree not to do competing work, if a conflict of
interest between their work for us and their work for another entity arises, we
may lose their services. In addition, although our scientific advisors and
collaborators sign agreements not to disclose our confidential information, it
is possible that valuable proprietary knowledge may become publicly known
through them.
Our potential therapeutic products are subject to a lengthy and uncertain
regulatory process that may not result in the necessary regulatory approvals,
which could harm our business and adversely affect our ability to commercialize
products.
The Food and Drug Administration, or FDA, must approve any drug or biologic
product before it can be marketed in the U.S. Any products resulting from our
research and development efforts must
9
<PAGE>
also be approved by the regulatory agencies of foreign governments before the
product can be sold outside the U.S. Before a new drug application or biologics
license application can be filed with the FDA, the product candidate must
undergo extensive clinical trials, which can take many years and may require
substantial expenditures. The regulatory process also requires preclinical
testing. Data obtained from preclinical and clinical activities are susceptible
to varying interpretations, which could delay, limit or prevent regulatory
approval. In addition, delays or rejections may be encountered based upon
changes in regulatory policy for product approval during the period of product
development and regulatory agency review. The clinical development and
regulatory approval process is expensive and time consuming. Any failure to
obtain regulatory approval could harm our business and adversely affect our
ability to commercialize products.
Our efforts to date have been primarily limited to identifying targets.
Significant research and development efforts will be necessary before any
products resulting from such targets can be commercialized. If regulatory
approval is granted to any of our products, this approval may impose
limitations on the uses for which a product may be marketed. Further, once
regulatory approval is obtained, a marketed product and its manufacturer are
subject to continual review, and discovery of previously unknown problems with
a product or manufacturer may result in restrictions and sanctions with respect
to the product, manufacturer and relevant manufacturing facility, including
withdrawal of the product from the market.
Social issues may limit the public acceptance of genetically engineered
products, which could reduce demand for our products.
Although our technology is not dependent on genetic engineering, genetic
engineering plays a prominent role in our approach to product development.
Public attitudes may be influenced by claims that genetically engineered
products are unsafe for consumption or pose a danger to the environment. Such
claims may prevent our genetically engineered products from gaining public
acceptance. The commercial success of our future products may depend, in part,
on public acceptance of the use of genetically engineered products including
drugs and plant and animal products.
The subject of genetically modified organisms has received negative
publicity, which has aroused public debate. Adverse publicity has resulted in
greater regulation internationally and trade restrictions on imports of
genetically altered products. If similar action is taken in the U.S., genetic
research and genetically engineered products could be subject to greater
domestic regulation, including stricter labeling requirements. Such publicity
may prevent any products resulting from our research from gaining market
acceptance and reduce demand for our products.
Laws and regulations may reduce our ability to sell genetically engineered
products that we or our collaborators develop in the future.
We or our collaborators may develop genetically engineered agricultural and
animal products. The field testing, production and marketing of genetically
engineered products are subject to regulation by federal, state, local and
foreign governments. Regulatory agencies administering existing or future
regulations or legislation may prevent us from producing and marketing
genetically engineered products in a timely manner or under technically or
commercially feasible conditions. In addition, regulatory action or private
litigation could result in expenses, delays or other impediments to our product
development programs and the commercialization of products.
The FDA has released a policy statement stating that it will apply the same
regulatory standards to foods developed through genetic engineering as it
applies to foods developed through traditional plant breeding. Genetically
engineered food products will be subject to premarket review, however, if
10
<PAGE>
these products raise safety questions or are deemed to be food additives. Our
products may be subject to lengthy FDA reviews and unfavorable FDA
determinations if they raise questions regarding safety or our products are
deemed to be food additives.
The FDA has also announced that it will not require genetically engineered
agricultural products to be labeled as such, provided that these products are
as safe and have the same nutritional characteristics as conventionally
developed products. The FDA may reconsider or change its policies, and local or
state authorities may enact labeling requirements, either of which could have a
material adverse effect on our ability or the ability of our collaborators to
develop and market products resulting from our efforts.
Difficulties we may encounter managing our growth could harm our business.
We have experienced a period of rapid and substantial growth that has
placed, and our anticipated growth in the future will continue to place, a
strain on our administrative and operational infrastructure. If we are unable
to manage this growth effectively, our business may be harmed. The number of
our employees increased from 102 at December 31, 1998 to 168 at December 31,
1999. Our revenues increased from $3.4 million in 1998 to $12.5 million in
1999. As our operations expand, we expect that we will need to manage
additional relationships with various collaborative partners, suppliers and
other third parties. Our ability to manage our operations and growth
effectively requires us to continue to improve our operational, financial and
management controls, reporting systems and procedures. We may not be able to
successfully implement improvements to our management information and control
systems in an efficient or timely manner and may discover deficiencies in
existing systems and controls.
We expect that our quarterly results of operations will fluctuate, and this
fluctuation could cause our stock price to decline, causing investor losses.
Our quarterly operating results have fluctuated in the past and are likely
to fluctuate in the future. A number of factors, many of which we cannot
control, could subject our operating results and stock price to volatility,
including:
. recognition of payments of non-refundable upfront or licensing fees;
. payments of non-refundable upfront or licensing fees to third parties;
. acceptance of our technologies and platforms;
. the success rate of our discovery efforts leading to milestones and
royalties;
. the introduction of new technologies or products by our competitors;
. the timing and willingness of collaborators to commercialize our
products;
. our ability to enter into new collaborative relationships;
. the termination or non-renewal of existing collaborations; and
. general and industry-specific economic conditions that may affect our
collaborators' research and development expenditures.
A large portion of our expenses, including expenses for facilities,
equipment and personnel, are relatively fixed in the short term. In addition,
we expect operating expenses to increase significantly during 2000.
Accordingly, if our revenues decline or do not grow as anticipated due to the
expiration of existing contracts, our failure to obtain new contracts, our
inability to meet milestones or other factors, we may not be able to
correspondingly reduce our operating expenses. Failure to achieve anticipated
levels of revenues could therefore significantly harm our operating results for
a particular fiscal period.
11
<PAGE>
Due to the possibility of fluctuations in our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. As a result, in some future
quarters, our operating results may not meet the expectations of stock market
analysts and investors, which could result in a decline in the price of our
stock.
If we engage in any acquisition, we will incur a variety of costs, and the
anticipated benefits of such acquisitions may never be realized.
If appropriate opportunities become available, we may attempt to acquire
businesses, technologies, services or products that we believe are a strategic
fit with our business. We currently have no commitments or agreements with
respect to any material acquisitions. If we do undertake any transactions of
this sort, the process of integrating an acquired business, technology,
service or product may result in unforeseen operating difficulties and
expenditures, including the diversion of resources and management attention
that would otherwise be available for ongoing development of our business.
Future acquisitions could result in issuances of equity securities that would
dilute the ownership of existing stockholders, the incurrence of debt,
contingent liabilities and/or amortization expenses related to goodwill and
other intangible assets, which could adversely affect our financial condition.
Moreover, the anticipated benefits of any acquisition may fail to be realized.
We will need additional capital in the future, which may not be available to
us.
Our future capital requirements will be substantial, and will depend on
many factors including:
. payments received under collaborative agreements;
. the progress and scope of our collaborative and independent research and
development projects;
. our need to develop manufacturing and marketing capabilities to
commercialize products; and
. the filing, prosecution and enforcement of patent claims.
We anticipate that the net proceeds of this offering and interest earned
thereon will enable us to maintain our currently planned operations for at
least the next two years. Changes to our current operating plan may require us
to consume available capital resources significantly sooner than we expect. We
may be unable to raise sufficient additional capital when we need it, on
favorable terms, or at all. If our capital resources are insufficient to meet
future capital requirements, we will have to raise additional funds. The sale
of equity or convertible debt securities in the future may be dilutive to our
stockholders, and debt financing arrangements may require us to pledge certain
assets and enter into covenants that would restrict our ability to incur
further indebtedness. If we are unable to obtain adequate funds on reasonable
terms, we may be required to curtail operations significantly or to obtain
funds by entering into financing, supply or collaboration agreements on
unattractive terms.
We use hazardous chemicals and radioactive and biological materials in our
business. Any claims relating to improper handling, storage or disposal of
these materials could be time consuming and costly.
Our research and development processes involve the controlled use of
hazardous materials, including chemicals, radioactive and biological
materials. Our operations produce hazardous waste products. We cannot
eliminate the risk of accidental contamination or discharge and any resultant
injury from these materials. Federal, state and local laws and regulations
govern the use, manufacture, storage, handling and disposal of hazardous
materials. We may be sued for any injury or contamination that results from
our use or the use by third parties of these materials, and our
12
<PAGE>
liability may exceed our insurance coverage and our total assets. Compliance
with environmental laws and regulations may be expensive, and current or future
environmental regulations may impair our research, development and production
efforts.
In addition, our collaborators may use hazardous materials in connection
with our collaborative efforts. To our knowledge, their work is performed in
accordance with applicable biosafety regulations. In the event of a lawsuit or
investigation, however, we could be held responsible for any injury caused to
persons or property by exposure to, or release of, these hazardous materials
use by these parties. Further, we may be required to indemnify our
collaborators against all damages and other liabilities arising out of our
development activities or products produced in connection with these
collaborations.
If product liability lawsuits are successfully brought against us, we could
face substantial liabilities that exceed our resources.
We may be held liable if any product we or our collaborators develop causes
injury or is found otherwise unsuitable during product testing, manufacturing,
marketing or sale. Although we intend to obtain general liability and product
liability insurance, this insurance may be prohibitively expensive, or may not
fully cover our potential liabilities. Inability to obtain sufficient insurance
coverage at an acceptable cost or to otherwise protect ourselves against
potential product liability claims could prevent or inhibit the
commercialization of products developed by us or our collaborators.
Health care reform and restrictions on reimbursements may limit our returns on
pharmaceutical products that we or our collaborators may develop.
If we are successful in validating targets, products that we or our
collaborators develop based on those targets will include pharmaceutical
products. Our ability and that of our collaborators to commercialize such
pharmaceutical products may depend, in part, on the extent to which
reimbursement for the cost of these products will be available from government
health administration authorities, private health insurers and other
organizations. In the U.S., third-party payors are increasingly challenging the
price of medical products and services. The trend towards managed health care
in the U.S., legislative health care reforms and the growth of organizations
such as health maintenance organizations that may control or significantly
influence the purchase of health care products and services, may result in
lower prices for any products we or our collaborators may develop. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and there can be no assurance that adequate third-party coverage will
be available to enable us to maintain price levels sufficient to realize an
appropriate return on our investment in research and product development.
Our facilities are located near known earthquake fault zones, and the
occurrence of an earthquake or other catastrophic disaster could cause damage
to our facilities and equipment, which could require us to cease or curtail
operation.
Our facilities are located near known earthquake fault zones and are
vulnerable to damage from earthquakes. We are also vulnerable to damage from
other types of disasters, including fire, floods, power loss, communications
failures and similar events. If any disaster were to occur, our ability to
operate our business at our facilities would be seriously, or potentially
completely, impaired. In addition, the unique nature of our research activities
could cause significant delays in our programs and make it difficult for us to
recover from a disaster. The insurance we maintain may not be adequate to cover
our losses resulting from disasters or other business interruptions.
Accordingly, an earthquake or other disaster could materially and adversely
harm our ability to conduct business.
13
<PAGE>
Our stock price may be extremely volatile, and you may not be able to resell
your shares at or above the initial offering price.
Prior to this offering, there has been no public market for shares of our
common stock. An active trading market may not develop or be sustained
following completion of this offering. The initial public offering price for
the shares will be determined by negotiations between us and representatives of
the underwriters. This price may bear no relationship to the price at which our
common stock will trade upon completion of this offering. The stock market has
experienced significant price and volume fluctuations, and the market prices of
technology companies, particularly life science companies, have been highly
volatile. You may not be able to resell your shares at or above the initial
public offering price.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. A securities class action suit against us could result in
substantial costs and divert management's attention and resources, which could
have a material and adverse effect on our business.
Future sales of our common stock may depress our stock price.
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering, or even the perception that such sales could occur. There
will be shares of common stock outstanding immediately after this
offering, or shares if the representatives of the underwriters
exercise their over-allotment option in full. Of these shares, the following
will be available for sale in the public market as follows:
. 863,520 shares will be eligible for sale upon completion of this
offering;
. 37,854,758 shares will be eligible for sale upon the expiration of lock-
up agreements, beginning 180 days after the date of this prospectus; and
. 1,519,605 shares will be eligible for sale upon the exercise of vested
options 180 days after the date of this prospectus.
Some of our existing stockholders can exert control over us, and may not make
decisions that are in the best interests of all stockholders.
After this offering, our officers, directors and principal stockholders
(stockholders holding more than 5% of our common stock) will together control
approximately % of our outstanding common stock. As a result, these
stockholders, acting together, would be able to exert significant influence
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. In addition, this
concentration of ownership may delay or prevent a change in control of our
company, even when a change may be in the best interests of our stockholders.
In addition, the interests of these stockholders may not always coincide with
our interests as a company or the interests of other stockholders. Accordingly,
these stockholders could cause us to enter into transactions or agreements that
we would not otherwise consider.
As a new investor, you will experience immediate and substantial dilution.
If you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution in pro forma net tangible book value per
share. If the holders of outstanding options or warrants exercise those options
or warrants, you will incur further dilution. See "Dilution."
14
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the federal securities laws that relate to future events or our future
financial performance. When used in this prospectus, you can identify forward-
looking statements by terminology such as "anticipate," "believe," "continue,"
"estimate," "expect," "intend," "may," "plan," "potential," "predict,"
"should," "will" and the negative of these terms or other comparable
terminology. These statements are only predictions. Our actual results could
differ materially from those anticipated in our forward-looking statements as a
result of many factors including those set forth under "Risk Factors" and
elsewhere in this prospectus. These forward-looking statements are included,
for example, in the discussions about:
. our ability to enter into future collaborative relationships of the
magnitude and/or duration of our existing relationships;
. our ability to achieve milestones and identify commercially valuable
targets in our collaborative relationships and our own research programs;
. our intellectual property rights;
. our business strategies and plans; and
. our ability, alone or in conjunction with others, to develop products
suitable for commercialization.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Neither we nor any other person assumes
responsibility for the accuracy and completeness of these statements. We assume
no duty to update any of the forward-looking statements after the date of this
prospectus or to conform these statements to actual results.
15
<PAGE>
USE OF PROCEEDS
We will receive net proceeds from the sale of the shares of common stock
of approximately $ ($ if the underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $ per share
and after deducting the estimated underwriting discounts and our estimated
offering expenses.
We intend to use the net proceeds of this offering for research and
development activities, working capital and other general corporate purposes
and capital expenditures. The amounts and timing of our actual expenditures
will depend upon numerous factors, including the status of our product
development and commercialization efforts, the amount of proceeds actually
raised in this offering, the amount of cash generated by our operations,
competition, and sales and marketing activities. We may also use a portion of
the proceeds for the acquisition of, or investment in, companies, technologies
or assets that complement our business. However, we have no present
understandings, commitments or agreements to enter into any potential
acquisitions or investments. The balance of the proceeds, as well as existing
cash, will be used for general corporate purposes. Until the funds are used as
described above, we intend to invest the net proceeds of this offering in
short-term, interest-bearing securities.
The principal purposes of this offering are to increase our capitalization
and financial flexibility, to provide a public market for our common stock and
to facilitate access to public equity markets. As of the date of this
prospectus, we cannot specify with certainty all of the particular uses for the
net proceeds we will have upon completion of this offering. Accordingly, our
management will have broad discretion to allocate the net proceeds from this
offering.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain earnings, if any, to support the development of our
business and do not anticipate paying cash dividends for the foreseeable
future.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the automatic conversion of all of our
preferred stock into an aggregate of 30,503,571 shares of common stock,
which will occur upon the closing of this offering; and
. on a pro forma as adjusted basis to reflect our receipt of the net
proceeds from the sale of shares of common stock in this
offering at an assumed initial public offering price of $ per
share, after deducting the estimated underwriting discounts and offering
expenses payable by us.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------
Pro Forma As
Actual Pro Forma Adjusted
-------------- -------------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Long-term obligations, less
current portion.................. $ 11,132 $11,132 $
-------------- ------------- -----------
Mandatorily redeemable convertible
preferred stock, $0.001 par
value; 35,000,000 shares
authorized; 30,503,571 shares
issued and outstanding, actual;
none issued pro forma and pro
forma as adjusted................ 46,780 --
-------------- ------------- -----------
Stockholders' (deficit) equity:
Common stock, $0.001 par value;
50,000,000 shares authorized,
8,345,168 shares issued and
outstanding, actual; 50,000,000
shares authorized, 38,848,739
shares issued and outstanding,
pro forma; and 100,000,000
shares authorized, shares
issued and outstanding pro forma
as adjusted..................... 8 39
Additional paid-in capital....... 19,521 66,270
Notes receivable from
stockholders.................... (240) (240)
Deferred stock compensation...... (14,167) (14,167)
Accumulated deficit.............. (51,612) (51,612)
-------------- ------------- -----------
Total stockholders' (deficit)
equity....................... (46,490) 290
-------------- ------------- -----------
Total capitalization.......... $ 11,422 $11,422 $
============== ============= ===========
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of January 31, 2000 and
excludes:
. 7,046,914 shares of common stock underlying options outstanding at a
weighted average exercise price of $0.34 per share;
. 851,786 shares of common stock underlying warrants outstanding at a
weighted average exercise price of $1.30 per share;
. shares of common stock issuable upon conversion of an
outstanding promissory note (assuming an initial offering price of $ );
. 5,607,197 shares of common stock available for issuance or future grant
under our stock option plans; and
. 300,000 shares of common stock available for issuance under our employee
stock purchase plan.
See "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto included in this prospectus.
17
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the initial public offering price per share of
our common stock and the pro forma as adjusted net tangible book value per
share of our common stock after this offering.
Our pro forma net tangible book value at December 31, 1999 was $
million, or $ per share of common stock, after giving effect to the
automatic conversion of all outstanding shares of our preferred stock into an
aggregate of 30,503,571 shares of common stock, which will occur upon the
closing of this offering. After giving effect to the sale of the
shares of common stock in this offering at an assumed initial public offering
price of $ per share, assuming that the underwriters' over-allotment
option is not exercised, and after deducting the estimated underwriting
discounts, commissions and estimated offering expenses, our pro forma as
adjusted net tangible book value at December 31, 1999 would be $
million, or $ per share.
Pro forma net tangible book value per share before the offering represents
total tangible assets less total liabilities, divided by the pro forma number
of shares of common stock outstanding at December 31, 1999. The offering will
result in an immediate increase in the pro forma as adjusted net tangible book
value of $ per share to existing stockholders and an immediate dilution
in pro forma as adjusted net tangible book value of $ per share to new
investors, or approximately % of the assumed initial public offering price
of $ per share. Dilution is determined by subtracting pro forma as
adjusted net tangible book value per share after the offering from the assumed
initial public offering price of $ per share. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share at December 31, 1999.. $
Increase per share attributable to this offering..................
----
Pro forma as adjusted net tangible book value per share after
offering...........................................................
-----
Dilution per share to new investors................................. $
=====
</TABLE>
The following table summarizes the total consideration paid to us and the
average price paid per share by existing stockholders and new investors
purchasing common stock in this offering. This information is presented on a
pro forma as adjusted basis at December 31, 1999, after giving effect to the
sale of the shares of common stock at an assumed initial public
offering price of $ per share, before deducting estimated underwriting
discounts, commissions and estimated offering expenses.
<TABLE>
<CAPTION>
Shares Total Average
Purchased Consideration Price
-------------- -------------- Per
Number Percent Amount Percent Share
------ ------- ------ ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... % $ % $
New investors.............................
---- --- ----- ---
Total................................... % $ %
==== === ===== ===
</TABLE>
These tables assume no conversion of a convertible promissory note in favor
of Pharmacia & Upjohn and no exercise of stock options and warrants outstanding
at December 31, 1999. Pharmacia & Upjohn made us an interest-free loan of $7.5
million that is evidenced by a promissory note. This promissory note must be
converted into shares of our common stock during the two-year period following
this offering at a price per share equal to 120% of the initial public offering
price, the time of such conversion to be determined by Pharmacia & Upjohn. At
January 31, 2000, there were
18
<PAGE>
7,046,914 shares of common stock issuable upon exercise of outstanding stock
options at a weighted average exercise price of $0.34 per share and 851,786
shares of common stock issuable upon exercise of outstanding warrants at a
weighted average exercise price of $1.30 per share. If any of these options or
warrants are exercised, there will be further dilution to new public investors.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
This section presents our historical consolidated financial data. You should
read carefully the consolidated financial statements and the notes thereto
included in this prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The consolidated statement of operations data for the years ended December
31, 1997, 1998 and 1999 and the consolidated balance sheet data as of December
31, 1998 and 1999 have been derived from our audited consolidated financial
statements included elsewhere in this prospectus. The consolidated statement of
operations data for the years ended December 31, 1995 and 1996 and the
consolidated balance sheet data as of December 31, 1995, 1996 and 1997 have
been derived from our audited financial statements that are not included in
this prospectus. Historical results are not necessarily indicative of future
results. See the Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in computing basic
and diluted and pro forma basic and diluted net loss per share.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
License revenues.............. $ -- $ -- $ -- $ 1,250 $ 3,050
Contract revenues............. -- -- -- 2,133 9,464
------- ------- -------- -------- --------
Total revenues............... -- -- -- 3,383 12,514
------- ------- -------- -------- --------
Operating expenses:
Research and development..... 1,890 3,845 8,198 11,539 19,412
General and administrative... 1,096 1,426 3,743 5,304 6,343
Amortization of deferred
stock compensation.......... -- 324 25 725 3,522
------- ------- -------- -------- --------
Total operating expenses..... 2,986 5,595 11,966 17,568 29,277
------- ------- -------- -------- --------
Loss from operations.......... (2,986) (5,595) (11,966) (14,185) (16,763)
Interest income (expense),
net.......................... 33 284 470 (50) 46
------- ------- -------- -------- --------
Loss before equity in net loss
of affiliated company........ (2,953) (5,311) (11,496) (14,235) (16,717)
Equity in net loss of
affiliated company........... -- -- -- (320) --
------- ------- -------- -------- --------
Net loss...................... $(2,953) $(5,311) $(11,496) $(14,555) $(16,717)
======= ======= ======== ======== ========
Basic and diluted net loss per
share........................ $ (1.86) $ (3.30) $ (6.25) $ (2.66) $ (2.28)
Shares used in computing basic
and diluted net loss per
share........................ 1,587 1,611 1,840 5,480 7,325
Pro forma basic and diluted
net loss per share........... $ (0.45)
Shares used in computing pro
forma basic and diluted net
loss per share............... 37,468
<CAPTION>
December 31,
----------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash, cash equivalents and
short-term investments....... $ 345 $ 8,086 $ 9,715 $ 2,058 $ 6,904
Working capital............... (57) 6,686 7,619 390 553
Total assets.................. 1,224 9,747 15,349 8,981 18,901
Long-term obligations, less
current portion.............. 592 1,104 1,759 2,556 11,132
Mandatorily redeemable
convertible preferred stock.. 3,730 16,030 31,780 38,138 46,780
Deferred stock compensation... (47) (59) (102) (1,803) (14,167)
Accumulated deficit........... (2,953) (8,844) (20,340) (34,895) (51,612)
Total stockholders' (deficit)
equity....................... 166 (8,853) (20,364) (33,954) (46,490)
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains forward-looking statements
that are based upon current expectations. These forward-looking statements fall
within the meaning of the federal securities laws that relate to future events
or our future financial performance. In some cases, you can identify forward-
looking statements by terminology such as "anticipate," "believe," "continue,"
"estimate," "expect," "intend," "may," "plan," "potential," "predict,"
"should," "will" and the negative of these terms or other comparable
terminology. Forward-looking statements involve risks and uncertainties. Our
actual results and the timing of events could differ materially from those
anticipated in our forward-looking statements as a result of many factors,
including those set forth under "Risk Factors" and elsewhere in this
prospectus. You should read the following discussion and analysis in
conjunction with the "Selected Consolidated Financial Data" and the
consolidated financial statements and notes thereto included in this
prospectus.
Overview
Exelixis was founded in November 1994 and began operations in January 1995.
Since that time, we have made significant investments in developing our
capabilities in comparative genomics and model system genetics. Our proprietary
technologies provide a rapid, efficient and cost-effective way to move beyond
DNA sequence data to understand the function of genes and the proteins that
they encode. We believe that our proprietary technologies are commercially
applicable to all industries whose products can be enhanced by an understanding
of DNA or proteins. To date, we have recognized revenues from research
collaborations with large pharmaceutical and agrochemical companies. Our
current collaborations are with Bayer, Pharmacia & Upjohn and Bristol-Myers
Squibb. These agreements provide for committed funding of over $180 million
through January 2008, of which $7.5 million in equity, $7.5 million in the form
of a convertible promissary note and approximately $15.7 million in revenues
have been received as of December 31, 1999. Additional revenues from these
collaborations are anticipated from the attainment of research milestones and
royalties from sales of our future products.
We have invested heavily in building our two core technologies, model system
genetics and comparative genomics. These core technologies have enabled us to
establish collaborations that contributed to revenue growth from zero in 1997
to $12.5 million in 1999. Our total headcount increased from 78 employees at
December 31, 1997 to 168 employees at December 31, 1999, of which 77% were
engaged in research and development activities.
Since inception we have funded our operations primarily through private
placements of preferred stock, revenues received from collaborative
arrangements, equipment lease financings and other loan facilities.
Our sources of potential revenue for the next several years are likely to
include upfront license and other fees, funded research payments under existing
and possible future collaborative arrangements, milestone payments and
royalties from our collaborators based on revenues received from any products
commercialized under those agreements.
We have incurred operating losses in each of the last three years with net
losses of approximately $11.5 million in 1997, $14.6 million in 1998 and $16.7
million in 1999. As of December 31, 1999, we had an accumulated deficit of
approximately $51.6 million. Our losses have resulted principally from costs
associated with research and development activities, investment in core
technologies and general and administrative functions. As a result of planned
expenditures for future research and development activities, we expect to incur
additional operating losses for the forseeable future.
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Artemis Pharmaceuticals
In June 1998, we purchased a minority interest in Artemis Pharmaceuticals
GmbH, a genetics company located in Cologne, Germany. We also entered into
certain non-exclusive license agreements providing Artemis with access to our
technologies. In September 1998, we entered into a five-year cooperation
agreement with Artemis under which we agreed to share technology and business
opportunities as they arise. While either party may terminate this agreement at
any time, we believe that it provides us a significant opportunity to access
complementary genetic research. We have no financial obligation or current
intention to fund Artemis. We account for our investment in Artemis under the
equity method of accounting.
MetaXen Asset Acquisition
In July 1999, we acquired substantially all the assets of MetaXen, LLC, a
biotechnology company focused on molecular genetics. In addition to paying cash
consideration of $0.9 million, we assumed a note payable relating to certain
acquired assets with a principal balance of $1.1 million. We also assumed
responsibility for a facility sub-lease relating to the office and laboratory
space occupied by MetaXen. See Note 5 of Notes to Consolidated Financial
Statements.
At the time of the acquisition, MetaXen had an existing research
collaboration with Eli Lilly & Company. This agreement provided for sponsored
research payments to be made to MetaXen. The scope of work under the agreement
was completed by us in October 1999. Accordingly, we received and recognized
revenues of approximately $0.2 million in fulfillment of that arrangement.
Revenue Recognition
We recognize license and other upfront fees that are nonrefundable and do
not require us to perform any future services when received. Milestone payments
are recognized pursuant to the terms of our collaborative agreements upon the
achievement of specified milestones. We recognize contract research revenues as
services are performed in accordance with the terms of the agreements. Any
amounts received in advance of performance are recorded as deferred revenue.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." SAB 101 requires that license and other
upfront fees from research collaborators be recognized over the term of the
agreement unless the fee is in exchange for products delivered or services
performed that represent the culmination of a separate earnings process.
Accordingly, we will report a change in accounting principle for the fiscal
quarter ending March 31, 2000. The cumulative effect of this change in
accounting principle will result in an aggregate decrease to revenues
previously recognized of approximately $3.1 million in the first quarter of
2000. This amount will be recognized as revenues prospectively over the
remaining terms of the collaboration agreements.
Results of Operations
Comparison of Fiscal Years Ended December 31, 1997, 1998 and 1999
Total Revenues
Total revenues were $3.4 million for the year ended December 31, 1998,
compared to $12.5 million in 1999. License and contract revenues earned in 1998
were related to our collaboration with Bayer. During 1999, revenues of $7.8
million and $4.1 million were earned under our collaborations with Pharmacia &
Upjohn and Bayer, respectively.
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Research and Development Expenses
Research and development expenses consist primarily of salaries and other
personnel-related expenses, facility costs, supplies and depreciation of
facilities and laboratory equipment. Research and development expenses were
$8.2 million for the year ended December 31, 1997, compared to $11.5 million in
1998 and $19.4 million in 1999. The increases in these expenditures were due
primarily to increased staffing and other personnel-related costs incurred to
support new collaborative arrangements and our internal self-funded research
efforts, including the acquisition of MetaXen. We expect to continue to devote
substantial resources to research and development, and we expect that research
and development expenses will continue to increase in absolute dollar amounts
in the future.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs to
support our activities, facility costs and professional expenses, such as legal
fees. General and administrative expenses were $3.7 million for the year ended
December 31, 1997, compared to $5.3 million in 1998 and $6.3 million in 1999.
The increase in general and administrative expenses in 1999 compared to 1998
related primarily to increased legal expenses, rent for facilities and lease
expenses for equipment. The increase in general and administrative expense in
1998 compared to 1997 related primarily to California sales tax, salaries and
legal expenses. We expect that our general and administrative expenses will
increase in absolute dollar amounts in the future as we expand our business
development, legal and accounting staff, add infrastructure and incur
additional costs related to being a public company, including directors' and
officers' insurance, investor relations programs and increased professional
fees.
Deferred Stock Compensation
Deferred stock compensation for options granted to employees is the
difference between the deemed value for financial reporting purposes of our
common stock on the date such options were granted and their exercise price.
Deferred stock compensation for options granted to consultants has been
determined in accordance with Statement of Financial Accounting Standards No.
123 as the fair value of the equity instruments issued. Deferred stock
compensation for options granted to consultants is periodically remeasured as
the underlying options vest in accordance with Emerging Issues Task Force No.
96-18.
In connection with the grant of stock options to employees and consultants,
we recorded deferred stock compensation of approximately $0.1 million in the
year ended December 31, 1997, compared to $2.4 million in 1998 and $15.9
million in 1999. These amounts were recorded as a component of stockholders'
(deficit) equity and are being amortized as charges to operations over the
vesting periods of the options. We recorded amortization of deferred stock
compensation of approximately $25,000 for the year ended December 31, 1997,
compared to $0.7 million in 1998 and $3.5 million in 1999. For options granted
through December 31, 1999, we expect to record additional amortization expense
for deferred compensation as follows: $7.6 million in 2000, $3.9 million in
2001, $2.0 million in 2002 and $0.6 million in 2003. Amortization expense
relates to options awarded to employees and consultants assigned to all
operating expense categories in the statements of operations. We will also
record an additional $3.6 million of deferred stock compensation related to
options for 1,105,779 shares of common stock granted during January 2000. See
Note 9 of Notes to Consolidated Financial Statements.
Interest Income (Expense), Net
Interest income represents income earned on our cash, cash equivalents and
short-term investments. Net interest income was $0.5 million in 1997 and
$46,000 in 1999, and consisted of amounts earned on cash, cash equivalents and
short-term investments, substantially offset by interest expense incurred on
notes payable and capital lease obligations. Net interest expense of $50,000 in
1998 resulted primarily from reduced interest income incurred on investments.
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Equity in Net Loss of Affiliated Company
During the year ended December 31, 1998, we recorded a loss of $0.3 million
representing our share of the loss recorded by Artemis using the equity method
of accounting. As this loss reduced our investment in and receivables from
Artemis to zero, no subsequent loss amounts have been recorded in the
consolidated statements of operations.
Income Taxes
We have incurred net operating losses since inception and, consequently,
have not recorded any federal or state income taxes.
As of December 31, 1999, we had federal net operating loss carryforwards of
approximately $33.9 million. We also had federal research and development
credit carryforwards of approximately $2.1 million. If not utilized, the net
operating loss and credit carryforwards expire at various dates beginning in
2005. Under the Internal Revenue Code of 1986, as amended, and similar state
provisions, certain substantial changes in our ownership could result in an
annual limitation on the amount of net operating loss and credit carryforwards
that can be utilized in future years to offset future taxable income. Annual
limitations may result in the expiration of net operating loss and credit carry
forwards before they are used. See Note 10 of Notes to Consolidated Financial
Statements.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
placements of preferred stock totaling $46.8 million, loans, equipment lease
financings and other loan facilities of $10.9 million and revenues received
from collaborators of $15.9 million. As of December 31, 1999, we had $6.9
million in cash, cash equivalents and short-term investments and $0.1 million
available for future borrowings under an equipment financing line of credit.
Our operating activities used cash of $10.8 million for the year ended
December 31, 1997, compared to $12.7 million in 1998 and $7.3 million in 1999.
Cash used in operating activities related primarily to funding net operating
losses, partially offset by an increase in deferred revenue from collaborators
and non-cash charges related to depreciation and amortization of deferred stock
compensation.
Investing activities used cash of $6.0 million for the year ended December
31, 1997, compared to $0.5 million in 1998 and $6.5 million in 1999. Investing
activities consist primarily of purchases of property, equipment and short-term
investments. We expect to continue to make significant investments in research
and development and our administrative infrastructure, including the purchase
of property and equipment to support our expanding operations.
Financing activities provided cash of $16.4 million for the year ended
December 31, 1997, compared to $7.6 million in 1998 and $17.1 million in 1999.
These amounts consist primarily of proceeds from sales of preferred stock, net
of issuance costs, and amounts received under various financing arrangements.
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents, short-term investments and funding to be
received from collaborators will be sufficient to satisfy our anticipated cash
needs for at least the next two years. However, it is possible that we will
seek additional financing within this timeframe. We may raise additional funds
through public or private financing, collaborative relationships or other
arrangements. We cannot assure you that additional funding, if sought, will be
available or, even if available, on terms favorable to us. Further, any
additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants. Our failure to
raise capital when needed may harm our business and operating results.
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Disclosure About Market Risk
Market risk represents the risk of loss that may impact our financial
position, operating results or cash flows due to changes in U.S. interest
rates. This exposure is directly related to our normal operating activities.
Our cash, cash equivalents and short-term investments are invested with high
quality issuers and are generally of a short-term nature. Interest rates
payable on our notes and lease obligations are generally fixed. As a result, we
do not believe that near-term changes in interest rates will have a material
effect on our future results of operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities," which will be effective for our 2001
fiscal year. This statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. SFAS 133 is not anticipated
to have a significant impact on our operating results or financial condition
when adopted, since we currently do not engage in hedging activities.
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BUSINESS
Overview
Exelixis is a leader in model system genetics and comparative genomics.
Recent advances in the genomics field have resulted in significant
opportunities to develop novel products for the life sciences industries. With
the sequencing of the human genome now substantially complete, the challenge
facing the life sciences industries is no longer the identification of genes,
but understanding their function and determining the consequences of their
modulation. We believe that we have developed a faster and more efficient
method to understand gene function and to select superior commercial product
targets for the life sciences industries.
Our proprietary technologies take advantage of the evolutionary conservation
of genes and gene function among diverse species. We believe that our
proprietary technologies are commercially applicable to all industries whose
products can be enhanced by an understanding of DNA or proteins, including the
pharmaceutical, agrochemical, agricultural, diagnostic and biotechnology
industries. We are conducting research in more than 12 different programs for
these industries.
We have established collaborations with Bayer, Pharmacia & Upjohn and
Bristol-Myers Squibb, as well as with U.S. government agencies and academic
centers worldwide. Committed funding from our commercial collaborations totals
over $180 million. We intend to continue to establish strategic collaborations
with leading companies in the life sciences industries. In addition, we invest
our own funds in proprietary programs, and we have retained significant rights
to the output of our research and to future applications of our technologies.
Background
The Genetic Cascade: DNA->RNA->Protein->Signal Transduction
The physical characteristics of all living things, or organisms, are
determined by genetic information inherited from the preceding generation. This
genetic information resides in the deoxyribonucleic acid, or DNA, found in the
cells of all organisms. DNA is composed of four different chemical subunits
called nucleotide bases that are strung together in a precise sequence. Encoded
within this DNA sequence are distinct sets of instructions, or genes, that
collectively serve as a blueprint for the functions of an organism. The DNA in
a cell is divided into several segments called chromosomes. The complete set of
chromosomes of an organism contains all of its genetic information, and is
commonly referred to as the "genome" of that organism. The human genome is
comprised of 23 pairs of chromosomes and over three billion nucleotide bases
encoding in excess of 100,000 genes. Variations in DNA sequences between
individuals contribute to the observable variation in physical traits, such as
height, weight and eye color, predisposition towards disease and response to
therapy.
The genetic cascade is the mechanism by which instructions encoded in each
gene are carried out in the cell. In this process, the genetic information
encoded in the DNA is copied into an intermediate molecular form referred to as
messenger ribonucleic acid or mRNA. The information in mRNA is then translated
by specialized cellular machinery into a specific protein. Proteins are made of
20 different building blocks called amino acids. Individual proteins vary in
composition and order of their amino acids. The number and order of these amino
acids are determined by the DNA sequence of the corresponding gene. It is
estimated that while there are more than 100,000 human genes, an individual
cell expresses no more than 10,000 different proteins at any one time. Thus,
cells may be differentiated from one another by the identity and relative
abundance of proteins found within the cells.
Basic cellular function is largely mediated by the action of proteins. This
process generally involves interactions between proteins as well as other
molecules within a cell. This is a dynamic
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process that responds to changes in both the internal and external cellular
environments. Proteins have various roles in the cell such as structural
building blocks, enzymes that catalyze reactions or receptors that sense the
environment. Subsets of approximately 50 to 100 of these proteins act as
functionally interconnected networks for the transmission of signals in and
between cells. This process is known as signal transduction.
Alterations in signal transduction processes underlie many human diseases.
Therefore, understanding these processes and the best points for intervention
is key to the development of novel therapeutics. The ability to intervene in
signal transduction is also important for agricultural purposes such as the
development of novel pesticides or the enhancement of desirable traits in
plants or animals. The challenge facing biological researchers is to understand
the role of specific genes in signal transduction processes and to identify
those genes whose modulation will result in a desired outcome.
Genomics Phase I: Genome Sequence
Recognition of the central role of DNA in disease coupled with advances in
enabling technologies gave rise to the emergence of the field of genomics, or
the study of human and other genomes. This led to an international effort known
as the Human Genome Project, or the HGP. The first phase of the HGP has been
focused primarily on determining the complete human DNA sequence and common
variations in DNA sequences among individuals. The HGP also encompasses efforts
dedicated to exploring the genomes of other organisms, including a number of
bacterial, yeast, invertebrate and vertebrate species. This research has
generated significant amounts of data, and the first working draft of the human
genome sequence is expected later this year. The importance of the HGP effort
has also attracted substantial private investment in related research, with
several billion dollars already having been spent on these endeavors. To date,
researchers have principally used large-scale processing tools to identify the
sequences of small portions of the DNA, often without knowledge of the
relevance of what they have discovered. They have identified the pieces of the
human genetic puzzle without understanding the interrelationships between the
different pieces. The majority of the human DNA sequence is now readily
available in computerized databases, and has become an important commodity of
biological research.
Genomics Phase II: Gene Function
The vast amounts of gene sequence data now available have created a critical
mismatch between data generation and knowledge generation. As a result,
genomics has recently moved into a second phase in which the elucidation of
function has become the primary challenge for biologists. Function means the
discovery of a gene's role in a cell based upon its assignment to, or
relationship with, a particular signaling network and the predicted consequence
of modulating its activity. Gene function cannot be directly inferred from DNA
sequence, nor can it be derived from attributes such as sequence variation,
similarities to other genes of known function or expression of encoded
proteins. Rather, it requires the integration of these observations with a
detailed understanding of how proteins interact with each other to form
signaling networks. Thus, assignment of function with respect to a disease
state or condition is a complex process requiring the application of new tools
that are knowledge-based rather than process-oriented.
Rational Selection of Molecular Targets
The life sciences industries consist of pharmaceutical, agrochemical,
agricultural, diagnostic and biotechnology companies. Many of the principal
products of these industries were developed without knowledge of the specific
protein or network affected, while others were developed against specific
proteins whose impact on a signal transduction network was uncertain. As a
result, product development in these industries is costly, time consuming and
inefficient and is characterized by high
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failure rates. Life sciences companies have turned to genomics technologies,
especially the acquisition of sequence information, to help address these
problems with respect to the selection of molecular targets. Despite this
significant investment in genomics, there has not been appreciable improvement
in the efficiency in selecting molecular targets. It is now clear that the
rational selection of molecular targets requires knowledge about genes and
their encoded proteins as well as their interaction with other components of
signal transduction networks. Since the complete human sequence as well as the
sequence of other commercially important genomes will soon be widely available,
the competitive advantage for life sciences companies will become the
capability to rapidly and accurately translate sequence information into
knowledge about function.
The Exelixis Solution
We believe that we have developed a faster and more efficient method to
understand gene function and to select superior commercial product targets for
the life sciences industries. Our proprietary technologies are scaleable, cost-
effective and enable us to industrialize the process of determining gene
function by utilizing comparative genomics and model system genetics.
Comparative Genomics. We are a pioneer in the use of comparative genomics,
an approach that leverages functional information from one biological system
across all other biological systems. Comparison of genomic sequence and gene
function data from a variety of organisms has affirmed the basic principles of
Charles Darwin's evolutionary theory that life has emerged from a common
ancestor. This common origin is reflected not only in the high degree of
conservation of genes between organisms but also in the role of genes in
signaling networks. In many cases, the same proteins interacting in the same
manner are involved in analogous processes in different species. The use of
comparative genomics is analogous to comparative linguistics, where a language
such as Latin can be used as a basis for understanding any of the Romance
languages. Comparative genomics enables tests to be performed quickly in
organisms with simple genomes such as the fruit fly or algae to predict and
guide the analysis of gene function in organisms with complex genomes such as
humans and crops.
Model System Genetics. We are also a leading model systems genetics company.
Model system genetics serves as the experimental engine for the application of
comparative genomics. We conduct systematic genetic experimentation of simple
and well-understood organisms, such as worms, flies, yeasts and simple plant
models, to identify the relationships among genes and signaling networks. Model
systems have key advantages that result in speed and efficiency based on a
number of characteristics. These include short life cycles that allow
experiments to be completed significantly quicker than with more complicated
organisms; genomes that can be easily manipulated to develop variants that, for
example, mimic biochemical processes underlying disease; well-characterized
biology that allows easy detection of changes through physical traits; and low
cost of maintenance.
Our systematic research capabilities allow us to rapidly define gene
function and select targets for the development of new products for the life
sciences industries. Our unique approach provides a shortcut to understanding
complex biological signaling networks. We have developed proprietary research
tools, such as libraries of modified organisms, specialized reagents, databases
and software, to facilitate this research. We believe that our systematic use
and application of these proprietary technologies and tools provides us with a
unique ability to quickly and cost-effectively address key drug and
agricultural product development questions.
Our Comparative Genomics and Model System Genetics Technologies
We conduct our work primarily utilizing model system genetics, and we
interpret and apply the data through our expertise in comparative genomics. We
also have significant expertise in human
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genetic analysis. Our primary model systems are the fruit fly, D. melanogaster,
and the nematode worm, C. elegans. These organisms have been widely studied for
several decades, and have proven to be powerful systems for analyzing
biological and biochemical questions. We have adapted these systems from the
academic community and have industrialized them by developing a suite of
proprietary tools and reagents that allows us to perform systematic genetic
analyses at a larger scale and substantially faster than otherwise is currently
available. Among other proprietary tools, we have exclusively licensed the U.S.
patent covering P-elements, which are genetic elements essential for performing
modern fruit fly genetics because they allow for direct genetic manipulation.
Additionally, we have adapted and developed a number of other model systems,
including fungal, insect, plant and vertebrate species. Each of these model
systems has unique advantages that can be applied in different ways. Our
expertise allows us to leverage knowledge across species and to select the best
model systems for a particular commercial application.
We can quickly analyze the consequences of gene modulation on a desired
outcome. Specifically, we can generate information that results in a rational
selection of targets for our life sciences company partners as well as our own
proprietary programs. We believe that the rapid identification of superior
targets will lead to shorter product development times and higher success rates
for our partners and ourselves.
Our genetic tools include proprietary libraries of existing and engineered
model organisms as well as technologies for the conditional expression, removal
or addition of an existing or novel gene(s) from an organism's genome. Our
complete set of genomic tools provides us with the ability to rapidly
characterize the genome of a model system. We have state-of-the-art expertise
in data storage management and representation capabilities for externally and
internally generated genomic and genetic data and analysis. We use computer-
aided approaches for analyzing DNA sequence, protein structure and function as
well as building and maintaining information management systems supporting our
high throughput research process.
We have developed a proprietary process to quickly determine the genes and
proteins with which chemical compounds such as pharmaceuticals or agrochemicals
interact to produce their effect. Understanding the mechanism of action of a
compound can be of significant value to pharmaceutical and agrochemical
companies for several reasons. For example, many companies have a number of
compounds that have commercially useful activities, but are too complex to
manufacture cost-effectively. Compounds extracted from plants or marine
organisms are examples of this class of compounds. By identifying the gene or
protein with which a compound interacts, compounds can be designed that have
the same activity, but which overcome the manufacturing or other limitations of
the original compound. In addition, companies may have compounds that have
commercially useful activities, but also have undesirable side effects due to
their interaction with more than one gene or protein. By understanding the
secondary genes or proteins with which a compound interacts, new compounds can
be designed that have the desired activity, but do not have the undesirable
side-effect.
We apply our technologies to select and validate targets that we believe
will lead to new pharmaceuticals and agrochemicals. We also use our
technologies to identify the molecular targets of existing pharmaceutical and
agrochemical compounds. These two approaches, the forward target-to-compound
approach and the reverse compound-to-target approach, address major bottlenecks
in the application of genomics to research and development processes.
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Our research involves a four-step process described below:
[Graphic Description: Illustration of four-step target indentification
process.]
Step I: Definition of the Desired Outcome
The first step in selecting a target is to identify the ideal properties of
a product for pharmaceutical or agricultural use. For example, an ideal cancer
drug would selectively kill cancer cells and spare normal cells. Most tumors
arise as a consequence of one or more common acquired changes or mutations in
their genomic DNA sequence. These mutations alter gene function and lead to a
disruption of specific signaling networks that contribute to unregulated cell
growth. An ideal therapeutic target would be one located in another part of the
signaling network regulating cell growth that, when modulated by a drug, would
either restore normal cell function or selectively kill the cell. Similar
approaches can be applied to many other major human diseases and to the
development of products for agricultural use or trait development.
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Step II: Selection of a Model System
We use our experience and expertise to select the model organism(s) most
appropriate for a particular commercial application. The mechanisms for many
human diseases and agricultural products have been characterized at least
partially at the molecular level. When at least one molecular mechanism is
defined and a therapeutic rationale is established, the appropriate model
system may be selected. The most important criteria for selection are the
degree of genetic conservation between the targeted signal transduction network
in a model system and technical considerations for studying that network. The
fruit fly and nematode are ideal genetic model systems for fundamental
questions of signal transduction, because the complete genomic sequences for
these organisms are available, the presence or absence of a particular pathway
can be easily established by use of computer-aided biology, and we can modify
these organisms using an extensive array of proprietary tools. In cases where
underlying mechanisms have not been established, such as physical trait
enhancement in animals or plants, model systems are selected on the basis of
physiological similarity and ease of technical manipulation. Understanding the
evolutionary relationship between the targeted organism and the prospective
model system is most important to selection of the proper model system for a
particular commercial application. If an appropriate model system does not
already exist, we can rapidly develop a new model system.
One of our insecticide projects is an example of how we utilize our existing
genetic systems in combination with new model systems that we develop. We have
utilized fruit flies to define many of the genes that are good targets for
compounds designed to kill moth and beetle agricultural pests. Most of the
targets identified in fruit flies have direct counterparts in the target
species and can be used directly for the development of novel pesticides.
However, to develop compounds that could specifically kill moths and not other
insects, we have taken advantage of the fact that while the gut of most
organisms, including humans, is extremely acidic, the gut of moths is extremely
basic. To specifically target the moth gut and to identify moth-specific
targets, our researchers developed a moth genetic system in which we are
performing genetic experiments directly in the moth. These experiments will
enhance the programs carried out in fruit flies by identifying genes and
proteins that are unique in the moth gut and therefore could lead to compounds
that are selectively lethal for moths.
Step III: Genetic Assays
Target-to-Compound: Target Identification. We develop proprietary genetic
assays that measure the ability of a particular gene or protein to modulate the
signal transduction network of interest, leading to the definition of the
constituents of such networks as well as candidate targets. The initial step is
to mimic at the molecular level a disease state in the selected model system.
This step involves modifying the DNA sequence of a gene or genes in the model
system that are known to be involved in the disease. The modified DNA sequence
leads to altered proteins, which in turn result in a physiological, behavioral
or structural alteration in the organism that can be observed as a physical
trait.
Our altered organisms are systematically mated with a comprehensive
collection of organisms of the same species carrying mutations in each gene.
Analysis of the offspring of these matings is used to identify the small number
of genes among the many thousands in the genome whose modulation affects the
targeted signaling network. These genes and their encoded proteins are
potential targets. Populations of well-characterized genetically modified
organisms are one of our key strategic assets and the strategy for their
production is one of our core technologies. We have libraries of these
organisms that have been modified in a controlled fashion, so that
comprehensive pairwise breeding allows us to test the effect on the disease of
increasing or decreasing the output of each gene in the model organism. The
availability of this asset significantly enhances the efficiency of research
directed at candidate target identification. Our ability to rapidly and
selectively move from an alteration in a gene directly to the identification of
targets that can reverse the effects of that alteration is an extremely
powerful, rapid, direct route to new pharmaceuticals and agricultural products.
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Compound-to-Target: Mechanism of Action. The molecular targets and mechanism
of action for many promising or marketed pharmaceutical and agrochemical
compounds are unknown. Determination of the target as well as mechanism of
action for such compounds provides starting points for the development of new
compounds that may retain the desired biological effect without the limitations
previously identified in the original compound, such as high manufacturing
costs or undesirable side effects. Alternatively, such information may provide
a new commercial opportunity to develop a small molecule directed at a
validated signaling network. Application of our technology and tools not only
permits us to identify key targets and functions for existing compounds
provided by our partners, but also serves as the basis for us to rapidly and
more effectively develop our own unique compounds.
The first step in this process requires the identification of compounds
based on the availability of efficacy data and absence of information regarding
the target(s) of the compound. The second step is to establish whether or not
this pharmaceutical or agricultural compound induces an alteration in the
appearance or observable behavior of the appropriate model organism. If such a
biologically relevant effect is observed, a genetic assay designed to identify
genes and encoded proteins that confer sensitivity or resistance to the applied
compounds is established. This information can be readily assembled into a
biochemical signaling network, establishing the mechanism of action for the
compound.
Step IV: Target Validation and Product Development
Once the set of genes that interact with a signaling network of interest has
been identified in the model system, the corresponding genes from the
commercially relevant species can be identified using the tools of comparative
genomics. These tools include computer-aided analysis, protein biochemistry,
protein expression and gene transfer technologies, as well as the experimental
and computational tools of structural biology, such as mass spectroscopy-based
protein sequencing and x-ray crystallography. The result of these model genetic
programs is a more focused and relevant collection of targets with a high
degree of biological data supporting their function in a signal transduction
network. This provides a superior basis for target selection in product
development.
Our current capabilities provide a foundation for building a significant
drug discovery program that will enable us to develop our own proprietary drugs
and agrochemicals. Through our acquisition of the assets of MetaXen and our
licensing of Bristol-Myers Squibb's chemical synthesis platform, we are now
able to develop assays to identify compounds that modulate target activity,
design and develop compounds that perform well under assay conditions and apply
structure-based medicinal chemistry approaches toward compound optimization.
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We use our model systems to identify genes whose modulation will lead to a
desired therapeutic effect. Our model organisms that carry mutations common to
human tumor cells are mated with large numbers of other organisms of the same
species carrying mutations in each gene in order to identify those genes which
are capable of specifically killing the tumor-like cells. Drugs can then be
identified that modulate the same gene or protein and therefore lead to the
desired therapeutic effect.
[DIAGRAM OF IDENTIFYING GENE IN MODEL SYSTEM]
The Exelixis Strategy
Our goal is to leverage our position as a leader in developing and applying
comparative genomics and model system genetics to discover and develop new
pharmaceutical, agrochemical, agricultural, diagnostic and biotechnology
products. There are four principal elements to our business strategy:
Enhance Our Leadership in Comparative Genomics and Model System Genetics
We will continue to develop our proprietary technologies and infrastructure
in support of our existing comparative genomics and model systems genetics
platform. In addition, we will develop additional model systems in order to
broaden the range of pharmaceutical and agricultural product opportunities that
we can address using our core capabilities. We will continue to in-license and
acquire technologies that complement our core capabilities and protect our
proprietary technologies with patents and trade secrets. We will continue to
recruit and collaborate with leaders in the field of model system genetics.
Maximize Opportunities in Multiple Markets
We believe that our model system genetics capabilities will enable us to
develop products that address opportunities in the pharmaceutical,
agrochemical, agricultural, diagnostic and biotechnology industries. We intend
to address these opportunities through the establishment of collaborations with
leading companies in their respective fields and through the development of our
own proprietary products. We intend to enter into collaborations in order to
fund the development of our core technologies and our own proprietary products,
as well as provide us with the opportunity to receive significant future
payments if our collaborators successfully market products that result from our
collaborative work.
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Retain Significant Rights in Each Collaboration
We have retained and plan to continue to retain significant technology
rights to use targets and assays and other technologies developed in each of
our collaborations for use in our proprietary research programs. These rights
will enable us to use the genetic information that we develop within each
individual collaboration to pursue additional opportunities that are outside of
the scope of that particular collaboration.
Establish Internal Programs to Capture Greater Value From Our Core
Technologies
We have invested and plan to continue to invest our own funds in discovering
and developing our own proprietary products. These potential products will be
available for licensing to our collaborative partners or to be retained by us
for further development and commercialization.
Current Status of Our Programs
Our comparative genomics and model system genetics technology platform can
be applied to address opportunities in any market whose products can be
enhanced by an understanding of DNA or proteins, including pharmaceutical,
agrochemical, diagnostic, biotechnology, animal health, pesticides, crop
improvement, livestock improvement and industrial enzymes. We have focused our
initial research efforts to address attractive pharmaceutical and agrochemical
markets. We will use our proprietary comparative genomics and model system
genetics platform to analyze signal transduction networks to identify genes
that can be used to develop treatments for a broad range of important diseases
and to develop more productive crops and livestock.
We currently have active research programs in the following areas:
Human Pharmaceutical Research Programs
. Alzheimer's disease. Alzheimer's disease is a progressive neurological
disease that results in the loss of cognitive functions, including
memory. In collaboration with Pharmacia & Upjohn, we are applying our
genetics technologies to understand the causes of Alzheimer's disease and
to determine how to stop or reverse the progression of the disease. As a
result of genetic screens performed to date, we have identified a target
that may reduce the formation of structural abnormalities that are
associated with Alzheimer's disease, and we have received a milestone
payment for delivering this target to Pharmacia & Upjohn. We have also
identified additional targets that are currently being evaluated for
commercial application. Under the terms of our agreement with Pharmacia &
Upjohn, we remain free to conduct research on our own behalf or in
collaboration with third parties in other areas of central nervous system
and cognitive disorders, such as Parkinson's disease, depression and
schizophrenia.
. Angiogenesis and anti-angiogenesis. Angiogenesis is the formation of
blood vessels. Products that promote angiogenesis could be used to treat
coronary heart disease and vascular complications of diabetes. The
ability to prevent the formation of new blood vessels could be used to
kill cancer cells by depriving them of nutrients.
. Cancer. Cancer is a leading cause of death in developed countries. Cancer
is caused by a number of genetic defects in cells resulting in
unregulated cell growth. We are applying our genetics technologies to
identify targets that will enable us to selectively kill cells in a broad
range of solid tumors without damaging normal cells by using the cancer's
genetic defects as a means of targeting treatment. As a result of genetic
screens performed to date, we have identified several targets that may be
used to develop new anti-cancer pharmaceutical products that have fewer
side effects than current cancer treatments.
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. Metabolic syndrome. Metabolic syndrome is a condition that underlies many
human diseases, including coronary artery disease and diabetes. This
condition results in the inability of individuals to maintain essential
elements of blood chemistry, such as cholesterol and blood sugar, within
desirable ranges. In our collaboration with Pharmacia & Upjohn, we have
identified several targets that may be useful in developing products to
optimize the levels of both cholesterol and fat in the bloodstream. We
have also identified several targets that may be useful in developing
products to control Type II diabetes. Under the terms of our agreement
with Pharmacia & Upjohn, we remain free to conduct research on our own
behalf or in collaboration with third parties in other areas of
cardiovascular disease, including hypertension and control of heart rate,
rhythm and contraction.
. Inflammation. Our inflammation program focuses on the innate immune
system. The innate immune system is involved in diseases of inflammation,
such as asthma and arthritis. We are applying our technologies to
identify targets that control inflammation.
Agricultural Research Programs
. Animal Health. Livestock producers experience significant losses due to
disease, and incur significant costs to control insects, parasites and
other pests. Companion animals also represent a significant opportunity
for products that control pests such as fleas, ticks and heartworms.
During the course of conducting research in the area of insecticides and
nematicides in our collaboration with Bayer, we have identified and will
continue to identify targets that may be used to develop animal health
products. Under the terms of our agreement with Bayer, we remain free to
pursue animal health opportunities on our own behalf or in collaboration
with third parties.
. Fungicides. Farmers experience significant crop losses due to fungal
disease, which can destroy specific parts of the plant that are necessary
for normal growth. The current market for fungicides is approximately $6
billion per year. We are developing fungal model systems, which we intend
to use to identify targets that will lead to the development of new, more
effective fungicides.
. Herbicides. Farmers experience significant reductions in crop yields due
to weeds, which compete with crops for nutrients. The current market for
herbicides is approximately $15 billion per year. We are developing plant
model systems, which we intend to use to identify targets that will lead
to the development of new, more effective herbicides.
. Insecticides. Farmers experience significant crop losses due to damage
from insects. The current market for insecticides is approximately $9
billion per year. In collaboration with Bayer, we are applying our
genetics technologies to identify targets that may be used to develop
new, more effective insecticides. As a result of genetic screens
performed to date, we have identified several targets that may be useful
in developing new insecticides, and we have received milestone payments
for delivering these targets to Bayer. We are currently developing assays
that Bayer will use to develop the active component of new insecticides.
Under the terms of our agreement with Bayer, we remain free to conduct
research on our own behalf or in collaboration with third parties in
pesticides other than insecticides or nematicides, as well as in the
development of pest-resistant crops.
. Nematicides. Farmers experience significant crop losses due to damage
from nematodes, which are small worms that infest plants. Currently,
there are no products that effectively and safely control nematicides. In
collaboration with Bayer, we are applying our genetics technologies to
identify targets that may be used to develop new, more effective
nematicides. We are in the process of taking the genetic tools we have
developed for C. elegans, and applying these tools to various nematodes.
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. Plant and Livestock Traits. Farmers and livestock producers rely on seed
companies and animal genetics companies to develop products that will
enable them to produce their crops or livestock at a competitive cost.
The U.S. market for planting seed is approximately $7 billion. The market
for meat and dairy products is in excess of $235 billion per year. We are
in the process of developing plant model systems, and we intend to use
these model systems to identify targets that may be used to develop crops
with superior yield and improved nutritional profiles. We also intend to
apply our comparative genomics and mouse model systems to develop more
rapidly growing livestock and cattle that produce milk with an improved
nutritional profile.
The following table summarizes the current status of the research projects
described above:
[DIAGRAM OF SUMMARY OF CURRENT STATUS OF RESEARCH PROJECTS]
Mechanism of Action Programs
We are performing mechanism of action studies for Bayer, Pharmacia & Upjohn
and Bristol-Myers Squibb. Each of our partners has provided us a number of
compounds that have interesting biological activity but whose molecular target
is unknown. We utilize our model systems to identify the targets for the
compounds and provide those targets to our partners. The first step in this
process is referred to as a "feasibility study." We use such studies to
establish whether or not our model systems can be used to determine the
mechanism of action for a particular compound. Our experience to date indicates
that more than 50% of compounds selected by our partners and provided to us in
a blinded fashion are suitable for further study. Once feasibility has been
established, we work towards the identification of the target for the compound
as well as other components of its associated signaling pathway. The targets
are identified through the analysis of organisms that are either resistant or
hypersensitive to the compound. Following identification, the targets are
confirmed using biochemical assays. Targets and other components of the
signaling pathways are candidates for further compound development.
Mechanism of action projects are very efficient: a small research team can
typically identify the gene targets of a number of compounds within a few
months. We intend to establish multiple mechanism of action collaborations with
pharmaceutical and agrochemical companies. Since our partners are confident
that modulating these targets leads to desirable biological activity, we
believe that our partners will actively pursue many of the targets without
further validation. Additionally, since
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many of the compounds with which we identify the targets can be used as
chemical lead structures, we believe that this approach can save two years or
more in time to market as compared to more traditional approaches. We are also
capitalizing on this technology to develop our own proprietary compounds.
The following table summarizes the current status of our mechanism of action
programs described above:
[TABLE: MECHANISM OF ACTION STATUS]
Corporate Collaborations
It is part of our strategy to establish collaborations with leading
companies in the pharmaceutical and agrochemical industries. Through these
collaborations, we obtain license fees and research funding, together with the
opportunity to receive milestone payments and royalties resulting from research
results and subsequent product development. To date we have structured our
agreements to retain significant rights in technology developed in each program
for use elsewhere in our business.
Each of Bayer and Pharmacia & Upjohn accounted for more than 10% of our
revenues in 1999, and the loss of either of them as a customer would have a
material adverse effect on our business, financial condition and results of
operations.
Bayer Corporation
In December 1999, we established GenOptera LLC, a Delaware limited liability
company, with Bayer Corporation to develop insecticides and nematicides for
crop protection. As part of the formation of this joint venture, Bayer agreed
to pay us, through GenOptera, license fees and research commitment fees of $20
million and to provide eight years of research funding at a minimum level of
$10 million per year (for a total of $100 million of committed fees and
research support). One-half, or $10 million, of these license and research
commitment fees were received in January 2000, with the remaining amounts to be
received in January 2001. Bayer owns 60% of GenOptera and Exelixis owns the
remaining 40%. The formation of this joint venture is an outgrowth of, and
replaces, the contractual collaboration we first established with Bayer AG (the
corporate parent of Bayer Corporation) in May 1998. The funding committed as
part of the formation of
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GenOptera is in addition to the research support that has already been provided
under the original agreement. Bayer will pay GenOptera milestones and royalties
on products developed by it resulting from the GenOptera research, and we will
pay GenOptera royalties on certain uses of technology arising from such
research.
GenOptera has been organized to conduct its research in close conjunction
with the other research conducted at Exelixis. Pursuant to a services
agreement, Exelixis employees will conduct the GenOptera research, and the
operations of the joint venture will be located in Exelixis research
facilities. We have agreed that during the term of GenOptera research support,
we will not conduct other research directed towards the specified field of
research except through the joint venture.
GenOptera will identify and validate molecular targets within its field of
research. GenOptera will also conduct assay development based on those targets
to the extent determined by the management committee of the joint venture.
Bayer will have the first right to screen compounds in assays developed by
GenOptera for insecticidal and nematicidal use.
The parties have agreed on a detailed allocation of rights with respect to
the use of targets identified by GenOptera, and the use of assays developed
against those targets by GenOptera. The allocation of rights takes into
consideration many different factors, but is designed generally to:
. provide Bayer exclusive rights for the discovery and commercialization of
compounds in the specified field of research;
. permit Bayer to market any resulting products for most nonpharmaceutical
uses; and
. permit Exelixis to use the technology generated by Exelixis or GenOptera
in the course of the joint venture's research for other purposes,
although this work is subject to restrictions designed to protect Bayer's
interests arising from the joint venture.
We retain exclusive rights to use the technology resulting from the joint
venture's work for pharmaceutical purposes, subject to rights in favor of Bayer
to collaborate with us in such projects.
Either Bayer or Exelixis may terminate the GenOptera research efforts after
eight years. In addition, Bayer may terminate the joint venture or buy out our
interest in the joint venture under specified conditions, including, by way of
example, failure to agree on key strategic issues after a period of years, the
acquisition of Exelixis by another company or the loss of key personnel that we
are unable to replace with individuals acceptable to Bayer.
Pharmacia & Upjohn AB
In February 1999, we established a five-year collaboration with Pharmacia &
Upjohn to identify targets in the fields of Alzheimer's disease, Type II
diabetes and associated complications of metabolic syndrome, a condition which
comprises much of diabetes, obesity and portions of cardiovascular disease. In
October 1999, this collaboration was expanded to include mechanism of action
work designed to identify biological targets of agents already identified by
Pharmacia & Upjohn as having activity in these fields. Under this agreement,
Pharmacia & Upjohn paid us a license fee and provides ongoing research support.
Pharmacia & Upjohn will also pay us milestones based on target selection and
royalties in the event that products result from the targets that we identify.
Under this agreement, Pharmacia & Upjohn has the exclusive right to pursue,
within the field of Alzheimer's disease and metabolic syndrome, a specified
number of targets that we identify. Although Pharmacia & Upjohn is obligated to
use these targets only for research related to Alzheimer's disease and
metabolic syndrome, it may develop and commercialize any resulting products for
any use. Pharmacia & Upjohn has the right to substitute targets if newly
identified ones
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appear more promising than those previously designated by Pharmacia & Upjohn,
but there are numerical limitations on the total number of targets that can be
reserved by Pharmacia & Upjohn at any single time. We retain the exclusive
right, subject to certain rights of first negotiation of Pharmacia & Upjohn, to
use all targets identified in the course of the research performed for
Pharmacia & Upjohn that are not subsequently selected by Pharmacia & Upjohn. In
addition, we retain rights for specified uses of those targets that are
selected by Pharmacia & Upjohn for further research.
Either party may terminate the research at the end of the third year of the
collaboration, the fifth year or any subsequent year. Pharmacia & Upjohn may
terminate the research at any time with advance written notice in the event of
our failure to find an acceptable replacement for a particular key employee or
in the event of conflicting material third-party intellectual property rights.
In conjunction with the establishment of our research collaboration,
Pharmacia & Upjohn purchased 2,500,000 shares of our Series D preferred stock
for a purchase price of $7.5 million, and also made us an interest-free loan of
$7.5 million. The loan is evidenced by a promissory note which must be
converted into shares of our common stock during the two-year period following
this offering at a price per share equal to 120% of the initial public offering
price, the time of such conversion prior to March 2002 to be determined by
Pharmacia & Upjohn.
Bristol-Myers Squibb
In September 1999, we entered into a three-year research collaboration with
Bristol-Myers Squibb to identify the mechanism of action of compounds delivered
to us by Bristol-Myers. The identity and function of these compounds, including
their field of activity, are not known to us prior to their delivery to us.
Under this agreement, the parties agreed to a non-exclusive cross-license of
research technology. We granted Bristol-Myers the right to use our proprietary
technology covering C. elegans and D. melanogaster genetics, and in exchange
Bristol-Myers transferred to us combinatorial chemistry hardware and software,
together with related intellectual property rights, which had been developed by
Bristol-Myers. The technology received from Bristol-Myers under this agreement
will expedite the development of our compound discovery capabilities.
Under the agreement, Bristol-Myers pays us a technology access fee and
research support payments, as well as additional milestones and royalties based
on achievements in the research and commercialization of products.
Relationship with Artemis
In June 1998, we purchased a minority interest in Artemis Pharmaceuticals
GmbH, a genetics company located in Cologne, Germany, focusing on the
development of vertebrate model genetic systems such as mice and zebrafish. We
established this relationship with Artemis in order to expand our access to
other model systems technology beyond our existing systems. The individual
founders of Artemis include Professor Christianne Nusslein-Volhard, Ph.D., a
geneticist and 1995 Nobel Laureate in medicine and physiology, Professor Klaus
Rajewsky, Ph.D., professor and director of the Institute of Genetics at the
University of Cologne, and Peter Stadler, Ph.D., the former head of pharma-
biotechnology for Bayer AG's European operations. As of December 31, 1999, we
own 24% of the outstanding equity of Artemis and, pursuant to a shareholders'
agreement, we have appointed three of the five members of the Artemis
shareholders' governing board. In January 2000, we agreed in principal with
Artemis to amend the shareholders' agreement to increase the size of the
Artemis shareholders' governing board to six members, of which we will have the
right to appoint three members.
In September 1998, we also entered into a five-year cooperation agreement
with Artemis under which we agreed to share technology and business
opportunities as they arise. While either party
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may terminate this agreement at any time, we believe that it provides a
significant opportunity to access complementary genetic research. In addition
to developing zebrafish and mouse model system technology, Artemis is studying
cartilage biology, angiogenesis and cardiovascular biology. We and Artemis have
developed an integrated research approach in the field of angiogenesis and are
jointly marketing this capability.
Academic and Government Collaborations
In order to enhance our research and technology access, we have established
key relationships with government agencies and major academic centers in the
U.S. and Europe. Our government collaborators include a number of U.S.
Department of Agriculture campuses, and we maintain over ten academic
collaborations with investigators at such institutions as Stanford University,
Columbia University, University of Cologne, The Rockefeller Institute and the
University of North Carolina. The purpose of these government and academic
collaborations is to continuously improve our core technology and to facilitate
the establishment of new discovery programs.
We will continue to establish strategic collaborations with government
agencies and academic centers. We will seek to retain significant rights to
develop and market products arising from our strategic alliances. In addition,
we will continue to invest our own funds in certain specific areas and product
opportunities with the aim of maintaining, enhancing and extending our core
technology, as well as increasing our opportunities to generate greater revenue
from such activities.
Competition
We are aware of other companies, including Paradigm Genetics, Inc.,
DeltaGen, Inc., Devgen N.V. and Lexicon Genetics Incorporated, that have or are
developing capabilities in the use of model systems to define gene function. In
addition, many genomics companies are expanding their capabilities, using a
variety of techniques, to determine gene function. The pharmaceutical industry
more broadly has invested heavily in obtaining access to genomics data and
identifying biological targets.
We are aware that companies focused specifically on other model systems such
as mice and yeast have alternative methods for identifying product targets. In
addition, pharmaceutical, biotechnology and genomics companies and academic
institutions are conducting work in this field. In the future, we expect the
field to become more competitive with companies and academic institutions
seeking to develop competing technologies.
Any products that we may develop or discover through application of our
technologies will compete in highly competitive markets. Many of our potential
competitors in these markets have substantially greater financial, technical
and personnel resources than we do, and we cannot assure you that they will not
succeed in developing technologies and products that may render our
technologies and products and those of our collaborators obsolete or
noncompetitive. In addition, many of our competitors have significantly greater
experience than we do in their respective fields.
Proprietary Rights
To establish and protect our proprietary technologies and targets, we rely
on a combination of patent, copyright, trademark and trade secret laws, as well
as confidentiality provisions in our contracts. We believe that we have
developed proprietary technology for use in target identification, biochemical
pathway identification and assay design and that we have identified proprietary
targets. Our patent strategy is designed to provide us with freedom to operate
and facilitate commercialization of our current and future products. Our patent
portfolio includes two issued U.S. patents relating to our proprietary model
genetic systems and comparative genomics technologies that are exclusively
licensed U.S. patent rights and technology related to our model system
technologies from the Carnegie Institution of Washington and Yale University.
We have an additional
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49 pending U.S. and foreign patent applications related to our technologies and
specialized screens, and the application of these technologies to diverse
industries including agriculture, pharmaceuticals, diagnostics, chemicals and
small molecule therapeutics.
We also rely in part on trade secret protection of our intellectual
property. We attempt to protect our trade secrets by entering into
confidentiality agreements with third parties, employees and consultants. Our
employees and consultants also sign agreements requiring that they assign to us
their interests in patents and other intellectual property arising from their
work for us. All employees sign an agreement not to engage in any conflicting
employment or activity during their employment with us, and not to disclose or
misuse our confidential information. However, it is possible that these
agreements may be breached or invalidated and if so, there may not be an
adequate corrective remedy available. Accordingly, we cannot assure you that
employees, consultants or third parties will not breach the confidentiality
provisions in our contracts or infringe or misappropriate our patents, trade
secrets and other proprietary rights, and the measures we are taking to protect
our proprietary rights may not be adequate.
In the future, third parties may file claims asserting that our technologies
or products infringe on their intellectual property. We cannot predict whether
third parties will assert such claims against us or against the licensors of
technology licensed to us, or whether those claims will harm our business. If
we are forced to defend ourself against such claims, whether they are with or
without merit and whether they are resolved in favor of or against us or our
licensors, we may face costly litigation and diversion of management's
attention and resources. As a result of such disputes, we may have to develop
costly non-infringing technology, or enter into licensing agreements. These
agreements, if necessary, may be unavailable on terms acceptable to us, or at
all, which could seriously harm our business or financial condition.
Legal Proceedings
We are not a party to any material legal proceedings.
Employees
As of December 31, 1999, we had 168 full-time employees, 76 of whom hold
Ph.D. and/or M.D. degrees and 130 of whom were engaged in full-time research
activities. We plan to expand our corporate development programs and hire
additional staff as corporate collaborations are established and we expand our
internal development programs. Our success will depend upon our ability to
attract and retain employees. We face competition in this regard from other
companies in both the biotechnology and high technology industries as well as
research and academic institutions. None of our employees are represented by a
labor union, and we consider our employee relations to be good.
Facilities
We currently lease an aggregate of 70,000 square feet of office and
laboratory facilities in South San Francisco, California in two buildings. The
first building lease, for 33,000 square feet, expires on July 31, 2005. The
second building lease, for 37,000 square feet, expires concurrent with our move
to new facilities described below.
We are party to a lease arrangement for two new office and laboratory
facilities totaling a maximum of 120,000 square feet. The first building lease,
for 70,000 square feet, expires 17 years from the rent commencement date. Under
this lease, we have two five-year options to extend the term prior to
expiration. We exercised an option to obtain an additional 50,000 square feet
in a building to be constructed across the street. Construction is required to
begin following an agreement on the terms of a lease for this second building.
We will move into the first building beginning in the second half of 2000 and
believe that the new facilities, including the space in the building to be
constructed, will be sufficient for a minimum of three years. Depending on our
growth, we believe we may require additional space thereafter and will seek
additional facilities.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information as of January 31, 2000 regarding
our current executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
George A. Scangos, Ph.D............ 51 President, Chief Executive Officer and
Director
Geoffrey Duyk, M.D., Ph.D.......... 40 Chief Scientific Officer and Director
Lloyd M. Kunimoto.................. 46 Senior Vice President of Business
Development
Glen Y. Sato....................... 40 Chief Financial Officer, Vice
President of Legal Affairs and
Secretary
Stelios Papadopoulos, Ph.D. (1)(2). 51 Chairman of the Board of Directors
Charles Cohen, Ph.D. (1)........... 49 Director
Jurgen Drews, M.D.................. 67 Director
Jason S. Fisherman, M.D. (2)....... 44 Director
Jean-Francois Formela, M.D. (2).... 43 Director
Edmund Olivier de Vezin (1)........ 62 Director
Peter Stadler, Ph.D................ 54 Director
Lance Willsey, M.D................. 38 Director
</TABLE>
- --------
(1) Member of the compensation committee.
(2) Member of the audit committee.
George A. Scangos, Ph.D., has served as our President and Chief Executive
Officer since October 1996 and as a Director since October 1996. From September
1993 to October 1996, Dr. Scangos served as President of Biotechnology at Bayer
Corporation, a pharmaceutical company, and was responsible for research,
business and process development, manufacturing, engineering and quality
assurance. Dr. Scangos holds a B.A. in Biology from Cornell University and a
Ph.D. in Microbiology from the University of Massachusetts. He was a Post-
Doctoral Fellow at Yale University and a faculty member at the Johns Hopkins
University. He currently holds an appointment as Adjunct Professor of Biology
at Johns Hopkins University.
Geoffrey Duyk, M.D., Ph.D., has served as our Chief Scientific Officer since
April 1997 and as a Director since April 1998. From 1994 to 1997, Dr. Duyk
served at Millennium Pharmaceuticals, Inc., a genomics company, mostly recently
as Vice President of Genomics. From 1992 to 1994, Dr. Duyk was an Assistant
Professor in the Department of Genetics at Harvard Medical School and an
Assistant Investigator of the Howard Hughes Medical Institute. While at Harvard
Medical School, Dr. Duyk was a co-principal investigator in the NIH-funded
Cooperative Human Linkage Center. Dr. Duyk holds a Ph.D. and M.D. from Case
Western Reserve University and completed his residency and post-doctoral
training at University of California, San Francisco.
Lloyd M. Kunimoto has served as our Senior Vice President of Business
Development since August 1999. From 1997 to 1999, Mr. Kunimoto served as Vice
President of Commercial Development for the Nutrition and Consumer Products
sector of Monsanto Company, a life sciences company. While at Monsanto, Mr.
Kunimoto was responsible for directing Monsanto's genetic engineering program
in the area of food ingredients. From 1996 to 1997, Mr. Kunimoto served as
President and Chief Executive Officer of Calgene, Inc., an agricultural
biotechnology company. Mr. Kunimoto holds a B.S. in Mathematics from Stanford
University.
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Glen Y. Sato has served as our Chief Financial Officer, Vice President of
Legal Affairs and Secretary since November 1999. From April 1999 to November
1999, Mr. Sato served as Vice President, Legal and General Counsel for Protein
Design Labs, Inc., a biotechnology company, where he previously served as the
Associate General Counsel and Director of Corporate Planning from July 1993 to
April 1999. Mr. Sato holds a B.A. from Wesleyan University and a J.D. and
M.B.A. from the University of California, Los Angeles.
Stelios Papadopoulos, Ph.D., has been a Director since December 1994 and
Chairman of the Board since January 1998. Dr. Papadopoulos has been an
investment banker at PaineWebber since April 1987, and Chairman of PaineWebber
Development Corp., a PaineWebber subsidiary, since June 1998. Dr. Papadopoulos
is a member of the Board of Directors of Diacrin, Inc. and several private
companies. Dr. Papadopoulos holds a Ph.D. in Biophysics and an M.B.A. in
Finance, both from New York University.
Charles Cohen, Ph.D., has been a Director since November 1995. Dr. Cohen co-
founded Creative BioMolecules, Inc., a biotechnology company, in 1982 and is
its Chief Scientific Officer. Dr. Cohen serves on the board of directors of
Creative BioMolecules, Inc. and several private companies. Dr. Cohen holds a
B.A. from State University of New York at Buffalo and a Ph.D. in Basic Medical
Sciences from New York University School of Medicine.
Jurgen Drews, M.D., has been a Director since July 1998. Dr. Drews has been
Chairman of the Board of International Biomedicine Management Partners, Inc.
since October 1997. From 1996 to 1997, Dr. Drews served as President of Global
Research for Hoffmann-La Roche Inc. and also served as a member of the
Corporate Executive Committee of the Roche Group. From 1991 to 1995, Dr. Drews
served as President of International Research and Development and as a member
of the Corporate Executive Committee for Roche. Dr. Drews is also a director of
Protein Design Labs, Inc., Human Genome Sciences, Inc. and MorphoSys GmbH. Dr.
Drews holds an M.D. in Internal Medicine and Molecular Biology from the
University of Heidelberg.
Jason S. Fisherman, M.D., has been a Director since March 1996. Dr.
Fisherman has been a partner of Advent International Corporation since 1994.
From 1991 to 1994, Dr. Fisherman served as Senior Director of Medical Research
at Enzon, where he managed clinical programs in oncology, genetic diseases and
blood substitutes. Dr. Fisherman is a director of Mediconsult.com, Inc., ILEX
Oncology, Inc. and several private companies. Dr. Fisherman holds a B.A. in
Molecular Biophysics and Biochemistry from Yale University, an M.D. from the
University of Pennsylvania and an M.B.A. from the Wharton Graduate School of
Business.
Jean-Francois Formela, M.D., has been a Director since September 1995. Dr.
Formela was a partner of Atlas Venture from 1993 to 1995, and has been a
general partner of Atlas since 1995. From 1989 to 1993, Dr. Formela served at
Schering-Plough, most recently as Senior Director, Medical Marketing and
Scientific Affairs, where he had biotechnology licensing and marketing
responsibilities. Dr. Formela serves on the board of directors of BioChem
Pharma, Inc. and several private companies. Dr. Formela holds an M.D. from
Paris University School of Medicine and an M.B.A. from Columbia Business
School.
Edmund Olivier de Vezin has been a Director since July 1997. Mr. Olivier has
been a General Partner of Oxford BioScience Partners and general partner of
Fairfield/Steuben Venture Partners since 1993. From 1983 to 1993, Mr. Olivier
served as Vice President of Technology and Planning at Diamond Shamrock. Mr.
Olivier is a Life Fellow and a Member of the National Council of the Salk
Institute and a former Chairman of the Biotechnology Venture Investors Group.
Mr. Olivier holds a B.S. in Chemical Engineering from Rice University and an
M.B.A. from Harvard University Graduate School of Business.
43
<PAGE>
Peter Stadler, Ph.D., has been a Director since April 1998. Dr. Stadler has
been President and Chief Executive Officer of Artemis Pharmaceuticals, GmbH
since June 1998. From 1987 to 1997, Dr. Stadler was head of pharma-
biotechnology at Bayer AG. From 1986 to 1987, Dr. Stadler served as a visiting
scientist at the University of Munster, Germany and the Massachusetts Institute
of Technology in the area of biotechnology. Dr. Stadler holds a Ph.D. in
Organic Chemistry and Biochemistry from the University of Hamburg.
Lance Willsey, M.D., has been a Director since April 1997. Dr. Willsey has
been a Founding Partner of DCF Capital, a hedge fund focused on investing in
the life sciences, since July 1998. From July 1997 to July 1998, Dr. Willsey
served on the Staff Department of Urologic Oncology at the Dana Farber Cancer
Institute at Harvard University School of Medicine. From July 1996 to July
1997, Dr. Willsey served on the Staff Department of Urology at Massachusetts
General Hospital at Harvard University School of Medicine, where he was a
urology resident from July 1992 to July 1996. Dr. Willsey holds a B.S. in
Physiology from Michigan State University and an M.S. in Biology and an M.D.
from Wayne State University.
Scientific Advisory Board
The following individuals are members of our Scientific Advisory Board:
<TABLE>
<CAPTION>
Name Current Position
---- ----------------
<C> <S>
Spyridon Artavanis-Tsakonas, Ph.D... Director of Developmental Biology and Cancer at the
Massachusetts General Hospital Cancer Center
Richard ffrench-Constant, Ph.D...... Chair of Insect Molecular Biology, Department of
Biology and Biochemistry at the University of Bath
Corey S. Goodman, Ph.D.............. Evan Rauch Professor of Neuroscience and Director of
the Wills Neuroscience Institute at the University
of California, Berkeley
Ronald Plasterk, Ph.D............... Director of the Hubrecht Laboratory for
Developmental Biology (Utrecht, the Netherlands)
Marc Tessier-Lavigne, Ph.D.......... Professor of Anatomy and of Biochemistry and
Biophysics, and Director of the Center for Brain
Development, University of California, San
Francisco, and Investigator of the Howard Hughes
Medical Institute
James H. Thomas, Ph.D............... Associate Professor in the Department of Genetics
and member of the Programs in Molecular and Cellular
Biology and in Neuroscience and Behavior, University
of Washington, Seattle
Director of the Max-Planck Institute (Tubingen,
Christianne Nusslein-Volhard, Ph.D.. Germany)
Klaus Rajewsky, Ph.D................ Professor and Director of the Institute of Genetics
at the University of Kohn
</TABLE>
Board Composition
We currently have ten directors. Subject to approval, in accordance with the
terms of our certificate of incorporation and bylaws, upon the closing of this
offering we will have ten directors and the terms of office of the board of
directors will be divided into three classes. As a result, a portion of our
board of directors will be elected each year. The division of the three classes
and their respective election dates are as follows:
. the class I directors will be Drs. Cohen, Drews and Duyk, and their term
will expire at the annual meeting of stockholders to be held in 2000;
44
<PAGE>
. the class II directors will be Drs. Fisherman and Formela and Mr.
Olivier, and their term will expire at the annual meeting of
stockholders to be held in 2001; and
. the class III directors will be Drs. Papadopoulos, Scangos, Stadler and
Willsey, and their term will expire at the annual meeting of
stockholders to be held in 2002.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, our 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 Exelixis.
The holders of our preferred stock currently have rights to appoint
directors pursuant to the Fourth Amended and Restated Securityholders'
Agreement that we entered into in February 1999 with our Series A, Series B,
Series C and Series D preferred stockholders. In accordance with these
appointment rights:
. Dr. Formela was appointed by Atlas Venture Fund II, L.P. and Atlas
Venture Europe Fund B.V.;
. Dr. Fisherman was appointed by our Series A and Series B preferred
stockholders;
. Drs. Papadopoulos, Drews and Willsey and Mr. Olivier were appointed by
our Series A, Series B, Series C and Series D preferred stockholders
voting together as a single class; and
. Dr. Scangos serves as a director by virtue of his position as our Chief
Executive Officer.
Upon the closing of this offering, our preferred stock will be converted to
common stock and these appointment rights will cease to exist.
Board Committees
Audit Committee. Our audit committee reviews our internal accounting
procedures and consults with, and reviews the services provided by, our
independent accountants. Current members of our audit committee are Drs.
Fisherman, Formela and Papadopoulos.
Compensation Committee. Our compensation committee reviews and recommends to
the board of directors the compensation and benefits of all our officers and
establishes and reviews general policies relating to compensation and benefits
of our employees. The compensation committee also administers the issuance of
stock options and other awards under our stock plans. Current members of the
compensation committee are Mr. Olivier and Drs. Cohen and Papadopoulos.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has at any time been an
officer or employee of Exelixis. No interlocking relationship exists between
our board of directors or compensation committee and the board of directors or
compensation committee of any other company, nor has any interlocking
relationship existed in the past.
Drs. Formela, Papadopoulus and Scangos serve as members of the Shareholders'
Committee of Artemis, the governing board of Artemis responsible for
compensation decisions. Dr. Stadler, a member of our board, is Chief Executive
Officer of Artemis.
45
<PAGE>
Director Compensation
Directors currently receive no cash compensation from us for their services
as members of the board or for attendance at committee meetings.
In January 2000, we adopted the 2000 Non-Employee Directors' Stock Option
Plan to provide for the automatic grant of options to purchase shares of common
stock to our directors who are not employees of Exelixis or of any affiliate of
Exelixis. Any non-employee director elected after the closing of this offering
will receive an initial option to purchase 25,000 shares of common stock.
Starting at the annual stockholder meeting in 2000, all non-employee directors
will receive an annual option to purchase 5,000 shares of common stock. See "--
Employee Benefit Plans--2000 Non-Employee Directors' Stock Option Plan" for a
more detailed explanation of the terms of these stock options.
Executive Compensation
The following table sets forth information concerning the compensation that
we paid during 1999 to our Chief Executive Officer and each of the four other
most highly compensated executive officers who earned more than $100,000 during
1999. These individuals are referred to as the "named executive officers."
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Securities
Underlying
Name and Principal Position Salary Bonus Options
--------------------------- -------- -------- ------------
<S> <C> <C> <C>
George A. Scangos, Ph.D.................... $400,000 $250,000(1) 800,000
President and Chief Executive Officer
Geoffrey Duyk, M.D., Ph.D.................. 290,000 162,000(2) 500,000
Chief Scientific Officer
Lloyd M. Kunimoto (3)...................... 87,500 71,875 350,000
Senior Vice President of Business
Development
Glen Y. Sato (4)........................... 30,962 -- 325,000
Chief Financial Officer, Vice
President of Legal Affairs and Secretary
Lynne Zydowsky, Ph.D.(5)................... 162,500 48,000(6) 120,000
</TABLE>
- --------
(1) Includes a 1998 bonus of $50,000 that was paid in 1999.
(2) Includes a 1998 bonus of $87,000 that was paid in 1999.
(3) Mr. Kunimoto joined Exelixis in August 1999. Mr. Kunimoto's annual salary
is $210,000.
(4) Mr. Sato joined Exelixis in November 1999. Mr. Sato's annual salary is
$210,000.
(5) Dr. Zydowsky left her position as our Vice President, Pharmaceutical
Business Development in January 2000.
(6) Includes a 1998 bonus of $20,000 that was paid in 1999.
46
<PAGE>
Option Grants in Fiscal Year 1999
The following table sets forth each grant of stock options during the fiscal
year ended December 31, 1999, to each of the named executive officers.
The exercise price of each option is equal to the estimated fair market
value of our common stock as determined by the board of directors on the date
of grant. In determining the estimated fair market value of our common stock on
the date of grant our board of directors considered many factors, including:
. the fact that our options involved illiquid securities in a nonpublic
company;
. prices of preferred stock issued by Exelixis to outside investors in
arm's-length transactions;
. the rights, preferences and privileges of our preferred stock over our
common stock;
. our stage of development and business strategy; and
. the likelihood that our common stock would become liquid through an
initial public offering, a sale of Exelixis or another event.
The exercise price may be paid in cash, promissory notes, shares of our
common stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased shares.
The potential realizable value of our options is calculated based on the
ten-year term of the option at the time of grant. Stock price appreciation of
5% and 10% is assumed pursuant to rules promulgated by the Securities and
Exchange Commission and does not represent our prediction of our stock price
performance. The potential realizable values at 5% and 10% appreciation are
calculated by:
. multiplying the number of shares of common stock subject to a given
option by the assumed initial public offering price of $ per share;
. assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and
. subtracting from that result the aggregate option exercise price.
Percentages shown under "Percent of Total Options Granted to Employees in
1999" are based on an aggregate of 4,305,070 options granted to our employees,
consultants and directors under our stock option plans during 1999.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------- Value at Assumed
Number of Annual Rates of Stock
Securities Percent of Total Price Appreciation
Underlying Options Granted Exercise for Option Term
Options to Employees in Price per Expiration ---------------------
Name Granted (#) 1999 (%) Share ($) Date 5% 10%
---- ----------- ---------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
George A. Scangos, Ph.D. 800,000 18.6 0.20 08/04/09
Geoffrey Duyk, M.D.,
Ph.D................... 500,000 11.6 0.20 08/04/09
Lloyd M. Kunimoto....... 300,000 7.0 0.20 08/01/09
50,000 1.2 1.00 12/16/09
Glen Y. Sato............ 325,000 7.5 0.30 11/07/09
Lynne Zydowsky, Ph.D.... 80,000 1.9 0.20 06/03/09
40,000 0.9 0.30 10/31/09
</TABLE>
47
<PAGE>
Option Values at December 31, 1999
The following table sets forth the number and value of securities underlying
unexercised options that are held by each of the named executive officers as of
December 31, 1999.
Amounts shown under the column "Value of Unexercised In-the-Money Options at
December 31, 1999" are based on the assumed initial public offering price of
$ , without taking into account any taxes that may be payable in connection
with the transaction, multiplied by the number of shares underlying the option,
less the exercise price payable for these shares.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1999(1) December 31, 1999(1)
------------------------- -------------------------
Shares
Acquired Value
on Exercise Realized Exercisable/ Exercisable/ Exercisable/ Exercisable/
Name (#) ($) Vested Unvested Vested Unvested
---- ----------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
George A. Scangos, Ph.D. -- -- 175,000 675,000
Geoffrey Duyk, M.D.,
Ph.D................... -- -- 112,500 412,500
Lloyd M. Kunimoto....... -- -- -- 350,000
Glen Y. Sato............ 83,333 -- -- 241,667
Lynne Zydowsky, Ph.D.... 56,354 -- 84,854 133,792
</TABLE>
- --------
(1) All options are exercisable upon grant but are subject to a right of
repurchase by Exelixis until vested.
Employee Benefit Plans
2000 Equity Incentive Plan
We adopted our 2000 Equity Incentive Plan in January 2000 to replace the
1997 Equity Incentive Plan.
Administration. The plan is administered by our board of directors, or a
committee appointed by the board, which determines recipients and types of
stock awards to be issued, including number of shares under the stock award and
the exercisability of the stock award, and also has the power to construe,
interpret and amend the incentive plan.
Share Reserve. We have reserved a total of 3,000,000 shares of our common
stock for issuance under the incentive plan. On the last day of each of our
fiscal years for ten years, starting in 2000, the share reserve will
automatically be increased by a number of shares equal to the greater of:
. 5% of our outstanding shares on a fully-diluted basis; or
. that number of shares subject to stock awards granted under the
incentive plan during the prior 12-month period.
The automatic increase is subject to reduction by the board, and share reserve
increases for incentive stock options may not exceed an aggregate of 30,000,000
shares over the term of the plan. If the recipient of a stock award does not
purchase the shares subject to his or her stock award before the stock award
expires or otherwise terminates, the shares that are not purchased will again
become available for issuance under the incentive plan. Likewise, if the
recipient of a stock award terminates his or her service to us, any unvested
shares that we repurchase will again become available for issuance under the
incentive plan for all awards other than incentive stock options.
Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code to our employees and to the employees
of our affiliates. The board also may grant nonstatutory stock options, stock
bonuses and restricted stock purchase awards to our employees, directors and
consultants as well as to the employees, directors and consultants of our
affiliates.
48
<PAGE>
Under certain conditions the board may grant an incentive stock option to a
person who owns or is deemed to own stock possessing more than 10% of our total
combined voting power or the total combined voting power of an affiliate of
ours. In such a case, the exercise price of any such options must be at least
110% of the fair market value of the stock on the grant date, and the option
term must be five years or less.
Option Terms. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock
on the grant date, but it has the discretion to set a lower exercise price for
nonstatutory stock options. If the value of our shares declines thereafter, the
board may offer optionholders the opportunity to replace their outstanding
higher-priced options with new lower-priced options.
The maximum option term is ten years. Subject to this limitation, the board
may provide for exercise periods of any length with respect to individual
option grants. An option generally terminates three months after the
optionholder's service to us or one of our affiliates terminates. If this
termination is due to the optionholder's disability, the exercise period
generally is extended to 12 months. If termination is due to the optionholder's
death or if the optionholder dies within three months of the date on which his
or her service terminates, the exercise period generally is extended to 18
months following the optionholder's death.
The board may provide for the transferability of nonstatutory stock options
but not incentive stock options. However, the optionholder may designate a
beneficiary to exercise either type of option in the event of the
optionholder's death. If the optionholder does not designate a beneficiary, the
optionholder's option rights will pass by his or her will or by the laws of
descent and distribution.
Terms of Other Stock Awards. The board determines the purchase price of
other stock awards. The board may award stock bonuses in consideration of past
services without a purchase payment. Shares that we sell or award under our
incentive plan may, but need not, be restricted and subject to a repurchase
option in our favor in accordance with a vesting schedule that the board
determines. The board, however, may accelerate the vesting of the restricted
stock.
Other Provisions. Transactions that do not involve our receipt of
consideration, including a merger, consolidation, reorganization, stock
dividend and stock split, may trigger a change in the class and number of
shares subject to the incentive plan and to outstanding awards. In that event,
the board will appropriately adjust the incentive plan as to the class and the
maximum number of shares subject to the incentive plan and the cap on the
number of shares available for incentive stock options. It will also adjust
outstanding awards as to the class, number and price of shares subject to such
awards.
Effect of a Merger on Stock Awards. If we dissolve or liquidate, then our
outstanding stock awards will terminate immediately prior to such event.
However, we treat outstanding stock awards differently in the following change
in control situations:
. a sale, lease or other disposition of all or substantially all of our
assets;
. a merger or consolidation in which we are not the surviving corporation;
. a reverse merger in which we are the surviving corporation but the
shares of our common stock outstanding immediately preceding the merger
are converted by virtue of the merger into other property; and
. an acquisition of the beneficial ownership of our securities
representing at least 50% of the combined voting power entitled to vote
in the election of our directors.
In these situations, any surviving entity may either assume or replace all
outstanding awards under the incentive plan. Otherwise, the vesting and
exercisability of outstanding awards will accelerate.
49
<PAGE>
If a participant's service is either involuntarily terminated without cause
or voluntarily terminated for good reason within the period of time beginning
one month before and ending 13 months after a change in control, then the
vesting of an award (and, if applicable, the exercisability of the award) will
accelerate by one year.
Stock Awards Granted. As of the date of this prospectus, we have issued no
options under the incentive plan, and all 3,000,000 shares remained available
for future grants. As of the date of this prospectus, the board had not granted
any stock bonuses or restricted stock under the incentive plan.
Plan Termination. The incentive plan will terminate in 2010 unless the board
terminates it sooner.
1997 Equity Incentive Plan and 1994 Employee, Director and Consultant Stock
Plan
Our 1997 Equity Incentive Plan was adopted in September 1997 and terminated
for purposes of new option grants in January 2000. Our 1994 Employee, Director
and Consultant Stock Plan was adopted in January 1995 and terminated for
purposes of new option grants in September 1997. Each of the plans remains in
effect as to outstanding stock options granted under that plan.
Each of the 1997 plan and the 1994 plan provided for the grant of incentive
stock options to employees and nonstatutory stock options to employees,
directors and consultants of Exelixis and its affiliates. The plans also
provided for the outright sale of stock to employees, directors and
consultants. Each of these plans is administered by the board of directors, or
a committee appointed by the board, which determined recipients and types of
stock awards to be issued, including the number of shares under the stock award
and the exercisability of the stock award, and also has the power to construe,
interpret and amend the plan.
Prior Option Grants. As of December 31, 1999, under the 1997 Equity
Incentive Plan and 1994 Employee, Director and Consultant Stock Plan, options
to purchase 5,991,135 shares of common stock were outstanding under these
plans, 500,000 of which were granted subject to stockholder approval of an
increase in the available share reserve, and options to purchase 3,101,584
shares of common stock had been exercised.
Effect of a Merger on Options. If we dissolve or liquidate or have a change
of control transaction, options outstanding under the 1997 plan and the 1994
plan will be treated in the same manner as options outstanding under the 2000
Equity Incentive Plan.
2000 Non-Employee Directors' Stock Option Plan
We adopted the 2000 Non-Employee Directors' Stock Option Plan in January
2000. The directors' plan provides for the automatic grant of options to
purchase shares of our common stock to our non-employee directors.
Administration. The board of directors administers the directors' plan
unless it delegates administration to a committee. The board has the authority
to construe, interpret and amend the directors' plan but the directors' plan
specifies the essential terms of the options, including recipients, grant
dates, the number of shares in each option and price per share.
Share Reserve. We have reserved a total of 500,000 shares of our common
stock for issuance under the directors' plan. On the last day of each of our
fiscal years for ten years, starting in 2000, the share reserve will
automatically be increased by a number of shares equal to the greater of:
. 0.75% of our outstanding shares on a fully-diluted basis; or
. that number of shares subject to options granted under the directors'
plan during the prior 12-month period.
50
<PAGE>
The automatic increase is subject to reduction by the board. If an optionholder
does not purchase the shares subject to his or her option before the option
expires or otherwise terminates, the shares that are not purchased will again
become available for issuance under the directors' plan. Likewise, if an
optionholder terminates his or her service to us, any unvested shares that we
repurchase will again become available for issuance under the directors' plan
Eligibility. We will automatically issue options to our non-employee
directors under the directors' plan as follows:
. Each person who is an non-employee director on the effective date of the
closing of this offering or who is first elected or appointed thereafter
as a non-employee director will automatically receive an initial grant
for 25,000 shares. The initial grant is exercisable immediately but will
vest at the rate of 25% of the shares on the first anniversary of the
grant date and monthly thereafter over the next three years.
. In addition, on the day after each of our annual meetings of the
stockholders each non-employee director will automatically receive an
annual grant for 5,000 shares. This annual grant is exercisable
immediately but will vest monthly over the following year. If the non-
employee director is appointed to the board after the annual meeting,
the annual grant will be pro rated.
As long as the optionholder continues to serve with us or with an affiliate
of ours, whether in the capacity of a director, an employee or a consultant,
the option will continue to vest and be exercisable during its term. When the
optionholder's service terminates, we will have the right to repurchase any
unvested shares at the original exercise price, without interest.
Option Terms. Options have an exercise price equal to 100% of the fair
market value of our common stock on the grant date. The option term is ten
years but terminates three months after the optionholder's service terminates.
If this termination is due to the optionholder's disability, the post-
termination exercise period is extended to 12 months. If termination is due to
the optionholder's death or if the optionholder dies within three months of the
date on which his or her service terminates, the post-termination exercise
period is extended to 18 months following death.
The optionholder may transfer the option by gift to immediate family members
or for estate-planning purposes. The optionholder may also designate a
beneficiary to exercise the option in the event of the optionholder's death. If
the optionholder does not designate a beneficiary, the option exercise rights
will pass by the optionholder's will or by the laws of descent and
distribution.
Other Provisions. Transactions that do not involve our receipt of
consideration, including a merger, consolidation, reorganization, stock
dividend and stock split, may trigger a change in the class and number of
shares subject to the directors' plan and to outstanding options. In that
event, the board will appropriately adjust the directors' plan as to the class
and the maximum number of shares subject to the directors' plan and the
automatic option grants. It will also adjust outstanding options as to the
class, number and price of shares subject to such options.
Effect of a Merger on Options. If we dissolve or liquidate, outstanding
options will terminate immediately prior to such event. However, we treat
outstanding options differently in the following situations:
. a sale, lease or other disposition of all or substantially all of our
assets;
. a merger or consolidation in which we are not the surviving corporation;
51
<PAGE>
. a reverse merger in which we are the surviving corporation but the
shares of our common stock outstanding immediately preceding the merger
are converted by virtue of the merger into other property; and
. an acquisition of the beneficial ownership of our securities
representing at least 50% of the combined voting power entitled to vote
in the election of our directors.
In these situations, any surviving entity will either assume or replace all
outstanding options under the directors' plan. Otherwise, the vesting of the
options will accelerate.
Options Issued. The directors' plan will not be effective until the
effective date of the closing of this offering. Therefore, we have not issued
any options under the directors' plan.
Plan Termination. The directors' plan will terminate in 2010 unless the
board terminates it sooner.
2000 Employee Stock Purchase Plan
Our board adopted the 2000 Employee Stock Purchase Plan in January 2000.
Administration. The board administers the purchase plan unless it delegates
administration to a committee. The board has the authority to construe,
interpret and amend the purchase plan as well as to determine the terms of
rights granted under the purchase plan.
Share Reserve. We authorized the issuance of 300,000 shares of our common
stock pursuant to purchase rights granted to eligible employees under the
purchase plan. On the last day of each of our fiscal years for ten years,
starting in 2000, the share reserve will automatically be increased by a number
of shares equal to the greater of:
. 0.75% of our outstanding shares on a fully-diluted basis; or
. that number of shares subject to stock awards granted under the
incentive plan during the prior 12-month period.
The automatic increase is subject to reduction by the board, and the share
reserve may not increase by more than an aggregate of 1.5 million shares over
the ten-year period.
Eligibility. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which eligible employees may purchase our
common stock through payroll deductions. We implement the purchase plan by
offering purchase rights to eligible employees. Generally, all of our full-time
employees who have been employed for at least ten days may participate in
offerings under the purchase plan. However, no employee may participate in the
purchase plan if immediately after we grant the employee a purchase right, such
employee would have voting power over 5% or more of our outstanding capital
stock.
Offerings. The board has the authority to set the terms of an offering. It
may specify offerings of up to 27 months where common stock is purchased for
accounts of participating employees at a price per share equal to the lower of:
. 85% of the fair market value of a share on the first day of the
offering; or
. 85% of the fair market value of a share on the purchase date.
The first offering will begin on the effective date of the closing of this
offering. The fair market value of the shares will be the initial public
offering price. Thereafter, the fair market value will be the
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<PAGE>
closing sales price (rounded up where necessary to the nearest whole cent) for
our shares (or the closing bid, if no sales were reported) as quoted on the
Nasdaq National Market on the last trading day prior to the relevant
determination date, as reported in The Wall Street Journal.
The board may provide that employees who become eligible to participate
after an offering period begins may nevertheless enroll in the offering. These
employees will purchase our stock at the lower of:
. 85% of the fair market value of a share on the day they began
participating in the purchase plan; or
. 85% of the fair market value of a share on the purchase date.
The board has determined that participating employees may authorize payroll
deductions of up to 15% of their compensation for the purchase of stock under
the purchase plan. These employees may end their participation in the offering
at any time up to ten days before a purchase date. Their participation ends
automatically on termination of their employment.
Other Provisions. A participant's right to purchase our stock under our
purchase plan, plus any other purchase plans established by us or by our
affiliates, is limited. An employee may not accrue the right to purchase stock
at a rate of more than $25,000 of the fair market value of our stock for each
calendar year in which the purchase right is outstanding. We determine the fair
market value of our stock, for the purpose of this limitation, as of the first
day of the offering.
Upon a change in control, the board may provide that the successor
corporation will either assume or replace outstanding purchase rights.
Alternatively, the board may shorten the ongoing offering period and provide
that our stock will be purchased for the participants immediately before the
change in control.
Shares Issued. As of the date of this prospectus, no shares of common stock
had been issued under the purchase plan.
Plan Termination. The purchase plan will terminated in 2010. Prior to that
time, the board may terminate the purchase plan at any time after the end of an
offering.
401(k) Plan
All of our employees generally are eligible to participate in our 401(k)
Retirement Plan. Pursuant to the 401(k) Plan, employees may elect to reduce
their current compensation by up to the lesser of 20% of their annual
compensation or the statutorily prescribed annual limit allowable under
Internal Revenue Service Regulations and to have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan permits us, but does not
require us, to make additional matching contributions on behalf of all
participants in the 401(k) Plan. We have not made any contributions to the
401(k) Plan. The 401(k) Plan is intended to qualify under Section 401(k) of the
Code so that contributions to the 401(k) Plan by employees or by Exelixis, and
the investment earnings thereon, will not be taxable to employees until
withdrawn from the 401(k) Plan, and our contributions, if any, will be
deductible by us when made.
Limitations of Liability and Indemnification Matters
In connection with the consummation of this offering, we will adopt and file
an amended and restated certificate of incorporation and restated bylaws. As
permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director will be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for:
. any breach of duty of loyalty to us or our stockholders;
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. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payment of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
Our amended and restated bylaws provide that we shall indemnify our
directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our amended and restated bylaws covers at least
negligence and gross negligence on the part of indemnified parties. Our amended
and restated bylaws also permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in such capacity, regardless of whether the amended and restated
bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our amended and
restated bylaws. These agreements, among other things, indemnify our directors
and executive officers for certain expenses, including attorneys' fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by us, arising out of such person's
services as a director or executive officer with respect to Exelixis, any of
our subsidiaries or any other company or enterprise to which the person
provides services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
Change in Control Arrangements and Employment Agreements
At the time of commencement of employment, our employees generally sign
offer letters specifying basic terms and conditions of employment. In general,
our employees are not subject to written employment agreements. Each officer
and employee has entered into a standard form agreement with respect to
confidential information and invention assignment that provides that the
employee will not disclose any confidential information of Exelixis received
during the course of employment and that, with some exceptions, the employee
will assign to Exelixis any and all inventions conceived or developed during
the course of employment.
In September 1996, we entered into an agreement with George Scangos in
connection with his appointment as President and Chief Executive Officer of
Exelixis. The agreement provides that Dr. Scangos' term of employment will be
renewed automatically each year unless either party provides written notice of
its intention not to renew. In the event that Dr. Scangos' employment is
terminated without cause, he may receive up to six months base salary and
bonus, together with all benefits. The agreement also provides that in the
event of a merger or sale of more than 50% of Exelixis' assets, Dr. Scangos'
unvested stock options shall automatically accelerate and vest in full.
In April 1997, we entered into an agreement with Geoffrey Duyk in connection
with his appointment as Chief Scientific Officer and Senior Vice President of
Research and Development. The agreement provides that Dr. Duyk's term of
employment will be renewed automatically each year unless either party provides
written notice of its intention not to renew. In the event that Dr. Duyk's
employment is terminated without cause, he may receive up to six months base
salary and any declared but unpaid bonus as of the date of termination,
together with all benefits. The agreement also provides that in the event of a
change of control, Dr. Duyk's unvested stock options shall automatically
accelerate and vest in full.
In October 1999, we entered into an agreement with Glen Sato in connection
with his appointment as Chief Financial Officer and Vice President of Legal
Affairs. The agreement provides that in the event that Mr. Sato's employment is
terminated without cause, he will receive six months base salary and benefits.
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CERTAIN TRANSACTIONS
Stock option grants to our executive officers and directors are described in
this prospectus under the headings "Management--Director Compensation," and
"Management--Executive Compensation."
The following executive officers, directors and holders of more than five
percent of our voting securities purchased securities in the amounts shown
below.
<TABLE>
<CAPTION>
Shares of Preferred Stock
Common -----------------------------------------
Stock Series A Series B Series C Series D
---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Directors and Executive
Officers
George A. Scangos......... 1,500,000 -- -- -- --
Geoffrey Duyk............. 900,000 -- -- -- --
Glen Y. Sato.............. 83,333 -- -- -- --
Stelios Papadopoulos...... 150,000 42,857 50,000 50,000 --
Charles Cohen............. 200,000 -- -- -- --
Lance Willsey............. -- -- -- 50,000 --
5% Stockholders
Atlas Venture Fund II,
L.P. (1)................. 80,000 1,428,571 1,667,000 266,696 134,752
Atlas Venture Europe Fund
B.V. (1)................. 40,000 714,286 833,000 133,304 67,376
Pharmacia & Upjohn AB..... -- -- -- -- 2,500,000
Oxford Bioscience
Partners, L.P. (2)....... -- 1,006,491 704,545 168,300 84,803
Oxford Bioscience
Management Partners (2).. 120,000 -- -- -- --
Oxford Bioscience Partners
(Adjunct) L.P. (2)....... -- 142,860 100,000 -- --
Oxford Bioscience Partners
(Bermuda) L.P.(2)........ -- 279,220 195,455 46,700 23,531
Advent International
Investors II, L.P.(3).... -- -- 5,000 -- --
Advent Partners L.P.(3)... -- -- 78,000 6,731 3,846
Advent Performance
Materials, L.P. (3)...... -- -- 350,000 30,202 17,259
Adwest L.P.(3)............ -- -- 200,000 17,259 9,862
Rovent II L.P.(3)......... -- -- 1,400,000 120,808 69,033
Hambrecht & Quist
Healthcare Investors..... -- -- 1,100,000 150,000
Hambrecht & Quist Life
Science Investors........ -- -- 900,000 100,000
PaineWebber Capital, Inc.
(4)...................... -- 428,572 1,000,000 150,000 47,128
PW Partners 1993, L.P.
(4)...................... -- 428,571 -- -- --
Price per share........... $ 0.001 to $ 0.70 $ 1.00 $ 2.00 $ 3.00
$ 1.00
Date(s) of purchase....... Dec 95 to Jan 95 to Mar 96 Apr 97 Aug 98 to
Dec 99 Mar 95 Feb 99
</TABLE>
- --------
(1) Jean-Francois Formela, one of our directors, is a general partner of Atlas
Venture.
(2) Edmund Olivier, one of our directors, is a partner of Oxford Bioscience
Partners.
(3) Jason S. Fisherman, one of our directors, is a partner of Advent
International Corporation.
(4) Stelios Papadopoulos, one of our directors, is an investment banker at
PaineWebber Incorporated.
Fourth Amended and Restated Securityholders' Agreement. In February 1999,
Exelixis and the Series A, Series B, Series C and Series D preferred
stockholders entered into the fourth amended and restated securityholders'
agreement. The agreement provides that in the event of an underwritten public
offering such as this offering, Exelixis will use its best efforts to cause the
underwriters to reserve up to 10% of the shares included in the public offering
for purchase by individuals who hold Series C preferred stock and do not hold
shares of any other class of our capital stock. If these Series C stockholders
are able to participate in such public offering, they may purchase shares of
our common stock in the public offering pro rata to their holdings of Series C
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preferred stock. This provision derives from agreements entered into in April
1997 in connection with the issuance of the Series C preferred stock.
Executive Employment Agreements. We have entered into employment agreements
with George Scangos, President and Chief Executive Officer, Geoffrey Duyk,
Chief Scientific Officer and Senior Vice President of Research and Development,
and Glen Sato, Chief Financial Officer and Vice President of Legal Affairs. See
"Management--Change in Control Arrangements and Employment Agreements."
Indemnification Agreements. We intend to enter into indemnification
agreements with our directors and certain officers for the indemnification of
and advancement of expenses to these persons to the fullest extent permitted by
law. We also intend to execute these agreements with our future directors and
officers. See "Management--Limitations of Liability and Indemnification
Matters."
Indebtedness of Management. In January 1998, we entered into a loan
agreement with George Scangos, President, Chief Executive Officer and a
director, in the amount of $150,000. The loan has an interest rate of 6.13% and
matures on January 19, 2003. Pursuant to the terms of the loan agreement, the
loan may be forgiven under certain circumstances.
In January 1998, we entered into a loan agreement with Geoffrey Duyk, Chief
Scientific Officer, Senior Vice President of Research and Development, and a
director, in the amount of $90,000. The loan has an interest rate of 6.13% and
matures on January 16, 2003. Pursuant to the terms of the loan agreement, the
loan may be forgiven under certain circumstances.
In March 1999, we entered into a loan agreement with Lynne Zydowsky, former
Vice President, Pharmaceutical Business Development, in the amount of $150,000.
The loan has an interest rate of 5.5% and matures on the earlier of 181 days
after the closing of our initial public offering or upon the financing of a new
business venture by Dr. Zydowsky.
Artemis. In 1998, we purchased a minority interest in Artemis
Pharmaceuticals GmbH, a genetics company located in Cologne, Germany, focusing
on the study of vertebrate model genetic systems such as mice and zebrafish. As
of December 31, 1999, we own 24% of the outstanding equity of Artemis, and,
pursuant to a shareholders' agreement, we have appointed three of the five
members of the Artemis shareholders' governing board. In January 2000, we
agreed in principal with Artemis to amend the shareholders' agreement to
increase the size of the Artemis shareholders' governing board to six members,
of which we will have the right to appoint three members.
In September 1998, we entered into a five-year cooperation agreement with
Artemis under which we agreed to share technology and business opportunities as
they arise. While either party may terminate this agreement at any time, we
believe that it provides a significant opportunity to access complementary
genetic research. In addition to developing zebrafish and mouse model system
technology, Artemis is studying cartilage biology, angiogenesis and
cardiovascular biology. We and Artemis have developed an integrated research
approach in the field of angiogenesis and are jointly marketing this
capability.
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We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested directors, and will continue to be on terms no less favorable to
us than could be obtained from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth summary information regarding the beneficial
ownership of our outstanding common stock as of December 31, 1999 (assuming
conversion of all outstanding shares of preferred stock into common stock upon
the closing of this offering and as adjusted to reflect the sale of the shares
offered by this prospectus) by:
. each of the named executive officers;
. each of our directors;
. each person or group who is known by us to beneficially own more than 5%
of our common stock; and
. all of our current directors and executive officers as a group.
Beneficial ownership of shares is determined under the rules of the
Securities and Exchange Commission and generally includes any shares over which
a person exercises sole or shared voting or investment power. Except as
indicated by footnote, and subject to applicable community property laws, each
person identified in the table possesses sole voting and investment power with
respect to all shares of common stock held by them. Shares of common stock
subject to options currently exercisable or exercisable within 60 days of
December 31, 1999 as of that date are deemed outstanding for calculating the
percentage of outstanding shares of the person holding these options, but are
not deemed outstanding for calculating the percentage of any other person.
Applicable percentage ownership in the following table is based on 38,848,739
shares of common stock outstanding as of December 31, 1999, after giving effect
to the conversion of all outstanding shares of preferred stock into common
stock upon the closing of this offering, and shares of common stock
outstanding immediately following the completion of this offering. Unless
otherwise indicated, the address of each individual listed in the table is in
care of Exelixis, Inc., 260 Littlefield Avenue, South San Francisco, California
94080.
<TABLE>
<CAPTION>
Beneficial Ownership as of December 31, 1999
------------------------------------------------------
Shares Issuable
Pursuant to
Options and Percentage
Warrants Shares Exelixis Beneficially Owned
Exercisable May Repurchase ----------------------
Name and Address of Number of Shares within 60 days of within 60 days of Before After
Beneficially Owned Beneficially Owned December 31, 1999 December 31, 1999 Offering Offering
------------------- ------------------ ----------------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Directors and Executive
Officers
George A. Scangos,
Ph.D................... 1,500,000 1,150,000 1,078,125 6.6%
Geoffrey Duyk, M.D.,
Ph.D................... 900,000 725,000 898,437 4.1
Lloyd M. Kunimoto....... -- 350,000 350,000 * *
Glen Y. Sato............ 83,333 241,667 325,000 * *
Lynne Zydowsky, Ph.D. .. 118,229 156,771 130,855 * *
Stelios Papadopoulos,
Ph.D(1)................ 2,347,128 171,429 -- 6.5
Charles Cohen, Ph.D(2).. 282,857 160,000 -- 1.1 *
Jurgen Drews, M.D(3).... 1,666,667 -- -- 4.3
Jason S. Fisherman,
M.D(4)................. 2,308,000 -- -- 5.9
Jean-Francois Formela,
M.D(5)................. 5,364,985 -- -- 13.8
Edmund Olivier de
Vezin(6)............... 2,871,905 -- -- 7.4
Lance Willsey, M.D...... 50,000 -- -- * *
Peter Stadler, Ph.D..... -- 300,000 125,000 * *
5% Stockholders --
Atlas Venture(5)........ 5,364,985 -- -- 13.8
Oxford Bioscience
Partners(6)............ 2,871,905 -- -- 7.4
Pharmacia & Upjohn
AB(7).................. 2,500,000 -- -- 6.4
Advent International
Group(4) .............. 2,308,000 -- -- 5.9
Hambrecht & Quist
Capital Management,
Inc.(8)................ 2,250,000 -- -- 5.8
PaineWebber
Incorporated(1)........ 2,054,271 -- -- 5.3
All directors and
executive officers as a
group (13 persons)(9).. 17,493,104 3,254,867 2,907,417 49.3% %
</TABLE>
- -------
* Represents beneficial ownership of less than 1 percent.
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(1) Includes 1,625,700 shares held by PaineWebber Capital, Inc. and 428,571
shares held by PW Partners 1993, L.P. Dr. Papadopoulos is an investment
banker at PaineWebber Incorporated and disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest in these
shares. PaineWebber Incorporated is located at 1285 Avenue of the Americas,
New York, NY 10019.
(2) Includes 142,857 shares held by Creative BioMolecules, Inc. Dr. Cohen is a
director of Creative BioMolecules, Inc. and disclaims beneficial ownership
of these shares. Creative BioMolecules, Inc. is located at 101 Huntington
Avenue, Suite 2400, Boston, MA 02199.
(3) Includes 1,666,667 shares held by FEI Biomedicine Private Equity Holding
Inc., an investment company managed by International Biomedicine Management
Partners Inc. ("IBMP"). Dr. Drews is the Chairman of the Board of IBMP and
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in these shares. IBMP is located at House of Commerce,
Aeschenplatz 7, Basel, Switzerland.
(4) Includes 1,589,841 shares held by Rovent II L.P., 397,461 shares held by
Advent Performance Materials, L.P., 227,121 shares held by Adwest L.P.,
88,577 shares held by Advent Partners L.P. and 5,000 shares held by Advent
International Investors II, L.P. Advent International Corporation, the
venture capital firm that is the manager of the funds affiliated with
Advent International Group, exercises sole voting and investment power with
respect to all shares held by these funds. Dr. Fisherman is a partner of
Advent International Corporation and disclaims beneficial ownership of
these shares except for 22,738 shares that are indirectly beneficially
owned by Dr. Fisherman. Advent International Corporation is located at 75
State Street, Boston, MA 02109.
(5) Consists of 3,577,019 shares held by Atlas Venture Fund II, L.P. and
1,787,966 shares held by Atlas Venture Europe Fund B.V. Atlas Venture Fund
II, L.P. and Atlas Venture Europe Fund B.V are part of the Atlas Venture, a
group of funds under common control. Dr. Formela is a general partner of
Atlas Venture. No general partner of Altas Venture is deemed to have voting
and investment power with respect to such shares and Dr. Formela disclaims
beneficial ownership of these shares. Atlas Venture is located at 222
Berkeley Street, Suite 1950, Boston, MA 02116.
(6) Consists of 1,964,139 shares held by Oxford Bioscience Partners, L.P.,
544,906 shares held by Oxford Bioscience Partners (Bermuda) L.P., 242,860
shares held by Oxford Bioscience Partners (Adjunct) L.P. and 120,000 shares
held by Oxford Bioscience Management Partners. Mr. Olivier is a general
partner of Oxford Bioscience Partners and disclaims beneficial ownership of
these shares except to the extent of his proportionate partnership interest
in these shares. Oxford Bioscience Partners is located at 650 Town Center
Drive, Suite 810, Costa Mesa, CA 92626.
(7) Pharmacia & Upjohn is entitled to additional shares of common stock by
virtue of an interest free loan of $7.5 million made to Exelixis in 1999
that is evidenced by a convertible promissory note. The promissory note
must be converted into shares of our common stock during the two-year
period following this offering at a price per share equal to 120% of the
initial public offering price, the time of such conversion prior to March
2002 to be determined by Pharmacia & Upjohn.
(8) Consists of 1,250,000 shares held by Hambrecht & Quist Healthcare Investors
and 1,000,000 shares held by Hambrecht & Quist Life Science Investors,
closed-end registered investment companies for which Hambrecht & Quist
Capital Management, Inc. ("HQCM") is the investment adviser. HQCM is wholly
owned by Chase H&Q Group, which is owned by the Chase Manhattan Bank. HQCM
is located at 50 Rowes Wharf, Boston, MA 02110.
(9) Total number of shares includes 14,408,685 shares of common stock held by
entities affiliated with directors and executive officers. See footnotes 1
through 6 above.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering and the filing of our amended and restated
certificate of incorporation, our authorized capital stock will consist of
100,000,000 million shares of common stock, $0.001 par value, and 10,000,000
million shares of preferred stock, $0.001 par value.
Common Stock
As of December 31, 1999, there were 38,848,739 shares of common stock
outstanding that were held of record by approximately 202 stockholders after
giving effect to the conversion of our preferred stock into common stock at a
one-to-one ratio. There will be shares of common stock outstanding
(assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options) after giving effect to the sale of the shares
of common stock offered by this prospectus.
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Subject to preferences that may be applicable to any
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive ratably any dividends out of assets
legally available therefor as our board of directors may from time to time
determine. Upon liquidation, dissolution or winding up of Exelixis, holders of
our common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any then outstanding
shares of preferred stock. Holders of common stock have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable.
Preferred Stock
According to our amended and restated certificate of incorporation, our
board of directors will have the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of preferred stock, in one or
more series. Our board shall determine the rights, preferences, privileges and
restrictions of the preferred stock, 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 any series. The issuance of preferred stock could diminish voting power of
holders of common stock, and the likelihood that holders of preferred stock
will receive dividend payments and payments upon liquidation may have the
effect of delaying, deferring or preventing a change in control of Exelixis,
which could depress the market price of our common stock. We have no present
plan to issue any shares of preferred stock.
Warrants
As of December 31, 1999, warrants to purchase 188,214 shares of Series A
preferred stock were outstanding at an exercise price of $0.70 per share. These
warrants were immediately exercisable upon issuance and expire upon the later
of July 20, 2005 or five years after completion of this offering. The warrants
contain provisions for the adjustment of the exercise price and the aggregate
number of shares that may be issued upon the exercise of the warrant if a stock
dividend, stock split, reorganization, reclassification or consolidation
occurs. Upon the closing of this offering, the warrants to purchase Series A
preferred stock will become exercisable for common stock at the rate of one
share of common stock for each share of preferred stock underlying the
warrants.
As of December 31, 1999, warrants to purchase 357,143 shares of Series B
preferred stock were outstanding at an exercise price of $0.85 per share. The
warrants expire upon the later of
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January 24, 2006 or five years after completion of this offering. The warrants
contain provisions for the adjustment of the exercise price and the aggregate
number of shares that may be issued upon the exercise of the warrants if a
stock dividend, stock split, reorganization, reclassification or consolidation
occurs. Upon the closing of this offering, the warrants to purchase Series B
preferred stock will become exercisable for common stock at the rate of one
share of common stock for each share of preferred stock underlying the
warrants.
As of December 31, 1999, warrants to purchase a total of 327,858 shares of
common stock were outstanding. During 1995, we issued warrants to purchase
92,858 shares of our common stock at an exercise price of $0.70 per share to
two stockholders. During January 2000, one warrant to purchase 21,429 shares
was exercised. These warrants expire in January 2005. In September 1997, we
issued warrants to purchase 85,000 shares of our common stock at an exercise
price of $2.00 per share as part of an equipment lease financing arrangement.
These warrants expire upon the earlier of September 25, 2007 or five years
after completion of this offering. In May 1999, we issued warrants to purchase
150,000 shares of our common stock at an exercise price of $3.00 per share in
connection with a building lease. These warrants expire five years after
completion of this offering. Each warrant contains provisions for the
adjustment of the exercise price and the aggregate number of shares that may be
issued upon the exercise of the warrants if a stock dividend, stock split,
reorganization, reclassification or consolidation occurs.
Registration Rights of Stockholders
Upon completion of this offering, holders of an aggregate of 30,503,571
shares of common stock and holders of warrants to purchase an aggregate of
545,357 shares of common stock will be entitled to rights to register these
shares under the Securities Act. These rights are provided under the Fourth
Amended and Restated Securityholders' Agreement, dated January 28, 1999, under
the Fourth Amended and Restated Registration Rights Agreement, dated February
26, 1999, and under agreements with similar registration rights. If we propose
to register any of our securities under the Securities Act, either for our own
account or for the account of others, the holders of these shares are entitled
to notice of the registration and are entitled to include, at our expense,
their shares of common stock in the registration and any related underwriting,
provided, among other conditions, that the underwriters may limit the number of
shares to be included in the registration and in some cases, including this
offering, exclude these shares entirely. In addition, the holders of these
shares may require us, at our expense and on not more than two occasions at any
time beginning six months from the date of the closing of the offerings, to
file a registration statement under the Securities Act with respect to their
shares of common stock, and we will be required to use our best efforts to
effect the registration. Further, the holders may require us at our expense to
register their shares on Form S-3 when this form becomes available.
Anti-Takeover Provisions of Delaware Law and Charter Provisions
In general, Section 203 of the Delaware General Corporation Law prohibits a
publicly-held Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years following the date
that the stockholder became an interested stockholder unless:
. prior to that date, our board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and by employee stock plans in which
shares held subject to the plan will be tendered in a tender or exchange
offer; or
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. on or subsequent to that date, the business combination is approved by
our board of directors and is authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote of
at least two-thirds of the outstanding voting stock not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
. subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; and
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Our amended and restated certificate of incorporation requires that upon
completion of the public offerings, any action required or permitted to be
taken by our stockholders must be effected at a duly called annual or special
meeting of stockholders and may not be effected by a consent in writing.
Additionally, our certificate of incorporation:
. substantially limits the use of cumulative voting in the election of
directors;
. provides that the authorized number of directors may be changed only by
resolution of our board of directors; and
. authorizes our board of directors to issue blank check preferred stock to
increase the amount of outstanding shares.
Our amended and restated bylaws provide that candidates for director may be
nominated only by our board of directors or by a stockholder who gives written
notice to us no later than 60 days prior nor earlier than 90 days prior to the
first anniversary of the last annual meeting of stockholders. Our board of
directors currently consists of ten members, who will be divided into three
classes. As a result, a portion of our board of directors will be elected each
year. Our board of directors may appoint new directors to fill vacancies or
newly created directorships. Our bylaws also limit who may call a special
meeting of stockholders.
Delaware law and these charter provisions may have the effect of deterring
hostile takeovers or delaying changes in control of our management, which
could depress the market price of our common stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services.
National Market Listing
We have applied for listing of our common stock on the Nasdaq National
Market under the symbol "EXEL."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could reduce prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this
offering because of contractual restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and impair our ability to
raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares of
common stock. Of these shares, all of the shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless these shares are purchased by our "affiliates," as that
term is defined in Rule 144 under the Securities Act. In general, affiliates
include officers, directors or 10% stockholders. The remaining 38,848,739
shares outstanding are "restricted securities" within the meaning of Rule 144.
These restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144, 144(k)
or 701 promulgated under the Securities Act, which are summarized below. Sales
of the restricted securities in the public market, or the availability of these
shares for sale, could adversely affect the market price of our common stock.
All of our directors and officers and some of our stockholders and option
holders have entered into lock-up agreements in connection with this offering
generally providing that they will not offer, sell, contract to sell or grant
any option to purchase or otherwise dispose of our common stock or any
securities exercisable for or convertible into our common stock owned by them
for a period of 180 days after the date of this prospectus without the prior
written consent of Goldman, Sachs & Co.
Taking into account these lock-up agreements, and assuming Goldman, Sachs &
Co. does not release stockholders from their agreements, the following shares
will be eligible for sale in the public market at the following times:
. 863,520 shares will be eligible for sale upon completion of this
offering;
. 37,854,758 shares will be eligible for sale upon the expiration of lock-
up agreements, beginning 180 days after the date of this prospectus; and
. 1,519,605 shares will be eligible for sale upon the exercise of vested
options 180 days after the date of this prospectus.
In general, under Rule 144 as currently in effect, after expiration of the
lock-up agreements, a person who has beneficially owned restricted securities
for at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 must comply with the requirements with respect to
manner of sale, notice and the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to
sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
63
<PAGE>
Rule 701, as currently in effect, permits our employees, officers and
directors or consultants who purchased shares under a written compensatory plan
or contract to resell these shares in reliance upon Rule 144 but without
compliance with specific restrictions. Commencing 90 days after the date of
this offering, Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirement and permits non-
affiliates to sell these shares in reliance on Rule 144 without complying with
the holding period, public information, volume limitation or notice provisions
of Rule 144.
Registration Rights. Upon completion of this offering, the holders of
30,503,571 shares of our common stock and holders of warrants to purchase an
aggregate of 545,357 shares of our common stock, or their transferees, will be
entitled to rights with respect to the registration of their shares under the
Securities Act. Registration of their shares under the Securities Act would
result in these shares becoming freely tradable without restriction under the
Securities Act, except for shares purchased by affiliates, immediately upon the
effectiveness of this registration.
In addition, we intend to file, immediately after the effectiveness of this
offering, a registration statement on Form S-8 under the Securities Act
covering all shares of common stock reserved for issuance under our stock
option plans. Shares registered under this registration statement would be
available for sale in the open market in the future, providing there is
compliance with Rule 144 restrictions, in the case of affiliates, and the
contractual restrictions described above.
64
<PAGE>
VALIDITY OF THE COMMON STOCK
The validity of the common stock offered hereby will be passed upon by our
counsel, Cooley Godward LLP, Palo Alto, California and for the underwriters by
Sullivan & Cromwell, Los Angeles, California.
EXPERTS
The consolidated financial statements of Exelixis, Inc. as of December 31,
1998 and 1999 and for each of the three years in the period ended December 31,
1999 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of MetaXen, LLC as of December 31, 1997 and 1998
and for each of the two years in the period ended December 31, 1998 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement. For further information
with respect to Exelixis, Inc. and the common stock offered in this offering,
we refer you to the registration statement and to the attached exhibits and
schedules. Statements made in this prospectus concerning the content of any
document referred to in this prospectus are not necessarily complete. With
respect to each such document filed as an exhibit to the registration
statement, we refer you to the exhibit for a more complete description of the
matter involved.
You may inspect our registration statement and the attached exhibits and
schedules without charge at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. You may obtain copies
of all or any part of our registration statement from the Securities and
Exchange Commission upon payment of prescribed fees. You may also inspect
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission without charge at the website maintained by the Securities and
Exchange Commission at www.sec.gov. Information contained on our website does
not constitute part of this prospectus.
Upon completion of the offering, we will be subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended, and
we will file reports, proxy statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants and
quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited interim financial information. Our telephone number is
(650) 825-2200.
65
<PAGE>
EXELIXIS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
EXELIXIS, INC.
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Deficit........................... F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
METAXEN, LLC
Report of Independent Accountants.......................................... F-23
Balance Sheets............................................................. F-24
Statements of Operations................................................... F-25
Statements of Members' Equity (Deficit).................................... F-26
Statements of Cash Flows................................................... F-27
Notes to Financial Statements.............................................. F-28
PRO FORMA COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Financial Statement........................... F-36
Unaudited Pro Forma Combined Statement of Operations....................... F-37
Notes to Unaudited Pro Forma Combined Financial Statement.................. F-38
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Exelixis, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
Exelixis, Inc. and its subsidiary at December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 31, 2000
F-2
<PAGE>
EXELIXIS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity
------------------ December 31,
1998 1999 1999
-------- -------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 2,058 $ 5,400
Short-term investments..................... -- 1,504
Other receivables.......................... 150 185
Other current assets....................... 423 943
-------- --------
Total current assets..................... 2,631 8,032
Property and equipment, net.................. 5,744 9,498
Notes and other receivables.................. 458 619
Other assets................................. 148 752
-------- --------
Total assets............................. $ 8,981 $ 18,901
======== ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued expenses...... $ 584 $ 3,648
Current portion of capital lease
obligations............................... 924 735
Current portion of notes payable........... 504 1,554
Deferred revenue........................... 229 1,542
-------- --------
Total current liabilities................ 2,241 7,479
Capital lease obligations.................... 973 229
Notes payable................................ 1,583 3,299
Convertible promissory note.................. -- 7,500
Other long-term liability.................... -- 104
-------- --------
Total liabilities........................ 4,797 18,611
-------- --------
Commitments (Note 11)
Mandatorily redeemable convertible preferred
stock,
$0.001 par value; 35,000,000 shares
authorized; issued and outstanding:
27,623,110 shares in 1998, 30,503,571
shares in 1999 and none pro forma
(aggregate liquidation preference
$46,780,000) .............................. 38,138 46,780 $ --
-------- -------- --------
Stockholders' (deficit) equity:
Common stock, $0.001 par value; 50,000,000
shares authorized; issued and outstanding:
5,365,386 shares in 1998, 8,345,168 shares
in 1999 and 38,848,739 pro forma.......... 5 8 39
Class B common stock, $0.001 par value;
526,819 shares authorized; shares issued
and outstanding: 526,819 shares in 1998,
none in 1999 and pro forma................ 1 -- --
Additional paid-in-capital................. 2,978 19,521 66,270
Notes receivable from stockholders......... (240) (240) (240)
Deferred stock compensation................ (1,803) (14,167) (14,167)
Accumulated deficit........................ (34,895) (51,612) (51,612)
-------- -------- --------
Total stockholders' (deficit) equity..... (33,954) (46,490) $ 290
-------- -------- ========
Total liabilities, mandatorily redeemable
convertible preferred stock and
stockholders' (deficit) equity.......... $ 8,981 $ 18,901
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
EXELIXIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
License........................................ $ -- $ 1,250 $ 3,050
Contract....................................... -- 2,133 9,464
-------- -------- --------
Total revenues............................... -- 3,383 12,514
-------- -------- --------
Operating expenses:
Research and development....................... 8,198 11,539 19,412
General and administrative..................... 3,743 5,304 6,343
Amortization of deferred stock compensation.... 25 725 3,522
-------- -------- --------
Total operating expenses..................... 11,966 17,568 29,277
-------- -------- --------
Loss from operations............................. (11,966) (14,185) (16,763)
Interest income.................................. 689 266 571
Interest expense................................. (219) (316) (525)
-------- -------- --------
Loss before equity in net loss of affiliated
company......................................... (11,496) (14,235) (16,717)
Equity in net loss of affiliated company......... -- (320) --
-------- -------- --------
Net loss......................................... $(11,496) $(14,555) $(16,717)
======== ======== ========
Net loss per share, basic and diluted............ $ (6.25) $ (2.66) $ (2.28)
Shares used in computing net loss per share,
basic and diluted............................... 1,840 5,480 7,325
Pro forma net loss per share, basic and diluted.. -- -- $ (0.45)
Shares used in computing pro forma net loss per
share........................................... -- -- 37,468
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
EXELIXIS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands, except share data)
<TABLE>
<CAPTION>
Class B Common Notes
Common Stock Stock Additional Receivable Deferred Total
---------------- ---------------- Paid-in from Stock Accumulated Stockholders'
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Deficit
--------- ------ -------- ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997.................. 1,690,245 $ 2 526,819 $ 1 $ 146 $ -- $ (59) $ (8,844) $ (8,754)
Exercise of stock
options............... 320,183 -- -- -- 7 -- -- -- 7
Deferred stock
compensation.......... -- -- -- -- 68 -- (68) -- --
Amortization of
deferred stock
compensation.......... -- -- -- -- -- -- 25 -- 25
Net loss.............. -- -- -- -- -- -- -- (11,496) (11,496)
--------- ----- -------- ----- -------- ------ --------- --------- ---------
Balance at
December 31, 1997..... 2,010,428 2 526,819 1 221 -- (102) (20,340) (20,218)
Exercise of stock
options............... 3,354,958 3 -- -- 331 -- -- -- 334
Issuance of notes to
stockholders for the
exercise of stock
options............... -- -- -- -- -- (240) -- -- (240)
Deferred stock
compensation.......... -- -- -- -- 2,426 -- (2,426) -- --
Amortization of
deferred stock
compensation.......... -- -- -- -- -- -- 725 -- 725
Net loss.............. -- -- -- -- -- -- -- (14,555) (14,555)
--------- ----- -------- ----- -------- ------ --------- --------- ---------
Balance at
December 31, 1998..... 5,365,386 5 526,819 1 2,978 (240) (1,803) (34,895) (33,954)
Exercise of stock
options............... 1,379,782 1 -- -- 267 -- -- -- 268
Issuance of stock
purchase warrants..... -- -- -- -- 391 -- -- -- 391
Deferred stock
compensation.......... -- -- -- -- 15,886 -- (15,886) -- --
Amortization of
deferred stock
compensation.......... -- -- -- -- -- -- 3,522 -- 3,522
Conversion of Class B
common stock into
common stock.......... 1,600,000 2 (526,819) (1) (1) -- -- -- --
Net loss.............. -- -- -- -- -- -- -- (16,717) (16,717)
--------- ----- -------- ----- -------- ------ --------- --------- ---------
Balance at December
31, 1999.............. 8,345,168 $ 8 -- $ -- $ 19,521 $ (240) $ (14,167) $ (51,612) $ (46,490)
========= ===== ======== ===== ======== ====== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
EXELIXIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(11,496) $(14,555) $(16,717)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 731 1,529 2,166
Loss on disposal of property and equipment... 19 -- --
Amortization of deferred stock compensation.. 25 725 3,522
Changes in assets and liabilities:
Other receivables............................ (52) (98) (35)
Other current assets......................... 40 (397) (497)
Other assets................................. (103) (6) (81)
Notes and other receivables.................. (635) 177 (161)
Accounts payable and accrued expenses........ 706 (334) 3,064
Deferred revenue............................. -- 229 1,313
Other long-term liabilities.................. -- -- 104
-------- -------- --------
Net cash used in operating activities...... (10,765) (12,730) (7,322)
-------- -------- --------
Cash flows used in investing activities:
Acquisition, net............................... -- -- (870)
Purchases of property and equipment............ (3,973) (2,494) (4,100)
Proceeds from short-term investments........... -- 1,997 --
Purchase of short-term investments............. (1,997) -- (1,504)
-------- -------- --------
Net cash used in investing activities...... (5,970) (497) (6,474)
-------- -------- --------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable
convertible preferred stock................... 15,703 6,333 8,642
Proceeds from exercise of stock options........ 7 94 268
Proceeds from capital lease financing.......... 1,838 179 --
Principal payments on capital lease
obligations................................... (461) (899) (933)
Proceeds from issuance of notes payable........ -- 2,315 10,066
Principal payments on note payable............. (720) (455) (905)
-------- -------- --------
Net cash provided by financing activities.. 16,367 7,567 17,138
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... (368) (5,660) 3,342
Cash and cash equivalents, at beginning of year.. 8,086 7,718 2,058
-------- -------- --------
Cash and cash equivalents, at end of year........ $ 7,718 $ 2,058 $ 5,400
======== ======== ========
Supplemental cash flow disclosure:
Property and equipment acquired under capital
leases........................................ $ 1,169 $ -- $ --
Cash paid for interest......................... 219 316 525
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 The Company and a Summary of Significant Accounting Policies
The Company
Exelixis, Inc. ("Exelixis" or the "Company"), formerly Exelixis
Pharmaceuticals, Inc., is a model system genetics and comparative genomics
company that uses model systems to identify critical genes in disease pathways
and to determine functional relationships of genes and functionality of
potential targets for the pharmaceutical and agriculture industries. The
Company operates in one business segment in the U.S. and exited the development
stage during the year ended December 31, 1998.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany transactions and
balances have been eliminated in consolidation.
The Company reports its minority ownership interests in GenOptera LLC and
Artemis Pharmaceuticals, GmbH using the equity method of accounting.
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 reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Initial Public Offering
In January 2000, the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission to
sell shares of its common stock to the public. If the initial public offering
is completed under the terms presently anticipated, all outstanding shares of
mandatorily redeemable convertible preferred stock will automatically convert
into 30,503,571 shares of common stock. Unaudited pro forma stockholders'
equity adjusted for the assumed conversion of the preferred stock is set forth
on the consolidated balance sheets.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash equivalents and short-term
investments. The Company's cash equivalents and short-term investments are held
by three financial institutions. Deposits held with financial institutions may
exceed the amount of insurance provided on such deposits. The Company has not
experienced any losses on its deposits of cash and cash equivalents. See Note 3
for a discussion of notes and other receivables.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests its excess cash in high grade short-term commercial paper and money
market funds which invest in U.S. Treasury securities that are
F-7
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
subject to minimal credit and market risk. The Company had $1.8 million and
$1.0 million of high grade short-term commercial paper which was included in
cash and cash equivalents at December 31, 1998 and 1999, respectively. These
investments are carried at cost, which approximates fair market value.
Short-term Investments
The Company classifies all short-term investments as available-for-sale in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company's short-term investments consist of high grade corporate securities
maturing one year or less from the date of purchase. At December 31, 1998 and
1999, these investments are carried at cost, which approximates fair value.
Material unrealized gains or losses, if any, are reported in stockholders'
deficit and included in other comprehensive loss. The cost of securities sold
is based on the specific identification method.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives, generally four to ten
years. Leasehold improvements are amortized over the shorter of the estimated
useful life or the remaining term of the lease. Equipment held under capital
leases is stated at the lower of the fair market value of the related asset or
the present value of the minimum lease payments and is amortized on a straight-
line basis over the shorter of the estimated useful life of the related asset
or the term of the lease. Repair and maintenance costs are charged to expense
as incurred.
Long-lived Assets
The Company accounts for its long-lived assets under SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS 121"). Consistent with SFAS 121, the Company
identifies and records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. None of these events
have occurred with respect to the Company's long-lived assets, which consist
primarily of machinery and equipment and leasehold improvements.
Income Taxes
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined on the basis of the
difference between the income tax bases of assets and liabilities and their
respective financial reporting amounts at enacted tax rates in effect for the
periods in which the differences are expected to reverse. A valuation allowance
is established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable and accounts payable,
approximate fair value due to their short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying
value of its debt obligations approximates fair value.
F-8
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
The Company recognizes license and other upfront fees, which are
nonrefundable and do not require the Company to perform any future services,
when received. Milestone payments are recognized pursuant to the terms of the
agreement upon the achievement of the specified milestones. The Company
recognizes contract research revenues as services are performed, pursuant to
the terms of the agreements. Any amounts received in advance of performance are
recorded as deferred revenue.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 requires that license and other upfront fees received from
research collaborators be recognized over the term of the agreement unless the
fee is in exchange for products delivered or services performed that represent
the culmination of a separate earnings process. Accordingly, the Company will
report a change in accounting principle for the fiscal quarter ending March 31,
2000. The cumulative effect of the change in accounting principle will
approximate $3.1 million. This amount will be recognized as revenue
prospectively over the remaining terms of the collaboration agreements.
Research and Development Expenses
Research and development costs are expensed as incurred and include costs
associated with research performed pursuant to collaborative agreements.
Research and development costs consist of direct and indirect internal costs
related to specific projects as well as fees paid to other entities which
conduct certain research activities on behalf of the Company. Research and
development expenses incurred in connection with collaborative agreements
approximated contract revenues for the years ended December 31, 1998 and 1999,
respectively.
Net Loss per Share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin No. 98. Basic and
diluted net loss per share are computed by dividing the net loss for the period
by the weighted average number of shares of common stock outstanding during the
period. The calculation of diluted net loss per share excludes potential common
stock if their effect is antidilutive. Potential common stock consists of
common stock subject to repurchase, incremental common shares issuable upon the
exercise of stock options and warrants and shares issuable upon conversion of
the preferred stock and note payable.
The following table sets forth potential shares of common stock that are not
included in the diluted net loss per share because to do so would be anti-
dilutive for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Preferred stock........................... 23,206,696 26,298,398 30,143,513
Options to purchase common stock.......... 5,422,552 5,384,814 5,043,352
Common stock subject to repurchase........ 435,190 2,204,088 1,326,209
Conversion of note payable................ -- -- 2,291,667
Warrants.................................. 663,007 723,215 816,965
---------- ---------- ----------
29,727,445 34,610,515 39,621,706
========== ========== ==========
</TABLE>
F-9
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Net Loss per Share (Unaudited)
Pro forma net loss per share for the year ended December 31, 1999 was
computed using the weighted average number of shares of common stock
outstanding, including the pro forma effect of the automatic conversion of all
of the Company's preferred stock into shares of the Company's common stock
effective upon the closing of the Company's initial public offering as if such
conversion occurred on January 1, 1999, or at the date of original issuance, if
later. The resulting pro forma adjustment includes an increase in the weighted
average shares used to compute pro forma basic net loss per share for the year
ended December 31, 1999. The calculation of pro forma diluted net loss per
share excludes potential common stock as their effect would be anti-dilutive.
Stock-based Compensation
The Company has adopted the pro forma disclosure requirements of SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). As permitted, the
Company continues to recognize employee stock-based compensation under the
intrinsic value method of accounting as prescribed by Accounting Principles
Board Opinion No. 25. The pro forma effects of applying SFAS 123 are shown in
Note 9 to the consolidated financial statements. The Company accounts for stock
options issued to non-employees in accordance with the provisions of SFAS 123
and EITF 96-18, "Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with, Selling Goods or
Services."
Comprehensive Income
The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income". This statement requires companies to classify items of other
comprehensive income by their nature in the financial statements and display
the accumulated balance of other comprehensive income separately from
accumulated deficit and additional paid-in capital in the equity section of the
balance sheet. For all periods presented, there were no material differences
between comprehensive loss and net loss.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivatives and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In July 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the
effective date of SFAS No. 133 until fiscal years beginning after June 15,
2000. To date, the Company has not engaged in derivative or hedging activities.
Note 2 Research and Collaboration Agreements
Bayer
In May 1998, the Company entered into a six-year research collaboration
agreement with Bayer AG (including its affiliates, "Bayer") to identify novel
screening targets for the development of new pesticides for use in crop
protection. The Company will provide research services directed towards
identifying and investigating molecular targets in insects and nematodes that
may be useful in developing and commercializing pesticide products. The Company
received a $1.2 million license
F-10
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
fee upon execution of the agreement and will receive annual research funding of
approximately $2.8 million. The Company can earn additional payments under the
agreement upon the achievement of certain milestones. The Company can also earn
royalties on the future sale by Bayer of pesticide products incorporating
compounds developed under the agreement. The agreement also provides Bayer an
exclusive royalty free option to use certain technology developed under the
agreement in the development of fungicides and herbicides.
In December 1999, the Company significantly expanded its relationship with
Bayer by forming a joint venture in the form of a new limited liability
company, GenOptera LLC ("GenOptera"). Under the terms of the GenOptera
operating agreement, Bayer will provide 100% of the capital necessary to fund
the operations of GenOptera and will control the entity with a 60% ownership
interest. The Company will own the other 40% interest in GenOptera without
making any capital contribution and will report its investment in GenOptera
using the equity method of accounting. Bayer's initial capital contribution to
GenOptera will be $10 million in January 2000 and another $10 million on
January 1, 2001. Bayer will also contribute cash to GenOptera in amounts
necessary to fund its ongoing operating expenses.
On January 1, 2000, the Company, Bayer and GenOptera entered into an
exclusive eight-year research collaboration agreement which superceded the 1998
agreement discussed above. The Company will provide GenOptera with
significantly expanded research services focused on developing insecticides and
nematicides for crop protection. Under the terms of the collaboration
agreement, GenOptera will pay the Company a $10 million license fee and a $10
million research commitment fee. One-half of these fees was received in January
2000, with the remaining amounts to be received in January 2001. Additionally,
GenOptera will also pay the Company approximately $10 million in annual
research funding. The Company can earn additional payments under the
collaboration agreement upon the achievement of certain milestones. The Company
can also earn royalties on the future sale by Bayer of pesticide products
incorporating compounds developed under the agreement. The agreement also
provides Bayer an exclusive royalty-free option to use certain technology
developed under the agreement in the development of fungicides and herbicides.
To the extent permitted under the collaboration agreement, if the Company were
to develop and sell certain human health or agrochemical products which
incorporate compounds developed under the agreement, it would be obligated to
pay royalties to GenOptera. No such activities are expected for the foreseeable
future.
Revenues recognized under these agreements approximated $3.4 million and
$4.1 million during the years ended December 31, 1998 and 1999, respectively.
Artemis Pharmaceuticals
In June 1998, we purchased a minority interest in Artemis Pharmaceuticals
GmbH, a genetics company located in Cologne, Germany. We also entered into
certain non-exclusive license agreements providing Artemis with access to our
technologies. In September 1998, we entered into a five-year cooperation
agreement with Artemis under which we agreed to share technology and business
opportunities as they arise. While either party may terminate this agreement at
any time, we believe that it provides a significant opportunity to access
complementary genetic research. We have no financial obligation or current
intention to fund Artemis.
Pharmacia & Upjohn
In February 1999, the Company entered into a five-year research
collaboration agreement with Pharmacia & Upjohn AB ("Pharmacia & Upjohn")
focused on the identification of novel targets that
F-11
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
may be useful in the development of pharmaceutical products in the areas of
Alzheimer's disease and metabolic syndrome. Pharmacia & Upjohn agreed to pay
the Company a $5 million non-refundable license fee, $3 million of which was
received upon entering into the agreement with the remaining $2 million to be
received in February 2000. Under the terms of the agreement, as expanded and
amended in October 1999, the Company will also receive future research funding
during the first three years of the agreement. The Company can also earn
additional amounts under the agreement upon the achievement of certain
milestones. The Company can also earn royalties on the future sales by
Pharmacia & Upjohn of human therapeutic products incorporating compounds
developed under the agreement. Revenues recognized under this agreement
approximated $7.8 million during the year ended December 31, 1999.
In connection with entering into this agreement, Pharmacia & Upjohn also
purchased 2,500,000 shares of Series D Preferred Stock at $3.00 per share,
resulting in net cash proceeds to the Company of $7.5 million. Further,
Pharmacia & Upjohn loaned the Company $7.5 million in exchange for a non-
interest bearing convertible promissory note (see Note 6).
Bristol-Myers Squibb
In September 1999, the Company entered into a three-year research and
technology transfer agreement with Bristol-Myers Squibb Company ("Bristol-Myers
Squibb") to identify the mechanisms of action of compounds delivered to the
Company by Bristol-Myers Squibb. Bristol-Myers Squibb agreed to pay the Company
a $250,000 technology access fee. Under the terms of the agreement, the Company
will receive research funding ranging from $1.3 million in the first year to as
much as $2.5 million in later years. The Company can also earn additional
amounts under the agreement upon the achievement of certain milestones. The
Company can also earn royalties on the future sale by Bristol-Myers Squibb of
human products incorporating compounds developed under the agreement. The
agreement also includes technology transfer and licensing terms which call for
Bristol-Myers Squibb and the Company to license and share certain core
technologies in genomics and lead optimization. Revenues recognized under this
agreement approximated $418,000 during the year ended December 31, 1999.
Note 3 Notes and Other Receivables
The Company had outstanding loans aggregating $458,000 and $619,000 to
certain officers and employees of the Company at December 31, 1998 and 1999,
respectively. The notes are collateralized and bear interest at rates ranging
from 3.77% to 6.13% and have maturities through March 2003. The principal plus
accrued interest will be forgiven annually over three to four years from the
employee's date of employment with the Company. If an employee leaves the
Company, all unpaid and unforgiven principal and interest will be due and
payable within 60 days.
F-12
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4 Property and Equipment
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Laboratory equipment....................................... $ 1,588 $ 4,301
Computer equipment and software............................ 1,667 2,837
Furniture and fixtures..................................... 525 1,018
Leasehold improvements..................................... 1,820 2,537
Equipment under capital leases............................. 2,773 2,773
Construction in-progress................................... -- 827
------- -------
8,373 14,293
Less accumulated depreciation and amortization............. (2,629) (4,795)
------- -------
$ 5,744 $ 9,498
======= =======
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1997, 1998 and 1999 included $460,000, $704,000 and $652,000, respectively,
related to equipment under capital leases. Accumulated depreciation and
amortization for equipment under capital leases was $1.5 million and $2.2
million at December 31, 1998 and 1999, respectively. The equipment under
capital leases collateralizes the related lease obligations.
Note 5 Notes Payable
In July 1998, the Company entered into a $5.0 million equipment and tenant
improvements lending agreement. As of December 31, 1999, there was
approximately $3.9 million outstanding under the lending agreement. The
Company's ability to borrow additional amounts expired in January 2000.
Borrowings under the lending agreement bear interest at 7.0% per annum and are
collateralized by the financed equipment. Principal and interest are payable
monthly over 42 months, and the Company is required to make a final balloon
payment equal to 10% of the original principal amount of each drawdown.
In connection with the acquisition of MetaXen (see Note 12), the Company
assumed a loan agreement which provided for the financing of equipment
purchases. Borrowings under the agreement are collateralized by the assets
financed and are subject to repayment over thirty-six to forty-eight months,
depending on the type of asset financed. Borrowings under the agreement bear
interest at the U.S. Treasury note rate plus a number of basis points
determined by the type of asset financed (6.80% to 7.44% at December 31,
1999). As of December 31, 1999, there was approximately $937,000 outstanding
under this loan agreement.
Future principal payments of notes payable at December 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
2000.............................................................. $ 1,554
2001.............................................................. 1,664
2002.............................................................. 1,209
2003.............................................................. 426
-------
4,853
Less current portion.............................................. (1,554)
-------
$ 3,299
=======
</TABLE>
F-13
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6 Convertible Promissory Note
In February 1999, the Company issued a $7.5 million convertible promissory
note to Pharmacia & Upjohn in connection with a collaboration agreement (see
Note 2). The non-interest bearing note automatically converts in March 2002,
unless converted earlier at the option of Pharmacia & Upjohn. The note must be
converted into shares of the Company's common stock during the two-year period
following the Company's initial public offering at a price per share equal to
120% of the price of common stock sold in the initial public offering, the time
of such conversion to be determined by Pharmacia & Upjohn. If the Company has
not completed an initial public offering by March 2002, the note will be
converted into a number of shares of convertible preferred stock equal to $7.5
million divided by the most recent price per share of such convertible
preferred stock. The note contains certain covenants including restrictions on
mergers and disposition of assets.
Note 7 Mandatorily Redeemable Convertible Preferred Stock
The Company has authorized 35,000,000 shares of preferred stock, designated
in series. A summary of mandatorily redeemable convertible preferred stock
("preferred stock") is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
----------- -----------
Liquidation
Shares Preference Issued and Issued and
Designated Per Share Outstanding Outstanding
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Series A......................... 5,817,464 $ 0.70 5,328,571 5,328,571
Series B......................... 13,000,000 1.00 12,300,000 12,300,000
Series C......................... 7,875,000 2.00 7,875,000 7,875,000
Series D......................... 7,500,000 3.00 2,119,539 5,000,000
---------- ---------- ----------
34,192,464 27,623,110 30,503,571
========== ========== ==========
</TABLE>
The preferred stock has the following characteristics:
Conversion
Each share of Series A, B, C and D preferred stock is convertible at any
time at the option of the holder into shares of common stock based upon a one
to one conversion ratio. All Series A, B, C and D preferred stock will
automatically convert to common stock upon the earlier of (1) the closing of an
initial public offering of the Company's common stock resulting in net proceeds
of at least $15 million and a per share price of not less than $5.00, or (2)
the consent of the holders of at least 66 2/3% in voting power of the then
outstanding shares of Series A, B, C and D preferred stock.
Dividends
Holders of the Series D preferred stock are entitled to receive dividends
when and if declared by the Board of Directors.
Holders of the Series B and C preferred stock are entitled to receive
dividends when and if declared by the Board of Directors, provided however,
that no dividend shall be declared on the Series B or C preferred stock unless
the holders of the Series D preferred stock shall have first received, or the
Company shall simultaneously declare and pay, an equal dividend on each
outstanding share of Series D preferred stock.
F-14
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Holders of the Series A preferred stock are entitled to receive dividends
when and if declared by the Board of Directors, provided however that with the
exception of the declaration and payment of the Special Series A Dividend (as
defined below), no dividend shall be declared or paid on the Series A preferred
stock unless the Company shall simultaneously declare and pay an equal dividend
on each outstanding share of Series B, C and D preferred stock. Through
December 31, 1999, no dividends have been declared or paid by the Company.
Holders of Series A preferred stock are entitled to receive a dividend of
one twentieth ( 1/20th) of one share of common stock (the "Special Series A
Dividend") under certain circumstances. If the consummation of either (1) the
consolidation, merger, liquidation or sale of all or substantially all of the
assets of the Company, or (2) the closing of an initial public offering of the
Company's common stock at a price at or above the Per Share Threshold Amount
($3.00 at December 31, 1999), as defined, occurs on or before March 31, 2000,
then the Special Series A Dividend shall be payable to holders of Series A
preferred stock immediately prior to such event.
Mandatory Redemption
On March 31, 2002, 2003 and 2004, each holder of Series A, B and C preferred
stock and on March 13, 2002, 2003 and 2004 each holder of Series D preferred
stock shall have the right to require the Company to redeem up to the number of
shares of such preferred stock held by each shareholder multiplied by a
percentage (33-1/3%, 50% and 100% at each respective redemption date) at a per
share price of $3.00 for Series D preferred stock, $2.00 for Series C preferred
stock, $1.00 for Series B preferred stock and $0.70 for Series A preferred
stock, plus all declared but unpaid dividends.
Liquidation Preference
In the event of any liquidation, dissolution, or winding up of the affairs
of the Company, the holders of Series D preferred stock will be entitled to
receive in preference to the holders of the Series C, B and A preferred stock
and all classes of common stock an amount equal to $3.00 per share, subject to
certain adjustments, plus any accrued but unpaid dividends. The holders of
Series C preferred stock shall receive in preference to the holders of the
Series B and A preferred stock and all classes of common stock an amount equal
to $2.00 per share, subject to certain adjustments, plus any accrued and unpaid
dividends. The holders of Series B preferred stock shall receive, in preference
to the holders of the Series A preferred stock and all classes of common stock
an amount equal to $1.00 per share, subject to certain adjustments, plus any
accrued but unpaid dividends. The holders of Series A preferred stock shall
receive, prior and in preference to any other series of preferred stock (other
than the Series D, C and B preferred stock) and all classes of common stock, an
amount equal to $0.70 per share, subject to certain adjustments, plus any
accrued but unpaid dividends.
Voting Rights
Each holder of Series A, B, C and D preferred stock is entitled to the
number of votes equal to the number of shares of common stock into which such
holder's shares are convertible.
Amended and Restated Securityholders' Agreement
In January 1999, the Company and the Series A, Series B, Series C and Series
D preferred stockholders entered into an amended and restated securityholders'
agreement. The agreement provides that in the event of an underwritten public
offering, the Company will use its best efforts to
F-15
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
cause the underwriters to reserve up to 10% of the shares included in the
public offering for purchase by individuals who hold Series C preferred stock
and do not hold shares of any other class of our capital stock.
Note 8 Common Stock and Warrants
Stock Repurchase Agreements
In January 1995, the Company sold to certain founders and members of its
Scientific Advisory Board (the "SAB") and to a consultant 1,770,000 shares of
common stock at a price of $0.001 per share. In June 1995, 1,600,000 of these
shares held by three founders of the Company were converted into 526,819 shares
of Class B common stock. Simultaneously, these founders entered into Restated
Stock Purchase and Repurchase Agreements (the "Restated Agreements"). In April
1999, 526,819 shares of Class B common stock were converted into 1,600,000
shares of common stock pursuant to the terms of the Restated Agreements.
Under the terms of the 1997 Equity Incentive Plan (the "1997 Plan"), options
are exercisable when granted and such shares are subject to repurchase upon
termination of employment. Repurchase rights lapse over the vesting periods
which are generally three to four years. Should the employment of the holders
of common stock subject to repurchase terminate prior to full vesting of the
outstanding shares, the Company may repurchase all unvested shares at a price
per share equal to the original exercise price. At December 31, 1999, 2,173,047
shares were subject to such repurchase terms.
Warrants
During 1995, the Company issued warrants to purchase 92,858 shares of the
Company's common stock at an exercise price of $0.70 per share to two
shareholders of the Company. During January 2000, warrants to purchase 21,429
shares were exercised. The warrants expire in January 2005. The fair value of
these warrants was not material and, accordingly, no value was ascribed to them
for financial reporting purposes.
In 1995, the Company also issued warrants to purchase 188,214 shares of the
Company's Series A preferred stock at an exercise price of $0.70 per share in
connection with a line of credit agreement. The warrants were immediately
exercisable upon issuance and expire ten years from the date of issuance or
five years from the date of an initial public offering, whichever is longer.
The fair value of these warrants was not material and, accordingly, no value
has been ascribed to them for financial reporting purposes.
In January 1996, the Company issued warrants to purchase 357,143 shares of
Series B preferred stock, at an exercise price of $0.85 per share, to a lender.
The warrants expire ten years from the date of issue or five years from the
effective date of an initial public offering, whichever is longer. The fair
value of these warrants was not material and, accordingly, no value was
ascribed to them for financial reporting purposes.
In September 1997, the Company issued warrants to purchase 85,000 shares of
common stock at an exercise price of $2.00 per share as part of a $2 million
equipment lease financing arrangement. These warrants expire upon the earlier
of September 2007 or five years from the effective date of an initial public
offering. The fair value of these warrants was not material and, accordingly,
no value has been ascribed to them for financial reporting purposes.
In May 1999, the Company issued warrants to purchase 150,000 shares of
common stock at an exercise price of $3.00 per share in connection with a
building lease. The Company determined the
F-16
<PAGE>
fair value of these warrants using the Black-Scholes option pricing model with
the following assumptions: expected life of five years; a weighted average
risk-free rate of 6.1%; expected dividend yield of zero; volatility of 50% and
a deemed value of the common stock of $4.28 per share. The fair value of the
warrants has been capitalized and will be amortized as rent expense over the
term of the lease.
All such warrants are currently exercisable.
Reserved Shares
At December 31, 1999, the Company has reserved 39,925,118 shares of common
stock for future issuance upon the conversion of its preferred stock, and the
convertible promissory note, as well as for use in the Company's stock plans
and exercise of outstanding warrants.
Note 9 Employee Benefit Plans
In January 1995, the Company adopted the 1994 Employee, Director and
Consultant Stock Option Plan (the "1994 Plan"). The 1994 Plan provides for the
issuance of incentive stock options, non-qualified stock options and stock
purchase rights to key employees, directors, consultants and members of the
SAB. In September 1997, the Company adopted the 1997 Plan. The 1997 Plan amends
and supercedes the 1994 Plan. The total number of shares which may be issued
under the 1997 Plan, as amended, is 9,142,000. The Board of Directors is
responsible for administration of the Company's stock plans and determines the
term of each option, exercise price and the vesting terms. The Company may not
grant an employee incentive stock options that are exercisable during any one
year with an estimated fair value in excess of $100,000. Incentive stock
options may be granted at an exercise price per share at least equal to the
estimated fair value per underlying common share on the date of grant (not less
than 110% of the estimated fair value in the case of holders of more than 10%
of the Company's voting stock). Options granted under the 1997 Plan are
exercisable when granted and generally expire ten years from the date of grant
(five years for incentive stock options granted to holders of more than 10% of
the Company's voting stock).
A summary of all option activity is presented below:
<TABLE>
<CAPTION>
Weighted-
Average
Exercise
Shares Price
---------- ---------
<S> <C> <C>
Options outstanding at December 31, 1996............... 2,563,739 $ 0.05
Granted.............................................. 2,786,638 0.15
Exercised............................................ (320,183) 0.02
Cancelled............................................ (64,479) 0.02
----------
Options outstanding at December 31, 1997............... 4,965,715 0.09
Granted.............................................. 2,604,101 0.20
Exercised............................................ (3,354,958) 0.10
Cancelled............................................ (472,937) 0.20
----------
Options outstanding at December 31, 1998............... 3,741,921 0.19
Granted.............................................. 3,805,070 0.24
Exercised............................................ (1,379,782) 0.20
Cancelled............................................ (226,074) 0.20
----------
Options outstanding at December 31, 1999............... 5,941,135 0.22
==========
</TABLE>
F-17
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
-----------------------------------------------------------
Weighted-
Average
Remaining Weighted-
Contractual Average
Exercise Life Exercise
Prices Number (Years) Price
-------- --------- ----------- ---------
<S> <C> <C> <C>
$ 0.01 49,500 6.34 $ 0.01
0.10 143,017 7.02 0.10
0.20 5,035,571 8.81 0.20
0.30 586,067 9.81 0.30
0.60 56,980 9.94 0.60
1.00 70,000 9.96 1.00
---------
5,941,135 8.95 0.22
=========
</TABLE>
At December 31, 1999, 2,173,047 shares of common stock purchased under the
1994 and 1997 Plans were subject to repurchase by the Company at a weighted
average price of $0.20 per share.
Had compensation cost been determined based on the fair value of the
options at the grant date consistent with the provisions of SFAS No. 123, the
Company's pro forma net loss for the years ended December 31, 1997, 1998 and
1999 would have been approximately $11.5 million, $15.0 million and $17.1
million, respectively. Since options vest over several years and additional
option grants are expected to be made in future years, the pro forma impact on
the results of operations for the three years ended December 31, 1999 is not
representative of the pro forma effects on the results of operations for
future periods.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions for
grants in 1997, 1998 and 1999: 0% dividend yield for all years; volatility of
0% for 1997, 0% for 1998 and 0% for 1999; risk-free interest rates of 6.18%
for 1997, 5.82% for 1998 and 5.59% for 1999 and expected lives of 5 years for
all years presented.
Deferred Stock Compensation
During the period from January 1, 1997 through December 31, 1999, the
Company recorded $18.4 million of deferred stock compensation in accordance
with APB 25, SFAS 123 and Emerging Issues Task Force 96-18, related to stock
options granted to consultants and employees. The Company will record an
additional $3.6 million of deferred stock compensation related to 1,105,779
options granted to employees during January 2000. For options granted to
consultants, the Company determined the fair value of the options using the
Black-Scholes option pricing model with the following assumptions: expected
lives of four years; a weighted average risk-free rate of 5.75%; expected
dividend yield of zero percent; volatility of 50% and deemed values of common
stock between $0.45 and $9.41 per share. Stock compensation expense is being
recognized in accordance with FIN 28 over the vesting periods of the related
options, generally four years. The Company recognized stock compensation
expense of $25,000, $725,000 and $3.5 million for the years ended December 31,
1997, 1998 and 1999, respectively.
2000 Equity Incentive Plan
In January 2000, the Company adopted, subject to stockholder approval, the
2000 Equity Incentive Plan. A total of 3,000,000 shares of common stock have
been reserved for future issuance under this plan.
F-18
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2000 Non-Employee Directors' Stock Option Plan
In January 2000, the Company adopted, subject to stockholder approval, the
2000 Non-Employees Directors' Stock Option Plan. This plan provides for the
automatic grant of options to purchase shares of common stock to non-employee
directors. A total of 500,000 shares of common stock were initially authorized
for issuance under this plan.
2000 Employee Stock Purchase Plan
In January 2000, the Company adopted, subject to stockholder approval, the
2000 Employee Stock Purchase Plan. A total of 300,000 shares of common stock
were initially authorized for issuance under this plan.
Note 10 Income Taxes
The Company's deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31
------------------
1998 1999
-------- --------
<S> <C> <C>
Net operating loss carryforwards......................... $ 8,248 $ 12,430
Capitalized start-up and organizational costs............ 2,546 2,154
Tax credit carryforwards................................. 1,483 2,071
Capitalized research and development costs............... 2,239 1,966
Other.................................................... (842) (240)
-------- --------
Total deferred tax assets................................ (13,674) (18,381)
Valuation allowance...................................... 13,674 18,381
-------- --------
Net deferred tax assets.................................. $ -- $ --
======== ========
</TABLE>
The Company has not recorded any provision or benefit for income taxes as it
continues to record operating losses. The Company has provided a full valuation
allowance for the deferred tax assets at December 31, 1999 since the
realization of these amounts is not considered more likely than not by
management.
At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $33.9 million and $25.6 million, respectively,
which expire at various dates beginning in the year 2005. Under the Internal
Revenue Code, certain substantial changes in the Company's ownership could
result in an annual limitation on the amount of net operating loss
carryforwards which can be utilized in future years to offset future taxable
income.
F-19
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11 Commitments
Leases
The Company leases office and research space and certain equipment under
operating and capital leases that expire at various dates through the year
2017. Certain operating leases contain renewal provisions and require the
Company to pay other expenses. Future minimum lease payments under operating
and capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Year ending December 31, Leases Leases
------------------------ --------- -------
<S> <C> <C>
2000....................................................... $ 3,061 $ 793
2001....................................................... 2,531 235
2002....................................................... 2,489 --
2003....................................................... 2,566 --
2004....................................................... 2,621 --
Thereafter................................................. 23,778 --
------- -----
37,046 1,028
Less amount representing interest.......................... -- (64)
------- -----
Present value of minimum lease payments.................... $37,046 964
======= -----
Less current portion....................................... (735)
-----
Long-term portion.......................................... $ 229
=====
</TABLE>
Rent expense under noncancellable operating leases was $882,000, $920,000
and $1.5 million for the years ended December 31, 1997, 1998 and 1999,
respectively.
The Company entered into a line of credit agreement (the "Agreement") during
1995. The term of each borrowing under the Agreement ranges from thirty-six to
forty-eight months and bears interest at rates ranging from 9.5% to 11.0%
depending on the type of equipment purchased under the Agreement. At December
31, 1999, $125,000 was outstanding under the Agreement. In connection with the
Agreement, the Company issued warrants to purchase 188,214 shares of the
Company's Series A preferred stock at an exercise price of $0.70 per share (see
Note 8).
In September 1997, the Company entered into a lease line of credit
arrangement (the "Arrangement") which allows the Company to purchase $2.0
million of equipment. The term of each borrowing under the Arrangement is 42
months and each bears interest at a minimum of 9.0%. At December 31, 1999,
$839,000 was outstanding under the Arrangement. In connection with the
Arrangement, the Company granted warrants to purchase 85,000 shares of its
common stock (see Note 8).
F-20
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Licensing Agreements
The Company has entered into several licensing agreements with various
universities and institutions under which it obtained exclusive rights to
certain patent, patent applications, and other technology. Future payments
pursuant to these agreements are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
2000................................................................ $1,573
2001................................................................ 665
2002................................................................ 657
2003................................................................ 657
2004................................................................ 441
------
$3,993
======
</TABLE>
In addition to the payments summarized above, the Company is required to
make royalty payments based upon a percentage of net sales of any products or
services developed from certain of the licensed technologies and milestone
payments upon the occurrence of certain events as defined by the related
agreements. No such royalties or milestones have been paid through December 31,
1999.
Consulting agreements
The Company has entered into consulting agreements with certain members of
the SAB. Total consulting expense incurred under these agreements during the
years ended December 31, 1997, 1998 and 1999 was $236,000, $345,000 and
$352,000, respectively.
Note 12 Acquisition
In July 1999, the Company acquired substantially all the assets of MetaXen,
LLC ("MetaXen"), a biotechnology company focusing on molecular genetics. In
addition to paying cash consideration of $870,000, the Company assumed a note
payable relating to certain acquired assets with a principal balance due of
$1.1 million (see Note 5). The Company also assumed responsibility for a
facility sub-lease relating to the office and laboratory space occupied by
MetaXen.
This transaction was recorded using the purchase method of accounting. The
fair value of the assets purchased, and debt assumed, was determined by
management to equal their respective historical net book values on the
transaction date, as follows (in thousands):
<TABLE>
<S> <C>
Laboratory and computer equipment................................... $ 1,645
Leasehold improvements.............................................. 175
Other tangible assets............................................... 155
Note payable........................................................ (1,105)
-------
$ 870
=======
</TABLE>
F-21
<PAGE>
EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following unaudited pro forma financial information presents the
consolidated results of the Company as if the acquisition had occurred at the
beginning of each period presented (in thousands, except per share data). This
pro forma financial information is not intended to be indicative of future
operating results.
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1998 1999
------- -------
(unaudited)
<S> <C> <C>
Total revenues............................................... $ 8,133 $14,811
Net loss..................................................... (18,018) (18,324)
Net loss per share, basic and diluted........................ (3.29) (2.50)
</TABLE>
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Members of
MetaXen, LLC
In our opinion, the accompanying balance sheets and the related statements
of operations, of members' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of MetaXen, LLC (a majority
owned subsidiary of Xenova UK Limited) at December 31, 1998 and 1997, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles. 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 audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred net losses since inception which
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 10, 1999
F-23
<PAGE>
METAXEN, LLC
(A MAJORITY OWNED SUBSIDIARY OF XENOVA UK LIMITED)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
----------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 216,000 $ 124,000
Other current assets................................. 121,000 130,000
----------- ----------
Total current assets................................... 337,000 254,000
Property and equipment, net............................ 3,132,000 1,487,000
Other assets........................................... 320,000 160,000
----------- ----------
$ 3,789,000 $1,901,000
=========== ==========
<CAPTION>
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable..................................... $ 369,000 $ 306,000
Accrued expenses..................................... 1,415,000 244,000
Deferred revenue..................................... 502,000 --
Intercompany payable................................. 227,000 3,000
Intercompany loan.................................... 3,035,000 --
Current portion of long-term liabilities............. 380,000 250,000
----------- ----------
Total current liabilities.............................. 5,928,000 803,000
Long-term liabilities.................................. 788,000 707,000
----------- ----------
Total liabilities...................................... 6,716,000 1,510,000
----------- ----------
Commitments (Note 9)
Members' equity (deficit):
Preferred stock--Class A; 1,766,000 shares issued and
outstanding at December 31, 1998 and 1997........... (3,068,000) 391,000
Preferred stock--Class B; 120,000 shares issued and
outstanding at December 31, 1998 and 1997........... -- --
Preferred stock--Class C; 345,000 and 300,000 shares
issued and outstanding at December 31, 1998 and
1997, respectively.................................. 141,000 --
----------- ----------
Total members' equity (deficit)........................ (2,927,000) 391,000
----------- ----------
$ 3,789,000 $1,901,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
METAXEN, LLC
(A MAJORITY OWNED SUBSIDIARY OF XENOVA UK LIMITED)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Contract revenues.................................... $ 4,750,000 $ --
----------- -----------
Operating expenses:
General and administrative......................... 1,348,000 1,268,000
Research and development........................... 6,626,000 2,937,000
----------- -----------
Total operating expenses............................. 7,974,000 4,205,000
----------- -----------
Loss from operations................................. (3,224,000) (4,205,000)
Interest income...................................... 35,000 46,000
Interest expense..................................... (274,000) (30,000)
----------- -----------
Net loss............................................. $(3,463,000) $(4,189,000)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
METAXEN, LLC
(A MAJORITY OWNED SUBSIDIARY OF XENOVA UK LIMITED)
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (AUGUST 1996) THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock
--------------------- ---------------- -----------------
Shares Amount Shares Amount Shares Amount Total
--------- ----------- ------- -------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 280,000 $ 364,000 120,000 $216,000 320,000 $ 2,000 $ 582,000
Issuance of Class A
Preferred Stock at
$2.50 per share........ 1,200,000 3,000,000 -- -- -- -- 3,000,000
Issuance of Class A
Preferred Stock at
$3.50 per share........ 286,000 1,000,000 -- -- -- -- 1,000,000
Repurchase of Class C
Preferred Stock at
$0.10 per share........ -- -- -- -- (20,000) (2,000) (2,000)
Net loss................ -- (3,973,000) -- (216,000) -- -- (4,189,000)
--------- ----------- ------- -------- ------- -------- -----------
Balance at December 31,
1997................... 1,766,000 391,000 120,000 -- 300,000 -- 391,000
Issuance of Class C
Preferred Stock at
$0.005 per share....... -- -- -- -- 20,000 -- --
Issuance of Class C
Preferred Stock at
$0.10 per share........ -- -- -- -- 45,000 5,000 5,000
Stock compensation
expense................ -- -- -- -- -- 141,000 141,000
Repurchase of Class C
Preferred Stock at
$0.005 per share....... -- -- -- -- (10,000) -- --
Repurchase of Class C
Preferred Stock at
$0.10 per share........ -- -- -- -- (10,000) (1,000) (1,000)
Net loss................ -- (3,459,000) -- -- -- (4,000) (3,463,000)
--------- ----------- ------- -------- ------- -------- -----------
Balance at December 31,
1998................... 1,766,000 $(3,068,000) 120,000 $ -- 345,000 $141,000 $(2,927,000)
========= =========== ======= ======== ======= ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
METAXEN, LLC
(A MAJORITY OWNED SUBSIDIARY OF XENOVA UK LIMITED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flow used in operating activities:
Net loss........................................... $(3,463,000) $(4,189,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 659,000 314,000
Loss on disposal of property and equipment....... 104,000 --
Stock compensation expense....................... 141,000 --
Changes in assets and liabilities:
Other current assets............................. 9,000 (95,000)
Other assets..................................... (160,000) (160,000)
Accounts payable................................. 63,000 236,000
Accrued expenses................................. 1,171,000 212,000
Deferred revenue................................. 502,000 --
Intercompany payable............................. 224,000 --
----------- -----------
Net cash used in operating activities.......... (750,000) (3,682,000)
----------- -----------
Cash flow used in investing activities:
Purchases of property and equipment................ (2,408,000) (1,731,000)
=========== ===========
Cash flow provided by financing activities:
Proceeds from issuance of Class A Preferred Stock.. -- 4,000,000
Proceeds from issuance of Class C Preferred Stock.. 5,000 --
Repurchase of Class C Preferred Stock.............. (1,000) (2,000)
Proceeds from equipment line of credit............. 254,000 1,000,000
Repayments under equipment line of credit.......... (43,000) (43,000)
Increase in intercompany loan...................... 3,035,000 --
----------- -----------
Net cash provided by financing activities...... 3,250,000 4,955,000
----------- -----------
Net increase (decrease) in cash and cash equivalents. 92,000 (458,000)
Cash and cash equivalents at beginning of year....... 124,000 582,000
----------- -----------
Cash and cash equivalents at end of year............. $ 216,000 $ 124,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
METAXEN, LLC
(A MAJORITY OWNED SUBSIDIARY OF XENOVA UK LIMITED)
NOTES TO FINANCIAL STATEMENTS
Note 1--The Company and Significant Accounting Policies:
Nature of business
MetaXen, LLC (the "Company") was incorporated in Delaware in August 1996 for
the purpose of performing research and development in the fields of
biotechnology and molecular genetics and to develop pharmaceutical products and
procedures on its own account and in collaboration with Xenova UK Limited, a
wholly owned subsidiary of Xenova Group plc (collectively referred to as
"Xenova" or the "Parent Company"). The Company is a majority owned subsidiary
of Xenova. The Company emerged from the development stage during 1997.
The Company was formed as a result of a merger in September 1996 between
RGH Founders, LLC, a Delaware corporation incorporated in August 1996, and
MetaXen, LLC, a Delaware corporation incorporated in September 1996 ("Merger
Corp."). At that time, Xenova exchanged its premerger interests in Merger Corp.
for 280,000 shares of Class A Preferred Stock in the Company; MJR Holdings,
Inc. exchanged its premerger interests in Merger Corp. for 100,000 shares of
Class B Preferred Stock in the Company. Also at this time, Ross Holdings, Inc.,
Giebel Holdings, Inc. and Hartmanis Holdings, Inc. exchanged their interests in
RGH Founders, LLC for 200,000, 100,000 and 20,000 shares of the Company's Class
C Preferred Stock, respectively. Upon the merger, the Company assumed the
assets and liabilities of Merger Corp. and RGH Founders, LLC. Merger Corp. and
RGH Founders, LLC were both nominally capitalized at that time and there was no
gain or loss arising from the merger. These financial statements include the
results of RGH Founders, LLC and Merger Corp. since their inception.
Need for additional financing
The Company has incurred a cumulative net loss of $8,072,000 since inception
and expects to incur additional losses in the future which raise substantial
doubt about the Company's ability to continue as a going concern. Xenova has
committed to provide sufficient funds to support the operations of MetaXen
until the earlier of 1) such time as Xenova Group plc has less then a 50%
controlling interest in MetaXen or 2) March 31, 1999. Therefore, in order to
continue operating and fully implement its business plan, the Company will need
to raise additional debt or equity financing. There can be no assurance that
such additional funds will be available to the Company, or if available, that
it will be on reasonable terms. The inability of the Company to obtain
additional financing beyond March 1999 will have a material adverse impact on
the Company's operations.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Property and equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line
basis over the lesser of the estimated useful lives of the assets, which range
from three to seven years, or the lease terms.
F-28
<PAGE>
METAXEN, LLC
A MAJORITY OWNED SUBSIDIARY OF XENOVA LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Revenue recognition
Revenue recognized under research and development contracts is recorded as
earned pursuant to the terms of the contracts. Nonrefundable contract fees for
which no further performance obligations exist are recognized when the payments
are received or when collection is assured. In return for such payments,
contract partners may receive certain marketing and manufacturing rights,
products for clinical use and testing, and/or research and development
services.
Research and development expenses
Research and development costs are expensed as incurred.
Stock-based compensation
The Company has adopted the pro forma disclosure requirements of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 requires that the Company determine the
fair value of stock-based compensation and either deduct the fair value of such
amounts from the results of operations or disclose pro forma results of
operations as if it had done so.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could subsequently differ from those
estimates.
Note 2--Property and Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Lab equipment...................................... $ 1,305,000 $ 818,000
Computer equipment................................. 676,000 449,000
Furniture and equipment............................ 357,000 184,000
Leasehold improvements............................. 1,366,000 353,000
----------- -----------
3,704,000 1,804,000
Less accumulated depreciation and amortization..... (572,000) (317,000)
----------- -----------
$ 3,132,000 $ 1,487,000
=========== ===========
</TABLE>
Depreciation and amortization expense was $659,000 and $314,000 for the
years ended December 31, 1998 and 1997, respectively.
F-29
<PAGE>
METAXEN, LLC
A MAJORITY OWNED SUBSIDIARY OF XENOVA LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 3--Other Assets:
At December 31, 1998, other assets of $320,000 consisted of a certificate of
deposit restricted as to withdrawal to secure an irrevocable letter of credit
issued in connection with the Company's non-cancellable facility operating
lease.
Note 4--Income Taxes:
No provision or benefit for federal income taxes is reported in the
financial statements because, as a limited liability company, the tax effects
of the Company's results accrue to its Members.
Note 5--Debt:
In July 1997, the Company entered into a loan agreement which provides for
the financing of up to $1,500,000 of equipment purchases made through December
31, 1998. Borrowings under this agreement are secured by the assets financed
and are to be repaid over thirty-six to forty-eight months, depending on the
type of asset financed. Borrowings under this agreement bear interest at the
U.S. Treasury note rate plus a number of basis points determined by the type of
asset financed (9.22% to 11.09% at December 31, 1998).
Future payments under this loan are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999............................................................ $ 500,000
2000............................................................ 500,000
2001............................................................ 367,000
2002............................................................ 148,000
---------
1,515,000
Less interest................................................... (347,000)
---------
1,168,000
Less current portion............................................ (380,000)
---------
Long-term portion............................................... $ 788,000
=========
</TABLE>
Note 6--Members' Equity:
The rights and preferences of the preferred stock are described below.
Allocations and distributions
In the event of cash distributions, amounts will first be distributed to the
holders of Class A and Class B Preferred Stock pro rata in accordance with the
balances in their respective Member equity accounts. Any amounts in excess of
the amounts in their Member equity accounts will be distributed (i) 80% to the
holders of Class A Preferred Stock; and (ii) 20% to the holders of Class B and
Class C Preferred Stock, pro rata in accordance with the number of such shares
held by such holders. No distributions have been made from inception through
December 31, 1998.
F-30
<PAGE>
METAXEN, LLC
A MAJORITY OWNED SUBSIDIARY OF XENOVA LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Net losses of the Company are first allocated (i) 80% to the holders of
Class A Preferred Stock; and (ii) 20% to the holders of the Class B and C
Preferred Stock, to the extent that cumulative net profits (if any) allocated
to the holders of Class B and C Preferred Stock in prior years exceeds the
cumulative net losses allocated to such holders in prior years. Any remaining
net losses of the Company are then allocated (i) to the holders of Class B
Preferred Stock to the extent that this would not cause such holders to have a
deficit in their Member equity at the end of the year; then (ii) to the holders
of Class A Preferred Stock to the extent that this would not cause such holders
to have a deficit in their Members equity account at the end of the year; and
then (a) 80% to the holders of Class A Preferred Stock; and (b) 20% to the
holders of Class B and C Preferred Stock. However, in the event of the members
having received a distribution of the type described below in connection with a
winding up of the Company, the Member equity accounts of the holders of Class B
and C Preferred Stock and Common Stock shall be adjusted to reflect the
aggregate net loss that would have been allocated to such holders if the
holders of Common Stock had participated with the holders of Class B and C
Preferred Stock under (b) above from the date of the acquisition of such Common
Stock.
Net profits of the Company are first allocated to the holders of Class A, B
and C Preferred Stock to the extent that cumulative net losses allocated to
such holders in prior years exceed the cumulative net profits allocated to such
holders in prior years. Any remaining net profits are then allocated (i) to the
holders of Class A Preferred Stock to the extent that cumulative net losses
allocated to such holders in provision (ii) on the allocation of losses above
exceed cumulative net profits allocated under this provision; then (ii) to the
holders of Class B Preferred Stock to the extent that cumulative net losses
allocated to such holders in provision (i) on the allocation of losses above
exceed cumulative net profits allocated under this provision; and then (a) 80%
to the holders of Class A Preferred Stock; and (b) 20% to the holders of Class
B and C Preferred Stock. However, in the event of the members having received a
distribution of the type described below in connection with a winding up of the
Company, the Member equity accounts of the holders of Class B and C Preferred
Stock and Common Stock shall be adjusted to reflect the aggregate net profit
that would have been allocated to such holders if the holders of Common Stock
had participated with the holders of Class B and C Preferred Stock under (b)
above from the date of the acquisition of such Common Stock. Furthermore, in
the event of the Members receiving a distribution of the type described below
describing distributions upon the winding up of the Company, the holders of
Common Stock shall be allocated the portion of net profit associated with the
remaining distributable assets distributed to the holders of such Common Stock.
In the event of there being distributable assets upon the winding up of the
Company, these assets will be distributed (i) to the holders of Class A and B
Preferred Stock pro rata in accordance with the balances in their respective
Member equity accounts for the return of their respective contributions; (ii)
to all members of the Company pro rata in accordance with their respective
Member equity accounts after giving effect to (i) above but without allocating
any net profit resulting from the liquidation of the Company's assets and the
dissolution of the Company; (iii) to the holders of Class A Preferred Stock to
the extent of 80% of the remaining distributable assets; and (iv) to the
holders of Class B and C Preferred Stock and Common Stock pro rata in
accordance with the number of such shares then held by such holders.
F-31
<PAGE>
METAXEN, LLC
A MAJORITY OWNED SUBSIDIARY OF XENOVA LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Class A Preferred Stock
Holders of Class A Preferred Stock are entitled to one vote per share and
are entitled to elect two-thirds of the members of the Board of Directors.
Class B Preferred Stock
Holders of Class B Preferred Stock are entitled to one vote per share and
are entitled to elect one-third of the number of members constituting the Board
of Directors subject to certain approvals from the holders of the Class A
Preferred Stock.
At any time following September 4, 2000 and prior to the close of business
on the 30th day thereafter, the holders of Class B Preferred Stock may exchange
their shares for ordinary shares of Xenova Group plc. The applicable exchange
ratio depends upon the Company and Xenova having achieved various milestones.
At any time prior to the close of business on the 60th day following
September 4, 2000, Xenova Group plc may exchange all of the then outstanding
Class B Preferred Stock for ordinary shares of Xenova Group plc. The applicable
exchange ratio depends upon the Company and Xenova having achieved various
milestones.
At any time prior to September 4, 2000, subject to the achievement of
specified milestones, the holders (other than Xenova Group plc and its
affiliates) of not less than one-third of the then outstanding shares and
options and warrants to purchase any class of stock may exchange the portion
requested for shares and options, respectively, of Xenova Group plc at the then
applicable exchange ratio. The applicable exchange ratio depends upon the
Company and Xenova having achieved various milestones.
Class C Preferred Stock
The holders of Class C Preferred Stock do not have any voting rights but
have the same exchange rights and obligations as the holders of Class B
Preferred Stock.
In the event that a holder of Class C Preferred Stock (i) terminates his or
her employment with the Company in certain circumstances; or (ii) in the case
of any person acquiring Class C Preferred Stock prior to commencing employment
with the Company, where the person failed to execute an employment agreement
and commence employment with the Company prior to September 4, 1997, the
Company has the option to repurchase all or a portion of that person's Class C
Preferred Stock. The portion of the person's Class C Preferred Stock that the
Company may purchase depends upon the length of time that has passed since the
September 1996 merger.
During 1998, the Company recorded $141,000 of stock compensation expense for
the excess deemed fair value over the issuance price of stock sold to
employees.
Class D Preferred Stock
At December 31, 1998, the Company had not designated or issued any Class D
Preferred Stock. The holders of Class D Preferred Stock would be entitled to a
percentage, prorata and in accordance with the number of shares then held by
such holders, of all cash profit or loss distributions which is equal to the
product of 0.000015 and the number of Class D Preferred Shares outstanding at
such time.
F-32
<PAGE>
METAXEN, LLC
A MAJORITY OWNED SUBSIDIARY OF XENOVA LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
Class E Preferred Stock
At December 31, 1998, the Company had not designated or issued any shares of
Class E Preferred Stock. The holders of Class E Preferred Stock would be
entitled to a percentage, prorata and in accordance with the number of shares
then held by such holders, of all cash profit or loss distributions which is
equal to the product of 0.0000775 and the number of Class E Preferred Shares
outstanding at such time.
Stock Warrants
In May 1997, the Company entered into a building lease agreement (the "Lease
Agreement"). As part of the Lease Agreement, the Company granted the lessor
warrants on November 5, 1997 to purchase 100,000 shares of the Company's Class
D Preferred Stock with an exercise price of $6.38 per share, which equalled the
fair market value of the Xenova common stock plus $2.00 per share, as of the
date of the issuance of such warrants. The warrants are exercisable from the
date of issuance through October 2002.
In July 1997, the Company entered into a loan agreement which provides for
the financing of certain equipment purchases (see Note 5). As part of the
agreement, the Company granted the lender warrants on July 31, 1997 to purchase
14,516 shares of the Company's Class E Preferred Stock with an exercise price
of $7.75 per share. The exercise price of $7.75 is based on the sum of the
Common Stock price of Xenova Group plc as of June 17, 1997 plus $2.00 per
share. The warrants are exercisable from the date of issuance through June
2002.
A nominal value was ascribed to the warrants outlined above.
Common Stock
At December 31, 1998, the Company had not issued any shares of Common Stock.
The Common Stock does not have any voting rights. The shares of Common Stock
are subject to the same exchange rights and obligations as the Class B
Preferred Stock but such shares will be exchanged for Xenova Group plc shares
on a one-for-one basis.
Note 7--Stock Option Plan:
In December 1996 the Company adopted the 1996 Equity Incentive Plan (the
"1996 Plan"). The Company has reserved 300,000 shares of Common Stock for
issuance under the 1996 Plan relating to nonqualified options to be granted to
officers and employees. The exercise price, vesting requirements and maximum
term of each option issued under the 1996 Plan are determined by the Company's
Board of Directors.
F-33
<PAGE>
METAXEN, LLC
A MAJORITY OWNED SUBSIDIARY OF XENOVA LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Activity under the 1996 Plan is summarized as follows:
<TABLE>
<CAPTION>
Options
Available Options Exercise
for Grant Outstanding Price
--------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996............. 300,000 -- --
Granted................................ (216,000) 216,000 $2.88-$5.81
-------- -------
Balance at December 31, 1997............. 84,000 216,000 2.88-5.81
Granted................................ (94,000) 94,000 2.69-2.75
Cancelled.............................. 92,500 (92,500) 2.88-5.81
-------- -------
Balance at December 31, 1998............. 82,500 217,500 2.69-5.81
======== =======
</TABLE>
The following table summarizes information about options outstanding under
the 1996 Plan as of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------------------------------
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
---------- ----------- ----------- --------
<S> <C> <C> <C>
$2.69-2.88 166,500 4.2 years $2.80
3.63 20,000 3.0 years 3.63
4.38 16,000 3.6 years 4.38
5.81 15,000 3.3 years 5.81
-------
217,500 3.20
=======
</TABLE>
The Company believes that had compensation cost for options granted under
the 1996 Plan been determined based on the fair value at the grant date using
the minimum value model as prescribed by SFAS 123, there would have been no
material difference between the Company's pro forma net loss for the years
ended December 31, 1998 and 1997 and the actual net loss recorded in the
accompanying statement of operations. The fair value of each option was
estimated on the grant date using the minimum value method with the following
assumptions: annual dividend yield of 0.0%, risk-free annual interest rate of
5.82% to 6.57% and an expected option term of four years.
Note 8--Research and License Agreement:
The Company and Xenova signed a research and license agreement with Eli
Lilly and Company ("Eli Lilly") on February 16, 1998. The Company and Xenova
are providing research services to Eli Lilly in the form of screening certain
compounds for accelerated drug discovery and development. Eli Lilly will have
certain license rights to any compounds resulting from efforts completed under
the agreement. The Company and Xenova receive amounts quarterly under the
agreement which approximate cost reimbursement for amounts incurred pursuant to
the agreement. Milestone payments can also be earned by the Company and Xenova,
as defined in the agreement. For the year ended December 31, 1998, the Company
recorded total contract revenues of $4,750,000, consisting of a $1,000,000 non-
refundable license fee and $3,750,000 of research fees. Costs incurred by the
Company under the agreement in 1998 approximated $4,409,000.
F-34
<PAGE>
METAXEN, LLC
A MAJORITY OWNED SUBSIDIARY OF XENOVA LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 9--Commitments:
The Company leases its facility under a non-cancellable operating lease
which expires in September 2002. The Company subleases certain space in its
current facility to other tenants.
Rent expense for the years ended December 31, 1998 and 1997 was $762,000 and
$377,000, respectively. The Company recognizes rent expense on a straight line
basis over the lease period.
Future minimum lease payments under the non-cancellable operating lease and
minimum sublease rental receipts under non-cancellable operating sub-leases are
as follows:
<TABLE>
<CAPTION>
Operating Sublease
Year Ending December 31, Lease income
------------------------ ----------- -----------
<S> <C> <C>
1999............................................... $ 1,966,000 $ 633,000
2000............................................... 1,997,000 429,000
2001............................................... 1,843,000 --
2002............................................... 1,814,000 --
2003............................................... 1,783,000 --
----------- -----------
$ 9,403,000 $ 1,062,000
=========== ===========
</TABLE>
Note 10--Related Party Transactions:
On September 4, 1996, the Company entered into a research and development
collaboration agreement with Xenova. The agreement specifies the rights of both
parties to intellectual property developed under the agreement. The agreement
will continue to be in force until the earlier of (i) the date that Xenova
provides the Company with notice that it will cease to provide funding for the
operations of the Company; (ii) the dissolution of the Company; or (iii) the
date of exchange of all shares of Class B and C Preferred Stock and Common
Stock of the Company for shares of Xenova common stock.
On December 17, 1997, the Company entered into a loan agreement with Xenova.
Under this agreement, Xenova agreed to make available to the Company a loan
facility of $1.1 million or such other amounts as the parties may agree to in
writing from time to time. The loan bears interest at the UK LIBOR plus 1%,
compounded quarterly. The loan will mature one year from the date on which
Xenova advances amounts to the Company or such other date as the parties hereto
may agree to in writing from time to time. On January 2, 1998, Xenova advanced
$1.1 million to the Company under this loan agreement.
During 1998 the loan agreement was amended and the total amount available
was increased to $2.92 million, all of which was borrowed and outstanding at
December 31, 1998. Interest due on the loan as of December 31, 1998 amounted to
$115,000.
F-35
<PAGE>
EXELIXIS, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENT
On July 11, 1999, the Company acquired substantially all of the assets of
MetaXen, LLC, a biotechnology company focused on molecular genetics, in a
transaction accounted for using the purchase method of accounting. Under the
purchase method of accounting, the aggregate purchase price is allocated to the
tangible and identifiable intangible assets acquired and debt assumed on the
basis of their fair values on the acquisition date. The fair value of the
assets purchased, and debt assumed, was determined by management to equal their
respective historical net book values on the transaction date. The unaudited
pro forma combined statement of operations is based on the individual
statements of operations of the Company for the year ended December 31, 1999.
The operations of MetaXen, LLC have been included in the unaudited pro forma
combined statement of operations as though the acquisition had been consummated
on January 1, 1999.
The pro forma information has been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission and is provided for
illustrative purposes only. The pro forma information does not purport to be
indicative of the results that actually would have occurred had the combination
been effected on the date indicated above. The unaudited pro forma financial
statement, including the notes thereto, are qualified in their entirety by
reference to, and should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements and notes thereto, which are included
elsewhere herein.
F-36
<PAGE>
EXELIXIS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1999
---------------------------
As Pro
Reported MetaXen Forma
-------- ------- --------
<S> <C> <C> <C>
Revenues:
License......................................... $ 3,050 $ -- $ 3,050
Contract........................................ 9,464 2,297 11,761
-------- ------- --------
Total revenues................................ 12,514 2,297 14,811
-------- ------- --------
Operating expenses:
Research and development........................ 19,412 2,408 21,820
General and administrative...................... 6,343 1,425 7,768
Amortization of deferred stock compensation..... 3,522 -- 3,522
-------- ------- --------
Total operating expenses...................... 29,277 3,833 33,110
-------- ------- --------
Loss from operations.............................. (16,763) (1,536) (18,299)
Interest and other income......................... 571 21 592
Interest expense.................................. (525) (92) (617)
-------- ------- --------
Net loss.......................................... $(16,717) $(1,607) $(18,324)
======== ======= ========
Basic and diluted net loss per share.............. $ (2.28) $ (2.50)
Shares used in computing basic and diluted net
loss per share................................... 7,325 7,325
</TABLE>
F-37
<PAGE>
EXELIXIS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENT
(UNAUDITED)
Note 1 Basis of Presentation:
On July 11, 1999, the Company acquired substantially all the assets of
MetaXen, LLC ("MetaXen"), a biotechnology company focused on molecular
genetics. In addition to paying cash consideration of $870,000, the Company
assumed a note payable relating to certain acquired assets with a principle
balance due of $1.1 million. The Company also assumed responsibility for a
facility sub-lease relating to the office and laboratory space occupied by
MetaXen.
This transaction was recorded using the purchase method of accounting. The
allocation of the aggregate purchase price to the tangible and identifiable
intangible assets acquired and liabilities assumed in connection with this
acquisition was based on estimated fair values as determined by management. The
purchase price allocation is summarized below (in thousands):
<TABLE>
<S> <C>
Laboratory and computer equipment................................... $ 1,645
Leasehold improvements.............................................. 175
Other tangible assets............................................... 155
Note payable........................................................ (1,105)
-------
$ 870
=======
</TABLE>
There were no pro forma adjustments required to be recorded in the unaudited
pro forma combined financial statement.
Note 2 Net Loss Per Share:
Basic and diluted net loss per share and shares used in computing basic and
diluted net loss per share for the year ended December 31, 1999 are based upon
the Company's historical weighted average common shares outstanding. Common
stock issuable upon the exercise of the stock options and warrants, and shares
issuable upon the conversion of preferred stock and note payable have been
excluded from the computation of basic and diluted net loss per share as their
effect would be anti-dilutive.
F-38
<PAGE>
UNDERWRITING
Exelixis and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., Credit Suisse
First Boston Corporation and SG Cowen Securities Corporation are the
representatives of the underwriters:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co................................................
Credit Suisse First Boston Corporation.............................
SG Cowen Securities Corporation....................................
----
Total............................................................
====
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from Exelixis to cover such sales. They may exercise that option for
30 days. If any shares are purchased under this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Exelixis. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
The following table summarizes the compensation and expenses we will pay.
<TABLE>
<CAPTION>
No Full
Paid by Exelixis Exercise Exercise
---------------- -------- --------
<S> <C> <C>
Per share.................................................. $ $
Total...................................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
of these securities dealers may resell any shares purchased from the
underwriters to other brokers or dealers at a discount of up to $ per share
from the initial public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change the offering
price and the other selling terms.
Exelixis has agreed with the underwriters not to dispose of or hedge any of
their common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives. This restriction does not apply
to any existing employee benefit plans or securities issued in connection with
acquisition transactions, provided that the recipients of such securities agree
not to dispose of or hedge any of such securities for the same 180 day period.
See "Shares Eligible for Future Sale" for a discussion of transfer
restrictions.
Exelixis currently anticipates that it will undertake a directed shares
program, pursuant to which it will direct the underwriters to reserve up to
shares of common stock for certain directors, employees and friends
of Exelixis. In addition, at the request of Exelixis and in accordance with
contractual rights granted in April 1997 to the holders of Exelixis Series C
preferred stock who do not hold shares of any other class of capital stock, the
underwriters have reserved for sale, at the initial
U-1
<PAGE>
public offering price, 10% of the shares included in this offering for those
individuals. There can be no assurance that any of the reserved shares will be
so purchased. The number of shares available for sale to the general public in
the offering will be reduced to the extent these persons purchase any reserved
shares. Any reserved shares not so purchased will be offered to the general
public on the same basis as the other shares offered hereby.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be
negotiated among Exelixis and the representatives of the underwriters. Among
the factors considered in determining the initial public offering price of the
shares, in addition to prevailing market conditions, will be Exelixis'
historical performance, estimates of Exelixis' business potential and earnings
prospects, an assessment of Exelixis' management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.
Exelixis' has filed an application for its common stock to be approved for
quotation on the Nasdaq National Market under the symbol "EXEL."
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or affect the
market price of the common stock. As a result, the price of the common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on The Nasdaq National Market, in
the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Exelixis estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately $ .
Exelixis has agreed to indemnify the several underwriters against
liabilities, including liabilities under the Securities Act of 1933.
U-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any informa-
tion or to represent anything not contained in this Prospectus. You must not
rely on any unauthorized information or representations. This Prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this Prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 6
Forward-Looking Statements................................................ 15
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 26
Management................................................................ 42
Certain Transactions...................................................... 55
Principal Stockholders.................................................... 58
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 63
Validity of the Common Stock.............................................. 65
Experts................................................................... 65
Where You Can Find More Information....................................... 65
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
</TABLE>
----------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
Exelixis, Inc.
Common Stock
----------------
[LOGO OF EXELIXIS]
----------------
Goldman, Sachs & Co.
Credit Suisse First Boston
SG Cowen
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 the
underwriting discounts payable by us, in connection with the sale of common
stock being registered. All amounts are estimates except the SEC registration
fee, the NASDAQ filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 26,400
NASDAQ filing fee.................................................. 10,500
Nasdaq National Market listing fee................................. *
Blue Sky Fees and expenses......................................... 5,000
Transfer Agent and registrar fees.................................. 10,000
Accounting fees and expenses....................................... 275,000
Legal fees and expenses............................................ 425,000
Printing and engraving costs....................................... 270,000
Miscellaneous expenses............................................. *
--------
Total............................................................ $ *
========
</TABLE>
- --------
*To be filed by amendment.
Item 14. Indemnification of Directors and Officers
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
. for any breach of duty of loyalty to us or to our stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for unlawful payment of dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify our
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.
We have entered into indemnification agreements with each of our directors
and certain officers. These agreements, among other things, require us to
indemnify each director and officer for certain expenses including attorneys'
fees, judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the right of Exelixis,
Inc., arising out of the person's services as our director or officer, any
subsidiary of ours or any other company or enterprise to which the person
provides services at our request.
The underwriting agreement (see Exhibit 1.1) will provide for
indemnification by the underwriters of Exelixis, Inc., our directors, our
officers who sign the registration statement, and our controlling persons for
some liabilities, including liabilities arising under the Securities Act.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
Since January 1, 1997, Exelixis, Inc. has sold and issued the following
unregistered securities:
(1) From January 1997 through January 2000, Exelixis has granted stock
options to purchase 10,301,588 shares of common stock, at a weighted
average exercise price of $0.29, to employees, consultants and directors.
Of these stock options, 892,135 shares have been cancelled or have lapsed
without being exercised, 6,467,955 shares have been exercised for common
stock and 5,505,237 shares remain outstanding.
(2) In April 1997, Exelixis issued an aggregate of 7,875,000 shares of
Series C preferred stock to 41 accredited investors at $2.00 per share, for
an aggregate purchase price of $15,750,000. Shares of Series C preferred
stock are convertible into shares of common stock at the rate of one share
of common stock for each share of Series C preferred stock outstanding.
(3) In September 1997, Exelixis issued one warrant to purchase 85,000
shares of common stock to one purchaser at an exercise price of $2.00 per
share.
(4) From August 1998 to June 1998, Exelixis issued an aggregate of
2,500,000 shares of Series D preferred stock to 11 accredited investors at
$3.00 per share, for an aggregate purchase price of $7,500,000. In this
period, Exelixis issued an additional 2,500,000 shares of Series D
preferred stock to Pharmacia & Upjohn, Inc. as payment for services
rendered pursuant to the terms of a development agreement dated February
26, 1999. Shares of Series D preferred stock are convertible at the rate of
one share of common stock for each share of Series D preferred stock
outstanding.
(5) In November 1999 Exelixis issued warrants to purchase an aggregate
of 150,000 shares of common stock to three purchasers at an exercise price
of $3.00 per share.
Item 16. (A) Exhibits and Financial Statement Schedules
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Amendment of the Restated Certificate of Incorporation
of Exelixis Pharmaceuticals, Inc., dated February 2, 2000.
3.2* Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed upon the closing of the offering made in
connection with this Registration Statement.
3.3* Amended and Restated Bylaws of Registrant to be filed upon the
closing of the offering made in connection with this Registration
Statement.
4.1* Specimen Common Stock Certificate.
4.2 Fourth Amended and Restated Registration Rights Agreement, dated
February 26, 1999 among Exelixis and Certain Stockholders of
Exelixis.
4.3 Warrant, dated August 17, 1998, to Purchase 167,728 shares of Series
A Preferred Stock in favor of Comdisco, Inc.
4.4 Warrant, dated August 17, 1998, to Purchase 20,486 shares of Series A
Preferred Stock in favor of Greg Stento.
4.5 Warrant, dated January 24, 1996, to Purchase 357,143 shares of Series
B Convertible Stock in favor of MMC/GATX Partnership No. 1.
4.6 Warrant, dated September 25, 1997, to Purchase 85,000 shares of
Common Stock in favor of MMC/GATX Partnership No. 1.
4.7 Warrant, dated November 15, 1999, to Purchase 12,000 shares of Common
Stock in favor of Bristow Investments, L.P.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.8 Warrant, dated November 15,1999, to Purchase 135,000 shares of
Common Stock in favor of Slough Estates USA, Inc.
4.9 Warrant, dated November 15, 1999, to Purchase 3,000 shares of
Common Stock in favor of Laurence and Magdalena Shushan
FamilyTrust.
5.1* Opinion of Cooley Godward LLP.
10.1* Form of Indemnity Agreement.
10.2 1994 Employee, Director and Consultant Stock Plan.
10.3 1997 Equity Incentive Plan.
10.4* 2000 Equity Incentive Plan.
10.5* 2000 Non-Employee Directors' Stock Option Plan.
10.6* 2000 Employee Stock Purchase Plan.
10.7+ Collaboration Agreement, dated December 16, 1999, between
Registrant, Bayer Corporation and GenOptera LLC.
10.8+ Operating Agreement, dated December 15, 1999, between Registrant,
Bayer Corporation and GenOptera LLC.
10.9 Cooperation Agreement, dated September 15, 1998, between
Registrant and Artemis Pharmaceuticals, GmbH.
10.10 Sublease Agreement, dated June 1, 1997, between Arris
Pharmaceutical Corporation and Registrant.
10.11 Lease, dated May 12, 1999, between Registrant and Britannia Pointe
Grand Limited Partnership.
10.12 Master Services Agreement, dated November 15, 1999, between
Registrant and Artemis Pharmaceuticals GmbH.
10.13+* Research Collaboration and Technological Transfer Agreement, dated
September 14, 1999, between Registrant and Bristol-Myers Squibb.
10.14+ Corporate Collaboration Agreement, dated February 26, 1999,
between Registrant and Pharmacia & Upjohn AB.
10.15+ Amendment to Corporate Collaboration Agreement, dated October,
1999, between Registrant and Pharmacia & Upjohn AB.
10.16 Asset Purchase Agreement, dated July 11, 1999, between Registrant
and MetaXen/Xenova.
10.17 Employment Agreement, dated September 13, 1996, between Registrant
and George Scangos, Ph.D.
10.18 Employment Agreement, dated April 14, 1997, between Registrant and
Geoffrey Duyk, M.D., Ph.D.
10.19 Employment Agreement, dated October 19, 1999, between Registrant
and Glen Y. Sato, Chief Financial Officer and Vice President of
Legal Affairs.
23.1 Consent of Independent Accountants (Exelixis).
23.2 Consent of Independent Accountants (MetaXen).
23.3* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule.
</TABLE>
- -------
* To be filed by amendment.
+ Confidential treatment requested for certain portions of this exhibit.
II-3
<PAGE>
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
Item 17. Undertakings
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, as amended,
the Registrant has caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of South
San Francisco, State of California on the 4th day of February, 2000.
Exelixis, Inc.
/s/ George A. Scangos, Ph.D
By: _________________________________
George A. Scangos, Ph.D
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints George A.
Scangos, Ph.D. and Glen Y. Sato as his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any or all amendments (including post-effective amendments) to this
Registration Statement on Form S-1, and to sign any registration statement
filed under Rule 462 under the Securities Act of 1933, as amended, including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, 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 said attorney-in-fact and agent, or his substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ George A. Scangos, Ph.D. President, Chief Executive February 4, 2000
______________________________________ Officer and Director
George A. Scangos, Ph.D. (principal executive
officer)
/s/ Glen Y. Sato Chief Financial Officer February 4, 2000
______________________________________ (principal financial and
Glen Y. Sato accounting officer)
/s/ Stelios Papadopoulos, Ph.D. Chairman of the Board of February 4, 2000
______________________________________ Directors
Stelios Papadopoulos, Ph.D.
/s/ Charles Cohen, Ph.D. Director February 4, 2000
______________________________________
Charles Cohen, Ph.D.
/s/ Jurgen Drews, M.D. Director February 4, 2000
______________________________________
Jurgen Drews, M.D.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Geoffrey Duyk, M.D., Ph.D. Director February 4, 2000
______________________________________
Geoffrey Duyk, M.D., Ph.D.
/s/ Jason S. Fisherman, M.D. Director February 4, 2000
______________________________________
Jason S. Fisherman, M.D.
/s/ Jean-Francois Formela, M.D. Director February 4, 2000
______________________________________
Jean-Francois Formela, M.D.
/s/ Edmund Olivier Director February 4, 2000
______________________________________
Edmund Olivier
/s/ Lance Willsey, M.D. Director February 4, 2000
______________________________________
Lance Willsey, M. D.
/s/ Peter Stadler, Ph.D. Director February 4, 2000
______________________________________
Peter Stadler, Ph.D.
</TABLE>
II-6
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Amendment of the Restarted Certificate of Incorporation
of Exelixis Pharmaceuticals, Inc., dated February 2, 2000.
3.2* Form Amended and Restated Certificate of Incorporation of Registrant
to be filed upon the closing of the offering made in connection with
this Registration Statement.
3.3* Amended and Restated Bylaws of Registrant to be filed upon the closing
of the offering made in connection with this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2 Fourth Amended and Restated Registration Rights Agreement, dated
February 26, 1999 among Exelixis and Certain Stockholders of Exelixis.
4.3 Warrant, dated August 17, 1998, to Purchase 167,728 shares of Series A
Preferred Stock in favor of Comdisco, Inc.
4.4 Warrant, dated August 17, 1998, to Purchase 20,486 shares of Series A
Preferred Stock in favor of Greg Stento.
4.5 Warrant, dated January 24, 1996, to Purchase 357,143 shares of Series
B Convertible Stock in favor of MMC/GATX Partnership No. 1.
4.6 Warrant, dated September 25, 1997, to Purchase 85,000 shares of Common
Stock in favor of MMC/GATX Partnership No. 1.
4.7 Warrant, dated November 15, 1999, to Purchase 12,000 shares of Common
Stock in favor of Bristow Investments, L.P.
4.8 Warrant, dated November 15, 1999, to Purchase 135,000 shares of Common
Stock in favor of Slough Estates USA, Inc.
4.9 Warrant, dated November 15, 1999, to Purchase 3,000 shares of Common
Stock in favor of Laurence and Magdalena Shushan FamilyTrust.
5.1* Opinion of Cooley Godward LLP.
10.1* Form of Indemnity Agreement.
10.2 1994 Employee, Director and Consultant Stock Plan.
10.3 1997 Equity Incentive Plan.
10.4* 2000 Equity Incentive Plan.
10.5* 2000 Non-Employee Directors' Stock Option Plan.
10.6* 2000 Employee Stock Purchase Plan.
10.7+ Collaboration Agreement, dated December 16, 1999, between Registrant,
Bayer Corporation and GenOptera LLC.
10.8+ Operating Agreement, dated December 15, 1999, between Registrant,
Bayer Corporation and GenOptera LLC.
10.9 Cooperation Agreement, dated September 15, 1998, between Registrant
and Artemis Pharmaceuticals GmbH.
10.10 Sublease Agreement, dated June 1, 1997, between Arris Pharmaceutical
Corporation and Registrant.
10.11 Lease, dated May 12, 1999, between Registrant and Britannia Pointe
Grand Limited Partnership.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.12 Master Services Agreement, dated November 15, 1999, between Registrant
and Artemis Pharmaceuticals GmbH.
10.13+* Research Collaboration and Technological Transfer Agreement, dated
September 14, 1999, between Registrant and Bristol-Myers Squibb.
10.14+ Corporate Collaboration Agreement, dated February 26, 1999, between
Registrant and Pharmacia & Upjohn AB.
10.15+ Amendment to Corporate Collaboration Agreement, dated October, 1999,
between Registrant and Pharmacia & Upjohn AB.
10.16 Asset Purchase Agreement, dated July 11, 1999, between Registrant and
MetaXen/Xenova.
10.17 Employment Agreement, dated September 13, 1996, between Registrant and
George Scangos, Ph.D.
10.18 Employment Agreement, dated April 14, 1997, between Registrant and
Geoffrey Duyk, M.D., Ph.D.
10.19 Employment Agreement, dated October 19, 1999, between Registrant and
Glen Y. Sato, Chief Financial Officer and Vice President of Legal
Affairs.
23.1 Consent of Independent Accountants (Exelixis).
23.2 Consent of Independent Accountants (MetaXen).
23.3* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested for certain portions of this exhibit.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
EXELIXIS PHARMACEUTICALS, INC.
George A. Scangos, Ph.D. and Glen Y. Sato hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of Exelixis Pharmaceuticals, Inc., a Delaware corporation.
TWO: The original Certificate of Incorporation of Exelixis Pharmaceuticals,
Inc. was filed with the Secretary of State of the State of Delaware on November
15, 1994. The Restated Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on January 25, 1999. The current name of this
corporation is Exelixis Pharmaceuticals, Inc.
THREE: The Board of Directors of the Corporation, acting in accordance with
the provisions of Sections 141 and 242 of the General Corporation Law of the
State of Delaware, adopted resolutions amending its Restated Certificate of
Incorporation as follows:
Article FIRST shall be amended and restated to read in its entirety as
follows:
"FIRST: The name of the corporation is Exelixis, Inc. (the "Corporation")."
FOUR: Thereafter pursuant to a resolution of the Board of Directors, this
Certificate of Amendment was submitted to the stockholders of the Corporation
for their approval, and was approved, in accordance with Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
FIFTH: All other provisions of the Restated Certificate of Incorporation
shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, Exelixis Pharmaceuticals, Inc. has caused this
Certificate of Amendment of the Restated Certificate of Incorporation to be
signed by its President and Secretary in South San Francisco, California this
2nd day of February, 2000.
EXELIXIS PHARMACEUTICALS, INC.
/s/ George A. Scangos
----------------------------------------
George A. Scangos, Ph.D.
President
Attest:
/s/ Glen Y. Sato
- -----------------------------
Name: Glen Y. Sato
Title: Secretary
<PAGE>
Exhibit 4.2
FOURTH AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Fourth Amended and Restated Registration Rights Agreement (the
"Agreement"), which amends and restates that certain Third Amended and Restated
Registration Rights Agreement, dated as of August 21, 1998 (the "Prior
Agreement"), is entered into as of February 26, 1999, by and among Exelixis
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), the investors
listed on Exhibit A hereto (the "Series A Investors"), the investors listed on
Exhibit B hereto (the "Series B Investors"), the investors listed on Exhibit C
hereto (the "Series C Investors") and the investors listed on Exhibit D hereto
(the "Series D Investors").
Whereas, the Company issued and sold (i) 5,328,571 shares of its Series A
Convertible Preferred Stock, $.001 par value, at a purchase price of $.70 per
share ("Series A Preferred Stock") on January 27, 1995 and March 31, 1995 to the
Series A Investors, (ii) 12,300,000 shares of its Series B Convertible Preferred
Stock, $.001 par value, at a purchase price of $1.00 per share ("Series B
Preferred Stock") on March 27, 1996 to the Series B Investors and (iii)
7,875,000 shares of Series C Convertible Preferred Stock, $.001 par value, at a
price of $2.00 per share (the "Series C Preferred Stock) on April 8, 1997 and is
issuing up to 5,000,000 shares of Series D Convertible Preferred Stock, $.001
par value at a purchase price of $3.00 per share ("Series D Preferred Stock") to
the Series D Investors, pursuant to the Series D Convertible Preferred Stock
Purchase Agreement dated August 21, 1998 and February 10, 1999(the "Purchase
Agreement") among the Company and the Series D Investors; and
Whereas, one of the conditions to the consummation of the transactions
contemplated by the Purchase Agreement entered into by the Series D Investors is
the amendment and restatement of the Prior Agreement to provide for registration
rights for the shares of Series D Preferred Stock purchased by the Series D
Investors as set forth herein;
Whereas, the Company and Pharmacia & Upjohn AB ("P&U") desire to enter into
a stock purchase agreement providing for the issuance and sale by the Company to
P&U of up to 2,500,000 shares of Series D Preferred Stock (the "P&U Purchase
Agreement"); and
Whereas, this Agreement supersedes and amends and restates the Prior
Agreement in its entirety, and holders of at least 66-2/3 % of the shares of
Restricted Stock (as defined in the Prior Agreement) and the Company hereby
consent and agree to the amendment and restatement of the Prior Agreement and
the Series D Investors in their capacity as purchasers of shares of the Series D
Preferred Stock desire to enter into this Agreement.
Now, Therefore, in consideration of the mutual covenants and agreements
contained herein and the purchase of the Series D Preferred Stock by the Series
D Investors under the Purchase Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1.
<PAGE>
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.001 par value of the Company,
as constituted as of the date of this Agreement.
"Conversion Shares" shall mean shares of Common Stock issued upon
conversion of the Preferred Stock.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Investors" shall mean the Series A Investors, the Series B Investors, the
Series C Investors and the Series D Investors. Notwithstanding anything to the
contrary in this Agreement, any purchaser of Series D Preferred Stock under the
Purchase Agreement or the P&U Purchase Agreement, may become a party to this
Agreement by signing a counterpart hereto. Each such Investor shall be deemed
to be a "Series D Investor" for all purposes under this Agreement.
"Preferred Stock" shall mean the shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.
"Restricted Stock" shall mean the Conversion Shares and all other shares of
Common Stock now or hereafter acquired by any of the Investors or any of their
affiliates, but excluding shares of Common Stock which have been (a) registered
under the Securities Act pursuant to an effective registration statement fried
thereunder and disposed of in accordance with the registration statement
coveting them or (b) publicly sold pursuant to Rule 144 under the Securities
Act; provided, however, that the term "Restricted Stock" shall be deemed to
include (i) all shares of any class or series of the capital stock of the
Company and (ii) all securities convertible into or exchangeable for any shares
of any class or series of the capital stock of the Company, in either case held
by any of the Investors or their affiliates.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 7
hereof.
2. Restrictive Legend. Each certificate representing Preferred Stock or
Conversion Shares shall, except as otherwise provided in Section 3, be stamped
or otherwise imprinted with a legend substantially in the following form:
2.
<PAGE>
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING
SUCH SHARES UNDER THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN EXEMPTION
FROM REGISTRATION THEREUNDER IS AVAILABLE."
3. Required Registration.
(a) At any time after the earlier of December 31, 1999 or six months
after the effective date of the initial public offering of securities of the
Company pursuant to an effective registration statement under the Securities
Act, the holders of Restricted Stock constituting at least 20% of the total
shares of Restricted Stock then owned beneficially or of record by Investors and
Investor Transferees (as such term is hereinafter defined) may require the
Company to register under the Securities Act all or any portion of the shares of
Restricted Stock held by such requesting holder or holders for sale in the
manner specified in such notice, provided that the reasonably anticipated
aggregate price to the public of such public offering would exceed $5,000,000.
Notwithstanding the foregoing, the only securities that the Company shall be
required to register pursuant hereto shall be shares of Common Stock; provided,
however, that in any underwritten public offering contemplated by this
Agreement, the holders of Preferred Stock shall be entitled to sell such
Preferred Stock to the underwriters for conversion and sale of the shares of
Common Stock issued upon conversion thereof. Notwithstanding anything to the
contrary contained herein, the Company shall not be required to cause a
registration pursuant to this Subsection 3(a) to become effective prior to the
date which is 180 days after the effective date of a registration statement
filed by the Company covering a firm commitment underwritten public offering of
securities of the Company under the Securities Act.
(b) Following receipt of any notice under this Section 3, the Company
shall immediately notify all Investors and Investor Transferees from whom notice
has not been received and shall use its best efforts to register under the
Securities Act, for public sale in accordance with the method of disposition
specified in such notice from requesting holders, the number of shares of
Restricted Stock specified in such notice (and in all notices received by the
Company from other holders within 30 days after the giving of such notice by the
Company). If such method of disposition shall be an underwritten public
offering, the holders of a majority of the shares of Restricted Stock to be sold
in such offering may designate the managing underwriter of such offering,
subject to the approval of the Company, which approval shall not be unreasonably
withheld or delayed. The Company shall be obligated to register Restricted Stock
pursuant to this Section 3 on two occasions only; provided, however, that such
obligation shall be deemed satisfied only when a registration statement covering
all shares of Restricted Stock specified in notices received as aforesaid, for
sale in accordance with the method of disposition specified by the requesting
holders, shall have become effective and, if such method of disposition is a
firm commitment underwritten public offering, all such shares shall have been
sold pursuant thereto.
3.
<PAGE>
(c) In the event that any registration statement pursuant to this
Section 3 shall be, in whole or in part, an underwritten public offering of
Common Stock, the number of shares of Restricted Stock to be included in such an
underwriting may be reduced (pro rata among the requesting holders based upon
the number of shares of Restricted Stock owned by such holders) if and to the
extent that the managing underwriter shall be of the opinion (and shall provide
a written opinion) that the inclusion of some of the Restricted Stock would
adversely affect the marketing of the securities to be sold therein; provided,
however, that (1) no shares of Restricted Stock which are not then subject to
volume restrictions under Rule 144 under the Securities Act and (2) no shares of
Common Stock to be sold by the Company for its own account, shall be included in
such public offering unless all the shares of Restricted Stock requested to be
included in such public offering which (i) are held by holders who are not
affiliates of the Company and (ii) are subject to such restrictions, are
included in such public offering.
(d) Subject to Subsection 3(c), the Company shall be entitled to
include in any registration statement referred to in this Section 3, for sale in
accordance with the method of disposition specified by the requesting holders,
shares of Common Stock to be sold by the Company for its own account, except as
and to the extent that, in the reasonable opinion of the managing underwriter
(if such method of disposition shall be an underwritten public offering), such
inclusion would materially adversely affect the marketing of the Restricted
Stock to be sold.
Except for registration statements on Form S-4, S-8 or any successor thereto,
the Company will not file with the Commission any other registration statement
with respect to its Common Stock, whether for its own account or that of other
stockholders, from the date of receipt of a notice from requesting holders
pursuant to this Section 3 until the later of 120 days from the effective date
of the registration statement or completion of the period of distribution of the
shares of Restricted Stock registered thereby.
4. Incidental Registration. If the Company at any time (other than
pursuant to Section 3 or Section 5) proposes to register any of its securities
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Restricted Stock for sale to the public), each such time it will
give written notice to all holders of outstanding Restricted Stock of its
intention so to do and of the proposed method of distribution of such
securities. Upon the written request of any such holder, received by the Company
within 30 clays after the giving of any such notice by the Company, to register
any of its Restricted Stock, the Company will use its best efforts to cause the
Restricted Stock as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Company, all to the extent and under the conditions such
registration is permitted under the Securities Act. In the event that any
registration pursuant to this Section 4 shall be, in whole or in part, an
underwritten public offering of Common Stock, the number of shares of Restricted
Stock to be included in such an underwriting may be reduced (pro rata among the
requesting holders based upon the number of shares of Restricted Stock owned by
such holders) if and to the extent that the managing underwriter shall be of the
opinion (and shall provide a written opinion) that the inclusion of some or all
of the Restricted Stock would adversely affect the marketing of the securities
to be sold by the Company therein; provided, however, that such number of shares
of Restricted Stock shall not be reduced if any shares are to be included in
such underwriting for the account of any
4.
<PAGE>
person other than the Company or requesting holders of Restricted Stock.
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 4 without thereby incurring
any liability to the holders of Restricted Stock.
5. Registration on Form S-3. If at any time (i) a holder or holders of
Preferred Stock or Restricted Stock holding, in the aggregate, in excess of two
percent (2%) of the then-outstanding Common Stock (including Conversion Shares)
request that the Company file a registration statement on Form S-3 or any
successor thereto for a public offering of all or any portion of the shares of
Restricted Stock held by such requesting holder or holders, the reasonably
anticipated aggregate price to the public (net of underwriting discounts and
commissions) of which would exceed $1,000,000 and (ii) the Company is a
registrant entitled to use Form S-3 or any successor thereto to register such
shares, then the Company shall use its best efforts to register under the
Securities Act on Form S-3 or any successor thereto, for public sale in
accordance with the method of disposition specified in such notice, the number
of shares of Restricted Stock specified in such notice. Whenever the Company is
required by this Section 5 to use its best efforts to effect the registration of
Restricted Stock, each of the procedures and requirements of Section 3
(including but not limited to the requirement that the Company notify all
holders of Restricted Stock from whom notice has not been received and provide
them with the opportunity to participate in the offering) shall apply to such
registration, provided, however, that the requirements contained in the last
sentence of Section 3(a) and in the last sentence of Section 3(b) shall not
apply to any registration on Form S-3 that may be requested and obtained under
this Section 5.
6. Registration Procedures. If and whenever the Company is required by
the provisions of Sections 3, 4 or 5 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) Prepare and file with the Commission, within 90 days from the
Company's receipt of notice from the Investors requesting such registration, a
registration statement (which, in the case of an underwritten public offering
pursuant to Section 3, shall be on Form S-1 or other form of general
applicability satisfactory to the managing underwriter selected as therein
provided) with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in Section 6(a) above and comply with the provisions of the
Securities Act with respect to the disposition of all Restricted Stock covered
by such registration statement in accordance with the sellers' intended method
of disposition set forth in such registration statement for such period;
(c) Furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
5.
<PAGE>
(d) Use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request;
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) Use its best efforts to list the Restricted Stock covered by such
registration statement with any securities exchange or quotation system on which
the Common Stock of the Company is then listed;
(f) Immediately notify each seller of Restricted Stock and each
underwriter under 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 of which the Company has knowledge as a result of which
the prospectus contained 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 light of the circumstances then existing. The Sellers of
Restricted Stock agree upon receipt of such notice forthwith to cease making
offers and sales of Restricted Stock pursuant to such registration statement or
deliveries of the prospectus contained therein for any purpose until the Company
has prepared and furnished such amendment or supplement to the prospectus as may
be necessary so that, as thereafter delivered to purchasers of such Restricted
Stock, such prospectus shall not include an untrue statement of a material fact
or omit 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;
(g) If the offering is underwritten and at the request of any seller
of Restricted Stock, use its best efforts to furnish on the date that Restricted
Stock is delivered to the underwriters for sale pursuant to such registration
(i) an opinion dated such date of counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given by
Company counsel to the underwriters in an underwritten public offering,
addressed to the underwriters and to such seller, stating, among other things,
that such registration statement has become effective under the Securities Act
and that (A) no stop order suspending the effectiveness thereof has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the registration statement, the
related prospectus and each amendment or supplement thereof comply as to form in
all material respects with the requirements of the Securities Act (except that
such counsel need not express any opinion as to financial statements and the
notes thereto and the schedules and other financial and statistical data
contained therein) and including a statement that nothing has come to the
attention of such counsel which has caused it to believe that, at the time the
registration statement became effective, the registration statement (other than
the financial statements and the notes thereto and the schedules and other
financial and statistical data contained therein) contained any untrue statement
of a
6.
<PAGE>
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
prospectus (other than the financial statements and the notes thereto and the
schedules and other financial and statistical data contained therein), contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (C)
to such other effects as reasonably may be requested by counsel for the
underwriters or by such seller or its counsel and (ii) a letter dated such date
from the independent public accountants retained by the Company, addressed to
the underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
and
(h) Make available for inspection upon reasonable notice during the
Company's regular business hours by each seller of Restricted Stock, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
For purposes of Section 6(a) and 6(b) and of Section 3(d), the period of
distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby and a period of
120 days has elapsed while such distribution is ongoing after the effective date
thereof.
In connection with each registration hereunder, the sellers of Restricted
Stock shall (a) provide such information and execute such documents as may
reasonably be required in connection with such registration, (b) agree to sell
Restricted Stock on the basis provided in any underwriting arrangements and (c)
complete and execute all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements, which arrangements shall not be inconsistent
herewith.
In connection with each registration pursuant to Sections 3, 4, or 5
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
7. Expenses. All expenses incurred by the Company in complying with
Sections 3, 4, and 5, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees
7.
<PAGE>
of transfer agents and registrars, and fees and disbursements of one counsel for
the sellers of Restricted Stock, but excluding any Selling Expenses, are called
"Registration Expenses." All underwriting discounts and selling commissions
applicable to the sale of Restricted Stock are called "Selling Expenses."
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 3, 4, or 5. All Selling Expenses in
connection with each registration statement under Sections 3, 4 or 5 shall be
borne by the participating sellers in proportion to the number of shares sold by
each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree.
8. Indemnification and Contribution.
(a) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 3, 4, or 5, the Company will
indemnify and hold harmless each seller of such Restricted Stock thereunder,
each underwriter of such Restricted Stock thereunder and each other person, if
any, who controls such seller or underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Restricted Stock was
registered under the Securities Act pursuant to Sections, 3, 4 or 5, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will pay the legal
fees and other expenses of each such seller, each such underwriter and each such
controlling person incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in reliance upon and in conformity with information furnished by any such
seller, any such underwriter or any such controlling person in writing
specifically for use in such registration statement or prospectus and provided,
further, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue or alleged untrue statement or omission or an alleged
omission made in any preliminary prospectus or final prospectus if (1) such
holder failed to send or deliver a copy of the final prospectus or prospectus
supplement provided by the Company with or prior to the delivery of written
confirmation of the sale of the Restricted Stock, and (2) the final prospectus
or prospectus supplement would have corrected such untrue statement or omission.
(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 3, 4 or 5, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against
8.
<PAGE>
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Restricted Stock was
registered under the Securities Act pursuant to Sections 3, 4 or 5, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will pay the legal
fees and other expenses of the Company and each such officer, director,
underwriter and controlling person incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
furnished in writing to the Company by such seller specifically for use in such
registration statement or prospectus and provided, further, however, that the
liability of each seller hereunder shall be limited to the proportion of any
such loss, claim, damage, liability or expenses that is equal to the proportion
that the public offering price of the shares sold by such seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the proceeds received
by such seller from the sale of Restricted Stock covered by such registration
statement,
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability that it may have
to such indemnified party other than under this Section 8 and shall only relieve
it from any liability that it may have to such indemnified party under this
Section 8 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 8 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof; provided, however,
that, if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded (based on the advice of counsel) that there may be reasonable defenses
available to it which are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably may
be deemed to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying as incurred,
it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more
9.
<PAGE>
than one separate firm of attorneys (together with appropriate local counsel as
required by the local rules of such jurisdiction) at any time for all such
indemnified parties.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 8 but it is judicially determined Coy the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this Section
8; then, and in each such case, the Company and such holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such holder
is responsible for the portion represented by the percentage that the public
offering price of its Restricted Stock offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion: provided, however,, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the public offering price of all
such Restricted Stock offered by it pursuant to such registration statement and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
(e) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
9. Changes in Common Stock or Preferred Stock. If, and as often as, there
is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Preferred Stock as so changed.
10. Rule 144 Reporting and Rule 144A Information. With a view to making
available the benefits of certain rules and regulations of the Commission that
may at any time permit the resale of the Restricted Stock without registration,
the Company will:
(a) At all times after 90 days after any registration statement
covering a public offering of securities of the Company under the Securities Act
shall have become effective:
(i) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
10.
<PAGE>
(ii) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(iii) Furnish to each holder of Restricted Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any role or regulation of
the Commission allowing such holder to sell any Restricted Stock without
registration: and
(b) At any time, at the request of any holder of Preferred Stock or
shares of Restricted Stock, make available to such holder and to any prospective
transferee of such Preferred Stock or shares of Restricted Stock the information
concerning the Company described in Rule 144A(d)(4) under the Securities Act.
11. Representations and Warranties of the Company. The Company represents
and warrants to the Investors as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
cause a material violation of any provision of any law applicable to the
Company, any order of any court or other agency of government applicable to the
Company, the Charter or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company; and
(b) This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to laws of general application
from time to time in effect affecting creditors' rights and the exercise of
judicial discretion in accordance with general equitable principles.
12. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including without
limitation transferees of any Preferred Stock or Restricted Stock), whether so
expressed or not; provided, however, that registration rights conferred herein
on the holders of Restricted Stock may not be transferred and registration
rights conferred herein on the Investors shall only inure to the benefit of a
transferee of Preferred Stock or Restricted Stock if (i) there is transferred to
such transferee at least 250,000 shares of Restricted Stock or (ii) such
transferee is a partner or shareholder of an Investor (the transferee in either
such case being referred to as an "Investor Transferee").
11.
<PAGE>
(b) All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) made by telex,
telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv)
sent by registered or certified mail, return receipt requested, postage prepaid.
If to the Company, to it at its principal place of business;
If to any other party hereto, to such party at the address of
such party as shown on the books of the Company; and
If to any Investor Transferee, to it at such address as may have
been furnished to the Company in writing by such Investor
Transferee;
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the fifth (5th) business day following the day such
mailing is made.
(c) This Agreement shall be governed by and construed in accordance
with the internal law of the state of Delaware without giving effect to the
conflict of law principles thereof.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the holders
of at least sixty-six and two-thirds percent (66-2/3%) of all of the outstanding
shares of Restricted Stock; provided, however, that any amendment which affects
any Series of the Preferred Stock differently from any other Series of the
Preferred Stock must also be approved by holders of at least sixty-six and two-
thirds percent (66-2/3 %) of all of the outstanding shares of such Series of
Preferred Stock. Notwithstanding the foregoing, the Company may, without any
such written consent, amend or modify the Schedule of Investors attached hereto
as Exhibit D to include new Series D Investors.
(e) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) If requested in writing by the underwriters for an underwritten
public offering of securities of the Company, each holder of Restricted Stock
who is a party to this Agreement shall agree not to sell publicly any shares of
Restricted Stock or any other shares of Common Stock (other than shares of
Restricted Stock or other shares of Common Stock being registered in such
offering), without the consent of such underwriters, for a period not to exceed
180 days following the effective date of the registration statement relating to
such offering; provided, however, that all persons entitled to registration
rights with respect to shares of Common Stock who are not parties to this
Agreement, all other persons selling shares of Common Stock in such offering and
all executive officers and directors of the Company shall
12.
<PAGE>
also have agreed not to sell publicly their Common Stock under the circumstances
and pursuant to the terms set forth in this Section 12(f) and provided, further,
that the Company shall use reasonable efforts to exclude short selling or other
forms of hedging from the restrictions imposed during such 180 day period.
(g) The Company shall not grant to any third party any registration
rights more favorable than, or inconsistent with, any of those contained herein,
so long as any of the registration rights under this Agreement remains in
effect.
(h) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement and this
Agreement shall be carded out as if any such illegal, invalid or unenforceable
provision were not contained herein.
(i) This Agreement and the rights granted herein shall terminate on
the tenth anniversary of the effective date of the initial public offering of
securities of the Company pursuant to an effective registration statement under
the Securities Act.
(j) By execution hereof, the undersigned who were parties to the
Prior Agreement, as the holder of at least 66-2/3 % of all of the outstanding
shares of Restricted Stock (as defined in the Prior Agreement), hereby consent
to and approve of the amendment and restatement of the Prior Agreement as set
forth herein.
(k) Limitation of Investors' Liability. The name H&Q Healthcare
Investors is the designation of the Trustees for the time being under an Amended
and Restated Declaration of Trust dated April 21, 1987, as amended, and all
persons dealing with H&Q Healthcare Investors must look solely to the trust
property for the enforcement of any claim against H&Q Healthcare Investors, as
neither the Trustees, officers nor shareholders assume any personal liability
for obligations entered into on behalf of H&Q Healthcare Investors. The name H&Q
Life Sciences Investors is the designation of the Trustees for the time being
under a Declaration of Trust dated February 20, 1992, as amended, and all
persons dealing with H&Q Life Sciences Investors must look solely to the trust
property for the enforcement of any claim against H&Q Life Sciences Investors,
as neither the Trustees, officers nor shareholders assume any personal liability
for obligations entered into on behalf of H&Q Life Sciences Investors.
13.
<PAGE>
In Witness Whereof, the parties hereto have executed this Agreement as of
the date first written above.
Exelixis Pharmaceuticals, Inc.
By:________________________________
Title:_____________________________
Series A Investor
Name:__________________________
By:____________________________
Title:_________________________
Series B Investor
Name:__________________________
By:____________________________
Title:_________________________
Series C Investor
Name:__________________________
By:____________________________
Title:_________________________
Series D Investor
Name:__________________________
By:____________________________
Title:_________________________
14.
<PAGE>
Exhibit A
SERIES A INVESTORS
OXFORD BIOSCIENCE PARTNERS, L.P.
OXFORD BIOSCIENCE PARTNERS (ADJUNCT), L.P.
OXFORD BIOSCIENCE PARTNERS (BERMUDA) LIMITED PARTNERSHIP
ATLAS VENTURE FUND II, L.P.
ATLAS VENTURE EUROPE FUND B.V.
Stelios Papadopoulos
CREATIVE BIOMOLECULES, INC.
EVOLUTION PARTNERS
PW PARTNERS 1993 L.P.
PAINEWEBBER CAPITAL, INC.
PAINEWEBBER CAPITAL INCORPORATED
i.
<PAGE>
Exhibit B
SERIES B INVESTORS
ADWEST LIMITED PARTNERSHIP
ADVENT PARTNERS LIMITED PARTNERSHIP
ADVENT PERFORMANCE MATERIALS LIMITED PARTNERSHIP
ADVENT INTERNATIONAL INVESTORS II LIMITED PARTNERSHIP
ROVENT II LIMITED PARTNERSHIP
OXFORD BIOSCIENCE PARTNERS L.P.
OXFORD BIOSCIENCE PARTNERS (ADJUNCT) L.P.
OXFORD BIOSCIENCE PARTNERS (BERMUDA) LIMITED PARTNERSHIP
ATLAS VENTURE FUND II, L.P.
ATLAS VENTURE EUROPE FUND B.V.
Stelios Papadopoulos
PAINEWEBBER CAPITAL, INC.
AXIOM VENTURE PARTNERS, L.P.
GIMV INVESTMENT COMPANY
HAMBRECHT & QUIST HEALTH CARE INVESTORS
HAMBRECHT & QUIST LIFE SCIENCES INVESTORS
NEW YORK LIFE INSURANCE COMPANY
Remi Barbier
Jeffrey M. Wiesen
Larry Abrams
Spyridon Artavanis-Tsakonas
Louis A. Mascelli
ii.
<PAGE>
Exhibit C
SERIES C INVESTORS
Bowman Capital Management
Pirate Ship & Co.
The Retirement Program of Farley Inc.
Biotechvest, L.P.
Fruit Of The Loom, Inc., Senior Executive Officer Deferred Compensation Plan
Maverick Fund USA, LTD.
Maverick Fund, LTD.
GLS L.P. Investment 1 Limited
Atlas Venture Fund II, L.P.
Atlas Venture Europe Fund B.V.
Oxford Bioscience Partners, L.P.
Oxford Bioscience Partners (Bermuda) Limited Partnership
H&Q Healthcare Investors
H&Q Life Science Investors
Prince Capital Master Fund, L.P.
Rovent H Limited Partnership
Advent Performance Materials Limited Partnership
Adwest Limited Partnership
Advent Partners Limited Partnership
PaineWebber Capital, Inc.
Moss Forest Venture
Armen Partners, L.P.
Armen Offshore
Axiom Venture Partners, L.P.
New York Life Insurance Company
Art Cohen
Steven Shapiro
Lance Willsey, MD
GIMV n.v.
Bayview Investors, LTD.
Stelios Papadopoulos
Eric Sichel, MD
David Williams
Joe Healy
Stuart Weisbrod
David Musket
Spyridon Artavanis-Tsakonas
Jim Dougherty, MD
Tom McAuley
R. Randolph Scott
Michael Gottlieb
iii.
<PAGE>
Exhibit D
SERIES D INVESTORS
Pharmacia & Upjohn AB
FEI Biomedicine Private Equity Holding Inc.
Advent Partners Limited Partnership
Advent International Investors II Limited Partnership
Advent Performance Materials Limited Partnership
Rovent II Limited Partnership
Atlas Venture Fund II, L.P.
Atlas Venture Europe Fund B.V.
Oxford Bioscience Partners, L.P.
Oxford Bioscience Partners (Bermuda) Limited Partnership
GIMV n.v.
Lynwood Corporation
Pharmacia & Upjohn AB
PainWebber Capital, Inc.
iv.
<PAGE>
EXHIBIT 4.3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series A Preferred Stock of
EXELIXIS PHARMACEUTICALS, INC.
Originally Dated as of July 20, 1995 (the "Effective Date")
Re-Issued as of August 17, 1998
Whereas, Exelixis Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), has entered into a Master Lease Agreement dated as of June 12, 1995,
Equipment Schedules No. VL-1 dated as of May 3, 1995, and Equipment Schedules
No. VL-2 and VL.-3 dated as of June 12, 1995, and related Schedules
(collectively the "Leases") with Comdisco, Inc., a Delaware corporation (the
"Warrantholder"); and
Whereas, in consideration for such Leases, the Company entered into a
Warrant Agreement dated as of July 20, 1995 (the "Original Warrant Agreement"),
whereby the Company granted the Warrantholder the right to purchase 188,214
shares of its Series A Preferred Stock; and
Whereas, pursuant to and in accordance with the Original Warrant Agreement,
the Warrantholder has transferred to Gregory Stento, effective as of August 17,
1998, the Warrantholder's rights under the Original Warrant Agreement with
respect to the purchase of 20,486 shares of the Company's Series A Preferred
Stock (the "Warrant Transfer"); and
Whereas, the Company and the Warrantholder acknowledge the Warrant Transfer
and, accordingly, the Company is reissuing, as of August 17, 1998, the Warrants
provided for in the Original Warrant Agreement, and the Company and the
Warrantholder are entering into this Warrant Agreement, to reflect the Warrant
Transfer and the Warrantholder's right to purchase 167,728 shares of Series A
Preferred Stock as set forth herein;
Now, Therefore, in consideration of the foregoing, and the mutual covenants
and agreements contained herein, the Company and Warrantholder agree as follows:
1. Grant Of The Right To Purchase Preferred Stock.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 167,728 fully paid and non-
assessable shares of the Company's Preferred
1.
<PAGE>
Stock at a purchase price of $.70 per share (the "Exercise Price"). The number
and purchase price of such shares are subject to adjustment as provided in
Section 8 hereof.
2. Term Of The Warrant Agreement.
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) ten (10) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer. Notwithstanding anything to the contrary
contained above, in the event that this Warrant has not been exercised on or
before the Company's initial public offering, this Warrant shall automatically
convert to a Warrant for shares of the Company's Common Stock, and the Company
and the Warrantholder agree to execute a new Warrant Agreement reflecting such
conversion.
3. Exercise Of The Purchase Rights.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part (but not for a fraction of a share), at
any time, or from time to time, prior to the expiration of the term set forth in
Section 2 above, by tendering to the Company at its principal office a notice of
exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"),
duly completed and executed. Promptly upon receipt of the Notice of Exercise
and the payment of the purchase price in accordance with the terms set forth
below, and in no event later than thirty (30) days thereafter, the Company shall
issue to the Warrantholder a certificate for the number of shares of Preferred
Stock purchased and shall execute the Notice of Exercise indicating the number
of shares which remain subject to future purchases, if any.
The Exercise Price for the number of shares of Preferred Stock to be
purchased by the Warrantholder may be paid at the Warrantholder's election
either (i) by cash or check, or (ii) by surrender of warrants ("Net Issuance")
as determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of common Stock as of a
particular date (the "Determination Date") shall mean with respect to each share
of Common Stock:
2.
<PAGE>
(i) if the exercise is in connection with an initial public
offering, and if the company's Registration Statement relating to such public
offering has been declared effective by the Securities and Exchange Commission
("SEC"), then the initial "Price to Public" specified in the final prospectus
with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with
the company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall be
deemed to be the average of the closing prices over a twenty-one (21) day period
ending three days before the Determination Date; or
(b) if actively traded over-the-counter, the fair market value shall be
deemed to be the average of the closing bid and asked prices quoted on the
NASDAQ system (or similar system) over the twenty-one (21) day period ending
three days before the Determination Date;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest price per share
which the Company could obtain from a willing buyer (not a current employee or
director) for shares of Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by its Board of Directors, unless
the Company shall become subject to a merger, acquisition or other consolidation
pursuant to which the Company is not the surviving party, in which case the fair
market value of Common Stock shall be deemed to be the value received by the
holders of the Company's Preferred Stock on a common equivalent basis pursuant
to such merger or acquisition.
Upon partial exercise of this Warrant by either cash or Net Issuance,
the Company shall promptly issue an amended Warrant Agreement representing the
remaining number of shares purchasable hereunder. All other terms and
conditions of such amended Warrant Agreement shall be identical to those
contained herein, including, but not limited to the Effective Date hereof.
4. Reservation Of Shares.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shams of Preferred Stock required to be
reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended (the "1933 Act") as then in effect, or any
similar Federal statute then enforced, or any state securities law, required by
reason of any transfer involved in such conversion), or listing on any domestic
securities exchange, before such shares may be issued upon conversion, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly
3.
<PAGE>
registered, listed or approved for listing on such domestic securities exchange,
as the case maybe.
5. No Fractional Shares Or Scrip.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. No Rights As Shareholder.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant. No dividends or interest shall be payable or accrued in respect of
this warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that this Warrant shall have been
exercised.
7. Warrantholder Registry.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. Adjustment Rights.
The Exercise Price and the number of shares of Preferred Stock purchasable
hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter
4.
<PAGE>
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities which
were subject to the purchase rights under this Warrant Agreement immediately
prior to such combination, reclassification, exchange, subdivision or other
change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as sat forth in the Company's Restated
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit III (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with prior written notice of any issuance of its stock or other
equity security to occur after the Effective Date of this Warrant, to the extent
that the Company is required to notify the holders of its Preferred Stock.
(f) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription pro rata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; or (iv) there shall be any voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in connection with each such
event, the Company shall send to the Warrantholder: (A) at least fifteen (15)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution, subscription
rights (specifying the date on which the holders of Preferred Stock shall be
entitled thereto) or for determining rights to vote in respect of such Merger
Event, dissolution, liquidation or winding up; and (B) in the case of any such
Merger Event, dissolution, liquidation or winding up, at least fifteen (15)
days' prior written notice of the date when the same shall take place (and
specifying the date on which the holders of Preferred Stock shall be entitled to
exchange their Preferred Stock for securities or other property deliverable upon
such Merger Event, dissolution,
5.
<PAGE>
liquidation or winding up). In the case of a public offering, the Company shall
give Warrantholder at least fifteen (15) days written notice prior to the
effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
(h) No Adjustments. No adjustment of the Exercise Price or the number of
shares of Preferred Stock purchasable under this Warrant Agreement shall be
effected with respect to: (i) shares of Common Stock issued or issuable upon
conversion of shares of Preferred Stock; (ii) shares of Common Stock issued or
issuable to officers, employees or directors of, or consultants to, the Company
pursuant to a stock purchase or option plan or other employee stock bonus
arrangement (collectively, the "Plans") approved by the Board of Directors;
(iii) shares of common Stock or Preferred Stock issuable pursuant to warrants
outstanding as of the date hereof (notwithstanding any subsequent transfer of
all or part of such warrants); (iv) shares of Common Stock or Preferred Stock
issued or issuable pursuant to warrants issued in connection with the
establishment of credit facilities for the Company (including, without
limitation, in connection with equipment leasing arrangements); or (v) shares of
Common Stock or Preferred Stock issued in connection with corporate partnering
relationships or joint ventures approved by the Company's Board of Directors.
9. Representations, Warranties And Covenants Of The Company.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued and paid for by the Warrantholder in accordance with the provisions
of this Warrant Agreement, will be validly issued, fully paid and non-
assessable, and will be free of any taxes, liens, charges or encumbrances of any
nature whatsoever, provided, however, that the Preferred Stock issuable pursuant
to this Warrant Agreement may be subject to restrictions on transfer under state
and/or Federal securities laws. The Company has made available to the
Warrantholder true, correct and complete copies of its Charter and Bylaws, as
amended, and minutes of all Board of Directors (including all committees of the
Board of Directors, if any) and Shareholder meetings from January, 1995 through
July, 1995. The issuance of certificates for shares of Preferred Stock upon
exercise of the Warrant Agreement shall be made without charge to the
Warrantholder for any issuance tax in respect thereof, or other cost incurred by
the Company in connection with such exercise and the related issuance of shares
of Preferred Stock. The Company shall not be required to pay any tax which may
be payable in respect of any transfer involved and the issuance and delivery of
any certificate in a name other than that of the Warrantholder.
6.
<PAGE>
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any
material law or governmental rule, regulation or order applicable to it, do not
and will not contravene any provision of, or constitute a default under, any
material indenture, mortgage, contract or other instrument to which it is a
party or by which it is bound, and the Leases and this Warrant Agreement
constitute legal, valid and binding agreements of the Company, enforceable in
accordance with their respective terms, subject to laws of general application
from time to time in effect affecting creditor's rights and the exercise of
judicial discretion in accordance with general equitable principles.
(c) Consents and Approvals. No consent or approval of, giving of notice to,
registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices as required by
applicable federal and state securities laws, which filings will be effective by
the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with, or were exempt from, all Federal and state securities laws,
assuming the accuracy of all representations made by the purchasers thereof. In
addition, as of the Effective Date:
(i) The authorized capital of the Company consists of (A) 20,000,000
shares of Common Stock, of which 950,000 shares we issued and outstanding, (B)
526,819 shares of Class B Common Stock, all of which are issued and outstanding,
and (C) 7,000,000 shares of Preferred Stock, of which 5,328,571 shares are
issued and outstanding and are convertible into 5,328,517 shares of Common Stock
at $0.70 per share.
(ii) The Company has reserved 1,350,000 shares of Common Stock for
issuance under its 1994 Employee, Director and Consultant Stock Plan, under
which 665,000 options or rights to purchase Common Stock are currently
outstanding. Except for 92,858 warrants to purchase Common Stock outstanding as
of the date hereof and Common Stock conversion rights and certain rights of
first refusal in favor of the current holders of the Preferred Stock, there are
no other options, warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire any authorized but unissued shares
of the Company's capital stock or other securities of the Company.
(iii) Except for certain rights of first refusal in favor of currant
holders of the Preferred Stock, no shareholder of the Company has preemptive
rights to purchase new issuances of the Company's capital stock.
7.
<PAGE>
(e) Insurance. The Company has in full force and effect insurance policies,
with extended coverage, insuring the Company and its property and business
against such material losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. As of the Effective Date,
except as set forth in this Warrant Agreement and its Registration Rights
Agreement with current holders of its Preferred Stock, the Company is not,
pursuant to the terms of any other agreement currently in existence, under any
obligation to register under the 1933 Act any of its presently outstanding
securities or any of its securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) applicable state securities laws.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement indicating if the Company is
in compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. Representations And Covenants Of The Warrantholder.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate
8.
<PAGE>
action necessary for compliance with the 1933 Act has been taken, or (B) an
exemption from the registration requirements of the 1933 Act is available.
Notwithstanding the foregoing, the restrictions imposed upon the transferability
of any of its rights to acquire Preferred Stock or Preferred Stock issuable on
the exercise of such rights do not apply to transfers from the beneficial owner
of any of the aforementioned securities to its nominee or from such nominee to
its beneficial owner, and shall terminate as to any particular share of
Preferred Stock when (1) such security shall have been effectively registered
under the 1933 Act and sold by the holder thereof in accordance with such
registration or (2) such security shall have been sold without registration in
compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the SEC or a ruling
shall have been issued to the Warrantholder at its request by the SEC stating
that no action shall be recommended by such staff or taken by the SEC, as the
case may be, if such security is transferred without registration under the 1933
Act in accordance with the conditions set forth in such letter or ruling and
such letter or ruling specifies that no subsequent restrictions on transfer we
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, the Warrantholder or holder of a share of Preferred Stock
then outstanding as to which such restrictions have terminated shall be entitled
to receive from the Company, without expense to such holder, one or more new
certificates for the Warrant or for such shares of Preferred Stock not bearing
any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the SEC pursuant to Section 12 of the 1933 Act,
or file reports pursuant to Section 15(d), of the Securities Exchange Act of
1934 (the "1934 Act"), or if a registration statement covering the securities
under the 1933 Act is not in effect when it desires to sell (i) the rights to
purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the
Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
11. Transfers.
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the
books of the Company upon receipt by the Company of a notice of transfer in the
form attached hereto as Exhibit II (the "Transfer Notice"), at its principal
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer. When this Warrant shall have
been so transferred pursuant to Section 11, the holder hereof may be treated by
the Company and all other persons dealing with this Warrant as the absolute
owner and holder hereof for any purpose and as the person entitled to exercise
the rights represented by
9.
<PAGE>
this Warrant, or to the registration of transfer hereof on the books of the
Company;, and until due presentment for registered holders hereof as the owner
and holder for all purposes, and the Company shall not be affected by notice to
the contrary.
12. Miscellaneous.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, Venture
Leasing Director, cc: Legal Department (and/or, if by facsimile, (847) 518-
5465) and (ii) to the Company at One Kendall Square, Building 600, Cambridge,
Massachusetts 02139, attention: President (and/or if by facsimile, (650) 825-
2205) or at such other address as any such party may subsequently designate by
written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as
a result of any such default, and/or an action for specific performance for any
default where such non-defaulting party will not have an adequate remedy at law
and where damages will not be readily ascertainable. The Company expressly
agrees that it shall not oppose an application by the Warrantholder or any other
person entitled to the benefit of this Agreement requiring specific performance
of any or all provisions hereof or enjoining the Company from continuing to
commit any such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
10.
<PAGE>
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments; Headings. Any provision of this Warrant Agreement may be
amended by a written instrument signed by the Company and by the Warrantholder.
The headings in this Warrant Agreement are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
11.
<PAGE>
In Witness Whereof, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: EXELIXIS PHARMACEUTICALS, INC.
By: /s/ George A. Scangos
--------------------------------------
Title: President, CEO
-----------------------------------
Warrantholder, COMDISCO, INC.
By: /s/ Joel J. Vosicky
--------------------------------------
Title: Senior Vice President and Chief
Financial Officer
-----------------------------------
12.
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To:__________________
(1) The undersigned Warrantholder hereby elects to purchase ____ shares of the
Series A Preferred Stock of Exelixis Pharmaceuticals, Inc., pursuant to the
terms of the Warrant Agreement dated the 17th day of August, 1998 (the
"Warrant Agreement") between Exelixis Pharmaceuticals, Inc. and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of Exelixis
Pharmaceuticals, Inc., the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series A Preferred Stock in the name of the undersigned or in such other
name as is specified below.
____________________________________
(Name)
____________________________________
(Address)
Warrantholder: COMDISCO, INC.
By:_________________________________
Title:______________________________
Date:_______________________________
13.
<PAGE>
ACKNOWLEDGMENT OF EXERCISE
The undersigned ______, hereby acknowledges receipt of the "Notice of
Exercise" from Comdisco, Inc., to purchase shares of the Series A Preferred
Stock of Exelixis Pharmaceuticals, Inc., pursuant to the terms of the Warrant
Agreement and further acknowledges that _____ shares remain subject to purchase
under the terms of the Warrant Agreement
Company: Exelexis Pharmaceuticals, Inc.
By:____________________________________
Title:_________________________________
Date:__________________________________
14.
<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
________________________________________________________________________________
(Please Print)
whose address is________________________________________________________________
________________________________________________________________________________
Dated___________________________________________________________
Holder's Signature______________________________________________
Holder's Address________________________________________________
Signature Guaranteed:___________________________________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant Agreement. Without alteration
or enlargement or any change whatever. Officers of corporations and
those acting in a fiduciary or other representative capacity should
file proper evidence of authority to assign the foregoing Warrant
Agreement.
15.
<PAGE>
EXHIBIT 4.4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series A Preferred Stock of
EXELIXIS PHARMACEUTICALS, INC.
Originally Dated as of July 20, 1995 (the 'Effective Date")
Re-Issued as of August 17, 1998
Whereas, Exelixis Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), has entered into this Warrant Agreement dated as of July 20, 1995
(the "Original Warrant Agreement") with Comdisco, Inc. (the "Original
Warrantholder"), whereby the Company granted the Original Warrantholder the
right to purchase shares of the Company's Series A Preferred Stock;
Whereas, pursuant to and in accordance with the Original Warrant Agreement,
the Original Warrantholder has transferred to Gregory Stento (the
"Warrantholder"), effective as of August 17, 1998, the Original Warrantholder's
rights under the Original Warrant Agreement with respect to the purchase of
20,486 shares of the Company's Series A Preferred Stock (the Warrant
Transfer'); and
Whereas, the Company and the Warrantholder acknowledge the Warrant Transfer
and, accordingly, are entering into this Warrant Agreement to reflect the
Warrant Transfer and the Warrantholder's right to purchase 20,486 shares of
Series A Preferred Stock as set forth herein;
Now, Therefore, in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. Grant Of The Right To Purchase Preferred Stock.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 20,486 fully paid and non-
assessable shares of the Company's Preferred Stock at a purchase price of $.70
per share (the "Exercise Price"). The number and purchase price of such shares
are subject to adjustment as provided in Section 8 hereof.
1.
<PAGE>
2. Term of The Warrant Agreement.
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shaft commence on
the Effective Date and shaft be exercisable for a period of (i) ten (10) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer. Notwithstanding anything to the contrary
contained above, in the event that this Warrant has not been exercised on or
before the Company's initial public offering, this Warrant shall automatically
convert to a Warrant for shares of the Company's Common Stock, and the Company
and the Warrantholder agree to execute a new Warrant Agreement reflecting such
conversion.
3. Exercise of The Purchase Rights.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part (but not for a fraction of a share), at
any time, or from time to time, prior to the expiration of the term set forth in
Section 2 above, by tendering to the Company at its principal office a notice of
exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"),
duly completed and executed. Promptly upon receipt of the Notice of Exercise
and the payment of the purchase price in accordance with the terms set forth
below, and in no event later than thirty (30) days thereafter, the Company shall
issue to the Warrantholder a certificate for the number of shams of Preferred
Stock purchased and shall execute the Notice of Exercise indicating the number
of shares which remain subject to future purchases, if any.
The Exercise Price for the number of shares of Preferred Stock to be
purchased by the Warrantholder may be paid at the Warrantholder's election
either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance")
as determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
_____
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock as of a
particular date (the "Determination Date") shall mean with respect to each share
of Common Stock:
(i) if the exercise is in connection with an initial public
offering, and if the Company's Registration Statement relating to such public
offering has been declared effective by the Securities and Exchange Commission
("SEC"), then the initial "Price to Public" specified in the final prospectus
with respect to the offering;
2.
<PAGE>
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall be
deemed to be the average of the closing prices over a twenty-one (21) day period
ending three days before the Determination Date; or
(b) if actively traded over-the-counter, the fair market value shall be
deemed to be the average of the closing bid and asked prices quoted on the
NASDAQ system (or similar system) over the twenty-one (21) day period ending
three days before the Determination Date;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest price per share
which the Company could obtain from a willing buyer (not a current employee or
director) for shares of Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by its Board of Directors, unless
the Company shall become subject to a merger, acquisition or other consolidation
pursuant to which the Company is not the surviving party, in which case the fair
market value of Common Stock shall be deemed to be the value received by the
holders of the Company's Preferred Stock on a common equivalent basis pursuant
to such merger or acquisition.
Upon partial exercise of this Warrant by either cash or Net Issuance, the
Company shall promptly issue an amended Warrant Agreement representing the
remaining number of shares purchasable hereunder. All other terms and
conditions of such amended Warrant Agreement shall be identical to those
contained herein, including, but not limited to the Effective Date hereof.
4. Reservation of Shares.
(a) Authorization and Reservation Shares. During the term of this Warrant
Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended (the "1933 Act") as then in effect, or any
similar Federal statute then enforced, or any state securities law, required by
reason of any transfer involved in such conversion), or listing on any domestic
securities exchange, before such shares may be issued upon conversion, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered, listed or approved for
listing on such domestic securities exchange, as the case may be.
3.
<PAGE>
5. No Fractional Shares Or Scrip.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. No Rights As Shareholder.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that this Warrant shall have been
exercised.
7. Warrantholder Registry.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. Adjustment Rights.
The Exercise Price and the number of shares of Preferred Stock purchasable
hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights
4.
<PAGE>
under this Warrant Agreement immediately prior to such combination,
reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as set forth in the Company's Restated
Certificate of Incorporation as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit III (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with prior written notice of any issuance of its stock or other
equity security to occur after the Effective Date of this Warrant, to the extent
that the Company is required to notify the holders of its Preferred Stock.
(f) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event; or
(iv) there shall be any voluntary or involuntary dissolution, liquidation or
winding up of the Company; then, in connection with each such event, the Company
shall send to the Warrantholder: (A) at least fifteen (15) days' prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution, subscription rights (specifying
the date on which the holders of Preferred Stock shall be entitled thereto) or
for determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; and (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least fifteen (15) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up). In the case of a public
offering, the Company shall give Warrantholder at least fifteen (15) days
written notice prior to the effective date thereof.
5.
<PAGE>
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
(h) No Adjustments. No adjustment of the Exercise Price or the number of
shares of Preferred Stock purchasable under this Warrant Agreement shall be
effected with respect to: (I) shares of Common Stock issued or issuable upon
conversion of shares of Preferred Stock; (ii) shares of Common Stock issued or
issuable to officers, employees or directors of, or consultants to, the Company
pursuant to a stock purchase or option plan or other employee stock bonus
arrangement (collectively, the "Plans") approved by the Board of Directors;
(ii) shares of Common Stock or Preferred Stock issuable pursuant to warrants
outstanding as of the date hereof (notwithstanding any subsequent transfer of
all or part of such warrants); (iv) shares of Common Stock or Preferred Stock
issued or issuable pursuant to warrants issued in connection with the
establishment of credit facilities for the Company (including, without
limitation, in connection with equipment leasing arrangements); or (v) shares of
Common Stock or Preferred Stock issued in connection with corporate partnering
relationships or joint ventures approved by the Company's Board of Directors.
9. Representations, Warranties and Covenants of the Company.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and
when issued and paid for by the Warrantholder in accordance with the provisions
of this Warrant Agreement, will be validly issued, fully paid and non-
assessable, and will be free of any taxes, liens, charges or encumbrances of any
nature whatsoever; provided, however, that the Preferred Stock issuable pursuant
to this Warrant Agreement may be subject to restrictions on transfer under state
and/or Federal securities laws. The Company has made available to the
Warrantholder true, correct and complete copies of its Charter and Bylaws, as
amended, and minutes of all Board of Directors (including all committees of the
Board of Directors, if any) and Shareholder meetings from January, 1995 through
July, 1995. The issuance of certificates for shares of Preferred Stock upon
exercise of the Warrant Agreement shall be made without charge to the
Warrantholder for any issuance tax in respect thereof, or other cost incurred by
the Company in connection with such exercise and the related issuance of shares
of Preferred Stock. The Company shall not be required to pay any tax which may
be payable in respect of any transfer involved and the issuance and delivery of
any certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly
6.
<PAGE>
authorized by all necessary corporate action on the part of the Company, and
this Warrant Agreement is not inconsistent with the Company's Charter or Bylaws,
does not contravene any material law or governmental rule, regulation or order
applicable to it, does not and will not contravene any provision of, or
constitute a default under, any material indenture, mortgage, contract or other
instrument to which it is a party or by which it is bound, and this Warrant
Agreement constitutes a legal, valid and binding agreement of the Company,
enforceable in accordance with its terms, subject to laws of general application
from time to time in effect affecting creditor's rights and the exercise of
judicial discretion in accordance with general equitable principles.
(c) Consents and Approvals. No consent or approval of, giving of notice to,
registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices as required by
applicable federal and state securities laws, which filings will be effective by
the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with, or were exempt from, all Federal and state securities laws,
assuming the accuracy of all representations made by the purchasers thereof. In
addition, as of the Effective Date:
(i) The authorized capital of the Company consists of (A) 20,000,000
shares of Common Stock, of which 950,000 shares are issued and outstanding, (B)
526,819 shares of Class B Common Stock, all of which are issued and outstanding,
and (C) 7,000,000 shares of Preferred Stock, of which 5,328,571 shares are
issued and outstanding and are convertible into 5,328,517 shares of Common Stock
at $0.70 per share.
(ii) The Company has reserved 1,350,000 shares of Common Stock for
issuance under its 1994 Employee, Director and Consultant Stock Plan, under
which 665,000 options or rights to purchase Common Stock are currently
outstanding. Except for 92,858 warrants to purchase Common Stock outstanding as
of the date hereof and Common Stock conversion rights and certain rights of
first refusal in favor of the current holders of the Preferred Stock, there are
no other options, warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire any authorized but unissued shares
of the Company's capital stock or other securities of the Company.
(iii) Except for certain rights of first refusal in favor of current
holders of the Preferred Stock, no shareholder of the Company has preemptive
rights to purchase new issuances of the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance policies,
with extended coverage, insuring the Company and its property and business
against such material losses and risks, and in such amounts, as are customary
for corporations engaged in a similar
7.
<PAGE>
business and similarly situated and as otherwise may be required pursuant to the
terms of any other contract or agreement.
(f) Other Commitments to Register Securities. As of the Effective date,
except as set forth in this Warrant Agreement and its Registration Rights
Agreement with current holders of its Preferred Stock, the Company is not,
pursuant to the terms of any other agreement currently in existence, under any
obligation to register under the 1933 Act any of its presently outstanding
securities or any of its securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) applicable state securities laws.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement indicating if the Company is
in compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. Representations And Covenants Of The Warrantholder.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or
8.
<PAGE>
Preferred Stock issuable on the exercise of such rights do not apply to
transfers from the beneficial owner of any of the aforementioned securities to
its nominee or from such nominee to its beneficial owner, and shall terminate as
to any particular share of Preferred Stock when (1) such security shall have
been effectively registered under the 1933 Act and sold by the holder thereof in
accordance with such registration or (2) such security shall have been sold
without registration in compliance with Rule 144 under the 1933 Act, or (3) a
letter shall have been issued to the Warrantholder at its request by the staff
of the SEC or a ruling shall have been issued to the Warrantholder at its
request by the SEC stating that no action shall be recommended by such staff or
taken by the SEC, as the case may be, if such security is transferred without
registration under the 1933 Act in accordance with the conditions set forth in
such letter or ruling and such letter or ruling specifies that no subsequent
restrictions on transfer are required. Whenever the restrictions imposed
hereunder shall terminate, as hereinabove provided, the Warrantholder or holder
of a share of Preferred Stock then outstanding as to which such restrictions
have terminated shall be entitled to receive from the Company, without expense
to such holder, one or more new certificates for the Warrant or for such shares
of Preferred Stock not bearing any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the SEC pursuant to Section 12 of the 1933 Act,
or file reports pursuant to Section 15(d), of the Securities Exchange Act of
1934 (the "1934 Act"), or if a registration statement covering the securities
under the 1933 Act is not in effect when it desires to sell (i) the rights to
purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the
Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
11. Transfers.
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the
books of the Company upon receipt by the Company of a notice of transfer in the
form attached hereto as Exhibit II (the "Transfer Notice"), at its principal
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer. When this Warrant shall have
been so transferred pursuant to Section 11, the holder hereof may be treated by
the Company and all other persons dealing with this Warrant as the absolute
owner and holder hereof for any purpose and as the person entitled to exercise
the rights represented by this Warrant, or to the registration of transfer
hereof on the books of the Company; and until due presentment for registered
holders hereof as the owner and holder for all purposes, and the company shall
not be affected by notice to the contrary.
9.
<PAGE>
12. Miscellaneous.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days alter deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at 49
Tanglewood Road, Wellesley, MA 02481, attention: Gregory Stento and (ii) to the
Company at One Kendall Square, Building 600, Cambridge, Massachusetts 02139,
attention: President (and/or if by facsimile, (650) 825-2205) or at such other
address as any such party may subsequently designate by written notice to the
other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where such non-defaulting party will not have an adequate remedy at law
and where damages will not be readily ascertainable. The Company expressly
agrees that it shall not oppose an application by the Warrantholder or any other
person entitled to the benefit of this Agreement requiring specific performance
of any or all provisions hereof or enjoining the Company from continuing to
commit any such breach of this Agreement
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement
10.
<PAGE>
(i) Severability. In the event any one or more of the provisions of this
warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments; Headings. Any provision of this Warrant Agreement may be
amended by a written instrument signed by the Company and by the Warrantholder.
The headings in this Warrant Agreement are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof.
(k) Additional Documents. The Company, upon execution of this warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company
shall also supply such other documents as the Warrantholder may from time to
time reasonably request.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
11.
<PAGE>
In Witness Whereof, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: Exelixis Pharmaceuticals, Inc.
By: /s/ George A. Scangos
------------------------------------------
Title: President, CEO
---------------------------------------
Warrantholder: Gregory Stento
By: /s/ Gregory Stento
------------------------------------------
Title:
---------------------------------------
12.
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To:________________________
(1) The undersigned Warrantholder hereby elects to purchase shares of the
Series A Preferred Stock of Exelixis Pharmaceuticals, Inc., pursuant to
the terms of the Warrant Agreement dated the 17th day of August, 1998 (the
"Warrant Agreement") between Exelixis Pharmaceuticals, Inc. and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of Exelixis
Pharmaceuticals, Inc., the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series A Preferred Stock in the name of the undersigned or in such other
name as is specified below.
____________________________
(Name)
____________________________
(Address)
Warrantholder: Gregory Stento
By:_________________________
Title:______________________
Date:_______________________
13.
<PAGE>
ACKNOWLEDGMENT OF EXERCISE
The undersigned ____________________________, hereby acknowledges receipt
of the "Notice of Exercise" from Gregory Stento, to purchase _____ shares of the
Series A Preferred Stock of Exelixis Pharmaceuticals, Inc., pursuant to the
terms of the Warrant Agreement, and further acknowledges that ________________
shares remain subject to purchase under the terms of the Warrant Agreement.
Company: Exelixls Pharmaceuticals, Inc.
By:_____________________________________
Title:__________________________________
Date:___________________________________
14.
<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
____________________________________________________
(Please Print)
whose address is____________________________________
____________________________________________________
Dated__________________________________________
Holder's Signature_____________________________
Holder's Address_______________________________
_______________________________________________
Signature Guaranteed:_______________________________
NOTE: The signature to this Transfer Notice must correspond with the
name as it appears on the face of the Warrant Agreement, without
alteration or enlargement or any change whatever. Officers of
corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority
to assign the foregoing Warrant Agreement
15.
<PAGE>
EXHIBIT 4.5
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURIITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION
OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 7 OF THIS WARRANT.
EXELIXIS PHARMACEUTICALS, INC.
WARRANT TO PURCHASE
SHARES OF PREFERRED STOCK
THIS CERTIFIES THAT, for value received, and subject to the provisions
and upon the terms and conditions hereinafter set forth, MMC/GATX PARTNERSHIP
NO. I and its assignees are entitled to subscribe for and purchase up to 357,143
shares of the fully paid and nonassessable shares of Preferred Stock (as
adjusted pursuant to Section 4 hereof, the "Shares") of EXELIXIS
PHARMACEUTICALS, INC., a Delaware corporation (the "Company") at the price per
share (such price and such other price as shall result, from time to time, from
the adjustments specified in Section 4 hereof is herein referred to as the
"Warrant Price") as shall be determined in accordance with Section 1 (a) hereof.
The Preferred Stock issuable hereunder shall be shares of the series of
Preferred Stock (expected to be Series B Preferred Stock) issued to investors in
a financing having aggregate net proceeds in excess of $4,000,000 (whether in
one transaction or in a series of transactions after the date of this Warrant
and excluding the conversion of debt to equity) (a "Qualified Financing");
provided, that if no Qualified Financing occurs prior to April 30, 1996, then
the Preferred Stock issuable hereunder shall be Series A Preferred Stock. As
used herein, (a) the term "Series Preferred" shall mean the Company's presently
authorized Series A Preferred Stock or contemplated Series B Preferred Stock (as
determined pursuant to the preceding sentence), and any stock into or for which
such Series A Preferred Stock or Series B Preferred Stock, as applicable, may
hereinafter be converted or exchanged, (b) the term "Date of Grant" shall mean
the date as set forth on the signature page hereof; and (c) the term "Other
Warrants" shall mean any other warrants issued by the Company in connection with
the transaction with respect to which this Warrant was issued, and any warrant
issued upon transfer or partial exercise of this Warrant. The term "Warrant" as
used herein shall be deemed to include Other Warrants unless the context clearly
requires otherwise.
1. Warrant Price: Term
(a) Warrant Price. The Warrant Price shall be determined as follows:
(i) If the Company completes a Qualified Financing on or prior to
April 30, 1996, and the price paid by investors in such Qualified Financing is
less than $1.00 per share, then the Warrant Price shall be determined by using
the following formula:
Exercise Price = X + Y
_____
2
1.
<PAGE>
Where: X = The price per share of the Series A Preferred Stock (i.e., $0.70).
Y = The price per share of the Series B Preferred Stock in a Qualified
Financing
(ii) If the Company does not complete a Qualified Financing on or
prior to April 30, 1996, then the Warrant Price shall be $.70.
(iii) If the Company does complete a Qualified Financing prior to
April 30, 1995, but the price paid by investors in such financing is equal to or
greater than $1.00 per share, then, the Warrant Price shall be $0.85 per share.
(b) Term. The purchase right represented by this Warrant is
exercisable, in whole or in part, at anytime and from time to time from the Date
of Grant through the later of (i) ten (10) years after the Date of Grant or (ii)
five (5) years after the closing of the Company's initial public offering of its
Common Stock effected pursuant to a Registration Statement on Form S-I (or its
successor) filed under the Securities Act of 1933, as amended (the "Act").
2. Method of Exercise: Payment: Issuance of New Warrant. Subject to
Section 1 hereof the purchase right represented by this Warrant may be exercised
by the holder hereof in whole or in part and from time to time, at the election
of the holder hereof, (a) the surrender of this Warrant (with the notice of
exercise substantially in the form attached hereto as Exhibit A duly completed
and executed) at the principal office of the Company and by the payment to the
Company, by certified or bank check, or by wire transfer to an account
designated by the Company (a "Wire Transfer") of an amount equal to the then
applicable Warrant Price multiplied by the number of Shares then being
purchased, or (b) if in connection with a registered public offering of the
Company's securities, the surrender of this Warrant (with the notice of exercise
form attached hereto as Exhibit A-I duly completed and executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by certified or
bank check or by Wire Transfer from the proceeds of the sale of shares to be
sold by the holder in such public offering of an amount equal to the then
applicable Warrant Price per share multiplied by the number of Shares then being
purchased, or (c) exercise of the right provided for in Section 10.3 hereof.
The person or persons in whose name(s) any certificate(s) representing shares of
Series Preferred shall be issuable upon exercise of this Warrant be deemed to
have become the holder(s) of record of, and shall be treated for all purposes as
the record holder(s) of, the shares represented thereby (and such shares shall
be deemed to have been issued) immediately prior to the close of business on the
date or dates upon which this Warrant is exercised. In the event of any
exercise of the rights represented by this Warrant, certificates for the shares
of stock so purchased shall be delivered to the holder hereof as soon as
possible and in any event within thirty (30) days alter such exercise and,
unless this Warrant has been fully exercised or expired, a new Warrant
representing the portion of the Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the holder
hereof as soon as possible and in any event within such thirty-day period.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens and charges
2.
<PAGE>
with respect to the issue thereof. 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 the purpose of the issue upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Series Preferred to provide for the exercise of the rights represented by this
Warrant and a sufficient number of shares of its Common Stock to provide for the
conversion of the Series Preferred into Common Stock.
4. Adjustment of Warrant Price and Number of Shares. The number and kind
of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
(a) Reclassification or Merger. In case of any reclassification or
change of securities of the class issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in case
of any merger of the Company with or into another corporation (other than a
merger with another corporation in which the Company is the acquiring and the
surviving corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation, as the case may be, shall
duly execute and deliver to the holder of this Warrant a new Warrant (in form
and substance satisfactory to the holder of this Warrant), so that the holder of
this Warrant shall have the right to receive, at a total purchase price not to
exceed that payable upon the exercise of the unexercised portion of this
Warrant, and in lieu of the shares of Series Preferred theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change or
merger by a holder of the number of shares of Series Preferred then purchasable
under this Warrant. Such new Warrant shall provide for adjustments that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 4 and, in the case of a new Warrant issuable after conversion of
the authorized shares of the Series Preferred into shares of Common Stock or
after the amendment of the terms of the antidilution protection of the Series
Preferred, shall provide for antidilution protection that shall be as nearly
equivalent as may be practicable to the antidilution provisions applicable to
the Series Preferred on the Date of Grant. The provisions of this subparagraph
(a) shall similarly apply to successive reclassifications, changes, mergers and
transfers.
(b) Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its outstanding shares of Series Preferred, the Warrant Price shall be
proportionately decreased in the ease of a subdivision or incurred in the case
of a combination, effective at the close of business on the date the subdivision
or combination becomes effective.
(c) Stock Dividends and Other Distributions. If the Company at any
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Series Preferred payable in Series Preferred, or (ii) make any
other distribution with respect to Series Preferred (except any distribution
specifically provided for in Sections 4(a) and 4(b), of Series Preferred, then
the Warrant Price shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that price
determined by
3.
<PAGE>
multiplying the Warrant Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total number
of shares of Series Preferred outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of
shares of Series Preferred outstanding immediately after such dividend or
distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price, the number of Shares of Series Preferred purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
(e) Antidilution Rights. The other antidilution rights applicable to
the Shares of Series Preferred purchasable hereunder are set forth in the
Company's Certificate of Incorporation, as amended through the Date of Grant, a
true and complete copy of which is attached hereto as Exhibit B (the "Charter").
Such antidilution rights shall not be restated, amended, modified or waived in
any manner that is adverse to the holder hereof without such holder's prior
written consent. The Company shall promptly provide the holder hereof with any
restatement, amendment, modification or waiver of the Charter promptly after the
same has been made.
5. Notice of Adjustment. Whenever the Warrant Price or the number of
Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the
Company shall make a certificate signed by its chief financial officer 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 the number of Shares purchasable hereunder after giving effect
to such adjustment, and shall cause copies of such certificate to be mailed
(without regard to Section 13 hereof, by first class mail, postage prepaid) to
the holder of this Warrant. In addition, whenever the conversion price or
conversion ratio of the Series Preferred shall be adjusted, the Company shall
make a certificate signed by its chief financial officer 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
conversion price or ratio of the Series Preferred after giving effect to such
adjustment, and shall cause copies of such certificate to be mailed (without
regard to Section 13 hereof, by first class mail, postage prepaid) to the holder
of this Warrant.
6. Fractional Shares. No fractional shares of Series Preferred will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value of the Series Preferred on the date of exercise as reasonably determined
in good faith by the Company's Board of Directors.
7. Compliance with Act: Disposition of Warrant or Shares of Series
Preferred.
(a) Compliance with Act. The holder of this Warrant, by acceptance
hereof; agrees that this Warrant, and the shares of Series Preferred to be
issued upon exercise hereof and any Common Stock issued upon conversion thereof
are being acquired for investment and that
4.
<PAGE>
such holder will not offer, sell or otherwise dispose of this Warrant, or any
shares of Series Preferred to be issued upon exercise hereof or any Common Stock
issued upon conversion thereof except under circumstances which will not remit
in a violation of the Act or any applicable state securities laws. Upon exercise
of this Warrant, unless the Shares being acquired are registered under the Act
and any applicable state securities laws or an exemption from such registration
is available, the holder hereof shall confirm in writing that the shares of
Series Preferred so purchased (and any shares of Common Stock issued upon
conversion thereof) are being acquired for investment and not with a view toward
distribution or resale in violation of the Act and shall confirm such other
matters related thereto as may be reasonably requested by the Company. This
Warrant and all shares of Series Preferred issued upon exercise of this Warrant
and all shares of Common Stock issued upon conversion thereof (unless registered
under the Act and any applicable state securities laws) shall be stamped or
imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE
REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL
OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS
FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER
WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a holder,
at such time as the restrictions on the transfer of the applicable security
shall have terminated. In addition, in connection with the issuance of this
Warrant, the holder specifically represents to the Company by acceptance of this
Warrant as follows:
(1) The holder is aware of the Company's business affairs
and financial condition, and has acquired information about the Company
sufficient to reach an informed and knowledgeable decision to acquire this
Warrant. The holder is acquiring this Warrant for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof in violation of the Act.
(2) The holder understands that this Warrant has not been
registered under the Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the holder's
investment intent as expressed herein.
(3) The holder further understands that this Warrant must be
held indefinitely unless subsequently registered under the Act and qualified
under any applicable state securities laws, or unless exemptions from
registration and qualification are otherwise available. The holder is aware of
the provisions of Rule 144, promulgated under the Act.
5.
<PAGE>
(b) Disposition of Warrant or Shares. With respect to any offer, sale
or other disposition of this Warrant or any shares of Series Preferred acquired
pursuant to the exercise of this Warrant prior to registration of such Warrant
or shares, the holder hereof agrees to give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such holder's counsel, or other evidence, if reasonably requested by the
Company, to the effect that such offer, sale or other disposition may be
effected without registration or qualification (under the Act as then in effect
or any federal or state securities law then in effect) of this Warrant or such
shares of Series Preferred or Common Stock and indicating whether or not under
the Act certificates for this Warrant or such shares of Series Preferred to be
sold or otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to ensure compliance with such law.
Promptly upon receiving such written notice and reasonably satisfactory opinion
or other evidence, if so requested, Company, as promptly as practicable but no
later than fifteen (15) days after receipt of the written notice, shall notify
such holder that such holder may sell or otherwise dispose of this Warrant or
such shares of Series Preferred or Common Stock, all in accordance with the
terms of the notice delivered to the Company. If determination has been made
pursuant to this Section 7(b) that the opinion of counsel for the holder or
other evidence is not reasonably satisfactory to the Company, the Company shall
so notify the holder promptly with details thereof after such determination has
been made. Notwithstanding the foregoing, this Warrant or such shares of Series
Preferred or Common Stock may, as to such federal laws, be offered, sold or
otherwise disposed of in accordance with Rule 144 or 144A under the Act,
provided that the Company shall have been furnished with such information as the
Company may reasonably request to provide a reasonable assurance that the
provisions of Rule 144 or 144A have been satisfied. Each certificate
representing this Warrant or the shares of Series Preferred thus transferred
(except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
such laws, unless in the aforesaid opinion of counsel for the holder, such
legend is not required in order to ensure compliance with such laws. The Company
may issue stop transfer instructions to its transfer agent in connection with
such restrictions.
(c) Applicability of Restriction. Neither any restrictions of any
legend described in this Warrant nor the requirements of Section 7(b) above
shall apply to any transfer of, or grant of a security interest in, this Warrant
(or the Series Preferred or Common Stock obtainable upon exercise thereof) or
any part hereof (i) to a partner of the holder if the holder is a partnership,
(ii) to a partnership of which the holder is a partner, or (iii) to any
affiliate of the holder if the holder is a corporation; however, in any such
transfer, if applicable, the transferee shall on the Company's request agree in
writing to be bound by the terms of this Warrant as if an original signatory
hereto.
8. Rights as Shareholders; Information. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder of
Series Preferred or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall
6.
<PAGE>
have become deliverable, as provided herein. Notwithstanding the foregoing, the
Company will transmit to the holder of this Warrant such information, documents
and reports as are generally distributed to the holders of any class or series
of the securities of the Company concurrently with the distribution thereof to
the shareholders.
9. Registration Rights. The Company grants registration rights to the
holder of this Warrant for any Common Stock of the Company obtained upon
conversion of the Series Preferred, comparable to the registration rights
granted to the investors in that certain Registration Rights Agreement dated as
of January 27, 1995 (the "Registration Rights Agreement"), with the following
exceptions and clarifications:
(1) The holder will have no demand registration rights.
(2) The holder will be subject to the same provisions
regarding indemnification as contained in the Registration Rights Agreement.
(3) The registration rights are freely assignable by the
holder of this Warrant.
10. Additional Rights.
10.1 Secondary Sales. The Company agrees that it will not interfere
with the holder of this Warrant in obtaining liquidity if opportunities to make
secondary sales of the Company's securities become available. To this end, the
Company will promptly provide the holder of this Warrant with notice of any
offer (of which it has knowledge) to acquire from the Company's security holders
more than five percent (5%) of the total voting power of the Company and will
not interfere with any attempt by the holder in arranging the sale of this
Warrant to the person or persons making such offer.
10.2 Mergers. The Company shall provide the holder of this Warrant
with at least thirty (30) days' notice of the terms and conditions of any of the
following potential transactions: (i) the sale, lease, exchange, conveyance or
other disposition of all or substantially all of the Company's property or
business, or (ii) its merger into or consolidation with any other corporation
(other than a wholly-owned subsidiary of the Company), or any transaction
(including a merger or other reorganization) or series of related transactions,
in which more than 50% of the voting power of the Company is disposed of. The
Company will cooperate with the holder in arranging the sale of this Warrant in
connection with any such transaction.
10.3 Right to Convert Warrant into Stock: Net Issuance.
(a) Right to Convert. In addition to and without limiting the
rights of the holder under the terms of this Warrant, the holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
into shares of Series Preferred (or Common Stock if the Series Preferred has
been automatically converted into Common Stock) as provided in this Section 10.3
at any time or from time to time during the term of this Warrant. Upon exercise
of the Conversion Right with respect to a particular number of shares subject to
this Warrant (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) (X) that number
7.
<PAGE>
of shares of fully paid and nonassessable Series Preferred (or Common Stock if
the Series Preferred has been automatically converted into Common Stock) equal
to the quotient obtained by dividing the value of this Warrant (or the specified
portion hereof) on the Conversion Date (as defined in subsection (b) hereof),
which value shall be determined by subtracting (A) the aggregate Warrant Price
of the Converted Warrant Shares immediately prior to the exercise of the
Conversion Right from (B) the aggregate fair market value of the Converted
Warrant Shares issuable upon exercise of this Warrant (or the specified portion
hereof) on the Conversion Date (as herein defined) by (Y) the fair market value
of one share of Series Preferred (or Common Stock if the Series Preferred has
been automatically converted into Common Stock) on the Conversion Date (as
herein defined).
Expressed as a formula, such conversion (assuming the Series Preferred has
been automatically converted into Common Stock) shall be computed as follows:
X = B - A
_____
Y
Where: X = The number of shares of Common Stock that may be issued to
holder.
Y = The fair market value (FMV) of one share of Common Stock.
A = The aggregate Warrant Price (i.e., Converted Warrant Shares x
Warrant Price).
B = The aggregate FMV (i.e., FMV x Converted Warrant Shares).
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined). For purposes
of Section 9 of this Warrant, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the exercise of this Warrant.
(b) Method of Exercise. The Conversion Right may be exercised by the
holder by the surrender of this Warrant at the principal office of the Company
together with a written statement specifying that the holder thereby intends to
exercise the Conversion Right and indicating the number of shares subject to
this Warrant which are being surrendered (referred to in Section 10.3(a) hereof
as the Converted Warrant Shares) in exercise of the Conversion Right Such
conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"), and, at the election of the holder
hereof, may be made contingent upon the closing of the sale of the Company's
Common Stock to the public in a public offering pursuant to a Registration
Statement under the Act (a "Public Offering"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant shall be
issued as of the Conversion Date and shall be delivered to the holder within
thirty (30) days following the Conversion Date. Any conversion from Series
Preferred to Common Stock shall be in the ratio of one (1) share of Common Stock
for each share of Series Preferred (as adjusted hereto and in the Charter). On
the
8.
<PAGE>
Date of Grant, each share of the Series Preferred represented by this Warrant is
convertible into one share of Common Stock.
(c) Determination of Fair Market Value. For purposes of this Section
10.3, "fair market value" of a share of Series Preferred (or Common Stock if the
Series Preferred has been automatically convened into Common Stock) as of a
particular date (the "Determination Date") shall mean:
(i) If the Conversion Right is exercised in connection with and
contingent upon a Public Offering, and if the Company's Registration Statement
relating to such Public Offering ("Registration Statement") has been declared
effective by the SEC, then the initial "Price to Public" specified in the final
prospectus with respect to such offering.
(ii) If the Conversion Right is not exercised in connection with
and contingent upon a Public Offering, then as follows:
(1) If traded on a securities exchange, the fair market value
of the Common Stock shall be deemed to be the average of the closing prices of
the Common Stock on such exchange over the 30-day period ending five business
days prior to the Determination Date, and the fair market value of the Series
Preferred shall be deemed to be such fair market value of the Common Stock
multiplied by the number of shares of Common Stock into which each share of
Series Preferred is then convertible;
(2) If traded over-the-counter, the fair market value of the
Common Stock shall be deemed to be the average of the closing bid prices of the
Common Stock over the 30-day period ending five business days prior to the
Determination Date, and the fair market value of the Series Preferred shall be
deemed to be such fair market value of the Common Stock multiplied by the number
of shares of Common Stock into which each share of Series Preferred is then
convertible; and
(3) If there is no public market for the Common Stock, then
fair market value shall be determined by mutual agreement of the holder of this
Warrant and the Company.
11. Representations and Warranties. The Company represents and warrants
to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and the rules of law or principles at
equity governing specific performance, injunctive relief and other equitable
remedies;
(b) The Shares have been duly authorized and reserved for issuance: by
the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable;
9.
<PAGE>
(c) The rights, preferences, privileges and restrictions granted to or
imposed upon the Series Preferred and the holders thereof are as set forth in
the Charter, as amended to the Date of the Grant, a true and complete copy of
which has been delivered to the original holder of this Warrant and is attached
hereto as Exhibit B;
(d) The shares of Common Stock issuable upon conversion of the Shares
have been duly authorized and reserved for issuance by the Company and, when
issued in accordance with the terms of the Charter will be validly issued, fully
paid and nonassessable;
(e) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Charter or by-laws, do
not and will not contravene any law, governmental rule or regulation, judgment
or order applicable to the Company, and do not and will not conflict with or
contravene any provision of, or constitute a default under, any indenture,
mortgage, contact or other instrument of which the Company is a party or by
which it is bound or require the consent or approval of, the giving of notice
to, the registration or filing with or the taking of any action in respect of or
by, any Federal, state or local government authority or agency or other person,
except for the filing of notices pursuant to federal and state securities laws,
which filings will be effected by the time required thereby; and
(f) There are no actions, suits, audits, investigations or proceedings
pending or, to the knowledge of the Company, threatened against the Company in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Company to perform its obligations under this Warrant.
12. Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought
13. Notices. Any notice, request, communication or other document required
or permitted to be given or delivered to the holder hereof or the Company shall
be delivered, or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address indicated therefor on the signature page of this
Warrant.
14. Binding Effect on Successors. This Warrant shall be binding upon any
corporation 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 relating to the Series Preferred issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights (including, without limitation, any right
to registration of the Shares) to which the holder hereof shall continue to be
entitled after such exercise or conversion in accordance with this Warrant;
provided, that the failure of
10.
<PAGE>
the holder hereof to make any such request shall not affect the continuing
obligation of the Company to the holder hereof in respect of such rights.
15. Lost Warrants or Stock Certificates. The Company covenants to the
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in this case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
constructed as to its fair meaning without regard to which party drafted this
Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California; provided, however, that any matters herein dealing with
the internal corporate governance of the Company or the rights, preferences and
privileges applicable to the Company's capital stock shall be governed by the
laws of the State of Delaware.
18. Survival of Representations, Warranties and Agreements. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by respective terms, they are no longer
operative.
19. Remedies. In case any one or more of the covenants and agreements
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Warrant.
20. No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, 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 of this Warrant against impairment.
21. Severability. The invalidity or unenforceability of any provision of
this Warrant in any jurisdiction shall not affect tile validity or
enforceability of such provision in any other jurisdiction, or affect any other
provision of this Warrant, which shall remain in full force and effect.
22. Recovery of Litigation Costs. If any legal action or other proceeding
is brought for the enforcement of this Warrant, or because of an alleged
dispute, breach, default, or
11.
<PAGE>
misrepresentation in connection with any of the provisions of this Warrant, the
successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
23. Entire Agreement: Modification. This Warrant constitutes the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.
Date of Grant: January 24, 1996 EXELIXIS PHARMACEUTICALS, INC.,
a Delaware corporation
By: /s/ Jean-Francois Formela
------------------------------------------
Name: Jean-Francois Formela
----------------------------------------
Title: Chief Executive Officer
---------------------------------------
Address: One Kendall Square Building 600
Cambridge, MA 02139
12.
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: EXELIXIS PHARMACEUTICALS, INC
1. The undersigned hereby:
[_] elects to purchase _________ shares of _________ Stock of
EXELIXIS PHARMACEUTICALS, INC. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase
price of such shares in full, or
[_] elects to exercise its net issuance rights pursuant to Section
10.3 of the attached Warrant with respect to ___________ Shares
of __________Stock.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below:
_____________________________________
(Name)
_____________________________________
_____________________________________
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
all except as in compliance with applicable securities laws.
__________________
Date
___________________________________
Signature
13.
<PAGE>
EXHIBIT A-I
NOTICE OF EXERCISE
To: EXELIXIS PHARMACEUTICALS. INC. (the "Company")
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S____ , filed ________, 19___, the undersigned hereby:
[_] elects to purchase ______ shares of ______ Stock of the Company
(or such lesser number of shares as may be sold on behalf of the
undersigned at the Closing) pursuant to the terms of the attached
Warrant, or
[_] elects to exercise its net issuance rights pursuant to Section
10.3 of the attached Warrant with respect to Shares of Stock.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such __________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $__________ or, if less, the net proceeds
due the undersigned from the sale of shares in the aforesaid public offering. If
such net proceeds are less than the purchase price for such shares, the
undersigned agrees to deliver the difference to the Company prior to the
Closing.
_________________
Date
___________________________________
Signature
14.
<PAGE>
EXHIBIT 4.6
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO
SALE OR DISPOSITION MAY BE EFFECTED) WITHOUT (i) EFFECTIVE
REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF
COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii)
RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITIES, OR (IV) OTHERWISE COMPLYING WITH
THE PROVISIONS OF SECTION 7 OF THIS WARRANT.
EXELIXIS PHARMACEUTICALS, INC.
WARRANT TO PURCHASE 85,000 SHARES
OF COMMON STOCK
This Certifies That, for value received, MMC/GATX Partnership No. 1 and its
assignees are entitled to subscribe for and purchase 85,000 shares of the fully
paid and nonassessable Common Stock (as adjusted pursuant to Section 4 hereof,
the "Shares") of Exelixis Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), at the price of $2.00 per share (such price and such other price as
shall result, from time to time, from the adjustments specified in Section 4
hereof is hereto referred to as the "Warrant Price"), subject to the provisions
and upon the terms and conditions hereinafter set forth. As used herein, (a) the
term "Date of Grant" shall mean September 25, 1997, and (b) the term "Other
Warrants" shall mean any other warrants issued by the Company in connection with
the instruction with respect to which this Warrant was issued, and any warrant
issued upon transfer or partial exercise of this Warrant. The term "Warrant" as
used herein shall be deemed to include Other Warrants unless the context clearly
requires otherwise.
1. Term. The purchase right represented by this Warrant is exercisable, in
whole or in part, at any time and from time to time from the Date of Grant
through the later of (i) ten (10) years after the Date of Grant or (ii) five (5)
years after the closing of the Company's initial public offering of its Common
Stock effected pursuant to a Registration Statement on Form S-I (or its
successor) filed under the Securities Act of 1933, as amended (the "Act").
2. Method of Exercise: Payment: Issuance of New Warrant. Subject to Section I
hereof, the purchase right represented by this Warrant may be exercised by the
holder hereof, in whole or in part and from time to time, at the election of the
holder hereof, by (a) the surrender of this Warrant (with the notice of exercise
substantially in the form attached hereto as Exhibit A duly completed and
executed) at the principal office of the Company and by the payment to the
Company, by certified or bank check, or by wire transfer to an account
designated by the Company (a "Wire Transfer") of an amount equal to the then
applicable Warrant Price multiplied by the number of Shares then being
purchased, or (b) if in connection with a registered public offering of the
Company's securities, the surrender of this Warrant (with the notice of exercise
form attached hereto as Exhibit A- 1 duly completed and executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by certified or
bank check or by Wire Transfer from the proceeds
1.
<PAGE>
of the sale of shares to be sold by the holder in such public offering of an
amount equal to the then applicable Warrant Price per share multiplied by the
number of Shares then being purchased, or (c) exercise of the right provided for
in Section 10.3 hereof. The person or persons in whose name(s) any
certificate's) representing the Shares shall be issuable upon exercise of this
Warrant shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the shares represented
thereby (and such shares shall be deemed to have been issued) immediately prior
to the close of business on the date or dates upon which this Warrant is
exercised. In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of stock so purchased shall be delivered to
the holder hereof as soon as possible and in any event within thirty (30) days
after such exercise and, unless this Warrant has been exercised or expired, a
new Warrant representing the portion of the Shares, if any, with respect to
which this Warrant shall not then have been exercised shall also be issued to
the holder hereof as soon as possible and in any event within such thirty-day
period.
3. Stock Fully Paid: Reservation of Shares. All Shares that may be issued
upon the exercise of the rights represented by this Warrant will, upon issuance
pursuant to the terms and conditions herein, be fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
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 the
purpose of the issue upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and kind of
securities purchasable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
(a) Reclassification or Merger. In case of any reclassification or change
of securities of the class issuable upon exercise of this Warrant (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in case of any
merger of the Company with or into another corporation (other than a merger with
another corporation in which the Company is the acquiring and the surviving
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or in case of
any sale of all or substantially all of the assets of the Company, the Company,
or such successor or purchasing corporation, as the case may be, shall duly
execute and deliver to the holder of this Warrant a new Warrant (in form and
substance satisfactory to the holder of this Warrant), so that the holder of
this Warrant shall have the right to receive, at a total purchase price not to
exceed that payable upon the exercise of the unexercised portion of this
Warrant, and in lieu of the shares of Common Stock theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change or
merger by a holder of the number of shares of Common Stock then purchasable
under this Warrant. Such new Warrant shall provide for adjustments that shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Section 4. The provisions of this subparagraph (a) shall similarly apply
to successive reclassifications, changes, mergers and transfers.
2.
<PAGE>
(b) Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the
case of a combination, effective at the close of business on the date the
subdivision or combination becomes effective.
(c) Stock Dividends and Other Distribution. If the Company at any time
while this Warrant is outstanding and unexpired shall (i) pay a dividend with
respect to Common Stock payable in Common Stock, or (ii) make any other
distribution of Common Stock with respect to Common Stock (except any
distribution specifically provided for in Sections 4(a) and 4(b)), then the
Warrant Price shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Warrant Price in effect immediately prior to such
date of determination by a fraction (i) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in the Warrant
Price, the number of Shares purchasable hereunder shall be adjusted, to the
nearest whole share, to the product obtained by multiplying the number of Shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price immediately prior to
such adjustment and the denominator of which shall be the Warrant Price
immediately thereafter.
(e) Antidilution Rights. In the event that the "Series C Conversion Price"
(as defined in the Company's Restated Certificate of Incorporation, as amended
through the Date of Grant, a true and complete copy of which is attached hereto
as Exhibit B (the "Charter")), is reduced from time to time after the Date of
Grant pursuant to the antidilution rights applicable to the Series C Convertible
Preferred Stock set forth in Section 2(f) of Article Fourth of the Charter
(other than reductions covered by Sections 4(b) or 4(c) of this Warrant), then
the same reduction shall be made forthwith to the Warrant Price, subject to
proportionate adjustment to reflect any stock split or combination, stock
dividend or similar event occurring after the Date of Grant. The intent of this
Paragraph 4(e) is to provide the holder of this Warrant with the same
antidilution protection as would have prevailed if this Warrant had entitled the
holder hereof to purchase shares of the Company's Series C Convertible Preferred
Stock (rather than Common Stock), as such antidilution protection is set forth
in the Charter. Such antidilution rights shall not be amended, modified or
waived in any manner that is materially adverse to the holder hereof without
such holder's prior written consent, which consent shall not be unreasonably
withheld or delayed. The Company shall provide the holder hereof with a copy of
any restatement, amendment, modification or waiver of the Charter promptly after
the same has been made.
5. Notice of Adjustments. Whenever the Warrant Price or the number of Shares
purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the
Company shall make a certificate signed by its chief financial officer 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 the number of Shares purchasable hereunder after
3.
<PAGE>
giving effect to such adjustment, and shall cause copies of such certificate to
be mailed (without regard to Section 13 hereof, by first class mall, postage
prepaid) to the holder of this Warrant at such holder's last known address.
6. Fractional Shares. No fractional shares of Common Stock will be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor based on the fair market value of
the Common Stock on the date of exercise as reasonably determined in good faith
by the Company's Board of Directors.
7. Compliance with Act: Disposition of Warrant or Shares of Common Stock.
(a) Compliance with Act. The holder of this Warrant, by acceptance
hereof, agrees that this Warrant, and the Shares to be issued upon exercise
hereof are being acquired for investment and that such holder will not offer,
sell or otherwise dispose of this Warrant, or any Shares except under
circumstances which will not result in a violation of the Act or any applicable
state securities laws. Upon exercise of this Warrant, unless the Shares being
acquired are registered under the Act and any applicable state securities laws
or an exemption from such registration is available, the holder hereof shall
confirm in writing that the Shares so purchased are being acquired for
investment and not with a view toward distribution or resale in violation of the
Act and shall confirm such other matters related thereto as may be reasonably
requested by the Company. This Warrant and all Shares issued upon exercise of
this Warrant (unless registered under the Act and any applicable state
securities laws) shall be stamped or imprinted with a legend in substantially
the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE
REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS
FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH
THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a holder,
at such time as the restrictions on the transfer of the applicable security
shall have terminated. In addition, in connection with the issuance of this
Warrant, the holder specifically represents to the Company by acceptance of this
Warrant as follows:
(i) The holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company
sufficient to reach an informed and knowledgeable decision to acquire this
Warrant. The holder is acquiring this Warrant for its own account for
investment purposes only and not with a view to, or for the resale in
connection with, any "distribution" thereof in violation of the Act.
4.
<PAGE>
(ii) The holder understands that this Warrant has not been
registered under the Act in reliance upon a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
the holder's investment intent as expressed herein.
(iii) The holder further understands that this Warrant must be
held indefinitely unless subsequently registered under the Act and qualified
under any applicable state securities laws, or unless exemptions from
registration and qualification are otherwise available. The holder is aware of
the provisions of Rule 144, promulgated under the Act.
(b) Disposition of Warrant or Shares. With respect to any offer, sale or
other disposition of this Warrant or any Shares acquired pursuant to the
exercise of this Warrant prior to registration of such Warrant or Shares, the
holder hereof agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of such
holder's counsel, or other evidence, if reasonably requested by the Company, to
the effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any federal or
state securities law then in effect) of this Warrant or the Shares and
indicating whether or not under the Act certificates for this Warrant or the
Shares to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to ensure compliance with
such law. Promptly upon receiving such written notice and reasonably
satisfactory opinion or other evidence, if so requested, the Company, as
promptly as practicable but no later than fifteen (15) days after receipt of the
written notice, shall notify such holder that such holder may sell or otherwise
dispose of this Warrant or such Shares, all in accordance with the terms of the
notice delivered to the Company. If a determination has been made pursuant to
this Section 7(b) that the opinion of counsel for the holder or other evidence
is not reasonably satisfactory to the Company, the Company shall so notify the
holder promptly with details thereof after such determination has been made.
Notwithstanding the foregoing, this Warrant or such Shares may, as to such
federal laws, be offered, sold or otherwise disposed of in accordance with Rule
144 or 144A under the Act, provided that the Company shall have been furnished
with such information as the Company may reasonably request to provide a
reasonable assurance that the provisions of Rule 144 or 144A have been
satisfied. Each certificate representing this Warrant or the Shares thus
transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with such laws, unless in the aforesaid opinion of counsel for the
holder, such legend is not required in order to ensure compliance with such
laws. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
(c) Applicability of Restrictions. Neither any restrictions of any legend
described in this Warrant nor the requirements of Section 7(b) above shall
apply to any transfer of, or grant of a security interest in, this Warrant (or
the Common Stock obtainable upon exercise thereof) or any part hereof (i) to a
partner of the holder if the holder is a partnership, (ii) to a partnership of
which the holder is a partner, or (iii) to any affiliate of the holder if the
holder is a corporation; provided, however, in any such transfer, if applicable,
the transferee shall on the Company's request agree in writing to be bound by
the terms of this Warrant as if an original signatory hereto.
5.
<PAGE>
8. Rights as Shareholders: Information. No holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of
Shares, nor shall anything contained herein be construed to confer upon the
holder of this Warrant, as such, any of the rights of a shareholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until this
Warrant shall have been exercised and the Shares purchasable upon the exercise
hereof shall have become deliverable, as provided herein. Notwithstanding the
foregoing, the Company will transmit to the holder of this Warrant such
information, documents and reports as are generally distributed to the holders
of any class or series of the securities of the Company concurrently with the
distribution thereof to the shareholders.
9. Registration Rights. The Company grants registration rights to the holder
of this Warrant for any Common Stock of the Company obtained upon exercise
hereof, comparable to the registration rights granted in that certain Second
Amended and Restated Registration Rights Agreement dated as of April 8, 1997
(the "Registration Rights Agreement") to the Investors (as defined in the
Registration Rights Agreement), with the following exceptions:
(i) The holder will have no demand registration rights.
(ii) The holder will be subject to the same provisions regarding
indemnification as contained in the Registration Rights Agreement.
(iii) The registration rights are freely assignable by the holder
of this Warrant.
10. Additional Rights.
10.1 Secondary Sales. The Company agrees that it will not interfere with
the holder of this Warrant in obtaining liquidity if opportunities to make
secondary sales of the Company's securities become available. To this end, the
Company will promptly provide the holder of this Warrant with notice of any
offer (of which it has knowledge) to acquire from the Company's security holders
more than five percent (5%) of the total voting power of the Company and will
not interfere with any attempt by the holder in arranging the sale of this
Warrant to the person or persons making such offer.
10.2 Mergers. The Company shall provide the holder of this Warrant with at
least thirty (30) days' notice of the terms and conditions of any of the
following potential transactions: (i) the sale, lease, exchange, conveyance or
other disposition of all or substantially all of the Company's property or
business, or (ii) its merger into or consolidation with any other corporation
(other than a wholly-owned subsidiary of the Company), or any transaction
(including a merger or other reorganization) or series of related transactions,
in which more than 50 % of the voting power of the Company is disposed of. The
Company will cooperate with the holder in arranging the sale of this Warrant in
connection with any such transaction.
6.
<PAGE>
10.3 Right to Convert Warrant into Stock: Net Issuance.
(a) Right to Convert. In addition to and without limiting the
rights of the holder under the terms of this Warrant, the holder shall have
the right to convert this Warrant or any portion thereof (the "Conversion
Right") into shares of Common Stock as provided in this Section 10.3 at any
time or from time to time during the term of this Warrant. Upon exercise of
the Conversion Right with respect to a particular number of shares subject
to this Warrant (the "Convened Warrant Shares"), the Company shall deliver
to the holder (without payment by the holder of any exercise price or any
cash or other consideration) (X) that number of shares of fully paid and
nonassessable Common Stock equal to the quotient obtained by dividing the
value of this Warrant (or the specified portion hereof on the Conversion
Date (as defined in subsection (b) hereof), which value shall be determined
by subtracting (A) the aggregate Warrant Price of the Converted Warrant
Shares immediately prior to the exercise of the Conversion Right from (B)
the aggregate fair market value of the Convened Warrant Shares issuable
upon exercise of this Warrant (or the specified portion hereof) on the
Conversion Date (as herein defined) by (Y) the fair market value of one
share of Common Stock on the Conversion Date (as herein defined).
Expressed as a formula, such conversion shall be computed as follows:
X = B-A
____
Y
Where: X = the number of shares of Common Stock that may be issued to
holder
Y = the fair market value (FMV) of one share of Common Stock
A = the aggregate Warrant Price (i.e. Converted Warrant
Shares x Warrant Price)
B = the aggregate FMV (i.e., FMV x Converted Warrant Shares)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined). For purposes
of Section 9 of this Warrant, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the conversion of this Warrant.
(b) Method of Exercise. The Conversion Right may be exercised by the
holder by the surrender of this Warrant at the principal office of the Company
together with a written statement specifying that the holder thereby intends to
exercise the Conversion Right and indicating the number of shares subject to
this Warrant which are being surrendered (referred to in Section 10.3(a) hereof
as the Converted Warrant Shares) in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"), and, at the election of the holder
hereof, may be made contingent upon the closing of the sale of the Company's
Common Stock to the public in a public offering pursuant to a Registration
Statement under the Act (a "Public Offering"). Certificates for the shares
issuable
7.
<PAGE>
upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant, shall be
issued as of the Conversion Date and shall be delivered to the holder within
thirty (30) days following the Conversion Date.
(c) Determination of Fair Market Value. For purposes of this Section
10.3, "fair market value" of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
(i) If the Conversion Right is exercised in connection with and
contingent upon a Public Offering, and if the Company's Registration Statement
relating to such Public Offering ("Registration Statement") has been declared
effective by the SEC, then the initial "Price to Public" specified in the final
prospectus with respect to such offering.
(ii) If the Conversion Right is not exercised in connection with and
contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange, the fair market
value of the Common Stock shall be deemed to be the average of the closing
prices of the Common Stock on such exchange over the 30-day period ending
five business days prior to the Determination Date;
(B) If traded over-the-counter, the fair market value of
the Common Stock shall be deemed to be the average of the closing bid
prices of the Common Stock over the 30-day period ending five business days
prior to the Determination Date; and
(C) If there is no public market for the Common Stock, then fair
market value shall be determined by mutual agreement of the holder of this
Warrant and the Company.
11. Representations and Warranties. The Company represents and warrants to the
holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating
to bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and
other equitable remedies;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms
hereof will be validly issued, fully paid and non-assessable;
(c) The rights, preferences, privileges and restrictions granted
to or imposed upon the classes and series of the Company's capital stock
and the holders thereof are as set forth in the Charter and the Second
Amended and Restated Securityholders' Agreement, dated as of April 8, 1997,
among the Company and the Shareholders (as defined therein);
8.
<PAGE>
(d) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with
the terms hereof will not be, inconsistent with the Company's Charter or by-
laws, do not and will not contravene any law, governmental role or
regulation, judgment or order applicable to the Company, and do not and
will not conflict with or contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of
which the Company is a party or by which it is bound or require the consent
or approval of, the giving of notice to, the registration or filing with or
the taking of any action in respect of or by, any Federal, state or local
government authority or agency or other person, except for the filing of
notices pursuant to federal and state securities laws, which filings will
be effected by the time required thereby; and
(e) There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against
the Company in any court or before any governmental commission, board or
authority which, if adversely determined, will have a material adverse
effect on the ability of the Company to perform its obligations under this
Warrant.
12. Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request, communication or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor on the signature page of this Warrant.
14. Binding Effect on Successors. This Warrant shall be binding upon any
corporation 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 relating to the Shares issuable upon the exercise or conversion of
this Warrant shall survive the exercise, conversion and termination of this
Warrant and all of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the holder hereof. The Company
will, at the time of the exercise or conversion of this Warrant, in whole or in
part, upon request of the holder hereof but at the Company's expense,
acknowledge in writing its continuing obligation to the holder hereof in respect
of any rights (including, without limitation, any right to registration of the
Shares) to which the holder hereof shall continue to be entitled after such
exercise or conversion in accordance with this Warrant; provided, that the
failure of the holder hereof to make any such request shall not affect the
continuing obligation of the Company to the holder hereof in respect of such
rights.
15. Lost Warrants or Stock Certificates. The Company covenants to the holder
hereof that, upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant or any stock
certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
9.
<PAGE>
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several paragraphs
of this Warrant are inserted for convenience only and do not constitute a part
of this Warrant. The language in this Warrant shall be construed as to its fair
meaning without regard to which party drafted this Warrant.
17. Governing Law. This Warrant shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the State
of California; provided, however, that any matters herein dealing with the
internal corporate governance of the Company or the rights, preferences and
privileges applicable to the Company's capital stock shall be governed by the
laws of the State of Delaware.
18. Survival of Representations. Warranties and Agreements. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. Remedies. In case any one or more of the covenants and agreements
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of (?)
20. No Impairment of Rights. The Company will not, by amendment of its Charter
or through any other means, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, 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 of
this Warrant against impairment.
21. Severability. The invalidity or unenforceability of any provision of this
Warrant in any jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction, or affect any other provision of this
Warrant, which shall remain in full force and effect.
22. Recovery of Litigation Costs. If any legal action or other proceeding is
brought for the enforcement of this Warrant, or because of an alleged dispute,
breach, default, or misrepresentation in connection with any of the provisions
of this Warrant, the successful or prevailing party or parties shall be entitled
to recover reasonable attorneys' fees and other costs incurred in that action or
proceeding in addition to any other relief to which it or they may be entitled.
23. Entire Agreement: Modification. This Warrant constitutes the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.
10.
<PAGE>
EXELIXIS PHARMACEUTICALS, INC.,
a Delaware corporation
By: /s/ Remi Barbier
---------------------------------------
Remi Barbier, Chief Operating Officer
Address: 260 Littlefield Avenue
South San Francisco, CA 94080
11.
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: EXELIXIS PHARMACEUTICALS, INC. (the "Company")
1. The undersigned hereby:
[_] elects to purchase __ shares of Common Stock of the Company
pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in
full, or
[_] elects to exercise its net issuance rights pursuant to Section
10.3 of the attached Warrant with respect to __ shares of Common Stock.
2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name or names as are specified below:
____________________________
(Name)
____________________________
____________________________
(Address)
3. The undersigned represents that the aforesaid shares are being acquired for
the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares, all except as in
compliance with applicable securities laws.
____________________________
(Signature)
__________________
(Date)
12.
<PAGE>
EXHIBIT A-1
NOTICE OF EXERCISE
To: EXELIXIS PHARMACEUTICALS, INC. (the "Company")
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S_______ , filed _______________________, 19___, the
undersigned hereby:
[_] elects to purchase shares of Common Stock of the Company (or such
lesser number of shares as may be sold on behalf of the undersigned at the
Closing) pursuant to the terms of the attached Warrant, or
[_] elects to exercise its net issuance rights pursuant to Section 10.3 of
the attached Warrant with respect to ____ Shares of Common Stock.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such _________ shares.
3. The undersigned has instructed the custodian for the selling shareholders
to deliver to the Company $___ or, if less, the net proceeds due the undersigned
from the sale of shares in the aforesaid public offering. If such net proceeds
are less than the purchase price for such shares, the undersigned agrees to
deliver the difference to the Company prior to the Closing.
____________________________
(Signature)
_______________
(Date)
13.
<PAGE>
Exhibit 4.7
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS
AVAILABLE WITH RESPECT THERETO.
Exelixis Pharmaceuticals, Inc.
Common Stock Warrant
Warrant No. __________
For Value Received, Exelixis Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), with its principal office at 260 Littlefield Avenue, South San
Francisco, CA 94080, hereby certifies that Bristow Investments, L.P., a
California limited partnership [state] (the "Holder") is entitled, upon
surrender of this Warrant with the notice of exercise annexed hereto duly
executed at the principal office of the Company, to purchase from the Company
12,000 shares of common stock of the Company, subject to adjustment as provided
in Section 4. Such shares shall be fully paid and nonassessable shares of
Common Stock, $.001 par value, of the Company (the "Common Stock") purchased at
a price per share of Three Dollars ($3.00) (the "Purchase Price"), subject to
the provisions set forth herein. Until such time as this Warrant is exercised
in full or expires, the Purchase Price and the securities issuable upon exercise
of this Warrant are subject to adjustment as hereinafter provided. The person
or persons on whose name or names any certificate representing shares of Common
Stock is issued hereunder shall be deemed to have become Holder of record of the
shares represented thereby as at the close of business on the date this Warrant
is exercised with respect to such shares, whether or not the transfer books of
the Company shall be closed. The shares of Common Stock deliverable upon such
exercise, as adjusted from time to time, are hereinafter sometimes referred to
as "Warrant Shares."
1. Term. The purchase right represented by this Warrant is exercisable,
in whole or in part, at any time and from time to time from the date of grant
through the date which is five (5) years after the closing of the Company's
initial public offering of its Common Stock effected pursuant to a Registration
Statement on Form S-1 (or its successor) filed under the Securities Act of 1933,
as amended (the "Act").
2. Method of Exercise; Payment; Issuance of New Warrant.
2.1 General. Subject to Section 1 hereof, the purchase right
represented by this Warrant may be exercised by Holder hereof, in whole or in
part and from time to time, by the surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A duly executed) at the principal
office of the Company and by the payment to the Company, by cash,
<PAGE>
check or wire transfer, of an amount equal to the then applicable Purchase Price
multiplied by the number of Warrant Shares then being purchased. The person or
persons in whose name(s) any certificate(s) representing shares of Common Stock
shall be issuable upon exercise of this Warrant shall be deemed to have become
Holder(s) of record of, and shall be treated for all purposes as the record
Holder(s) of, the shares represented thereby (and such shares shall be deemed to
have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of the
rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to Holder hereof as soon as possible and in any
event within thirty days after such exercise and, unless this Warrant has been
fully exercised or expired, a new Warrant of like tenor representing the portion
of the Warrant Shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to Holder hereof as soon as possible
and in any event within such thirty-day period.
2.2 Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Purchase Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, Holder may elect to receive Warrant
Shares equal to the value (as determined below) of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A duly executed) in which event the
Company shall issue to Holder a number of Warrant Shares computed using the
following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Warrant Shares to be issued to Holder
Y = the number of Warrant Shares purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled
(at the date of such calculation)
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation)
B = the Purchase Price (as adjusted to the date of
such calculation)
For purposes of the above calculation, fair market value of one share
of Common Stock shall be determined as follows: (i) if the class of stock of
which the Warrant Shares are a part is listed on a national stock exchange, on
the NASDAQ National Market System or on any other over-the-counter market, then
such fair market value shall be the closing price per share reported for such
class on such national stock exchange or on the NASDAQ National Market System,
or the average of the final "bid" and "asked" prices reported on such over-the-
counter market, as applicable, at the close of business on the date of
calculation, as reported in the Wall Street Journal; and (ii) if the class of
stock of which the Warrant Shares are a part is not listed on
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<PAGE>
any national stock exchange, on the NASDAQ National Market System or on any
other over-the-counter market, then the Board of Directors of the Company shall
determine such fair market value as of the date of calculation in its reasonable
good faith judgment, and shall (upon written request by Holder) advise Holder of
such determination prior to any decision by the registered Holder to exercise
its purchase rights under this Warrant.
3. Stock Fully Paid; Reservation of Shares. All Warrant Shares that may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. 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 the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such actions as may be necessary to assure that such shares of
Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed; provided, however, that the
Company shall not be required to effect a registration under the Act or state
securities laws with respect to such exercise. The covenant set forth in the
immediately preceding sentence is based in part on the representations made by
Holder in Section 7 and assumes no change in currently applicable law that would
make such actions impracticable.
4. Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Purchase Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
4.1 Reclassification or Merger. In case of any reclassification,
change or conversion of securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the acquiring and
the surviving corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation, as the case may be, shall
duly execute and deliver to Holder a new Warrant (in form and substance
satisfactory to Holder), so that Holder shall have the right to receive, at a
total purchase price not to exceed that payable upon the exercise of the
unexercised portion of this Warrant, and in lieu of the shares of Common Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a Holder of the number of shares of Common
Stock then purchasable under this Warrant. Such new Warrant shall provide for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4. The provisions of this Section 4.1
shall similarly apply to successive reclassifications, changes, mergers and
transfers.
4.2 Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its outstanding
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<PAGE>
shares of Common Stock, the Purchase Price shall be proportionately decreased in
the case of a subdivision or increased in the case of a combination, effective
at the close of business on the date the subdivision or combination becomes
effective.
4.3 Stock Dividends and Other Distributions. If the Company at any
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Common Stock payable in Common Stock, or (ii) make any other
distribution with respect to Common Stock (except any distribution specifically
provided for in the foregoing subparagraphs (a) and (b)) of Common Stock, then
the Purchase Price shall be adjusted, from and after the date of determination
of shareholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Purchase Price in effect immediately prior to such
date of determination by a fraction (i) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution.
4.4 Adjustment of Number of Shares. Upon each adjustment in the
Purchase Price, the number of Warrant Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Purchase Price by a fraction, the numerator of which shall be the Purchase Price
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price immediately thereafter.
5. Notice of Certain Events
5.1 Notice of Adjustments. Whenever the Purchase Price or the number
of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 4
hereof, the Company shall make a certificate signed by its chief financial
officer 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 Purchase Price and the number of Warrant Shares purchasable
hereunder after giving effect to such adjustment, shall be mailed (without
regard to Section 8.2 hereof, by first class mail, postage prepaid) to Holder.
5.2 Other Notices. If at any time:
(a) the Company shall declare any cash dividend upon its Common
Stock;
(b) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(c) the Company shall offer for subscription pro rata to all
holders of its Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation or other entity;
4
<PAGE>
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) there shall be an initial public offering of Company
securities;
then, in any one or more of said cases, the Company shall give,
by first class mail, postage prepaid, addressed to Holder at the address of
Holder as shown on the books of the Company, (1) at least ten (10) days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution, or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up or public offering, and (2) in the case of any such event, at least
ten (10) days' prior written notice of the date when the same shall take place,
provided, however, Holder shall make a best efforts attempt to respond to such
notice as early as possible after the receipt thereof. Any notice given in
accordance with the foregoing clause (1) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto. Any notice given in
accordance with the foregoing clause (2) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, conversion or public offering, as the case may be.
6. Fractional Interest. In no event shall any fractional share of Common
Stock be issued upon any exercise of this Warrant. If, upon exercise of this
Warrant as an entirety, Holder would, except as provided in this Section 6, be
entitled to receive a fractional share of Common Stock, then the Company shall
issue the next higher number of full shares of Common Stock, issuing a full
share with respect to such fractional share.
7. Compliance with Securities Act; Disposition of Warrant or Shares of
Common Stock.
7.1 Compliance with Securities Act. Holder, by acceptance hereof,
agrees that this Warrant, and the shares of Common Stock to be issued upon
exercise hereof are being acquired for investment and that Holder will not
offer, sell or otherwise dispose of this Warrant, or any shares of Common Stock
to be issued upon exercise hereof except under circumstances which will not
result in a violation of the Act. Upon exercise of this Warrant, unless the
Warrant Shares being acquired are registered under the Act or an exemption from
such registration is available, Holder shall confirm in writing that the shares
of Common Stock so purchased are being acquired for investment and not with a
view toward distribution or resale. This Warrant and all shares of Common Stock
issued upon exercise of this Warrant (unless registered under the Act) shall be
stamped or imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE
REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL
FOR HOLDER,
5
<PAGE>
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE
NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES
WERE ISSUED, DIRECTLY OR INDIRECTLY."
7.2 Representations of Holder. In addition, in connection with the
issuance of this Warrant, Holder specifically represents to the Company by
acceptance of this Warrant as follows:
(a) Holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. Holder
is acquiring this Warrant 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 Act .
(b) Holder understands that this Warrant has not been registered
under the Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of Holder's investment
intent as expressed herein. In this connection, Holder understands that, in the
view of the SEC, the statutory basis for such exemption may be unavailable if
Holder's representation was predicated solely upon a present intention to hold
the Warrant 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 Warrant, or for a period of one year or any other fixed period in the
future.
(c) Holder further understands that this Warrant must be held
indefinitely unless subsequently registered under the Act and any applicable
state securities laws, or unless exemptions from registration are otherwise
available. Moreover, Holder understands that the Company is under no obligation
to register this Warrant.
(d) Holder is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: The availability of certain public information about the Company, the
resale occurring not less than two years after the party has purchased and paid
for the securities to be sold; 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, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(e) Holder further understands that at the time it wishes to sell
this Warrant there may be no public market upon which to make such a sale, and
that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 and 144A, and
that, in such event, Holder may be precluded from
6
<PAGE>
selling this Warrant under Rule 144 and 144A even if the two-year minimum
holding period had been satisfied.
(f) Holder further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the Act,
compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 and 144A are 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 and 144A 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.
7.3 Disposition of Warrant or Shares. With respect to any offer,
sale or other disposition of this Warrant or any shares of Common Stock acquired
pursuant to the exercise of this Warrant prior to registration of such Warrant
or shares, Holder hereof and each subsequent Holder agrees to give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of Holder's counsel, if reasonably requested by
the Company, to the effect that such offer, sale or other disposition may be
effected without registration or qualification (under the Act as then in effect
or any federal or state law then in effect) of this Warrant or such shares of
Common Stock and indicating whether or not under the Act certificates for this
Warrant or such shares of Common Stock to be sold or otherwise disposed of
require any restrictive legend as to applicable restrictions on transferability
in order to ensure compliance with such law. Promptly upon receiving such
written notice and reasonably satisfactory opinion, if so requested, the
Company, as promptly as practicable, shall notify Holder that Holder may sell or
otherwise dispose of this Warrant or such shares of Common Stock, all in
accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this Section 7.3 that the opinion of
counsel for Holder is not reasonably satisfactory to the Company, the Company
shall so notify Holder promptly after such determination has been made and shall
specify in detail the legal analysis supporting any such conclusion.
Notwithstanding the foregoing, this Warrant or such shares of Common Stock may,
as to such federal laws, be offered, sold or otherwise disposed of in accordance
with Rule 144 or 144A under the Act, provided that the Company shall have been
furnished with such information as the Company may reasonably request to provide
a reasonable assurance that the provisions of Rule 144 or 144A have been
satisfied. Each certificate representing this Warrant or the shares of Common
Stock thus transferred (except a transfer pursuant to Rule 144 or 144A) shall
bear a legend as to the applicable restrictions on transferability in order to
ensure compliance with such laws, unless in the aforesaid opinion of counsel for
Holder, such legend is not required in order to ensure compliance with such
laws. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
7.4 Excepted Transfers. Neither any restrictions of any legend
described in this Warrant nor the requirements of Section 7.3 above shall apply
to any transfer without any additional consideration of, or grant of a security
interest in, this Warrant or any part hereof (i) to a partner of Holder if
Holder is a partnership, (ii) by Holder to a partnership of which Holder is a
general partner, or (iii) to any affiliate of Holder if Holder is a corporation;
provided, however, in
7
<PAGE>
any such transfer, the transferee shall on the Company's request agree in
writing to be bound by the terms of this Warrant as if an original signatory
hereto.
7.5 Rights as Shareholders; Information. Holder shall not be
entitled to vote or receive dividends or be deemed a holder of Common Stock or
any other securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon Holder, as such, any of the rights of a shareholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof, or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until this
Warrant shall have been exercised and the Warrant Shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein.
Notwithstanding the foregoing, the Company will transmit to Holder such
information, documents and reports as are generally distributed to holders of
any class or series of the securities of the Company concurrently with the
distribution thereof to the shareholders and will, upon written request by
Holder to the Chief Financial Officer of the Company from time to time (but not
more often than twice in any 12-month period) provide to Holder copies of the
following documents within a reasonable time after such request (but in all
events only to the extent that, and no sooner than the time that, such documents
have been made available to the Company's stockholders ): (i) the Company's most
recent audited annual financial statements or, if audited statements are not
available, then the Company's unaudited annual financial statements as of the
end of the Company's most recently ended fiscal year and (ii) unaudited
quarterly financial statements for each quarter of the Company's fiscal year
since the date of the annual financial statements delivered pursuant to clause
(i) above. Notwithstanding the preceding sentence, during any period in which
the Company has outstanding a class of publicly-traded securities or is for any
reason a reporting company under the Securities Exchange Act of 1934, it shall
be sufficient compliance to provide copies of its most recent Form 10-K and
annual report, any Form 10-Qs and/or 8-Ks filed by the Company with the SEC
since the date of such Form 10-K, and any proxy statements.
7.6 Market Standoff. Holder, by acceptance hereof, agrees that
Holder will not, without the prior written consent of the lead underwriter of
the initial public offering of the Common Stock of the Company pursuant to a
Public Offering, directly or indirectly offer to sell, contract to sell
(including, without limitation, any short sale), grant any option for the sale
of, acquire any option to dispose of, or otherwise dispose of any Warrant Shares
for a period of 180 days following the day on which the registration statement
filed on behalf of the Company in connection with the Public Offering shall
become effective by order of the SEC.
8. Miscellaneous
8.1 Modification and Waiver. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
8.2 Notices. Any notice, request, communication or other document
required or permitted to be given or delivered to Holder hereof or the Company
shall be delivered, or shall be sent by certified or registered mail, postage
prepaid, to Holder at its address as shown on the
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<PAGE>
books of the Company or to the Company at the address indicated therefor on the
signature page of this Warrant.
8.3 Binding Effect on Successors. This Warrant shall be binding upon
any corporation 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 relating to the Common Stock issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of Holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of Holder hereof but at the Company's
expense, acknowledge in writing its continuing obligation to Holder hereof in
respect of any rights (including, without limitation, any right to registration
of the shares of Registrable Securities) to which Holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; provided, that the failure of Holder hereof to make any such request
shall not affect the continuing obligation of the Company to Holder hereof in
respect of such rights.
8.4 Lost Warrants or Stock Certificates. The Company covenants to
Holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company (such as an affidavit of Holder) of the loss, theft, destruction or
mutilation of this Warrant or any stock certificate and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
8.5 Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
8.6 Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
8.7 Survival of Representations, Warranties and Agreements. All
representations and warranties of the Company and Holder hereof contained herein
shall survive the date of grant, the exercise or conversion of this Warrant (or
any part hereof) or the termination or expiration of rights hereunder. All
agreements of the Company and Holder hereof contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
8.8 Remedies. In case any one or more of the covenants and
agreements contained in this Warrant shall have been breached, Holder (in the
case of a breach by the Company), or the Company (in the case of a breach by
Holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Warrant.
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<PAGE>
8.9 Acceptance. Receipt of this Warrant by Holder hereof shall
constitute acceptance of and agreement to the foregoing terms and conditions.
8.10 No Impairment of Rights. The Company will not, by amendment of
its Certificate of Incorporation or through any other means, 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 Holder against impairment.
8.11 Entire Agreement. This Warrant constitutes the entire agreement
between the parties pertaining to the subject matter herein and supersedes all
prior and contemporaneous agreements, representation and undertakings of the
parties.
8.12 Attorneys' Fees. In any litigation, arbitration or other legal
proceeding between the Company and Holder relating to or arising out of this
Warrant, the prevailing party shall be entitled to recover all its fees, costs
and expenses incurred in connection with such proceeding, including (but not
limited to) reasonable fees and expenses of attorneys and accountants and
including (but not limited to) all such fees, costs and expenses incurred in
connection with any appeals and/or in connection with the enforcement of any
judgment or award rendered in such proceeding.
In Witness Whereof, the Company has duly caused this Warrant to be signed
by its duly authorized officer and to be dated as of ______________,
1999.
Exelixis Pharmaceuticals, Inc.
By: /s/ George Scangos
----------------------------
Name: George Scangos
Title: Chief Executive Officer
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EXHIBIT A
Subscription Form
Dated ___________, ______
Exelixis Pharmaceuticals, Inc.
260 Littlefield Avenue
South San Francisco, CA 94080
Attention: Chief Executive Officer
Ladies and Gentlemen:
______ The undersigned hereby elects to exercise the warrant issued to it by
Exelixis Pharmaceuticals, Inc. (the "Company") and dated May ___,
1999, Warrant No. ___ (the "Warrant") and to purchase thereunder
__________________________________ shares of the Common Stock of the
Company (the "Shares") at a purchase price of ______________________
__________________ Dollars ($__________) per Share or an aggregate
purchase price of __________________________________ Dollars
($__________) (the "Purchase Price"); or
______ The undersigned hereby elects to convert _______ percent (___%) of the
value of the Warrant pursuant to the provisions of Section 2.2 of the
Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer
(unless the second alternative above has been marked).
Very truly yours,
___________________________________
By:________________________________
Title:_____________________________
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EXHIBIT 4.8
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS
AVAILABLE WITH RESPECT THERETO.
Exelixis Pharmaceuticals, Inc.
Common Stock Warrant
Warrant No. __________
For Value Received, Exelixis Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), with its principal office at 260 Littlefield Avenue, South San
Francisco, CA 94080, hereby certifies that Slough Estates USA, Inc. a Delaware
corporation (the "Holder") is entitled, upon surrender of this Warrant with the
notice of exercise annexed hereto duly executed at the principal office of the
Company, to purchase from the Company 135,000 shares of common stock of the
Company, subject to adjustment as provided in Section 4. Such shares shall be
fully paid and nonassessable shares of Common Stock, $.001 par value, of the
Company (the "Common Stock") purchased at a price per share of Three Dollars
($3.00) (the "Purchase Price"), subject to the provisions set forth herein.
Until such time as this Warrant is exercised in full or expires, the Purchase
Price and the securities issuable upon exercise of this Warrant are subject to
adjustment as hereinafter provided. The person or persons on whose name or names
any certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become Holder of record of the shares represented thereby as at
the close of business on the date this Warrant is exercised with respect to such
shares, whether or not the transfer books of the Company shall be closed. The
shares of Common Stock deliverable upon such exercise, as adjusted from time to
time, are hereinafter sometimes referred to as "Warrant Shares."
1. Term. The purchase right represented by this Warrant is exercisable,
in whole or in part, at any time and from time to time from the date of grant
through the date which is five (5) years after the closing of the Company's
initial public offering of its Common Stock effected pursuant to a Registration
Statement on Form S-1 (or its successor) filed under the Securities Act of 1933,
as amended (the "Act").
2. Method of Exercise; Payment; Issuance of New Warrant.
2.1 General. Subject to Section 1 hereof, the purchase right
represented by this Warrant may be exercised by Holder hereof, in whole or in
part and from time to time, by the surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A duly executed) at the principal
office of the Company and by the payment to the Company, by check,cash, check or
wire transfer, of an amount equal to the then applicable Purchase Price
multiplied by
<PAGE>
the number of Warrant Shares then being purchased. The person or persons in
whose name(s) any certificate(s) representing shares of Common Stock shall be
issuable upon exercise of this Warrant shall be deemed to have become Holder(s)
of record of, and shall be treated for all purposes as the record Holder(s) of,
the shares represented thereby (and such shares shall be deemed to have been
issued) immediately prior to the close of business on the date or dates upon
which this Warrant is exercised. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of stock so purchased
shall be delivered to Holder hereof as soon as possible and in any event within
thirty days after such exercise and, unless this Warrant has been fully
exercised or expired, a new Warrant of like tenor representing the portion of
the Warrant Shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to Holder hereof as soon as possible
and in any event within such thirty-day period.
2.2 Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Purchase Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, Holder may elect to receive Warrant
Shares equal to the value (as determined below) of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A duly executed) in which event the
Company shall issue to Holder a number of Warrant Shares computed using the
following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Warrant Shares to be issued to Holder
Y = the number of Warrant Shares purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled
(at the date of such calculation)
A = the fair market value of one share of the
Company's Common Stock (at the date of such
calculation)
B = the Purchase Price (as adjusted to the date of
such calculation)
For purposes of the above calculation, fair market value of one share
of Common Stock shall be determined as follows: (i) if the class of stock of
which the Warrant Shares are a part is listed on a national stock exchange, on
the NASDAQ National Market System or on any other over-the-counter market, then
such fair market value shall be the closing price per share reported for such
class on such national stock exchange or on the NASDAQ National Market System,
or the average of the final "bid" and "asked" prices reported on such over-the-
counter market, as applicable, at the close of business on the date of
calculation, as reported in the Wall Street Journal; and (ii) if the class of
stock of which the Warrant Shares are a part is not listed on any national stock
exchange, on the NASDAQ National Market System or on any other over-the-
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<PAGE>
counter market, then the Board of Directors of the Company shall determine such
fair market value as of the date of calculation in its reasonable good faith
judgment, and shall (upon written request by Holder) advise Holder of such
determination prior to any decision by the registered Holder to exercise its
purchase rights under this Warrant.
3. Stock Fully Paid; Reservation of Shares. All Warrant Shares that may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. 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 the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such actions as may be necessary to assure that such shares of
Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed; provided, however, that the
Company shall not be required to effect a registration under the Act or state
securities laws with respect to such exercise. The covenant set forth in the
immediately preceding sentence is based in part on the representations made by
Holder in Section 7 and assumes no change in currently applicable law that would
make such actions impracticable.
4. Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Purchase Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
4.1 Reclassification or Merger. In case of any reclassification,
change or conversion of securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the acquiring and
the surviving corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation, as the case may be, shall
duly execute and deliver to Holder a new Warrant (in form and substance
satisfactory to Holder), so that Holder shall have the right to receive, at a
total purchase price not to exceed that payable upon the exercise of the
unexercised portion of this Warrant, and in lieu of the shares of Common Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a Holder of the number of shares of Common
Stock then purchasable under this Warrant. Such new Warrant shall provide for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4. The provisions of this Section 4.1
shall similarly apply to successive reclassifications, changes, mergers and
transfers.
4.2 Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its outstanding shares of Common Stock, the Purchase Price shall be
proportionately decreased in the case of a
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<PAGE>
subdivision or increased in the case of a combination, effective at the close of
business on the date the subdivision or combination becomes effective.
4.3 Stock Dividends and Other Distributions. If the Company at any
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Common Stock payable in Common Stock, or (ii) make any other
distribution with respect to Common Stock (except any distribution specifically
provided for in the foregoing subparagraphs (a) and (b)) of Common Stock, then
the Purchase Price shall be adjusted, from and after the date of determination
of shareholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Purchase Price in effect immediately prior to such
date of determination by a fraction (i) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution.
4.4 Adjustment of Number of Shares. Upon each adjustment in the
Purchase Price, the number of Warrant Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Purchase Price by a fraction, the numerator of which shall be the Purchase Price
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price immediately thereafter.
5. Notice of Certain Events
5.1 Notice of Adjustments. Whenever the Purchase Price or the number
of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 4
hereof, the Company shall make a certificate signed by its chief financial
officer 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 Purchase Price and the number of Warrant Shares purchasable
hereunder after giving effect to such adjustment, shall be mailed (without
regard to Section 8.2 hereof, by first class mail, postage prepaid) to Holder.
5.2 Other Notices. If at any time:
(a) the Company shall declare any cash dividend upon its Common
Stock;
(b) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(c) the Company shall offer for subscription pro rata to all
holders of its Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation or other entity;
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<PAGE>
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) there shall be an initial public offering of Company
securities;
then, in any one or more of said cases, the Company shall give,
by first class mail, postage prepaid, addressed to Holder at the address of
Holder as shown on the books of the Company, (1) at least ten (10) days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution, or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up or public offering, and (2) in the case of any such event, at least
ten (10) days' prior written notice of the date when the same shall take place,
provided, however, Holder shall make a best efforts attempt to respond to such
notice as early as possible after the receipt thereof. Any notice given in
accordance with the foregoing clause (1) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto. Any notice given in
accordance with the foregoing clause (2) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, conversion or public offering, as the case may be.
6. Fractional Interest. In no event shall any fractional share of Common
Stock be issued upon any exercise of this Warrant. If, upon exercise of this
Warrant as an entirety, Holder would, except as provided in this Section 6, be
entitled to receive a fractional share of Common Stock, then the Company shall
issue the next higher number of full shares of Common Stock, issuing a full
share with respect to such fractional share.
7. Compliance with Securities Act; Disposition of Warrant or Shares of
Common Stock.
7.1 Compliance with Securities Act. Holder, by acceptance hereof,
agrees that this Warrant, and the shares of Common Stock to be issued upon
exercise hereof are being acquired for investment and that Holder will not
offer, sell or otherwise dispose of this Warrant, or any shares of Common Stock
to be issued upon exercise hereof except under circumstances which will not
result in a violation of the Act. Upon exercise of this Warrant, unless the
Warrant Shares being acquired are registered under the Act or an exemption from
such registration is available, Holder shall confirm in writing that the shares
of Common Stock so purchased are being acquired for investment and not with a
view toward distribution or resale. This Warrant and all shares of Common Stock
issued upon exercise of this Warrant (unless registered under the Act) shall be
stamped or imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE
REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL
FOR HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
5
<PAGE>
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS
FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER
WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
7.2 Representations of Holder. In addition, in connection with the
issuance of this Warrant, Holder specifically represents to the Company by
acceptance of this Warrant as follows:
(a) Holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. Holder
is acquiring this Warrant 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 Act.
(b) Holder understands that this Warrant has not been registered
under the Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of Holder's investment
intent as expressed herein. In this connection, Holder understands that, in the
view of the SEC, the statutory basis for such exemption may be unavailable if
Holder's representation was predicated solely upon a present intention to hold
the Warrant 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 Warrant, or for a period of one year or any other fixed period in the
future.
(c) Holder further understands that this Warrant must be held
indefinitely unless subsequently registered under the Act and any applicable
state securities laws, or unless exemptions from registration are otherwise
available. Moreover, Holder understands that the Company is under no obligation
to register this Warrant.
(d) Holder is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: The availability of certain public information about the Company, the
resale occurring not less than two years after the party has purchased and paid
for the securities to be sold; 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, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(e) Holder further understands that at the time it wishes to sell
this Warrant there may be no public market upon which to make such a sale, and
that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 and 144A, and
that, in such event, Holder may be precluded from selling this Warrant under
Rule 144 and 144A even if the two-year minimum holding period had been
satisfied.
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<PAGE>
(f) Holder further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the Act,
compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 and 144A are 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 and 144A 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.
7.3 Disposition of Warrant or Shares. With respect to any offer,
sale or other disposition of this Warrant or any shares of Common Stock acquired
pursuant to the exercise of this Warrant prior to registration of such Warrant
or shares, Holder hereof and each subsequent Holder agrees to give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of Holder's counsel, if reasonably requested by
the Company, to the effect that such offer, sale or other disposition may be
effected without registration or qualification (under the Act as then in effect
or any federal or state law then in effect) of this Warrant or such shares of
Common Stock and indicating whether or not under the Act certificates for this
Warrant or such shares of Common Stock to be sold or otherwise disposed of
require any restrictive legend as to applicable restrictions on transferability
in order to ensure compliance with such law. Promptly upon receiving such
written notice and reasonably satisfactory opinion, if so requested, the
Company, as promptly as practicable, shall notify Holder that Holder may sell or
otherwise dispose of this Warrant or such shares of Common Stock, all in
accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this Section 7.3 that the opinion of
counsel for Holder is not reasonably satisfactory to the Company, the Company
shall so notify Holder promptly after such determination has been made and shall
specify in detail the legal analysis supporting any such conclusion.
Notwithstanding the foregoing, this Warrant or such shares of Common Stock may,
as to such federal laws, be offered, sold or otherwise disposed of in accordance
with Rule 144 or 144A under the Act, provided that the Company shall have been
furnished with such information as the Company may reasonably request to provide
a reasonable assurance that the provisions of Rule 144 or 144A have been
satisfied. Each certificate representing this Warrant or the shares of Common
Stock thus transferred (except a transfer pursuant to Rule 144 or 144A) shall
bear a legend as to the applicable restrictions on transferability in order to
ensure compliance with such laws, unless in the aforesaid opinion of counsel for
Holder, such legend is not required in order to ensure compliance with such
laws. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
7.4 Excepted Transfers. Neither any restrictions of any legend
described in this Warrant nor the requirements of Section 7.3 above shall apply
to any transfer without any additional consideration of, or grant of a security
interest in, this Warrant or any part hereof (i) to a partner of Holder if
Holder is a partnership, (ii) by Holder to a partnership of which Holder is a
general partner, or (iii) to any affiliate of Holder if Holder is a corporation;
provided, however, in any such transfer, the transferee shall on the Company's
request agree in writing to be bound by the terms of this Warrant as if an
original signatory hereto.
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<PAGE>
7.5 Rights as Shareholders; Information. Holder shall not be
entitled to vote or receive dividends or be deemed a holder of Common Stock or
any other securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon Holder, as such, any of the rights of a shareholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof, or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until this
Warrant shall have been exercised and the Warrant Shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein.
Notwithstanding the foregoing, the Company will transmit to Holder such
information, documents and reports as are generally distributed to holders of
any class or series of the securities of the Company concurrently with the
distribution thereof to the shareholders and will, upon written request by
Holder to the Chief Financial Officer of the Company from time to time (but not
more often than twice in any 12-month period) provide to Holder copies of the
following documents within a reasonable time after such request (but in all
events only to the extent that, and no sooner than the time that, such documents
have been made available to the Company's stockholders ): (i) the Company's most
recent audited annual financial statements or, if audited statements are not
available, then the Company's unaudited annual financial statements as of the
end of the Company's most recently ended fiscal year and (ii) unaudited
quarterly financial statements for each quarter of the Company's fiscal year
since the date of the annual financial statements delivered pursuant to clause
(i) above. Notwithstanding the preceding sentence, during any period in which
the Company has outstanding a class of publicly-traded securities or is for any
reason a reporting company under the Securities Exchange Act of 1934, it shall
be sufficient compliance to provide copies of its most recent Form 10-K and
annual report, any Form 10-Qs and/or 8-Ks filed by the Company with the SEC
since the date of such Form 10-K, and any proxy statements.
7.6 Market Standoff. Holder, by acceptance hereof, agrees that
Holder will not, without the prior written consent of the lead underwriter of
the initial public offering of the Common Stock of the Company pursuant to a
Public Offering, directly or indirectly offer to sell, contract to sell
(including, without limitation, any short sale), grant any option for the sale
of, acquire any option to dispose of, or otherwise dispose of any Warrant Shares
for a period of 180 days following the day on which the registration statement
filed on behalf of the Company in connection with the Public Offering shall
become effective by order of the SEC.
8. Miscellaneous
8.1 Modification and Waiver. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
8.2 Notices. Any notice, request, communication or other document
required or permitted to be given or delivered to Holder hereof or the Company
shall be delivered, or shall be sent by certified or registered mail, postage
prepaid, to Holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor on the signature page of this Warrant.
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8.3 Binding Effect on Successors. This Warrant shall be binding upon
any corporation 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 relating to the Common Stock issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of Holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of Holder hereof but at the Company's
expense, acknowledge in writing its continuing obligation to Holder hereof in
respect of any rights (including, without limitation, any right to registration
of the shares of Registrable Securities) to which Holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; provided, that the failure of Holder hereof to make any such request
shall not affect the continuing obligation of the Company to Holder hereof in
respect of such rights.
8.4 Lost Warrants or Stock Certificates. The Company covenants to
Holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company (such as an affidavit of Holder) of the loss, theft, destruction or
mutilation of this Warrant or any stock certificate and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
8.5 Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
8.6 Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
8.7 Survival of Representations, Warranties and Agreements. All
representations and warranties of the Company and Holder hereof contained herein
shall survive the date of grant, the exercise or conversion of this Warrant (or
any part hereof) or the termination or expiration of rights hereunder. All
agreements of the Company and Holder hereof contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
8.8 Remedies. In case any one or more of the covenants and
agreements contained in this Warrant shall have been breached, Holder (in the
case of a breach by the Company), or the Company (in the case of a breach by
Holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Warrant.
8.9 Acceptance. Receipt of this Warrant by Holder hereof shall
constitute acceptance of and agreement to the foregoing terms and conditions.
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8.10 No Impairment of Rights. The Company will not, by amendment of
its Certificate of Incorporation or through any other means, 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 Holder against impairment.
8.11 Entire Agreement. This Warrant constitutes the entire agreement
between the parties pertaining to the subject matter herein and supersedes all
prior and contemporaneous agreements, representation and undertakings of the
parties.
8.12 Attorneys' Fees. In any litigation, arbitration or other legal
proceeding between the Company and Holder relating to or arising out of this
Warrant, the prevailing party shall be entitled to recover all its fees, costs
and expenses incurred in connection with such proceeding, including (but not
limited to) reasonable fees and expenses of attorneys and accountants and
including (but not limited to) all such fees, costs and expenses incurred in
connection with any appeals and/or in connection with the enforcement of any
judgment or award rendered in such proceeding.
In Witness Whereof, the Company has duly caused this Warrant to be signed
by its duly authorized officer and to be dated as of ________________, 1999.
Exelixis Pharmaceuticals, Inc.
By: /s/ George Scangos
----------------------------------
Name: George Scangos
Title: Chief Executive Officer
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EXHIBIT A
Subscription Form
Dated ___________, ______
Exelixis Pharmaceuticals, Inc.
260 Littlefield Avenue
South San Francisco, CA 94080
Attention: Chief Executive Officer
Ladies and Gentlemen:
_______ The undersigned hereby elects to exercise the warrant issued to it by
Exelixis Pharmaceuticals, Inc. (the "Company") and dated May ___,
1999, Warrant No. ___ (the "Warrant") and to purchase thereunder
__________________________________ shares of the Common Stock of the
Company (the "Shares") at a purchase price of________________________
Dollars ($__________) per Share or an aggregate purchase price of
__________________________________ Dollars ($__________) (the
"Purchase Price"); or
_______ The undersigned hereby elects to convert _______ percent (___%) of the
value of the Warrant pursuant to the provisions of Section 2.2 of the
Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer
(unless the second alternative above has been marked).
Very truly yours,
_____________________________________
By:__________________________________
Title:_______________________________
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EXHIBIT 4.9
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS
AVAILABLE WITH RESPECT THERETO.
Exelixis Pharmaceuticals, Inc.
Common Stock Warrant
Warrant No. __________
For Value Received, Exelixis Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), with its principal office at 260 Littlefield Avenue, South San
Francisco, CA 94080, hereby certifies that the Laurence and Magdalena Shushan
Family Trust (the "Holder") is entitled, upon surrender of this Warrant with the
notice of exercise annexed hereto duly executed at the principal office of the
Company, to purchase from the Company 3,000 shares of common stock of the
Company, subject to adjustment as provided in Section 4. Such shares shall be
fully paid and nonassessable shares of Common Stock, $.001 par value, of the
Company (the "Common Stock") purchased at a price per share of Three Dollars
($3.00) (the "Purchase Price"), subject to the provisions set forth herein.
Until such time as this Warrant is exercised in full or expires, the Purchase
Price and the securities issuable upon exercise of this Warrant are subject to
adjustment as hereinafter provided. The person or persons on whose name or names
any certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become Holder of record of the shares represented thereby as at
the close of business on the date this Warrant is exercised with respect to such
shares, whether or not the transfer books of the Company shall be closed. The
shares of Common Stock deliverable upon such exercise, as adjusted from time to
time, are hereinafter sometimes referred to as "Warrant Shares."
1. Term. The purchase right represented by this Warrant is exercisable,
in whole or in part, at any time and from time to time from the date of grant
through the date which is five (5) years after the closing of the Company's
initial public offering of its Common Stock effected pursuant to a Registration
Statement on Form S-1 (or its successor) filed under the Securities Act of 1933,
as amended (the "Act").
2. Method of Exercise; Payment; Issuance of New Warrant.
2.1 General. Subject to Section 1 hereof, the purchase right
represented by this Warrant may be exercised by Holder hereof, in whole or in
part and from time to time, by the surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A duly executed) at the principal
office of the Company and by the payment to the Company, by check,cash, check or
wire transfer, of an amount equal to the then applicable Purchase Price
multiplied by
<PAGE>
the number of Warrant Shares then being purchased. The person or persons in
whose name(s) any certificate(s) representing shares of Common Stock shall be
issuable upon exercise of this Warrant shall be deemed to have become Holder(s)
of record of, and shall be treated for all purposes as the record Holder(s) of,
the shares represented thereby (and such shares shall be deemed to have been
issued) immediately prior to the close of business on the date or dates upon
which this Warrant is exercised. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of stock so purchased
shall be delivered to Holder hereof as soon as possible and in any event within
thirty days after such exercise and, unless this Warrant has been fully
exercised or expired, a new Warrant of like tenor representing the portion of
the Warrant Shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to Holder hereof as soon as possible
and in any event within such thirty-day period.
2.2 Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Purchase Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, Holder may elect to receive Warrant
Shares equal to the value (as determined below) of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A duly executed) in which event the
Company shall issue to Holder a number of Warrant Shares computed using the
following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Warrant Shares to be issued to Holder
Y = the number of Warrant Shares purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled
(at the date of such calculation)
A = the fair market value of one share of the
Company's Common Stock (at the date of such
calculation)
B = the Purchase Price (as adjusted to the date of
such calculation)
For purposes of the above calculation, fair market value of one share
of Common Stock shall be determined as follows: (i) if the class of stock of
which the Warrant Shares are a part is listed on a national stock exchange, on
the NASDAQ National Market System or on any other over-the-counter market, then
such fair market value shall be the closing price per share reported for such
class on such national stock exchange or on the NASDAQ National Market System,
or the average of the final "bid" and "asked" prices reported on such over-the-
counter market, as applicable, at the close of business on the date of
calculation, as reported in the Wall Street Journal; and (ii) if the class of
stock of which the Warrant Shares are a part is not listed on any national stock
exchange, on the NASDAQ National Market System or on any other over-the-
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<PAGE>
counter market, then the Board of Directors of the Company shall determine such
fair market value as of the date of calculation in its reasonable good faith
judgment, and shall (upon written request by Holder) advise Holder of such
determination prior to any decision by the registered Holder to exercise its
purchase rights under this Warrant.
3. Stock Fully Paid; Reservation of Shares. All Warrant Shares that may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. 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 the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such actions as may be necessary to assure that such shares of
Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed; provided, however, that the
Company shall not be required to effect a registration under the Act or state
securities laws with respect to such exercise. The covenant set forth in the
immediately preceding sentence is based in part on the representations made by
Holder in Section 7 and assumes no change in currently applicable law that would
make such actions impracticable.
4. Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Purchase Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
4.1 Reclassification or Merger. In case of any reclassification,
change or conversion of securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the acquiring and
the surviving corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation, as the case may be, shall
duly execute and deliver to Holder a new Warrant (in form and substance
satisfactory to Holder), so that Holder shall have the right to receive, at a
total purchase price not to exceed that payable upon the exercise of the
unexercised portion of this Warrant, and in lieu of the shares of Common Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a Holder of the number of shares of Common
Stock then purchasable under this Warrant. Such new Warrant shall provide for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4. The provisions of this Section 4.1
shall similarly apply to successive reclassifications, changes, mergers and
transfers.
4.2 Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its outstanding shares of Common Stock, the Purchase Price shall be
proportionately decreased in the case of a
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<PAGE>
subdivision or increased in the case of a combination, effective at the close of
business on the date the subdivision or combination becomes effective.
4.3 Stock Dividends and Other Distributions. If the Company at any
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Common Stock payable in Common Stock, or (ii) make any other
distribution with respect to Common Stock (except any distribution specifically
provided for in the foregoing subparagraphs (a) and (b)) of Common Stock, then
the Purchase Price shall be adjusted, from and after the date of determination
of shareholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Purchase Price in effect immediately prior to such
date of determination by a fraction (i) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution.
4.4 Adjustment of Number of Shares. Upon each adjustment in the
Purchase Price, the number of Warrant Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Purchase Price by a fraction, the numerator of which shall be the Purchase Price
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price immediately thereafter.
5. Notice of Certain Events
5.1 Notice of Adjustments. Whenever the Purchase Price or the number
of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 4
hereof, the Company shall make a certificate signed by its chief financial
officer 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 Purchase Price and the number of Warrant Shares purchasable
hereunder after giving effect to such adjustment, shall be mailed (without
regard to Section 8.2 hereof, by first class mail, postage prepaid) to Holder.
5.2 Other Notices. If at any time:
(a) the Company shall declare any cash dividend upon its Common
Stock;
(b) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(c) the Company shall offer for subscription pro rata to all
holders of its Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation
or other entity;
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<PAGE>
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) there shall be an initial public offering of Company
securities;
then, in any one or more of said cases, the Company shall give,
by first class mail, postage prepaid, addressed to Holder at the address of
Holder as shown on the books of the Company, (1) at least ten (10) days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution, or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up or public offering, and (2) in the case of any such event, at least
ten (10) days' prior written notice of the date when the same shall take place,
provided, however, Holder shall make a best efforts attempt to respond to such
notice as early as possible after the receipt thereof. Any notice given in
accordance with the foregoing clause (1) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto. Any notice given in
accordance with the foregoing clause (2) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, conversion or public offering, as the case may be.
6. Fractional Interest. In no event shall any fractional share of Common
Stock be issued upon any exercise of this Warrant. If, upon exercise of this
Warrant as an entirety, Holder would, except as provided in this Section 6, be
entitled to receive a fractional share of Common Stock, then the Company shall
issue the next higher number of full shares of Common Stock, issuing a full
share with respect to such fractional share.
7. Compliance with Securities Act; Disposition of Warrant or Shares of
Common Stock.
7.1 Compliance with Securities Act. Holder, by acceptance hereof,
agrees that this Warrant, and the shares of Common Stock to be issued upon
exercise hereof are being acquired for investment and that Holder will not
offer, sell or otherwise dispose of this Warrant, or any shares of Common Stock
to be issued upon exercise hereof except under circumstances which will not
result in a violation of the Act. Upon exercise of this Warrant, unless the
Warrant Shares being acquired are registered under the Act or an exemption from
such registration is available, Holder shall confirm in writing that the shares
of Common Stock so purchased are being acquired for investment and not with a
view toward distribution or resale. This Warrant and all shares of Common Stock
issued upon exercise of this Warrant (unless registered under the Act) shall be
stamped or imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE
REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL
FOR HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
5
<PAGE>
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS
FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER
WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
7.2 Representations of Holder. In addition, in connection with the
issuance of this Warrant, Holder specifically represents to the Company by
acceptance of this Warrant as follows:
(a) Holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. Holder
is acquiring this Warrant 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 Act.
(b) Holder understands that this Warrant has not been registered
under the Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of Holder's investment
intent as expressed herein. In this connection, Holder understands that, in the
view of the SEC, the statutory basis for such exemption may be unavailable if
Holder's representation was predicated solely upon a present intention to hold
the Warrant 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 Warrant, or for a period of one year or any other fixed period in the
future.
(c) Holder further understands that this Warrant must be held
indefinitely unless subsequently registered under the Act and any applicable
state securities laws, or unless exemptions from registration are otherwise
available. Moreover, Holder understands that the Company is under no obligation
to register this Warrant.
(d) Holder is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: The availability of certain public information about the Company, the
resale occurring not less than two years after the party has purchased and paid
for the securities to be sold; 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, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(e) Holder further understands that at the time it wishes to sell
this Warrant there may be no public market upon which to make such a sale, and
that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 and 144A, and
that, in such event, Holder may be precluded from selling this Warrant under
Rule 144 and 144A even if the two-year minimum holding period had been
satisfied.
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<PAGE>
(f) Holder further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the Act,
compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 and 144A are 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 and 144A 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.
7.3 Disposition of Warrant or Shares. With respect to any offer,
sale or other disposition of this Warrant or any shares of Common Stock acquired
pursuant to the exercise of this Warrant prior to registration of such Warrant
or shares, Holder hereof and each subsequent Holder agrees to give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of Holder's counsel, if reasonably requested by
the Company, to the effect that such offer, sale or other disposition may be
effected without registration or qualification (under the Act as then in effect
or any federal or state law then in effect) of this Warrant or such shares of
Common Stock and indicating whether or not under the Act certificates for this
Warrant or such shares of Common Stock to be sold or otherwise disposed of
require any restrictive legend as to applicable restrictions on transferability
in order to ensure compliance with such law. Promptly upon receiving such
written notice and reasonably satisfactory opinion, if so requested, the
Company, as promptly as practicable, shall notify Holder that Holder may sell or
otherwise dispose of this Warrant or such shares of Common Stock, all in
accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this Section 7.3 that the opinion of
counsel for Holder is not reasonably satisfactory to the Company, the Company
shall so notify Holder promptly after such determination has been made and shall
specify in detail the legal analysis supporting any such conclusion.
Notwithstanding the foregoing, this Warrant or such shares of Common Stock may,
as to such federal laws, be offered, sold or otherwise disposed of in accordance
with Rule 144 or 144A under the Act, provided that the Company shall have been
furnished with such information as the Company may reasonably request to provide
a reasonable assurance that the provisions of Rule 144 or 144A have been
satisfied. Each certificate representing this Warrant or the shares of Common
Stock thus transferred (except a transfer pursuant to Rule 144 or 144A) shall
bear a legend as to the applicable restrictions on transferability in order to
ensure compliance with such laws, unless in the aforesaid opinion of counsel for
Holder, such legend is not required in order to ensure compliance with such
laws. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
7.4 Excepted Transfers. Neither any restrictions of any legend
described in this Warrant nor the requirements of Section 7.3 above shall apply
to any transfer without any additional consideration of, or grant of a security
interest in, this Warrant or any part hereof (i) to a partner of Holder if
Holder is a partnership, (ii) by Holder to a partnership of which Holder is a
general partner, or (iii) to any affiliate of Holder if Holder is a corporation;
provided, however, in any such transfer, the transferee shall on the Company's
request agree in writing to be bound by the terms of this Warrant as if an
original signatory hereto.
7
<PAGE>
7.5 Rights as Shareholders; Information. Holder shall not be
entitled to vote or receive dividends or be deemed a holder of Common Stock or
any other securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon Holder, as such, any of the rights of a shareholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof, or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until this
Warrant shall have been exercised and the Warrant Shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein.
Notwithstanding the foregoing, the Company will transmit to Holder such
information, documents and reports as are generally distributed to holders of
any class or series of the securities of the Company concurrently with the
distribution thereof to the shareholders and will, upon written request by
Holder to the Chief Financial Officer of the Company from time to time (but not
more often than twice in any 12-month period) provide to Holder copies of the
following documents within a reasonable time after such request (but in all
events only to the extent that, and no sooner than the time that, such documents
have been made available to the Company's stockholders ): (i) the Company's most
recent audited annual financial statements or, if audited statements are not
available, then the Company's unaudited annual financial statements as of the
end of the Company's most recently ended fiscal year and (ii) unaudited
quarterly financial statements for each quarter of the Company's fiscal year
since the date of the annual financial statements delivered pursuant to clause
(i) above. Notwithstanding the preceding sentence, during any period in which
the Company has outstanding a class of publicly-traded securities or is for any
reason a reporting company under the Securities Exchange Act of 1934, it shall
be sufficient compliance to provide copies of its most recent Form 10-K and
annual report, any Form 10-Qs and/or 8-Ks filed by the Company with the SEC
since the date of such Form 10-K, and any proxy statements.
7.6 Market Standoff. Holder, by acceptance hereof, agrees that
Holder will not, without the prior written consent of the lead underwriter of
the initial public offering of the Common Stock of the Company pursuant to a
Public Offering, directly or indirectly offer to sell, contract to sell
(including, without limitation, any short sale), grant any option for the sale
of, acquire any option to dispose of, or otherwise dispose of any Warrant Shares
for a period of 180 days following the day on which the registration statement
filed on behalf of the Company in connection with the Public Offering shall
become effective by order of the SEC.
8. Miscellaneous
8.1 Modification and Waiver. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
8.2 Notices. Any notice, request, communication or other document
required or permitted to be given or delivered to Holder hereof or the Company
shall be delivered, or shall be sent by certified or registered mail, postage
prepaid, to Holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor on the signature page of this Warrant.
8
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8.3 Binding Effect on Successors. This Warrant shall be binding upon
any corporation 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 relating to the Common Stock issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of Holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of Holder hereof but at the Company's
expense, acknowledge in writing its continuing obligation to Holder hereof in
respect of any rights (including, without limitation, any right to registration
of the shares of Registrable Securities) to which Holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; provided, that the failure of Holder hereof to make any such request
shall not affect the continuing obligation of the Company to Holder hereof in
respect of such rights.
8.4 Lost Warrants or Stock Certificates. The Company covenants to
Holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company (such as an affidavit of Holder) of the loss, theft, destruction or
mutilation of this Warrant or any stock certificate and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
8.5 Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
8.6 Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Delaware.California.
8.7 Survival of Representations, Warranties and Agreements. All
representations and warranties of the Company and Holder hereof contained herein
shall survive the date of grant, the exercise or conversion of this Warrant (or
any part hereof) or the termination or expiration of rights hereunder. All
agreements of the Company and Holder hereof contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
8.8 Remedies. In case any one or more of the covenants and
agreements contained in this Warrant shall have been breached, Holder (in the
case of a breach by the Company), or the Company (in the case of a breach by
Holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Warrant.
8.9 Acceptance. Receipt of this Warrant by Holder hereof shall
constitute acceptance of and agreement to the foregoing terms and conditions.
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8.10 No Impairment of Rights. The Company will not, by amendment of
its Certificate of Incorporation or through any other means, 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 Holder against impairment.
8.11 Entire Agreement. This Warrant constitutes the entire agreement
between the parties pertaining to the subject matter herein and supersedes all
prior and contemporaneous agreements, representation and undertakings of the
parties.
8.12 Attorneys' Fees. In any litigation, arbitration or other legal
proceeding between the Company and Holder relating to or arising out of this
Warrant, the prevailing party shall be entitled to recover all its fees, costs
and expenses incurred in connection with such proceeding, including (but not
limited to) reasonable fees and expenses of attorneys and accountants and
including (but not limited to) all such fees, costs and expenses incurred in
connection with any appeals and/or in connection with the enforcement of any
judgment or award rendered in such proceeding.
In Witness Whereof, the Company has duly caused this Warrant to be signed
by its duly authorized officer and to be dated as of ______________, 1999.
Exelixis Pharmaceuticals, Inc.
By: /s/ George Scangos
------------------------------------
Name: George Scangos
Title: Chief Executive Officer
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EXHIBIT A
Subscription Form
Dated ___________, ______
Exelixis Pharmaceuticals, Inc.
260 Littlefield Avenue
South San Francisco, CA 94080
Attention: Chief Executive Officer
Ladies and Gentlemen:
_______ The undersigned hereby elects to exercise the warrant issued to it by
Exelixis Pharmaceuticals, Inc. (the "Company") and dated May ___,
1999, Warrant No. ___ (the "Warrant") and to purchase thereunder
___________________________ shares of the Common Stock of the Company
(the "Shares") at a purchase price of__________________________
Dollars ($__________) per Share or an aggregate purchase price of
__________________________________ Dollars ($__________) (the
"Purchase Price").Price"); or
_______ The undersigned hereby elects to convert _______ percent (___%) of the
value of the Warrant pursuant to the provisions of Section 2.2 of the
Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer
(unless the second alternative above has been marked).
Very truly yours,
___________________________________
By:________________________________
Title:_____________________________
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EXHIBIT 10.2
EXELIXIS PHARMACEUTICALS, INC.
1994 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN
1. Definitions.
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Exelixis Pharmaceuticals, Inc. 1994 Employee,
Director and Consultant Stock Plan, have the following meanings:
"Administrator" means the Board of Directors, unless it has delegated power
to act on its behalf to a committee. (See Paragraph 4)
"Affiliate" means a corporation which, for purposes of Section 424 of the
Code, is a parent or subsidiary of the Company, direct or indirect.
"Board of Directors" means the Board of Directors of the Company.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Committee" means the Committee to which the Board of Directors has
delegated power to act under or pursuant to the provisions of the Plan.
"Common Stock" means shares of the Company's common stock, $.001 par value.
"Company" means Exelixis Pharmaceuticals, Inc., a Delaware corporation.
"Disability" or "Disabled" means permanent and total disability as
defined in Section 22(e) (3) of the Code.
"Fair Market Value of a Share of Common Stock" means:
1. If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are regularly reported
for the Common Stock, either (a) the average of the closing or last prices of
the Common Stock on the Composite Tape or other comparable reporting system for
the ten (10) consecutive trading days immediately preceding the applicable date
or (b) the closing or last price of the Common Stock on the Composite Tape or
other comparable reporting system for the trading day immediately preceding the
applicable date, as the Administrator shall determine.
2. If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales prices are not
regularly reported for the Common Stock for the trading days or day referred to
in clause (1), and if bid and asked prices for the Common Stock are regularly
reported, either (a) the average of the mean between the bid and the asked price
for the Common Stock at the close of trading in the over-the-counter market for
the
1.
<PAGE>
ten (10) trading days on which common Stock was traded immediately preceding the
applicable date or (b) the mean between the bid and the asked price for the
Common Stock at the close of trading in the over-the-counter market for the
trading day on which Common Stock was traded immediately preceding the
applicable date, as the Administrator shall determine; and
3. If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as the
Administrator, in good faith, shall determine.
"ISO" means an option meant to qualify as an incentive stock option under
Code Section 422.
"Key Employee" means an employee of the Company or of an Affiliate
(including, without limitation, an employee who is also serving as an officer or
director of the Company or of an Affiliate), designated by the Administrator to
be eligible to be granted one or more Stock Rights under the Plan.
"Non-Qualified" Option means an option which is not intended to qualify as
an ISO.
"Option" means an ISO or Non-Qualified Option granted under the Plan.
"Option Agreement" means an agreement between the Company and a Participant
delivered pursuant to the Plan.
"Participant" means a Key Employee, director, consultant or member of the
Company's Scientific Advisory Board to whom one or more Stock Rights are granted
under the Plan. As used herein, "Participant" shall include "Participant's
Survivors" where the context requires.
"Participant's Survivors" means a deceased Participant's legal
representatives and/or any person or persons who acquired the Participant's
rights to a Stock Right by will or by the laws of descent and distribution.
"Plan" means this Exelixis Pharmaceuticals, Inc. 1994 Employee, Director
and Consultant Stock Plan.
"Purchase Opportunity" means an opportunity to make a direct purchase of
Shares of the Company granted under the Plan.
"Shares" means shares of the Common Stock as to which Stock Rights have
been or may be granted under the Plan or any shares of capital stock into which
the Shares are changed or for which they are exchanged within the provisions of
Paragraph 3 of the Plan. The Shares issued upon exercise of Options granted
under the Plan may be authorized and unissued shares or shares held by the
Company in its treasury, or both.
"Stock Agreement" means an agreement between the Company and a Participant
executed and delivered pursuant to the Plan, in such form as the Administrator
shall approve.
2.
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"Stock Right" means a right to Shares of the Company granted pursuant to
the Plan - an ISO, a Non-Qualified Option or a Purchase Opportunity.
2. Purposes of the Plan.
The Plan is intended to encourage ownership of Shares by Key Employees,
directors, members of the Company's Scientific Advisory Board and certain
consultants to the Company in order to attract such people, to induce them to
work for the benefit of the Company or of an Affiliate and to provide additional
incentive for them to promote the success of the Company or of an Affiliate.
The Plan provides for the granting of ISOs, Non-Qualified Options and Purchase
Opportunities to Key Employees, directors, consultants and members of the
Scientific Advisory Board of the Company.
3. Shares Subject to the Plan.
The number of Shares subject to this Plan as to which Stock Rights may be
granted from time to time shall be 1,350,000, or the equivalent of such number
of Shares after the Administrator, in its sole discretion, has interpreted the
effect of any stock split, stock dividend, combination, recapitalization or
similar transaction in accordance with Paragraph 17 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, or if the
Company shall reacquire any Shares issued pursuant to Purchase Opportunities,
the Shares which were subject to such Option and any Shares so required by the
Company shall be available for the granting of other Stock Rights under the
Plan. Any Stock Right shall be treated as "outstanding" until such Stock Right
is exercised in full, or terminates or expires under the provisions of the Plan,
or by agreement of the parties to the pertinent Stock Agreement.
4. Administration of the Plan.
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board of Directors delegates its authority to a Committee of the
Board of Directors. Following the date on which the Common Stock is registered
under the Securities and Exchange Act of 1934, as amended (the "1934 Act"), the
Plan is intended to comply in all respects with Rule 16b-3 or its successors,
promulgated pursuant to Section 16 of the 1934 Act with respect to Participants
who are subject to Section 16 of the 1934 Act, and any provision in this Plan
with respect to such persons contrary to Rule 16b-3 shall be deemed null and
void to the extent permissible by law and deemed appropriate by the
Administrator. Subject to the provisions of the Plan, the Administrator is
authorized to:
(a) Interpret the provisions of the Plan or of any Option, Purchase
Opportunity or Stock Agreement and to make all rules and determinations which it
deems necessary or advisable for the administration of the Plan;
(b) Determine which employees of the Company or of an Affiliate shall
be designated as Key Employees and which of the Key Employees, directors,
consultants and members of the Company's Scientific Advisory Board shall be
granted Stock Rights;
3.
<PAGE>
(c) Determine the number of Shares for which a Stock Right or Stock
Rights shall be granted; and
(d) Specify the terms and conditions upon which a Stock Right or
Stock Rights may be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Code Section 422 of those Options which are designated as ISOs.
Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Stock Right granted under
it shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is other than the Board of Directors.
5. Eligibility for Participation.
The Administrator will, in its sole discretion, name the Participants in
the Plan, provided, however, that each Participant must be a Key Employee,
director, consultant or member of the Scientific Advisory Board of the Company
or of an Affiliate at the time a Stock Right is granted. Notwithstanding any of
the foregoing provisions, the Administrator may authorize the grant of a Stock
Right to a person not then an employee, director, consultant or member of the
Scientific Advisory Board of the Company or of an Affiliate. The actual grant of
such Stock Right, however, shall be conditioned upon such person becoming
eligible to become a Participant at or prior to the time of the execution of the
Stock Agreement evidencing such Stock Right. ISOs may be granted only to Key
Employees. Non-Qualified Options and Purchase Opportunities may be granted to
any Key Employee, director, consultant or member of the of the Scientific
Advisory Board of the Company or an Affiliate. The granting of any Option to any
individual shall neither entitle that individual to, nor disqualify him or her
from, participation in any other grant of Options.
6. Terms and Conditions of Options.
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such conditions as the Administrator may deem appropriate
including, without limitation, subsequent approval by the shareholders of the
Company of this Plan or any amendments thereto. The Option Agreements shall be
subject to at least the following terms and conditions:
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
Option shall be subject to the terms and conditions which the Administrator
determines to be appropriate and in the best interest of the Company, subject to
the following minimum standards for any such Non-Qualified Option:
(a) Option Price: The option price (per share) of the Shares covered
by each Option shall be determined by the Administrator but shall not be less
than the par value per share of Common Stock.
4.
<PAGE>
(b) Each Option Agreement shall state the number of Shares to which
it pertains;
(c) Each Option Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be exercised, and
may provide that the Option rights accrue or become exercisable in installments
over a period of months or years, or upon the occurrence of certain conditions
or the attainment of stated goals or events; and
(d) Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to the
Administrator providing for certain protections for the Company and its other
shareholders including requirements that:
(i) The Participant's or the Participant's Survivors' right to
sell or transfer the Shares may be restricted; and
(ii) The Participant or the Participant's Survivors may be
required to execute letters of investment intent and must also acknowledge that
the Shares will bear legends noting any applicable restrictions.
B. ISOs: Each Option intended to be an ISO shall be issued only to a Key
Employee and be subject to at least the following terms and conditions, with
such additional restrictions or changes as the Administrator determines are
appropriate but not in conflict with Code Section 422 and relevant regulations
and rulings of the Internal Revenue Service:
(a) Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described above, except clause (a)
thereunder.
(b) Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable attribution rules in
Code Section 424(d):
(i) Ten percent (10%) or less of the total combined voting power
of all classes of share capital of the Company or an Affiliate, the Option price
per share of the Shares covered by each Option shall not be less than one
hundred percent (100%) of the Fair Market Value per share of the Shares on the
date of the grant of the Option.
(ii) More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an Affiliate, the Option
price per share of the Shares covered by each Option shall not be less than one
hundred ten percent (110%) of the said Fair Market Value on the date of grant.
(c) Term of Option: For Participants who own
(i) Ten percent (10%) or less of the total combined voting power
of all classes of share capital of the Company or an Affiliate, each Option
shall terminate not more than ten (10) years from the date of the grant or at
such earlier time as the Option Agreement may provide.
5.
<PAGE>
(ii) More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an Affiliate, each
Option shall terminate not more than five (5) years from the date of the grant
or at such earlier time as the Option Agreement may provide.
(d) Limitation on Yearly Exercise: The Option Agreements shall
restrict the amount of Options which may be exercisable in any calendar year
(under this or any other ISO plan of the Company or an Affiliate) so that the
aggregate Fair Market Value (determined at the time each ISO is granted) of the
stock with respect to which ISOs are exercisable for the first time by the
Participant in any calendar year does not exceed one hundred thousand dollars
($100,000), provided that this subparagraph (e) shall have no force or effect if
its inclusion in the Plan is not necessary for Options issued as ISOs to qualify
as ISOs pursuant to Section 422(d) of the Code.
(e) Limitation on Grant of ISOs: No ISOs shall be granted after the
date which is the earlier of ten (10) years from the date of the adoption of the
Plan by the Company and the date of the approval of the Plan by the shareholders
of the Company.
7. Terms and Conditions of Purchase Opportunities.
Each Purchase Opportunity shall be set forth in a Stock Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Stock Agreement shall be in the form approved
by the Administrator, with such changes and modifications to such form as the
Administrator, in its discretion, shall approve with respect to any particular
Participant or Participants. The Stock Agreement shall contain terms and
conditions which the Administrator determines to be appropriate and in the best
interest of the Company, subject to the following minimum standards:
(a) The purchase price (per share) of the Shares covered by each
Purchase Opportunity shall be determined by the Administrator but shall not be
less than the par value per share of the Shares on the date of the grant of the
Purchase Opportunity;
(b) Each Stock Agreement shall state the number of Shares to which
the Purchase Opportunity pertains;
(c) Each Stock Agreement shall state the date prior to which the
Purchase Opportunity must be exercised by the Participant; and
(d) Each Stock Agreement shall include the terms of any right of the
Company to reacquire the Shares subject to the Purchase Opportunity, including
the time and events upon which such rights shall accrue and the purchase price
therefor.
8. Exercise of Stock Right and Issue of Shares.
A Stock Right (or any part or installment thereof) shall be exercised by
giving written notice to the Company at its principal office address, together
with provision for payment of the full purchase price in accordance with this
paragraph for the Shares as to which such Stock Right is being exercised, and
upon compliance with any other condition(s) set forth in the Option or
6.
<PAGE>
Stock Agreement. Such written notice shall be signed by the person exercising
the Stock Right, shall state the number of Shares with respect to which the
Stock Right is being exercised and shall contain any representation required by
the Plan or the Option or Stock Agreement. Payment of the purchase price for the
shares as to which such Stock Right is being exercised shall be made (a) in
United States dollars in cash or by check, or (b) at the discretion of the
Administrator, through delivery of shares of Common Stock having a fair market
value equal as of the date of the exercise to the cash exercise price of the
Stock Right determined in good faith by the Administrator, or (c) at the
discretion of the Administrator, by delivery of the grantee's personal recourse
note bearing interest payable not less than annually at no less than 100% of the
applicable Federal rate, as defined in Section 1274(d) of the Code, or (d) at
the discretion of the Administrator, in accordance with a cashless exercise
program established with a securities brokerage firm, and approved by the
Administrator or (e) at the discretion of the Administrator, by any combination
of (a), (b), (c) and (d) above. Notwithstanding the foregoing, the Administrator
shall accept only such payment on exercise of an IS0 as is permitted by Section
422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Stock Right was exercised to the Participant (or to the Participant's
Survivors, as the case may be). In determining what constitutes "reasonably
promptly," it is expressly understood that the delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation which
requires the Company to take any action with respect to the Shares prior to
their issuance. The Shares shall, upon delivery, be evidenced by an appropriate
certificate or certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise
of any installment of any Stock Right; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an IS0 (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 19) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in paragraph
6(e).
The Administrator may, in its discretion, amend any term or condition of an
outstanding Stock Right provided (i) such term or condition as amended is
permitted by the Plan, (ii) any such amendment shall be made only with the
consent of the Participant to whom the Stock Right was granted, or in the event
of the death of the Participant, the Participant's Survivors, if the amendment
is adverse to the Participant, (iii) any such amendment of any ISO shall be made
only after the Administrator, after consulting the counsel for the Company,
determines whether such amendment would constitute a "modification" of any Stock
Right which is an IS0 (as that term is defined in Section 424(h) of the Code) or
would cause any adverse tax consequences for the holders of such ISO, and (iv)
with respect to any Stock Right held by any Participant who is subject to the
provisions of Section 16(a) of the 1934 Act, any such amendment shall be made
only after the Administrator, after consulting with counsel for the Company,
determines whether such amendment would constitute the grant of a new Stock
Right.
7.
<PAGE>
9. Rights as a Shareholder.
No Participant to whom a Stock Right has been granted shall have rights as
a shareholder with respect to any Shares covered by such Stock Right, except
after due exercise of the Option and tender of the full purchase price for the
Shares being purchased pursuant to such exercise and registration of the Shares
in the Company's share register in the name of the Participant.
10. Assignability and Transferability of Stock Rights.
By its terms, a Stock Right granted to a Participant shall not be
transferable by the Participant other than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act or the rules
thereunder, provided, however, that the designation of a beneficiary of a Stock
Right by a Participant shall not be deemed a transfer prohibited by this
Paragraph. Except as provided in the preceding sentence, a Stock Right shall be
exercisable, during the Participant's lifetime, only by such Participant (or by
his or her legal representative) and shall not be assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process. Any attempted transfer,
assignment, pledge, hypothecation or other disposition of any Stock Right or of
any rights granted thereunder contrary to the provisions of this Plan, or the
levy of any attachment or similar process upon a Stock Right, shall be null and
void.
11. Effect of Termination of Service Other Than "For Cause".
Except as otherwise provided in the pertinent Option or Stock Agreement, in
the event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate before the Participant has
exercised all Stock Rights, the following rules apply:
(a) A Participant who ceases to be an employee, director, consultant
or member of the Scientific Advisory Board of the Company or of an Affiliate
(for any reason other than termination "for cause", Disability, or death for
which events there are special rules in Paragraphs 12, 13, and 14,
respectively), may exercise any Stock Right granted to him or her to the extent
that the Stock Right is exercisable on the date of such termination of service,
but only within such term as the Administrator has designated in the pertinent
Option or Stock Agreement.
(b) In no event may an Option Agreement provide, if an Option is
intended to De an ISO, that the time for exercise be later than three (3) months
after the Participant's termination of employment.
(c) The provisions of this Paragraph, and not the provisions of
Paragraph 13 or 14, shall apply to a Participant who subsequently becomes
disabled or dies after the termination of employment, director status,
consultancy or Scientific Advisory Board member status, provided, however, in
the case of a Participant's death within three (3) months after the termination
of employment, director status, consulting or Scientific Advisory Board member
status, the Participant's Survivors may exercise the Stock Right within one (1)
year after the date of the Participant's death, but in no event after the date
of expiration of the term of the Stock Right.
8.
<PAGE>
(d) Notwithstanding anything herein to the contrary, if subsequent to
a Participant's termination of employment, termination of director status,
termination of consultancy, or termination of Scientific Advisory Board member
status, but prior to the exercise of a Stock Right, the Board of Directors
determines that, either prior or subsequent to the Participant's termination,
the Participant engaged in conduct which would constitute "cause", then such
Participant shall forthwith cease to have any right to exercise any Stock Right.
(e) A Participant to whom a Stock Right has been granted under the
Plan who is absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total Disability
as defined in Paragraph 1 hereof), or who is on leave of absence for any
purpose, shall not, during the period of any such absence, be deemed, by virtue
of such absence alone, to have terminated such Participant's employment,
director status, consultancy or termination of Scientific Advisory Board member
status with the Company or with an Affiliate, except as the Administrator may
otherwise expressly provide.
(f) Stock Rights granted under the Plan shall not be affected by any
change of employment or other service within or among the Company and any
Affiliates, so long as the Participant continues to be an employee, director,
consultant or member of the Scientific Advisory Board of the Company or any
Affiliate, provided, however, if a Participant's employment by either the
Company or an Affiliate should cease (other than to become an employee of an
Affiliate or the Company), such termination shall affect the Participant's
rights under any Stock Right granted to such Participant in accordance with the
terms of the Plan and the pertinent Option or Stock Agreement.
12. Effect of Termination of Service "For Cause".
Except as otherwise provided in the pertinent Option or Stock Agreement,
the following rules apply if the Participant's service (whether as an employee,
director, consultant or Scientific Advisory Board member) with the Company or an
Affiliate is terminated "for cause" prior to the time that all of his or her
outstanding Stock Rights have been exercised:
(a) All outstanding and unexercised Stock Rights as of the date the
Participant is notified his or her service is terminated "for cause" will
immediately be forfeited, unless the Option or Stock Agreement provides
otherwise.
(b) For purposes of this Paragraph, "cause" shall include (and is not
limited to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized disclosure of
confidential information, and conduct substantially prejudicial to the business
of the Company or any Affiliate. The determination of the Administrator as to
the existence of cause will be conclusive on the Participant and the Company.
(c) "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of service
but prior to the exercise of a Stock Right, that either prior or
9.
<PAGE>
subsequent to the Participant's termination the Participant engaged in conduct
which would constitute `cause", then the right to exercise any Stock Right is
forfeited.
(d) Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting definition of "cause" for
termination and which is in effect at the time of such termination, shall
supersede the definition in this Plan with respect to such Participant.
13. Effect of Termination of Service for Disability.
Except as otherwise provided in the pertinent Option or Stock Agreement, a
Participant who ceases to be an employee, director, consultant or member of the
Scientific Advisory Board of the Company or of an Affiliate by reason of
Disability may exercise any Stock Right granted to such Participant:
(a) To the extent exercisable but not exercised on the date of
Disability; and
(b) In the event rights to exercise the Stock Right accrue
periodically, to the extent of a pro rata portion of any additional rights as
would have accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability. The
proration shall be based upon the number of days of such accrual period prior to
the date of Disability.
A Disabled Participant may exercise such rights only within a period of not
more than one (1) year after the date that the Participant became Disabled,
notwithstanding that the Participant might have been able to exercise the Stock
Right as to some or all of the Shares on a later date if he or she had not
become disabled and had continued to be an employee, director or consultant
or, if earlier, within the originally prescribed term of the Stock Right.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
14. Effect of Death While an Employee, Director Or Consultant.
Except as otherwise provided in the pertinent Option or Stock Agreement, in
the event of the death of a Participant to whom a Stock Right has been granted
while the Participant is an employee, director, consultant or member of the
Scientific Advisory Board of the Company or of an Affiliate, such Stock Right
may be exercised by the Participant's Survivors:
(a) To the extent exercisable but not exercised on the date of death;
and
(b) In the event rights to exercise the Option accrue periodically,
to the extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual period
which next ends following the date of death. The
10.
<PAGE>
proration shall be based upon the number of days of such accrual period prior to
the Participant's death.
If the Participant's Survivors wish to exercise the Stock Right, they must
take all necessary steps to exercise the Stock Right within one (1) year after
the date of death of such Participant, notwithstanding that the decedent might
have been able to exercise the Stock Right as to some or all of the Shares on a
later date if he or she had not died and had continued to be an employee,
director or consultant or, if earlier, within the originally prescribed term of
the Stock Right.
15. Purchase for Investment.
Unless the offering and sale of the Shares to be issued upon the particular
exercise of a Stock Right shall have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended (the "1933 Act"),
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:
(a) The person(s) who exercise such Stock Right shall warrant to the
Company, prior to the receipt of such Shares, that such person(s) are acquiring
such Shares for their own respective accounts, for investment, and not with a
view to, or for sale in connection with, the distribution of any such Shares, in
which event the person(s) acquiring such Shares shall be bound by the provisions
of the following legend which shall be endorsed upon the certificate(s)
evidencing their Shares issued pursuant to such exercise or such grant:
The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by any person,
including a pledgee, unless (1) either (a) a Registration Statement with
respect to such shares shall be effective under the Securities Act of 1933,
as amended, or (b) the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such Act is
then available, and (2) there shall have been compliance with all
applicable state securities laws.
(b) The Company shall have received an opinion of its counsel that
the Shares may be issued upon such particular exercise in compliance with the
1933 Act without registration thereunder.
The Company may delay issuance of the Shares until completion of any action
or obtaining of any consent which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws).
16. Adjustments Upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the Common
Stock subject to the Plan to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving
the receipt of consideration by the
10.
<PAGE>
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of securities subject to the Plan pursuant to subsection 4(a), and the
outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of securities and price per share of Common Stock subject to such
outstanding Stock Awards. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) Change in Control--Asset Sale, Merger, Consolidation or Reverse
Merger. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse
merger in which the Company is the surviving corporation but the shares of
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then any surviving corporation or acquiring corporation
shall assume any Stock Awards outstanding under the Plan or shall substitute
similar stock awards (including an award to acquire the same consideration
paid to the stockholders in the transaction described in this subsection 12(c)
for those outstanding under the Plan). In the event any surviving corporation
or acquiring corporation refuses to assume such Stock Awards or to substitute
similar stock awards for those outstanding under the Plan, then with respect
to Stock Awards held by Participants whose Continuous Status as an Employee,
Director or Consultant has not terminated, the vesting of such Stock Awards
and any shares of Common Stock acquired under such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to such event. With respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall terminate if not exercised
(if applicable) prior to such event.
(d) Change in Control--Securities Acquisition. In the event of an
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions
(excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate) of the beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty
percent (50%) of the combined voting power entitled to vote in the election of
Directors and provided that such acquisition is not a result of, and does not
constitute a transaction described in, subsection 12(c) hereof, then with
respect to Stock Awards held by Participants whose Continuous Status as an
Employee, Director or Consultant has not terminated, the vesting of such Stock
Awards and any shares of Common Stock acquired under such Stock Awards (and,
if applicable, the time during which such Stock Awards may be exercised) shall
be accelerated in full.
(e) Change in Control--Termination of Continuous Status as an Employee,
Director or Consultant.
(i) In the event of a change in control as specified in subsection
12(c) or 12(d) (collectively, a "Change in Control") and Continuous Status as
Employee, Director or Consultant of a Participant is either involuntarily
terminated without Cause or is voluntarily terminated for Good Reason within
one (1) month before or thirteen (13) months after the Change in Control, then
the vesting of such Participant's Stock Award and any shares of Common Stock
acquired under such Stock Award (and, if applicable, the time during which
such Stock Award may be exercised) shall be accelerated by one (1) year.
(ii) The Company or an Affiliate may not terminate the Continuous
Status as an Employee, Director or Consultant of a Participant for Cause
unless and until there shall have been delivered to such person a copy of a
resolution duly adopted by the affirmative vote of at least a majority of the
Board at a meeting of the Board called and held for the purpose (after
reasonable notice to such person and an opportunity for such person, together
with such person's counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, such person was guilty of the conduct
constituting "Cause" and specifying the particulars thereof in detail.
(iii) Any purported voluntarily termination of the Continuous
Status as an Employee, Director or Consultant of a Participant for Good Reason
shall be communicated by a notice of termination to the Company and shall
state the specific termination provisions relied upon and set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
such termination.
(iv) If any benefit received or to be received by such person
pursuant to the acceleration of the vesting and/or exercisability of Stock
Award would constitute an "excess parachute payment" subject to excise tax
under Section 4999 of the Code (the "Excise Tax"), the amount or benefit to be
received by such person shall be reduced if such reduction, taking into
account all applicable federal, state and local income and employment taxes
and the Excise Tax, results in a greater after-tax benefit for such person. The
determination by the Company's independent auditors of any required reduction
pursuant hereto shall be conclusive and binding upon such person.
(f) Definitions.
(i) "Good Reason" means, with respect to the voluntary termination
of the Continuous Status as an Employee, Director or Consultant of a
Participant in connection with a Change in Control, (i) reduction of such
person's rate of compensation as in effect immediately prior to the Change in
Control by greater than ten percent (10%), except to the extent the
compensation of other similarly situated persons are accordingly reduced, (ii)
failure to provide a package of welfare benefit plans that, taken as a whole,
provide substantially similar benefits to those in which such person is
entitled to participate immediately prior to the Change in Control (except
that such person's contributions may be raised to the extent of any cost
increases imposed by third parties) or any action by the Company that would
adversely affect such person's participation or reduce such person's benefits
under any of such plans, (iii) a change in such person's responsibilities,
authority, titles or offices resulting in diminution of position, excluding
for this purpose an isolated, insubstantial and inadvertent action not taken
in bad faith that is remedied by the Company promptly after notice thereof is
given by such person, (iv) a request that such person relocate to a worksite
that is more than fifty (50) miles from such person's prior worksite, unless
such person accepts such relocation opportunity, (v) a material reduction in
duties, (vi) a failure or refusal of any successor company to assume the
obligations of the Company under an agreement with such person or (vii) a
material breach by the Company of any of the material provisions of an
agreement with such person. For purposes of this definition, "Company" shall
include an Affiliate of the Company and a successor to the Company.
(ii) "Cause" means, with respect to the involuntary termination of
the Continuous Status as an Employee, Director or Consultant of a Participant,
misconduct, including: (i) conviction of any felony or any crime involving
moral turpitude or dishonesty; (ii) participation in a fraud or act of
dishonesty against the Company or an Affiliate; (iii) conduct that, based upon
a good faith and reasonable factual investigation and determination by the
Company, demonstrates gross unfitness to serve; or (iv) intentional, material
violation of any agreement with the Company, or of any statutory duty to the
Company, that is not corrected within thirty (30) days after written notice
thereof. Physical or mental disability shall not constitute "Cause." For
purposes of this definition, "Company" shall include an Affiliate of the
Company and a successor to the Company.
(g) Modification of Incentive Stock Options. Notwithstanding the
foregoing, any adjustments made pursuant to Section 12 with respect to
Incentive Stock Options shall be made only after the Board, after consulting
with counsel for the Company, determines whether such adjustments would
constitute a "modifications" of such Incentive Stock Option (as that term is
defined in Section 424(h) of the Code) or would cause any adverse tax
consequences for the holders of such Incentive Stock Options. If the Board
determines that such adjustments made with respect to Incentive Stock Options
would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments, unless the holder of an Incentive Stock
Option specifically requests in writing that such adjustment be made and such
writing indicates that the holder has full knowledge of the consequences of such
"modification" on his or her income tax treatment with respect to the Incentive
Stock Option.
12.
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17. Issuances of Securities.
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Stock Rights. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company.
18. Fractional Shares.
No fractional share shall be issued under the Plan and the person
exercising such right shall receive from the Company cash in lieu of such
fractional share equal to the Fair Market Value thereof.
19. Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
IS0s (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such
conversion, the Administrator (with the consent of the Participant) may impose
such conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed
to give any Participant the right to have such Participant's ISO's converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Administrator takes appropriate action. The Administrator, with the consent
of the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such termination.
20. Withholding.
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Option holder's salary, wages or other remuneration in connection with
the exercise of a Stock Right or a Disqualifying Disposition (as defined in
Paragraph 21), the Participant shall advance in cash to the Company, or to any
Affiliate of the Company which employs or employed the Participant, the amount
of such withholdings unless a different withholding arrangement, including the
use of shares of the Company's Common Stock, is authorized by the Administrator
(and permitted by law), provided, however, that with respect to persons subject
to Section 16 of the 1934 Act, any such
13.
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withholding arrangement shall be in compliance with any applicable provisions of
Rule 16b-3 promulgated under Section 16 of the 1934 Act. For purposes hereof,
the fair market value of the shares withheld for purposes of payroll withholding
shall be determined in the manner provided in Paragraph 1 above, as of the most
recent practicable date prior to the date of exercise. If the fair market value
of the shares withheld is less than the amount of payroll withholdings required,
the Option holder may be required to advance the difference in cash to the
Company or the Affiliate employer. The Administrator in its discretion may
condition the exercise of an Option for less than the then Fair Market Value on
the Participant's payment of such additional withholding.
21. Notice to Company of Disqualifying Disposition.
Each Key Employee who receives an IS0 must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
22. Termination of the Plan.
The Plan will terminate on the date which is ten (10) years from the
earlier of the date of its adoption and the date of its approval by the
shareholders of the Company. The Plan may be terminated at an earlier date by
vote of the shareholders of the Company; provided, however, that any such
earlier termination will not affect any Stock Rights granted or Option or Stock
Agreements executed prior to the effective date of such termination.
23. Amendment of the Plan and Agreements.
The Plan may be amended by the shareholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Stock Rights granted under
the Plan or Stock Rights to be granted under the Plan for favorable federal
income tax treatment (including deferral of taxation upon exercise) as may be
afforded incentive stock options under Section 422 of the Code, to the extent
necessary to ensure the qualification of the Plan under Rule 16b-3, at such
time, if any, as the Company has a class of stock registered pursuant to Section
12 of the 1934 Act, and to the extent necessary to qualify the shares issuable
upon exercise of any outstanding Stock Rights granted, or Stock Rights to be
granted, under the Plan for listing on any national securities exchange or
quotation in any national automated quotation system of securities dealers. Any
amendment approved by the Administrator which is of a scope that requires
shareholder approval in order to ensure favorable federal income tax treatment
for any incentive stock options or requires shareholder approval in order to
ensure the compliance of the Plan with Rule 16b-3 at such time, if any, as the
Company has a class of stock registered pursuant to Section 12 of the 1934 Act,
shall be subject to obtaining such shareholder approval. Any modification or
amendment of the Plan shall not, without the consent of a Participant, adversely
affect his or her rights under a Stock Right previously granted to him or her.
With the consent of the Participant affected, the
14.
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Administrator may amend outstanding Option or Stock Agreements in a manner which
may be adverse to the Participant but which is not inconsistent with the Plan.
In the discretion of the Administrator, outstanding Option or Stock Agreements
may be amended by the Administrator in a manner which is not adverse to the
Participant.
24. Employment or Other Relationship.
Nothing in this Plan or any Option or Stock Agreement shall be deemed to
prevent the Company or an Affiliate from terminating the employment,
consultancy, director or Scientific Advisory Board member status of a
Participant, nor to prevent a Participant from terminating his or her own
employment, consultancy, director or Scientific Advisory Board member status or
to give any Participant a right to be retained in employment or other service by
the Company or any Affiliate for any period of time.
25. Governing Law.
This Plan shall be construed and enforced in accordance with the law of The
Commonwealth of Massachusetts.
15.
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EXHIBIT 10.3
EXELIXIS PHARMACEUTICALS, INC.
1997 EQUITY INCENTIVE PLAN
Adopted September, 1997
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, and (iv) rights to purchase
restricted stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "Company" means Exelixis Pharmaceuticals, Inc. a Delaware corporation.
(f) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
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(g) "Continuous Status as an Employee, Director or Consultant" means that
the service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board may determine, in it's
sole discretion, whether Continuous Status as an Employee, Director or
Consultant shall be considered interrupted in the case of: (i) any leave of
absence approved by the Board, including sick leave, military leave, or any
other personal leave; or (ii) transfers between the Company, Affiliates or their
successors.
(h) "Director" means a member of the Board.
(i) "Employee" means any person, including officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(1) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(k) "Fair Market Value" means the value of the common stock as determined
in good faith by the Board and in a manner consistent with Section 260.140.50
of Title 10 of the California Code of Regulations.
(I) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(m) "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(n) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(o) "Option" means a stock option granted pursuant to the Plan.
(p) "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(q) "Optionee" means a person to whom an Option is granted pursuant to the
Plan or, if applicable, such other person who holds an outstanding Option.
(r) "Plan" means this Exelixis Pharmaceuticals, Inc. 1997 Equity Incentive
Plan.
(s) "Securities Act" means the Securities Act of 1933, as amended.
2.
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(t) "Stock Award" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
(u) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1), To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 14.
(4) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of one or more members (the "Committee"). If administration
is delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or such a subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.
3.
<PAGE>
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate ( ) shares of the
Company's common stock. If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock Awards
other than Incentive Stock Options may be granted only to Employees, Directors
or Consultants.
(b) No person shall be eligible for the grant of an Option or an award to
purchase restricted stock if, at the time of grant, such person owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless (i) the exercise price of such
Option is at least one hundred ten percent (110%) of the Fair Market Value of
such stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant, or (ii) for an award to
purchase restricted stock, the purchase price of restricted stock is at least
one hundred percent (100%) of the stock's Fair Market Value at the date of grant
of the award.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall
4.
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be paid, to the extent permitted by applicable statutes and regulations, either
(i) in cash at the time the Option is exercised, or (ii) at the discretion of
the Board or the Committee, at the time of the grant of the Option, (A) by
delivery to the Company of other common stock of the Company, (B) according to a
deferred payment arrangement, except that payment of the common stock's "par
value" (as defined in the Delaware General Corporate Law) shall not be made by
deferred payment, or other arrangement (which may include. without limiting the
generality of the foregoing, the use of other common stock of the Company) with
the person to whom the Option is granted or to whom the Option is transferred
pursuant to subsection 6(d), or (C) in any other form of legal consideration
that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) Transferability. An Option shall not be transferable except by will or
by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person.
(e) Vesting. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary, but in each case will provide for vesting of at
least twenty percent (20%) per year of the total number of shares subject to the
Option; provided, however, that an Option granted to an officer, director or
consultant (within the meaning of Section 260.140.41 of Title 10 of the
California Code of Regulations) may become fully exercisable, subject to
reasonable conditions such as continued employment, at any time or during any
period established by the Company or of any of its Affiliates. The provisions of
this subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) Termination of Employment or Relationship as a Director or Consultant.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it as of the date of termination) but only within such
period of time ending on the earlier of (i) the date three (3) months following
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period, which shall not be less than three
(3) months (unless such termination is for cause, as specified in the Option
Agreement)), or (ii) the expiration of the term of the Option as set forth in
the Option Agreement. If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall
5.
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revert to and again become available for issuance under the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.
(g) Disability of Optionee. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period, which in no
event shall be less than six (6) months, specified in the Option Agreement), or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) Death of Optionee. In the event of the death of an Optionee during, or
within a period specified in the Option Agreement after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
as of the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date twelve (12)
months following the date of death (or such longer or shorter period, which in
no event shall be less than six (6) months, specified in the Option Agreement),
or (ii) the expiration of the term of such Option as set forth in the Option
Agreement. If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to and again become available for issuance under the Plan.
If, after death, the Option is not exercised within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(i) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the stock, or
to any other restriction the Board determines to be appropriate; provided,
however, that (i) the right to repurchase at the original purchase price shall
lapse at a minimum rate of twenty percent (20%) per year over five (5) years
from the date the Option was granted, and (ii) such right shall be exercisable
only within (A) the ninety (90) day period following the termination of
Continuous Status as an Employee, Director or Consultant, or (B) such longer
period as may be agreed to by the Company and the Optionee (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), and (iii) such right shall be
exercisable only for cash or cancellation of purchase money indebtedness for the
shares. Should the right of repurchase be assigned by the Company, the assignee
shall pay the Company cash equal to the difference between the original purchase
price and the stock's Fair Market Value if the
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original purchase price is less than the stock's Fair Market Value.
(1) Right of Repurchase. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to
repurchase all or any part of the vested shares exercised pursuant to the
Option; provided, however, that (i) such repurchase right shall be exercisable
only within (A) the ninety (90) day period following the termination of
employment or the relationship as a Director or Consultant (or in the case of a
post-termination exercise of the Option, the ninety (90) period following such
exercise), or (B) such longer period as may be agreed to by the Company and the
Optionee (for example, for purposes of satisfying the requirements of Section
1202(c)(3) of the Code (regarding "qualified small business stock")), (ii) such
repurchase right shall be exercisable for less than all of the vested shares
only with the Optionee's consent, and (iii) such right shall be exercisable only
for cash or cancellation of purchase money indebtedness for the shares at a
repurchase price equal to the stock's Fair Market Value at the time of such
termination. Notwithstanding the foregoing, shares received on exercise of an
Option by an officer, director or consultant (within the meaning of Section 260.
140.41 of Title 10 of the California Code of Regulations) may be subject to
additional or greater restrictions specified in the Option Agreement.
(2) Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionee of the
intent to transfer all or any part of the shares exercised pursuant to the
Option. Such right of first refusal shall be exercised by the Company no more
than thirty (30) days following receipt of notice of the Optionee's intent to
transfer shares and must be exercised as to all the shares the Optionee intends
to transfer unless the Optionee consents to exercise for less than all the
shares offered. The purchase of the shares following exercise shall be completed
within thirty (30) days of the Company's receipt of notice of the Optionee's
intent to transfer shares, or such longer period of time as has been offered by
the person to whom the Optionee intends to transfer the shares, or as may be
agreed to by the Company and the Optionee (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code (regarding
"qualified small business stock"). Except as expressly provided in this
Subsection (k), such right of first refusal shall otherwise comply with the
provisions of the Bylaws of the Company.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) Purchase Price. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such Stock Award Agreement, but in no event shall the
purchase price be less than eighty-five percent (85%) of the stock's Fair Market
Value on the date such award is made. Notwithstanding the foregoing, the Board
or the Committee may determine that eligible participants in the Plan may be
awarded stock pursuant to a stock
7.
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bonus agreement in consideration for past services actually rendered to the
Company or for its benefit.
(b) Transferability. Rights under a stock bonus or restricted stock
purchase agreement shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the Option is granted only by such person.
(c) Consideration. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold,
except that payment of the common stock's "par value" (as defined in the
Delaware General Corporation Law) shall not be made by deferred payment; or
(iii) in any other form of legal consideration that' may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration. of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) Vesting. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee. The
applicable agreement shall provide (i) that the right to repurchase at the
original purchase price shall lapse at a minimum rate of twenty percent (20%)
per year over five (5) years from the date the Stock Award was granted (except
that a Stock Award granted to an officer, director or consultant (within the
meaning of Section 260140.41 of Title 10 of the California Code of Regulations)
may become fully vested, subject to reasonable conditions such as continued
employment, at any time or during any period established by the Company or of
any of its Affiliates), and (ii) such right shall be exercisable only (A) within
the ninety (90) day period following the termination of employment or the
relationship as a Director or Consultant, or (B) such longer period as may be
agreed to by the Company and the holder of the Stock Award (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), and (iii) such right shall be
exercisable only for cash or cancellation of purchase money indebtedness for the
shares.
(e) Termination of Employment or Relationship as a Director or Consultant.
In the event a Participant's Continuous Status as an Employee, Director or
Consultant terminates, the Company may repurchase or otherwise reacquire,
subject to the limitations described in subsection 7(d), any or all of the
shares of stock held by that person which have not vested as of the date of
termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any time
and from time to time, (i) the repricing of any outstanding Options under the
Plan and/or (ii) with the consent of the affected holders of Options, the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share not
less than eighty-five percent (85%) of the Fair Market Value (one hundred
percent (100%) of the Fair Market Value in the case of an Incentive Stock
Option) or, in the case of a 10% stockholder (as described in subsection
8.
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5(1,)), not less than one hundred ten percent (110%) of the Fair Market Value)
per share of stock on the new grant date. Notwithstanding the foregoing, the
Board or the Committee may grant an Option with an exercise price lower than
that set forth above if such Option is granted as part of a transaction to which
section 424(a) of the Code applies.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11. MISCELLANEOUS.
(a) Subject to any applicable provisions of the California Corporate
Securities Law of 1968 and related regulations relied upon as a condition of
issuing securities pursuant to the Plan, the Board shall have the power to
accelerate the time at which a Stock Award may first be exercised or the time
during which a Stock Award or any part thereof will vest pursuant to subsection
6(e) or 7(d), notwithstanding the provisions in the Stock Award stating the time
at which it may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director, or Consultant, nor any person to whom a
Stock Award is transferred under subsection 6(d) or 7(b) shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(c) Throughout the term of any Stock Award, the Company shall deliver to
the holder of such Stock Award, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the term of such
Stock Award, a balance sheet and an income statement. This subsection shall not
apply (i) after the Listing Date, or (ii) when issuance is limited to key
employees whose duties in connection with the Company assure them access to
equivalent information.
(d) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto
9.
<PAGE>
shall confer upon any Employee, Director, Consultant, or other holder of Stock
Awards any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee, with or
without cause, the right of the Company's Board of Directors and/or the
Company's stockholders to remove any Director as provided in the Company's
Bylaws and the provisions of the General Corporation Law of the State of
Delaware, or the right to terminate the relationship of any Consultant subject
to the terms of such Consultant's agreement with the Company or Affiliate.
(e) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(f) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d)
or 7(b), as a condition of exercising or acquiring stock under any Stock Award,
(1) to give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(g) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) Capitalization Adjustments. If any change is made in the Common
Stock subject to the Plan to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving
the receipt of consideration by the
10.
<PAGE>
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of securities subject to the Plan pursuant to subsection 4(a), and the
outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of securities and price per share of Common Stock subject to such
outstanding Stock Awards. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) Change in Control--Asset Sale, Merger, Consolidation or Reverse
Merger. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse
merger in which the Company is the surviving corporation but the shares of
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then any surviving corporation or acquiring corporation
shall assume any Stock Awards outstanding under the Plan or shall substitute
similar stock awards (including an award to acquire the same consideration
paid to the stockholders in the transaction described in this subsection 12(c)
for those outstanding under the Plan). In the event any surviving corporation
or acquiring corporation refuses to assume such Stock Awards or to substitute
similar stock awards for those outstanding under the Plan, then with respect
to Stock Awards held by Participants whose Continuous Status as an Employee,
Director or Consultant has not terminated, the vesting of such Stock Awards
and any shares of Common Stock acquired under such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to such event. With respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall terminate if not exercised
(if applicable) prior to such event.
(d) Change in Control--Securities Acquisition. In the event of an
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions
(excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate) of the beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty
percent (50%) of the combined voting power entitled to vote in the election of
Directors and provided that such acquisition is not a result of, and does not
constitute a transaction described in, subsection 12(c) hereof, then with
respect to Stock Awards held by Participants whose Continuous Status as an
Employee, Director or Consultant has not terminated, the vesting of such Stock
Awards and any shares of Common Stock acquired under such Stock Awards (and,
if applicable, the time during which such Stock Awards may be exercised) shall
be accelerated in full.
(e) Change in Control--Termination of Continuous Status as an Employee,
Director or Consultant.
(i) In the event of a change in control as specified in subsection
12(c) or 12(d) (collectively, a "Change in Control") and Continuous Status as
Employee, Director or Consultant of a Participant is either involuntarily
terminated without Cause or is voluntarily terminated for Good Reason within
one (1) month before or thirteen (13) months after the Change in Control, then
the vesting of such Participant's Stock Award and any shares of Common Stock
acquired under such Stock Award (and, if applicable, the time during which
such Stock Award may be exercised) shall be accelerated by one (1) year.
(ii) The Company or an Affiliate may not terminate the Continuous
Status as an Employee, Director or Consultant of a Participant for Cause
unless and until there shall have been delivered to such person a copy of a
resolution duly adopted by the affirmative vote of at least a majority of the
Board at a meeting of the Board called and held for the purpose (after
reasonable notice to such person and an opportunity for such person, together
with such person's counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, such person was guilty of the conduct
constituting "Cause" and specifying the particulars thereof in detail.
(iii) Any purported voluntarily termination of the Continuous
Status as an Employee, Director or Consultant of a Participant for Good Reason
shall be communicated by a notice of termination to the Company and shall
state the specific termination provisions relied upon and set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
such termination.
(iv) If any benefit received or to be received by such person
pursuant to the acceleration of the vesting and/or exercisability of Stock
Award would constitute an "excess parachute payment" subject to excise tax
under Section 4999 of the Code (the "Excise Tax"), the amount or benefit to be
received by such person shall be reduced if such reduction, taking into
account all applicable federal, state and local income and employment taxes
and the Excise Tax, results in a greater after-tax benefit for such person. The
determination by the Company's independent auditors of any required reduction
pursuant hereto shall be conclusive and binding upon such person.
(f) Definitions.
(i) "Good Reason" means, with respect to the voluntary termination
of the Continuous Status as an Employee, Director or Consultant of a
Participant in connection with a Change in Control, (i) reduction of such
person's rate of compensation as in effect immediately prior to the Change in
Control by greater than ten percent (10%), except to the extent the
compensation of other similarly situated persons are accordingly reduced, (ii)
failure to provide a package of welfare benefit plans that, taken as a whole,
provide substantially similar benefits to those in which such person is
entitled to participate immediately prior to the Change in Control (except
that such person's contributions may be raised to the extent of any cost
increases imposed by third parties) or any action by the Company that would
adversely affect such person's participation or reduce such person's benefits
under any of such plans, (iii) a change in such person's responsibilities,
authority, titles or offices resulting in diminution of position, excluding
for this purpose an isolated, insubstantial and inadvertent action not taken
in bad faith that is remedied by the Company promptly after notice thereof is
given by such person, (iv) a request that such person relocate to a worksite
that is more than fifty (50) miles from such person's prior worksite, unless
such person accepts such relocation opportunity, (v) a material reduction in
duties, (vi) a failure or refusal of any successor company to assume the
obligations of the Company under an agreement with such person or (vii) a
material breach by the Company of any of the material provisions of an
agreement with such person. For purposes of this definition, "Company" shall
include an Affiliate of the Company and a successor to the Company.
(ii) "Cause" means, with respect to the involuntary termination of
the Continuous Status as an Employee, Director or Consultant of a Participant,
misconduct, including: (i) conviction of any felony or any crime involving
moral turpitude or dishonesty; (ii) participation in a fraud or act of
dishonesty against the Company or an Affiliate; (iii) conduct that, based upon
a good faith and reasonable factual investigation and determination by the
Company, demonstrates gross unfitness to serve; or (iv) intentional, material
violation of any agreement with the Company, or of any statutory duty to the
Company, that is not corrected within thirty (30) days after written notice
thereof. Physical or mental disability shall not constitute "Cause." For
purposes of this definition, "Company" shall include an Affiliate of the
Company and a successor to the Company.
(g) Modification of Incentive Stock Options. Notwithstanding the
foregoing, any adjustments made pursuant to Section 12 with respect to
Incentive Stock Options shall be made only after the Board, after consulting
with counsel for the Company, determines whether such adjustments would
constitute a "modifications" of such Incentive Stock Option (as that term is
defined in Section 424(h) of the Code) or would cause any adverse tax
consequences for the holders of such Incentive Stock Options. If the Board
determines that such adjustments made with respect to Incentive Stock Options
would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments, unless the holder of an Incentive Stock
Option specifically requests in writing that such adjustment be made and such
writing indicates that the holder has full knowledge of the consequences of such
"modification" on his or her income tax treatment with respect to the Incentive
Stock Option.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent such approval is necessary to satisfy the requirements
of Section 422 of the Code or any NASDAQ or securities exchange listing
requirements.
(b) To the extent required by applicable law, recipients of Stock Awards
shall be provided with financial statements at least annually.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the
11.
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Stock Award was granted and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on the day before the tenth anniversary of
the earlier of the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall he within
twelve (12) months before or after the date the Plan is adopted by the Board.
12.
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Certain confidential information contained in this document, marked by brackets,
has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Exhibit 10.7
COLLABORATION AGREEMENT
This Collaboration Agreement (the "Agreement") is made and entered
into as of January 1, 2000 (the "Effective Date") by and among Exelixis
Pharmaceuticals, Inc., a Delaware corporation having its principal place of
business in South San Francisco, California ("Exelixis"), Bayer Corporation, an
Indiana corporation having its principal place of business in Pittsburgh,
Pennsylvania ("Bayer"), and GenOptera LLC, a Delaware limited liability company
having its principal place of business in South San Francisco, California (the
"LLC"). Each of Exelixis, Bayer and the LLC may be referred to herein
individually as a "Party" or collectively as the "Parties."
Background
A. Exelixis has technology, materials, and expertise relating to the
identification of proteins and nucleic acids involved in intracellular pathways
or networks in insects and nematodes and to the development of high-throughput
assays that can identify compounds having potential utility in inhibiting or
enhancing the activity of such pathway proteins or nucleic acids.
B. Bayer has an extensive library of small molecules, and has
substantial experience in the research (including target research), development
(including assay development), and commercialization of pesticides for use in
the markets for crop and plant protection and non-human animal health (including
companion animal care).
C. Exelixis and Bayer A.G., an Affiliate of Bayer, have been working
together in the field of pesticide research under an existing Collaboration
Agreement (the "Original Agreement") entered into as of May 1, 1998 (the
"Original Agreement Date") and terminated as of the Effective Date by a separate
agreement between Exelixis and Bayer A.G. Exelixis and Bayer have now decided
to organize the LLC to continue and expand the research performed under the
Original Agreement, and to make the collaboration between Exelixis and Bayer
exclusive within the field of insecticides and nematicides, as and to the extent
further defined herein.
Now, Therefore, in consideration of the foregoing and the covenants
and promises contained in this Agreement, the Parties agree as follows:
1. Definitions
As used herein, the following capitalized terms shall have the following
meanings (with terms defined in the singular having the same meanings when used
in the plural):
1.1 "A List Reserved Target" has the meaning set forth in Section 6.1.
[*]=CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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1.2 "Affiliate" means a Person who controls, is controlled by or is under
common control with (a) the referenced Party or (b) another Person. For
purposes of this definition, (1) the word "control" (including, with correlative
meaning, the terms "controlled by" or "is under common control with") means the
power to direct or cause the direction of the management and policies of the
relevant Person, or the ownership of at least fifty percent (50%) of the voting
stock or voting power of such Person if it is a legal entity, and (2) Bayer and
Bayer AG are Affiliates of each other, the LLC shall not be considered an
Affiliate of either Bayer or Exelixis, and neither Bayer nor Exelixis shall be
considered an Affiliate of the LLC.
1.3 "Annual FTE Rate" means the amount to be paid over a 12-month period
by the LLC to Exelixis to support one FTE for such period. The Annual FTE Rate
will be [ * ] for the first Contract Year. For each subsequent Contract Year,
this rate will be [ * ].
1.4 "Approval Application" means the appropriate application(s), together
with all documents, data and information concerning a Product required to be
included with such application, that is necessary to obtain Regulatory Approval
to manufacture, use, import, distribute, market and/or sell a Product for use in
the Field of Use in a particular country.
1.5 "B List Reserved Target" has the meaning set forth in Section 6.1.
1.6 "Bayer Assay" means, with respect to a particular Target, an in vitro
or in vivo assay (other than an LLC Assay) developed by or on behalf of Bayer as
provided in Sections 2.11(b), 3.2, 4.3(b), 5.3 and 6.2(b) that can measure
whether a particular molecule or compound inhibits or antagonizes (or, if
appropriate, agonizes or enhances) the function of the Target.
1.7 "Bayer Compounds" are compounds, excluding the Bayer Pesticides and
any and all compounds that Bayer and/or an Affiliate of Bayer was marketing or
developing on the Original Agreement Date, to which Bayer has access and which
it has the right to test and that Bayer A.G. tested under the Original Agreement
or that Bayer tests under this Agreement.
1.8 "Bayer Know-How" means Information Controlled by Bayer or any
Affiliate of Bayer that is necessary or useful for conducting the LLC's
obligations under the Research Plan, or for the discovery, preparation or use of
Targets or LLC Assays, or for the development or use of the Sequence Library or
Sequence Database and that is disclosed to the LLC and/or Exelixis under this
Agreement and/or the Original Agreement. Bayer Know-How excludes the Bayer
Patents.
1.9 "Bayer Patents" means all Patents Controlled by Bayer or any Affiliate
of Bayer, covering inventions made prior to the end of the Research Term,
including those made prior to the Effective Date, that claim or cover a Bayer
Pesticide or its use, the discovery, manufacture or use of a Target or LLC
Assay, the development or use of the Sequence Library or Sequence Database, or
the discovery, manufacture or use of a Collaboration Compound or Product; and
include Joint Patents in which Bayer has an ownership interest.
1.10 "Bayer Pesticide" means any compound Controlled by Bayer that has been
shown to have potential utility in pest control as an insecticide, arachnicide
and/or nematicide, but the target for such activity was not known as of the
Original Agreement Date.
[*]=CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
2
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1.11 "Bayer Product" means a product that contains a Collaboration
Compound.
1.12 "Candidate Target" means (a) a Target identified, mapped, cloned, and
validated in the course of the Target Identification Program or (b) a Sequence-
Based Target that is identical with a Target described in subsection (a) of this
Section 1.12.
1.13 "Chemical Development Program" means a chemical research program
conducted to find a compound with commercial value when formulated into a
product. For clarity, a Chemical Development Program includes, without
limitation, the synthesis of derivatives, modifications and analogues whether
made through medicinal chemistry, the study of structure-activity relationships,
combinatorial chemistry or a structure-based design program.
1.14 "Chief Executive Officer" means the Chief Executive Officer of the
LLC.
1.15 "Cognate Target" means any Candidate Target, (i) the function of which
a particular Bayer Pesticide agonizes, antagonizes, enhances or counteracts to
achieve the insecticide or nematicide (as applicable) effect, which function was
not known to Bayer, Exelixis or an Affiliate of either of them as of the
Original Agreement Date and was determined as a result of the investigation of
the mechanism of action of a Bayer Pesticide through work conducted by the LLC
or Exelixis, or (ii) [ * ].
1.16 "Collaboration Compound" means
(a) a compound (other than an Excluded Compound), having a molecular
weight below [ * ], that:
(i) agonizes, antagonizes, enhances or inhibits the function of
a Target, wherein such activity was discovered by or on behalf of Bayer or its
Affiliate or licensee by screening the compound in a Selected Assay for the
Target or in a Bayer Assay for the Target, within [ * ] after the first use of
such Selected Assay or Bayer Assay by Bayer or its Affiliate or licensee; or
(ii) agonizes, antagonizes, enhances or inhibits the function of
a Target, wherein such activity was discovered by a material use by or on behalf
of Bayer or its Affiliate or licensee of the Exelixis Know-How, Exelixis
Patents, LLC Know-How or LLC Patents (other than Selected Assays or Bayer
Assays), within [ * ] after the Effective Date or if later by [ * ]; or
(iii) is a compound synthesized in connection with a Chemical
Development Program based on or arising from a compound (including, without
limitation, derivatives of an Excluded Compound) that meets the criteria in
Section 1.16(a)(i) or 1.16(a)(ii) and that is shown to agonize, antagonize,
enhance or inhibit the function of a Target; or
(iv) is identified by Bayer or its Affiliate or licensee (other
than the LLC) as provided in Section 2.4(c) within [ * ] after the first use by
Bayer or its Affiliate or licensee of an assay or Target described in Section
2.4(c); or
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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(b) is a [ * ] useful in the Field of Use and that is discovered by or
on behalf of Bayer or its Affiliate or licensee under this Agreement and/or was
discovered by or on behalf of Bayer AG or its licensee under the Original
Agreement.
The definition of "Collaboration Compound" does not include any compound
identified and developed without any use of a Selected Assay, Target or
Confidential Information of the LLC or Exelixis. References in this Section
1.16 to a "licensee" of Bayer shall include sublicensees but shall exclude the
LLC in those cases where the compound satisfies the definition of an LLC
Compound.
1.17 "Confidential Information" means with respect to a Party, Information
that is owned or Controlled by such Party, its Affiliates or sublicensees,
including information of Third Parties known to such Party by reason of any
collaboration with such Third Party or under any confidentiality agreement with
such Third Party, that is disclosed by such Party to the one or both of the
other Parties hereto pursuant to this Agreement, and that is identified by the
disclosing Party in writing, or is acknowledged by the receiving Party in
writing, to be confidential to the disclosing Party or to a Third Party at the
time of disclosure to the receiving Party if disclosed in tangible form, or is
confirmed by the disclosing Party to the receiving Party as confidential within
thirty (30) days after disclosure if initially disclosed orally by the
disclosing Party. Confidential Information will not include any information
which:
(a) Already Known Without Breach. Was already known to the receiving
Party, without breach of any obligation of confidentiality by any Party, at the
time of disclosure by the disclosing Party;
(b) Generally Available Or In Public Domain Without Breach. Was generally
available to the public or otherwise part of the public domain at the time of
its disclosure to the receiving Party by the disclosing Party, or became
generally available to the public or otherwise part of the public domain after
its disclosure to the receiving Party by the disclosing Party, in each case
without breach of any obligation of confidentiality by the receiving Party or
subsequently becomes part of the public domain without breach of any obligation
of confidentiality by the receiving Party;
(c) Freely Disclosed By Certain Third Parties. Was disclosed to the
receiving Party, other than under an obligation of confidentiality, by a Third
Party who had no obligation to the disclosing Party not to disclose such
information to others;
(d) Freely Disclosed By Disclosing Party To Others. Is disclosed by the
disclosing Party to others without an obligation of confidentiality;
(e) Required To Be Disclosed. Is required to be disclosed pursuant to law,
subject, except for disclosure of financial information to the extent required
by securities laws to be disclosed, to the protective provisions set forth in
Section 18.6 of the Operating Agreement; or
(f) Independently Developed. The receiving Party can document was
subsequently and independently developed by employees or others on behalf of the
receiving
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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Party without use of any Confidential Information disclosed to the receiving
Party or such others by the disclosing Party.
1.18 "Contract Year" means a 12-month period of time commencing on the
Effective Date or any anniversary of the Effective Date, and designated by a
number one larger than the number of full 12-month periods since the Effective
Date at the commencement of such period of time.
1.19 "Control" means, with respect to any compound, material, Information
or intellectual property right (including without limitation those relating to
an LLC Assay, Bayer Assay, Exelixis Assay, Bayer Pesticide, Bayer Compound,
Collaboration Compound, Exelixis Agrochemical Compound, Product or Target),
possession by a Party of the ability to grant access, a license, or a sublicense
to such compound, material, Information or intellectual property right as
provided for herein, without violating the terms of any agreement or other
arrangements with any Third Party existing at the time such Party would be first
required hereunder to grant the other Party such access.
1.20 "Core Improvements" means any and all improvements to Exelixis Core
Technology made by FTEs, any entity other than Bayer or any individual other
than a Bayer employee under this Agreement after the Effective Date. The JSC
will propose and the LLC will decide whether inventions made by FTEs, any entity
other than Bayer or any individual other than a Bayer employee are Core
Improvements or not. In case of disagreement within the JSC, an external expert
appointed by the LLC shall make such proposal.
1.21 "Dedicated FTE" means any FTE who, at the time in question, performs
work solely for the LLC.
1.22 "Development" means conducting in vitro and/or in vivo investigations
and trials on a Collaboration Compound for use in the Field of Use, starting
with Bayer's decision to enter the F\\2\\-Phase as to such Collaboration
Compound.
1.23 "Dollars" or "$" means United States dollars.
1.24 "Excluded Compound" means any compound owned or Controlled by Bayer
that, prior to any use or screening of such compound in a Selected Assay or
Bayer Assay or in any material use under this Agreement or the Original
Agreement of Exelixis Know-How, Exelixis Patents, LLC Know-How or LLC Patents,
is known to Bayer, and has been shown by or on behalf of Bayer or its Affiliate
to have [ * ] activity, in testing such as microscreening or in actual data from
greenhouse or field experiments typically used by Bayer to determine whether a
compound has [ * ] activity.
1.25 "Exelixis Agrochemical Compound" means a compound (including early
stage compounds such as hits and leads) having a molecular weight below [ * ]
that has activity in the Field of Use and that:
(a) agonizes, antagonizes, enhances or inhibits the function of a Selected
Target identified in the Target Identification Project or present in the
Sequence Database,
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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wherein such activity was discovered by or on behalf of Exelixis or its
Affiliate or collaborator by screening the compound in an LLC Assay for the
Target (if permitted by the LLC under Section 4.6(a)) within [ * ] after the
first use of such LLC Assay by Exelixis or its Affiliate or collaborator; or
(b) agonizes, antagonizes, enhances or inhibits the function of an
Unselected Non-Cognate Target, wherein such activity was discovered by or on
behalf of Exelixis or its Affiliate or collaborator by screening the compound in
an Exelixis Assay for such Target (if permitted by the LLC under Section 4.3(a))
within [ * ] after the first use of such Exelixis Assay by Exelixis or its
Affiliate or collaborator; or
(c) is a compound synthesized in connection with a Chemical Development
Program based on or arising from a compound that meets the criteria in Section
1.25(a) or (b) and that is shown to agonize, antagonize, enhance or inhibit the
function of a Selected Target identified in the Target Identification Project or
present in the Sequence Database or an Unselected Non-Cognate Target,
respectively.
The definition of "Exelixis Agrochemical Compound" does not include any compound
identified and developed without any use of an LLC Assay, Exelixis Assay,
Selected Target or Unselected Non-Cognate Target.
1.26 "Exelixis Agrochemical Product" means a product that is commercialized
by Exelixis or by a licensee of Exelixis (other than Bayer) in the Field of Use
and that contains an Exelixis Agrochemical Compound.
1.27 "Exelixis Assay" means, with respect to a particular Target, an in
vitro or in vivo assay developed by or on behalf of Exelixis that can measure
whether a particular molecule or compound inhibits or antagonizes (or, if
appropriate, agonizes or enhances) the function of the Target.
1.28 "Exelixis Core Technology" means the [ * ] used by Exelixis (whether
owned by Exelixis or used by it under license from Third Parties) generally in
its business. The JSC will consider in good faith and propose modifications of
this definition after the Effective Date and the LLC will decide whether to make
such modifications. In case of disagreement within the JSC, an external expert
appointed by the LLC shall make such proposal.
1.29 "Exelixis Human Health Compound" means a compound having a molecular
weight below [ * ] that has activity outside the Field of Use and that agonizes,
antagonizes, enhances or inhibits the function of a Candidate Target or a
Sequence-Based Target, wherein such activity was discovered by or on behalf of
Exelixis or its Affiliate or collaborator by screening the compound in an LLC
Assay or an Exelixis Assay for the Candidate Target or the Sequence-Based
Target, within [ * ] after first use of such assay by Exelixis or its Affiliate
or collaborator.
1.30 "Exelixis Human Health Product" means any product commercialized by
Exelixis or a licensee of Exelixis (other than Bayer) outside the Field of Use
that contains an Exelixis Human Health Compound.
[*]=CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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1.31 "Exelixis Know-How" means Information Controlled by Exelixis or any
Affiliate of Exelixis that (a) is necessary or useful for performing an LLC
Assay or Bayer Assay or otherwise for discovering a Collaboration Compound and
is disclosed to the LLC and/or Bayer under this Agreement and/or the Original
Agreement, or (b) is derived from the FlyTag database. Exelixis Know-How
excludes the Exelixis Patents.
1.32 "Exelixis Patents" means all Patents Controlled by Exelixis or any
Affiliate of Exelixis, covering inventions made prior to the end of the Research
Term, including those made prior to the Effective Date, that (a) claim or cover
the manufacture or use of an LLC Assay or Target, or the discovery of a
Collaboration Compound, or (b) are derived from the FlyTag database; and include
Joint Patents in which Exelixis has an ownership interest.
1.33 "Field of Use" means any use [ * ].
1.34 "Force Majeure Event" means, as to a Party, an event or condition
having a material adverse effect upon such Party due to circumstances beyond
such Party's reasonable control and that by the exercise of commercially
reasonable due diligence it is unable to prevent. Circumstances beyond the
reasonable control of a Party include, but are not limited to, fire, strikes,
insurrections, riots, embargoes, shortages, war-time rationing or preferences,
delays in transportation, inability to obtain supplies of raw materials or
requirements or regulations of any government or any other civil or military
authority in the relevant jurisdiction.
1.35 "F\\2\\-Phase" means the stage of research and development of a
Collaboration Compound for use in the Field of Use where Bayer selects the
Collaboration Compound for formal development work to generate the data needed
for registration, such as toxicological, environmental and ecobiological data,
metabolism studies, and residue studies.
1.36 "Full Time Employee" or "FTE" means the equivalent of one employee of
Exelixis, working full time for one work year.
1.37 "Independent Research" means:
(a) with respect to Exelixis, work performed by employees or
consultants of Exelixis other than Dedicated FTEs or persons while acting as
Shared FTEs that does not utilize Confidential Information of another Party
(other than that Confidential Information of the LLC permitted to be used in
Section 11.3(c)); or
(b) with respect to Bayer, work performed by employees or consultants
of Bayer that does not utilize Confidential Information of another Party (other
than that Confidential Information of the LLC permitted to be used in Section
11.2(c)).
1.38 "Information" means information, results and data of any type
whatsoever, in any tangible or intangible form whatsoever, including without
limitation inventions, practices, methods, techniques, specifications,
formulations, formulae, knowledge, know-how, skill, experience, test data
including pharmacological, biological, chemical, biochemical, toxicological and
clinical test data, analytical and quality control data, stability data, studies
and procedures, and patent and other legal information or descriptions.
[*]=CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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1.39 "Joint Invention" means all inventions, developments, results, know-
how and other Information, and all intellectual property relating thereto,
jointly conceived by employees of or consultants to two or more of the Parties
in the course of work performed pursuant to this Agreement after the Effective
Date and reduced to practice during the Research Term or within [ * ]
thereafter.
1.40 "Joint Patent" means any Patent claiming a Joint Invention.
1.41 "JSC" means the Joint Scientific Committee of the LLC, as further
defined in the Operating Agreement.
1.42 "LLC Assay" means, with respect to a particular Selected Target, an in
vitro or in vivo assay developed by the LLC in the course of the Research or by
a Third Party subcontracted by the LLC pursuant to Section 3.3, including the
required reagents for performing such assay that are not otherwise readily
available, that is suitable for [ * ] and that can measure whether a particular
molecule or compound inhibits or antagonizes (or, if appropriate, agonizes or
enhances) the function of the Selected Target.
1.43 "LLC Compound" means a compound (including early stage compounds such
as hits and leads) having a molecular weight below [ * ] that:
(a) agonizes, antagonizes, enhances or inhibits the function of a
Target, wherein such activity was discovered by or on behalf of the LLC or its
Affiliate or sublicensee by screening the compound in an LLC Assay for the
Target;
(b) is a compound synthesized in connection with a Chemical
Development Program based on or arising from a compound that meets the criteria
in subsection (a) and that is shown to agonize, antagonize, enhance or inhibit
the function of a Target; or
(c) is identified by the LLC or its Affiliate or licensee as provided
in Section 2.4(c) within [ * ] after the first use by the LLC or its Affiliate
or licensee of an assay or target described in Section 2.4(c).
The Parties understand and agree that the definition of "LLC Compound" does not
include any compound identified and developed without any use of an LLC Assay,
Selected Assay, Target or Confidential Information of Exelixis or Bayer.
1.44 "LLC Know-How" means Information Controlled by the LLC or any
Affiliate of the LLC that (a) concerns a Target or is necessary or useful for
performing an LLC Assay, Exelixis Assay or Bayer Assay or otherwise for
discovering a Collaboration Compound, Exelixis Agrochemical Compound or Exelixis
Human Health Compound, or the manufacture, use or sale of a Product, and is
disclosed to Exelixis and/or Bayer under this Agreement, or (b) is derived from
the Sequence Library or Sequence Database. LLC Know-How excludes the LLC
Patents.
1.45 "LLC Patents" means all Patents Controlled by the LLC or any Affiliate
of the LLC, covering inventions made prior to the end of the Research Term, that
(a) claim or cover the discovery, manufacture or use of a Target, LLC Assay,
Exelixis Assay or Bayer Assay, or the
[*]=CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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discovery of a Collaboration Compound, Exelixis Agrochemical Compound or
Exelixis Human Health Compound, or the manufacture, use or sale of a Product, or
(b) are derived from the Sequence Library or Sequence Database; and include
Joint Patents in which the LLC has an ownership interest.
1.46 "Management Committee" shall mean the Management Committee of the LLC,
as further defined in the Operating Agreement.
1.47 "Net Sales" means the total amount invoiced or otherwise charged by
Bayer or Exelixis or their respective Affiliates or sublicensees, as applicable,
on account of the sale of a Product to a Third Party, less the following
deductions to the extent actually incurred and invoiced or charged to the
purchaser based upon the sale of such Product: (a) credits, allowances,
discounts and rebates to, and chargebacks from the account of, such Third Party
for spoiled, damaged, out-dated and returned Product; (b) actual freight and
insurance costs incurred in transporting such Product; (c) sales, value-added
and other direct taxes incurred; and (d) customs duties, surcharges and other
governmental charges incurred in connection with the exportation or importation
of such Product. In calculating the Net Sales of a Product, any rebates,
discounts, commissions, costs, expenses or payments other than those expressly
provided above in this Section 1.47 shall not be deducted from the amount
invoiced or otherwise charged on account of sale of such Product.
1.48 "Non-Cognate Target" means any Candidate Target or Sequence-Based
Target that is not a Cognate Target.
1.49 "Operating Agreement" means the Operating Agreement of the LLC of even
date herewith.
1.50 "Patent" means (a) all patent applications heretofore or hereafter
filed or having legal force in any country; (b) all unexpired patents that have
issued or in the future issue therefrom, including without limitation utility,
model and design patents and certificates of invention; and (c) all divisionals,
continuations, continuations-in-part, reissues, reexaminations, renewals,
extensions (including supplemental protection certificates), additions,
registrations or confirmations to or of any such patent applications and
patents.
1.51 "Person" means a natural person, corporation, partnership (whether
general or limited), a limited liability company, or any trust, estate,
association, custodian, nominee or any other individual or entity in its own or
representative capacity, and in each case, as to a legal entity, whether formed
under the laws of the United States or of any state thereof or of any non-United
States jurisdiction.
1.52 "Product" means a Bayer Product, Exelixis Agrochemical Product, or
Exelixis Human Health Product.
1.53 "Putative Related Family Member" means an Unselected Non-Cognate
Target that is identified in accordance with Section 4.4(a).
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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1.54 "Regulatory Approval" means any and all approvals (including
supplements, amendments, pre- and post-approvals, pricing and reimbursement
approvals), licenses, registrations or authorizations of any national, supra-
national (e.g., the European Commission or the Council of the European Union),
regional, state or local regulatory agency, department, bureau, commission,
council or other governmental entity, that are necessary for the manufacture,
distribution, use or sale of a Product in a regulatory jurisdiction.
1.55 "Related Family Member" means, with respect to a particular Selected
Target, a Putative Related Family Member that the Parties determine, as set
forth in Section 4.4(b), to be [ * ].
1.56 "Research" means the research efforts conducted by a Party or the
Parties pursuant to this Agreement during the Research Term, together with the
research efforts conducted by Exelixis and/or Bayer A.G. under the Original
Agreement during the term of the Original Agreement. Research includes work
performed under the Target Identification Project and the Sequencing Project and
such other research activities as specified by the LLC.
1.57 "Research Field" means research directed only towards the discovery
and testing of insecticides (including compounds acting against other
invertebrate animals) and nematicides for crop protection, [ * ].
1.58 "Research Orthologue" means, with respect to a first gene or protein
that was discovered in the course of the Collaboration and naturally occurs in a
particular species, a second gene or protein that naturally occurs in a
different species, was identified by a Party in the course of work other than
Independent Research, and has sufficient sequence homology or evidence of
functional equivalence to be considered the counterpart of such first gene or
protein.
1.59 "Research Plan" means a detailed plan for research under this
Agreement as recommended by the JSC and approved by the LLC from time to time
during the Research Term.
1.60 "Research Term" means the period commencing on the Effective Date and
ending on the date specified in Section 2.1(b) unless earlier terminated
pursuant to Section 14.3.
1.61 "Reserved Target" means any target designated as set forth in Section
6.1.
1.62 "Selected Assay" means an LLC Assay for which Bayer commences
screening for Collaboration Compounds within the period set forth in Section
3.3.
1.63 "Selected Cognate Target" means a Cognate Target that the LLC has
selected for LLC Assay development as provided in Section 3.1 or that Bayer has
selected for Bayer Assay development as provided in Section 3.2 or 5.3.
1.64 "Selected Non-Cognate Target" means: (a) a Non-Cognate Target that the
LLC has selected for LLC Assay development as provided in Section 3.1 or 4.3(a)
or that Bayer has selected for Bayer Assay development as provided in Section
3.2 or 4.3(a), or (b) a Target that Bayer has selected for Bayer Assay or LLC
Assay development as provided in Section 2.11.
[*]=CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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1.65 "Selected Target" means a Selected Cognate Target, Selected Non-
Cognate Target or Selected A List Reserved Target.
1.66 "Sequence-Based Target" means a Target contained in the Sequence
Database.
1.67 "Sequence Database" means the compilation of the readable sequence
data from a Sequence Library.
1.68 "Sequence Library" means an arrayed, normalized cDNA or genomic
library created from samples provided by Bayer from an arthropod or helminth
species selected by Bayer.
1.69 "Sequencing Project" means the research project described in Section
2.4.
1.70 "Shared FTE" means an FTE furnished by, and comprised of, the
collective services of persons who perform work for the LLC and also work on
other Exelixis projects, both internal and in collaboration with Third Parties.
1.71 "Target" means (a) a gene or gene product or portion thereof that is
identified in the course of the Research, (b) a gene or gene product or portion
thereof Controlled by Exelixis that it licenses to the LLC for Research in the
Research Field, (c) a gene or gene product obtained by Bayer or the LLC using
sequence information provided by Exelixis pursuant to this Agreement or the
Original Agreement, or (d) a Research Orthologue of a gene, gene product or
portion thereof that meets the criteria set forth in Section 1.71(a), (b) or
(c). For clarity, Section 1.71(a) includes Sequence-Based Targets, Candidate
Targets and A List Reserved Targets. The Parties understand and agree that any
gene or gene product or portion thereof that is discovered through Independent
Research is not a Target.
1.72 "Target Identification Project" means that research project described
in Section 2.3 and Articles 3, 4 and 5 regarding identification of Cognate
Targets and/or Non-Cognate Targets and development of LLC Assays.
1.73 "Third Party" means any entity or individual other than the Parties
and other than the Affiliates of the Parties.
1.74 "Unselected Assay" means an LLC Assay which Bayer fails to select or
for which Bayer fails to commence screening for Collaboration Compounds within
the period set forth in Section 3.3.
1.75 "Unselected Cognate Target" means a Cognate Target that both the LLC
and Bayer failed to select as provided in Section 3.1, 3.2 or 5.3.
1.76 "Unselected Non-Cognate Target" means a Non-Cognate Target that both
the LLC and Bayer failed to select as provided in Section 3.1, 3.2 or 4.3.
[*]=CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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2. Collaborative Research
2.1 Overview of Research Projects.
(a) Under the terms of the Original Agreement, Exelixis has already
performed Research on the Target Identification Project and the Sequencing
Project. During the Research Term, the LLC shall undertake the Research, to be
conducted on a cooperative and collaborative basis with Exelixis and Bayer in
accordance with a new Research Plan agreed upon by the Parties. To the extent
consistent with the resources of the LLC provided under this Agreement or
otherwise available to the LLC, the LLC may establish Research projects in
addition to the Target Identification Project and the Sequencing Project for the
Parties to conduct within the Research Field.
(b) Unless terminated pursuant to Section 14.7, the Research Term
will initially last eight (8) years from the Effective Date, and it will
automatically be extended beyond the eighth anniversary of the Effective Date,
in one year increments, unless Exelixis or Bayer gives written notice, at least
[ * ] prior to the eighth or any subsequent anniversary of the Effective Date,
of its intent to terminate the Research Term.
2.2 Research Plan. The Research shall be conducted in accordance with a
Research Plan approved by the LLC based on the recommendation of the JSC. The
initial Research Plan under this Agreement shall be recommended by the JSC at
its first meeting after the Effective Date, and shall include the continuation
of the Research underway as of the Effective Date with appropriate additions and
modifications arising from the increased level of Research effort arising from
this Agreement. Prior to the first meeting of the JSC, the Research Plan shall
be determined by the LLC. Any changes to the Research Plan will require the
recommendation of the JSC or, if a decision of the JSC cannot be reached, the
approval of such change by the LLC. If the revised Research Plan requires a
personnel change of [ * ] or more of the FTEs working in a particular
discipline, then such Research Plan shall provide for a reasonable time for
Exelixis to implement such change. If the revised Research Plan requires
Exelixis to purchase or lease more than [ * ] of equipment or to acquire
licenses that were not already budgeted for purchase, lease or license at such
time, then such change shall require the consent of Exelixis unless the LLC
agrees (i) to purchase such additional capital equipment and/or to acquire such
additional licenses, as assets of the LLC, or (ii) to pay for such purchase or
lease expenses in excess of [ * ], which agreement in either case will require
that Bayer also agree with the LLC in writing to fund such amounts as an
increase in LLC operating expenses.
2.3 Target Identification Project. The goal of the Target
Identification Project is to discover, isolate and validate Cognate Targets and
Non-Cognate Targets and to develop appropriate LLC Assays directed at such
Cognate Targets and Non-Cognate Targets and useful for the identification of
novel insecticides and nematicides. The research carried out by the LLC under
the Target Identification Project and each Party's rights with respect to the
data, Targets and LLC Assays that arise from the Target Identification Project
are set forth below and in Articles 3, 4 and 5 .
(a) Research Performed Prior to the Effective Date. Exelixis has
already performed substantial Research in the Target Identification Project
under the Original Agreement. Commencing on the Effective Date, the LLC shall
assume responsibility for all
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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Research then in progress and shall begin new Research in accordance with the
Research Plan. The rights and obligations with respects to all data, Targets and
LLC Assays arising in the course of the Research shall be the same regardless of
whether the underlying work was performed by Exelixis or Bayer A.G. under the
Original Agreement, by the Parties under this Agreement, or a combination of
both. In this regard:
(i) The LLC shall have the right to decide, pursuant to Section 3.1,
whether the LLC will develop an LLC Assay for any Candidate Target for which
Exelixis provided to Bayer A.G. the information set forth in Section 3.1 prior
to the Effective Date and for which Bayer A.G. did not, prior to the Effective
Date, select such Candidate Target as a Selected Target. For any such Candidate
Target which was provided prior to the Effective Date, the rights of Bayer set
forth in Section 3.2 shall come into effect on [ * ], and the rights of the
Parties set forth in Sections 4.3 and 5.3 shall come into effect on [ * ] if
Bayer fails to select such Candidate Target or designate such Candidate Target
as a Putative Related Family Member by such date.
(ii) Any assays in development as of the Effective Date which are
delivered to Bayer pursuant to this Agreement after the Effective Date shall be
deemed to be LLC Assays, subject to the rights of the LLC and Exelixis set forth
in Sections 4.6 and 5.5.
(b) Target Identification. In the event that the Research Plan calls for
the LLC to perform target identification research upon a Bayer Pesticide other
than those Bayer Pesticides upon which research was conducted by Exelixis prior
to the Effective Date, the LLC shall request and Bayer shall provide to the LLC
within sixty (60) days after of such request, a reasonable amount of each such
Bayer Pesticide. The LLC will study the feasibility of isolating [ * ] that are
resistant to the Bayer Pesticides, or using other research capabilities of
Exelixis to identify Targets. Based on these feasibility studies Bayer shall
prioritize those Bayer Pesticides upon which the LLC shall perform further work
under the Research to identify Candidate Targets (as defined below). For each
of these selected Bayer Pesticides, the LLC will endeavor to: (i) isolate [ * ],
as appropriate, that are resistant to the Bayer Pesticide, or apply other
Exelixis discovery capabilities as appropriate; (ii) map and clone the genes
responsible for the resistance in such [ * ]; and (iii) identify and validate
genes encoding Targets that may be useful for the identification of
Collaboration Compounds. Each Target for which the LLC has successfully
completed steps (i), (ii), and (iii) above shall be deemed a "Candidate Target."
The JSC shall recommend to the LLC and the LLC shall decide whether each
Candidate Target identified is a Cognate Target or Non-Cognate Target.
2.4 Sequencing Project. Under the Original Agreement, Exelixis and Bayer
AG commenced a Sequencing Project (formerly known as an "EST Library Project")
intended to create an expressed sequence tag ("EST") library for an [ * ]
species of interest and a database comprising sequenced ESTs from said species.
During the Research Term, the LLC shall continue the Sequencing Project in
accordance with the Research Plan and this Section 2.4. The Research Plan may
be amended by the written agreement of the LLC and Exelixis, to expand the
Sequencing Project to include one or more additional sequencing projects to be
performed by Shared FTEs, including but not limited to genomic sequencing
projects.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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(a) For each project in the Sequencing Project, Bayer AG has selected or
Bayer will select an [ * ] species with relevance to Bayer's crop protection
business. For each species that Bayer AG did not provide Exelixis with whole
organism and tissue samples from such species, Bayer shall provide such
materials to the LLC. Using these whole organism and tissue samples, Shared
FTEs will create a Sequence Library. Shared FTEs will perform [ * ] sequencing
upon the number of clones from the Sequence Library specified in the Research
Plan and approved by Exelixis and compile the readable sequence data from such
Sequence Library (approximately [ * ] of the sequencing lanes are expected by
the Parties to be readable, but such expectation is not binding) into a Sequence
Database specifically arising from the Research.
(b) Shared FTEs or Dedicated FTEs will perform cross-species comparisons
between the Sequence Database and proprietary Exelixis sequence banks and
between the Sequence Database and publicly available databases, with the
intention of identifying gene fragments or Targets with potential utility in the
Research Field. The LLC will provide Bayer and Exelixis access to the Sequence
Database and any information relating to the such targets or otherwise derived
from such comparisons. The Sequence Database and sequence-derived information
will be supplied to Bayer and Exelixis in the computer-readable format agreed
upon under the Original Agreement.
(c) Bayer may identify and validate Sequence-Based Targets without
selecting such Targets. Bayer shall select a Sequence-Based Target prior to
conducting further Research and Development work using such a Sequence-Based
Target. Upon selection, a Sequence-Based Target shall become a Selected Non-
Cognate Target and any compounds identified by use of such Target or LLC Assays
or Bayer Assays based on such Target will be Collaboration Compounds subject to
all milestone and premium fee obligations outlined in Sections 9.3 and 9.4
[ * ].
(d) The LLC will allocate from the Research commitment set forth in Section
2.5 sufficient FTEs to perform the sequencing dictated by the Research Plan and
not exceeding Exelixis' uncommitted sequencing capacities. The JSC will attempt
in good faith to project sequencing needs [ * ] in advance.
(e) The LLC may, upon the allocation of sufficient FTEs from the Research
commitment set forth in Section 2.5, expand the Sequencing Project to include
more than one [ * ] species (not exceeding Exelixis' uncommitted sequencing
capacities). Bayer shall retain the right to select any additional species and
the Parties' rights and obligations with respect to the additional Sequence
Libraries and Sequence Databases shall be the same as for the initial Sequence
Library and Sequence Database.
2.5 Research Commitment; FTEs.
(a) In the first Contract Year, the LLC shall provide Exelixis with [ * ]
in Research funding and shall carry forward [ * ] for Research funding for the
subsequent Contract Year. At least [ * ] in advance of the commencement of each
Contract Year after the first Contract Year, Exelixis shall provide the LLC with
a written calculation of the Annual FTE Rate for the following Contract Year in
accordance with Section 1.3. If such Annual FTE Rate exceeds [ * ], the LLC
shall provide Exelixis, at least [ * ] in advance of the commencement of
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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such Contract Year, written notice of whether the LLC commits to provide
sufficient Research funding (which shall include any carry-forward described in
this Section 2.5(a)) in the subsequent Contract Year to support [ * ] FTEs at
such Annual FTE Rate. If the LLC does not provide such commitment, then the LLC
shall specify such lesser amount of research funding which it commits to provide
in the forthcoming Contract Year, which amount shall not be less than [ * ] plus
any carry-forward described in this Section 2.5(a). The number of FTEs which are
funded during any given Calendar Year, which shall equal the sum of such level
of funding specified by the LLC plus any carry-forward described in Section
2.5(b) divided by the Annual FTE Rate in effect for such Calendar Year (with any
partial number being rounded down), is referred to in this Section 2.5 and
Section 9.2 as the "Specified FTEs." The amount of Research funding provided to
Exelixis by the LLC in each Contract Year after the first Contract Year shall
equal the result of the following calculation: multiply the number of Specified
FTEs by the Annual FTE Rate for such Calendar Year and deduct from the product
of such multiplication the amount of any Exelixis carry-forward described in
Section 2.5(b).
(b) During each Contract Year in which the number of Specified FTEs (as
defined in Section 2.5(a)) equals [ * ], Exelixis shall provide [ * ] FTEs for
the Research, [ * ] of which shall be Dedicated FTEs and [ * ] of which shall be
Shared FTEs initially. During any Contract Year in which the number of
Specified FTEs does not equal [ * ], Exelixis shall provide such number of
Specified FTEs, with any reduction in FTEs below [ * ] or increase above [ * ]
to be effected pro rata between Dedicated FTEs and Shared FTEs in the ratio
agreed upon in the Research Plan. If Exelixis is unable to provide the number
of Specified FTEs for a particular Contract Year, then the excess of the level
of funding provided by the LLC during such Contract Year, divided by the product
the Annual FTE Rate for such Calendar Year times the number of FTEs actually
provided by Exelixis in such Contract Year, shall be carried forward by Exelixis
and used to pay for FTEs in the following Contract Year as provided in Section
2.5(a).
(c) None of the Dedicated FTEs or Shared FTEs which the LLC is committed to
fund under Section 2.5(b) may be allocated by the LLC to (a) collaborations
between the LLC and Third Parties, (b) projects that involve the use of LLC
Assay(s) for screening purposes (except for implementation of LLC Assays at
Bayer's HTS facility) or (c) development of LLC Compounds. Prior to any
amendment of the Research Plan to provide for the performance of such tasks by
the LLC, the LLC shall, with the written approval of Bayer, increase the number
of FTEs for which it provides research funding under this Agreement in order to
allocate sufficient new FTEs, funded by the LLC, to perform such tasks. At any
time during the Research Term, the LLC, with the separate prior written consent
of Exelixis, may increase the number of Specified FTEs funded by the LLC under
this Agreement.
(d) The Exelixis employees who provide FTE services to the LLC under this
Agreement shall remain employees of Exelixis, and Exelixis shall be solely
responsible for their recruiting, evaluation, compensation, management and
termination. Exelixis shall indemnify Bayer and the LLC and their Affiliates
for any claims arising from such employment relationship, as set forth in
Article 13.
2.6 Records. The LLC shall maintain records of all work conducted under the
Research and all results, data and developments made pursuant to its efforts
under the Research. Exelixis shall cause all of its employees performing work on
behalf of the LLC to maintain
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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records of such Research and of other activities in accordance with the
practices used by Exelixis in its independent research activities, with work on
behalf of the LLC to be maintained in independent laboratory notebooks. Such
records shall be complete and accurate and shall fully and properly reflect all
work done and results achieved in the performance of the Research and other
activities in sufficient detail and in good scientific manner appropriate for
patent and regulatory purposes. Exelixis and Bayer shall each have the right to
review and copy such records of the LLC at reasonable times to the extent
necessary for Bayer and Exelixis to each conduct its Research or perform other
obligations under this Agreement, subject to the confidentiality provisions set
forth in Article 18 of the Operating Agreement. Bayer or the LLC shall be
entitled to review at its expense the laboratory note books maintained by
Exelixis for the Shared FTEs, subject to appropriate confidentiality provisions,
for the purpose of determining ownership of intellectual property. If Exelixis
cites confidentiality concerns, Bayer or the LLC shall be entitled to hire an
independent auditor at its expense to review the laboratory note books
maintained by Exelixis for the Shared FTEs, subject to appropriate
confidentiality provisions, for the purpose of determining own ership of
intellectual property.
2.7 Quarterly Reports. Within [ * ] after the end of each calendar
quarter during the term of this Agreement, Exelixis and Bayer shall provide the
LLC with a written progress report summarizing the work performed in relation to
the goals of the Research projects and the Research Plan and provide such other
information required by the Research Plan or reasonably requested by another
Party. The LLC shall produce an omnibus report that includes the Information
provided by Exelixis and Bayer as well as the corresponding Information
regarding the LLC's work. The LLC's obligation under this Section 2.7 shall
commence on the Effective Date. Bayer's obligation to provide quarterly reports
pursuant to this Section 2.7 will commence in the calendar quarter in which any
employee, agent or representative of Bayer first performs Research. Exelixis'
obligation to provide quarterly reports pursuant to this Section 2.7 will
commence in the calendar quarter in which any employee, agent or representative
of Exelixis, other than a Dedicated FTE or an employee acting as a Shared FTE,
first performs Research.
2.8 Additional Research Projects. In addition to the Target
Identification Project and Sequencing Project, the LLC may, in its discretion,
identify and direct additional Research projects within the Research Field to
the extent resources are available, provided such Research projects are not
precluded by another agreement binding upon one of the Parties. Such projects
shall be conducted under the guidance of the JSC and the LLC as provided in
Article 2. The LLC shall allocate sufficient additional FTEs, as set forth in
Section 2.5, to perform such agreed additional Research projects.
2.9 LLC Research Employees. As of the Effective Date, it is not
contemplated that the LLC will employ its own research scientists. In the event
the LLC determines that the LLC shall hire its own research employees, the
Parties shall review this Agreement for the purpose of agreeing on amendments,
if any, which may be necessary or appropriate to account for such hiring while
still preserving the originally contemplated allocation of rights as among the
Parties.
2.10 Targets Supplied by Exelixis. To the extent that it is able to do so,
Exelixis will make available to Bayer sequence information and database
annotation regarding Targets Exelixis has discovered independently or through
its other collaborations. Bayer may pursue
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such Targets by selecting them as set forth in Section 2.11, in which case they
shall be deemed Selected Non-Cognate Targets.
2.11 Targets Separately Selected by Bayer.
(a) With the exception of Reserved Targets (which are addressed in
Article 6), this Section 2.11 sets forth Bayer's rights to pursue Targets not
identified in the Target Identification Project. Such Targets shall include (i)
Sequence-Based Targets, (ii) Targets obtained from sequences in any database
provided by Exelixis hereunder, and (iii) Targets provided by Exelixis pursuant
to Section 2.10. Upon selection by Bayer as set forth in Section 2.11(b) or
2.11(c), a Target described in this Section 2.11(a) shall become a Selected Non-
Cognate Target unless such Target is identical to a Cognate Target, in which
case such Target shall become a Selected Cognate Target.
(b) Bayer may develop a Bayer Assay against a Target described in
Section 2.11(a) at its own expense at any time, provided that Bayer first
selects such Target as a Selected Non-Cognate Target by written notification to
the LLC and [ * ]. The LLC shall not receive any compensation under [ * ], but
the LLC shall receive all other compensation under Sections 9.3 and 9.4 which is
due with respect to any resulting Collaboration Compounds and/or Bayer Products.
(c) In lieu of developing a Bayer Assay directed against a Target
described in Section 2.11(a), Bayer may select, by written notification to the
LLC, such Target as a Selected Non-Cognate Target for which the LLC will develop
an LLC Assay, provided that the LLC has sufficient resources to perform such
work. Bayer shall make all payments under Section 9.3 and 9.4 due with respect
to such Selected Non-Cognate Target and any resulting Collaboration Compounds
and/or Bayer Products.
3. Target and Assay Selection
3.1 Target Selection by the LLC. The LLC may select any Candidate
Target that the LLC identifies as a Selected Target and direct the LLC to
develop one or more appropriate LLC Assays. Any such selection by the LLC shall
be confirmed in writing delivered to each of the Parties (which may be in the
form of the minutes of a meeting of the Management Committee). If the LLC does
not select any particular Candidate Target as a Selected Target within [ * ]
following the date that the relevant LLC Know-How and Exelixis Know-How relating
to such Candidate Target is provided to the LLC, then Bayer shall have the
rights set forth in Section 3.2 to select such Candidate Target.
3.2 Target Selection by Bayer. Bayer shall have [ * ] after the failure
of the LLC to timely select a Candidate Target as a Selected Target to select,
by written notification to the LLC, such Candidate Target as a Selected Target
and to commence development, at Bayer's expense, of a Bayer Assay directed at
such Candidate Target. The LLC shall not receive any compensation under [ * ],
but the LLC shall receive all other compensation under Sections 9.3 and 9.4
which is due with respect to any resulting Collaboration Compounds and/or Bayer
Products. If Bayer does not select such Candidate Target and commence such assay
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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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development within such [ * ] period, then the Parties shall have the rights set
forth in Sections 4.3 and 5.3.
3.3 LLC Assay Development and Selection. For each Selected Target
selected by LLC under Section 3.1 or selected by Bayer under Section 2.11(c) or
6.2(b) for development of an LLC Assay, the LLC will work to develop an LLC
Assay that is configured to screen Bayer Compounds in order to identify
Collaboration Compounds that inhibit or antagonize (or, if appropriate, agonize
or enhance) the function of such Selected Target. The LLC may subcontract the
development of LLC Assay(s) for one or more Selected Targets. Upon completion
of the LLC Assay development in a format configured for [ * ] and as further
specified in Exhibit A hereto or as otherwise specified by Bayer in writing, the
LLC shall present the LLC Assay and all data regarding the applicable Selected
Target to Bayer. Bayer shall have [ * ] after the date of the LLC's
presentation in order to commence using such LLC Assay at Bayer's expense to
screen for Collaboration Compounds. If Bayer does not commence such screening
activity within [ * ] and Bayer provides the JSC, prior to the end of the [ * ]
period, with a written request for a [ * ] extension of the period, the LLC
shall decide, on a case-by-case basis, whether to grant Bayer such extension.
If Bayer commences such screening activity within such [ * ] period or any such
extension thereof, then such LLC Assay shall then be deemed a "Selected Assay."
If Bayer does not commence such screening activity within such [ * ] period and
any extension thereof, then such LLC Assay shall be deemed an "Unselected Assay"
and so identified in the LLC's books and records, and the LLC and Exelixis shall
have the rights set forth in Sections 4.6 and 5.5 with respect to such
Unselected Assay.
3.4 Selected Assays. The LLC will deliver to Bayer the format for each
Selected Assay and will provide to Bayer [ * ] of any proprietary reagents
developed by the LLC for the Selected Assay for Bayer's use to conduct screening
of Bayer Compounds in the Selected Assay. The LLC may allocate FTEs, out of the
resources available to conduct Research, to conduct work under the Research Plan
to prepare such [ * ] of reagents to be provided to Bayer, and to the extent
that the LLC must expend additional effort or cost beyond such allocation of
FTEs in order to provide Bayer with such proprietary reagents, Bayer shall pay
the LLC such actual costs and expenses of the LLC to complete such efforts.
3.5 Screening by Bayer. For each Selected Assay or Bayer Assay, Bayer
will screen Bayer Compounds at Bayer's sole discretion and expense in the
Selected Assay or Bayer Assay for the purpose of identifying Collaboration
Compounds active in such Selected Assay or Bayer Assay. For each Collaboration
Compound identified in such initial screening, Bayer will then conduct such
further work at its expense as it considers advisable in order to identify
additional Collaboration Compounds that may have higher activity or superior
quality, e. g. selectivity or stability.
3.6 Retained Rights of Exelixis. Except for the options granted in
Section 8.9 to Bayer, Exelixis shall retain the exclusive right to use all Non-
Cognate Targets, Cognate Targets and A List Reserved Targets outside of the
Field of Use. When Exelixis makes a Non-Cognate Target, Cognate Target or
Reserved Target available to a Third Party as permitted above, Exelixis shall
not disclose to such Third Party any [ * ], except as otherwise permitted
elsewhere in this Agreement.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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4. Non-Cognate Targets
4.1 The Parties' Rights Regarding Non-Cognate Targets Selected by the
LLC. Bayer and the LLC shall have co-exclusive rights to pursue each Selected
Non-Cognate Target in the Research Field. Such co-exclusive right shall not
include any sublicensing rights for the LLC (except for LLC Assay development
purposes). Subject to Section 8.10(c), Bayer shall have the exclusive right to
pursue each Selected Non-Cognate Target in the Field of Use outside the Research
Field. Subject to Bayer's option set forth in Section 8.9(b), Exelixis shall
have the exclusive right to pursue each Selected Non-Cognate Target outside the
Field of Use and may develop an Exelixis Assay directed at a Selected Non-
Cognate Target for such purpose.
4.2 The Parties' Rights Regarding Non-Cognate Targets Selected by
Bayer. Subject to Section 8.10(c), Bayer shall have exclusive rights to pursue
in the Field of Use each Non-Cognate Target it selects. Subject to Bayer's
option set forth in Section 8.9(b), Exelixis shall have the exclusive right to
pursue each such Selected Non-Cognate Target outside the Field of Use and may
develop an Exelixis Assay directed at a Selected Non-Cognate Target for such
purpose.
4.3 Unselected Non-Cognate Targets.
(a) After the failure of Bayer to timely select a Non-Cognate
Target as a Selected Non-Cognate Target pursuant to Section 3.2, any Party may
submit a written request to the LLC for the right to pursue such Unselected Non-
Cognate Target in the Field of Use. The LLC shall grant such request unless the
LLC has already granted such a request to another Party or licensed such Target
to a Third Party for use in the Research Field or, in response to such a request
by Exelixis, Bayer commits to promptly commence development of a Bayer Assay
directed at such Unselected Non-Cognate Target (in which case such Target shall
then be a Selected Non-Cognate Target). After the granting of such a request,
the requesting Party may pursue such Unselected Non-Cognate Target within the
Field of Use internally or in collaboration with a Third Party. In the event
that Exelixis is the requesting Party, Exelixis shall obtain Bayer's written
consent prior to the establishment of any collaboration in the Research Field
involving such Unselected Non-Cognate Target and any collaboration in the Field
of Use involving such Unselected Non-Cognate Target wherein [ * ]. Exelixis may
enter into collaborations in the Field of Use involving such Unselected Non-
Cognate Target without the prior approval of Bayer, provided that [ * ].
Exelixis shall not have the right to grant a Third Party a license to pursue any
Unselected Non-Cognate Target in the Research Field except as part of a
collaboration with Exelixis permitted in this Section 4.3 and Section 8.10(a).
Exelixis shall have the right to grant licenses to compounds identified with
apparent activity against such Unselected Non-Cognate Targets, provided,
however, that any such compounds that are Exelixis Agrochemical Compounds shall
be subject to the rights of Bayer set forth in Section 8.3.
(b) The LLC shall have the right to pursue each Unselected Non-Cognate
Target within the Field of Use (unless such right is granted to Exelixis
pursuant to this Section 4.3). Exelixis shall have the exclusive right to
pursue each Unselected Non-Cognate Target outside the Field of Use. Bayer and
Exelixis shall have co-exclusive rights to pursue each Unselected Non-Cognate
Target in the field of animal health [ * ]. Exelixis may develop an Exelixis
Assay directed at an Unselected Non-Cognate Target.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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4.4 Related Family Members.
(a) If Exelixis wishes to select an Unselected Non-Cognate Target, it
shall discuss with the JSC whether such Unselected Non-Cognate Target [ * ]. If
[ * ] exists the Unselected Non-Cognate Target shall be deemed a "Putative
Related Family Member." Neither the LLC nor Exelixis may pursue within the Field
of Use any Putative Related Family Member.
(b) The Parties will work together to determine [ * ] of the Putative
Family Related Member and such Selected Target, and in the course of such work,
Exelixis or Bayer will supply to the other, within [ * ] after the other Party's
reasonable request, the relevant requested biological material for testing.
Bayer will [ * ], determine whether [ * ], and measure the [ * ]. If the
Putative Related Family Member is [ * ] to such Selected Target and [ * ], then
the Putative Related Family Member is a Related Family Member and Exelixis shall
be prohibited from working upon it within the Field of Use. If Bayer
subsequently has an HTS assay formatted with respect to such Related Family
Member, then Bayer shall retroactively pay [ * ] for such Related Family Member
and all future milestones and royalties shall be due for such Related Family
Member, which shall be deemed a separate Selected Target. All Putative Related
Family Members that do not become Related Family Members within [ * ] of
designation as a Putative Related Family Members will cease to be Putative
Related Family Members and the rights of the Parties set forth in Section 4.3
shall apply to such Targets.
4.5 The Parties' Rights Regarding Selected Assays. Subject to the
exceptions set forth in this Section 4.5, Bayer shall have exclusive rights to
pursue in the Field of Use each Selected Non-Cognate Target that is the basis
for a Selected Assay, such Selected Assay and all Research Orthologues of such
Selected Non-Cognate Target. Bayer may approve, in its sole discretion, a
request by the LLC to grant it co-exclusive rights in the Field of Use outside
the Research Field to pursue a Selected Non-Cognate Target that is the basis for
a Selected Assay, such Selected Assay and all Research Orthologues of such
Selected Non-Cognate Target. Exelixis shall have the exclusive right to pursue
outside the Field of Use each Selected Non-Cognate Target that is the basis for
a Selected Assay, such Selected Assay and all Research Orthologues of such
Selected Non-Cognate Target. Exelixis may develop an Exelixis Assay directed at
a Selected Non-Cognate Target for such purpose. Bayer's rights shall be
exclusive within the Research Field and within the Field of Use until the later
of (a) [ * ], or (b) [ * ]. Bayer may obtain a single [ * ] extension of the
period of exclusivity for a particular Selected Assay by, within [ * ] prior to
the expiration of the initial exclusivity period, submitting a written extension
request to the LLC and making a payment of [ * ] to the LLC within thirty (30)
days after the LLC grants such request in writing. The LLC shall grant such
request if Bayer provides the LLC with (i) [ * ] and (ii) [ * ].
4.6 Unselected Assays.
(a) If Bayer fails to commence using an LLC Assay directed to a
Selected Non-Cognate Target to screen for Collaboration Compounds within the
period set forth in Section 3.3, then any Party may submit a written request to
the LLC for the right to screen such LLC Assay in the Field of Use. The LLC
shall grant such request unless the LLC has already (a) commenced use of such
LLC Assay for screening purposes in the Research Field (in which case the LLC
must have allocated additional FTEs pursuant to Section 2.5 to perform such
work), (b)
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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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granted a license to perform such screening available to a Third Party (subject
to Bayer approval), (c) granted such a request to another Party or (d) in
response to such a request by Exelixis, Bayer commits to promptly use the LLC
Assay to screen Bayer Compounds (in which case such assay shall then be a
Selected Assay). After the granting of such a request, the requesting Party may
perform such screening within the Field of Use internally or in collaboration
with a Third Party. In the event that Exelixis is the requesting Party,
Exelixis shall obtain Bayer's written consent prior to the establishment of any
collaboration in the Research Field involving such LLC Assay. Exelixis may
enter into collaborations in the Field of Use outside the Research Field
involving such LLC Assay without the prior approval of Bayer. Exelixis shall
not have the right to grant a Third Party a license to perform such screening
except on behalf of Exelixis, but shall have the right to grant licenses to
compounds identified through screening performed by or on behalf of Exelixis,
subject to the rights of Bayer set forth in Section 8.3. Compounds discovered
through Exelixis' permitted use of an LLC Assay in the Field of Use may be
Exelixis Agrochemical Compounds.
(b) The LLC shall have the right to use each LLC Assay that is not a
Selected Assay to screen for compounds with apparent activity inside the
Research Field (unless such right is granted to Exelixis pursuant to this
Section 4.6) and all such compounds shall be LLC Compounds. Exelixis shall have
the exclusive right to use each such LLC Assay to screen for compounds with
apparent activity outside the Field of Use.
5. Cognate Targets
5.1 The Parties' Rights Regarding Cognate Targets Selected by the LLC .
Bayer and the LLC shall have co-exclusive rights to pursue each Selected Cognate
Target in the Research Field (in the case of the LLC, excluding the right to
sublicense except for LLC Assay development purposes). Bayer shall have the
exclusive right to pursue each Selected Cognate Target in the Field of Use
outside the Research Field. Subject to Bayer's option set forth in Section
8.9(b), Exelixis shall have the exclusive right to pursue each Selected Cognate
Target outside the Field of Use and may develop an Exelixis Assay directed at a
Selected Cognate Target for such purpose.
5.2 The Parties' Rights Regarding Cognate Targets Selected by Bayer.
Bayer shall have exclusive rights to pursue in the Field of Use each Cognate
Target it selects. Subject to Bayer's option set forth in Section 8.9(b),
Exelixis shall have the exclusive right to pursue each such Selected Cognate
Target outside the Field of Use and may develop an Exelixis Assay directed at a
Selected Cognate Target for such purpose.
5.3 Unselected Cognate Targets. After the failure of Bayer to timely
select a Cognate Target as a Selected Cognate Target pursuant to Section 3.2,
either Bayer or the LLC may select such Cognate Target as a Selected Cognate
Target at any time, provided that such Cognate Target has not already been
selected by either Bayer or the LLC and that the LLC has not already licensed,
with the prior approval of Bayer, such Target to a Third Party for use in the
Research Field. Exelixis shall have the exclusive right to pursue each such
Unselected Cognate Target outside the Field of Use. Exelixis may develop an
Exelixis Assay directed at such a Target.
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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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5.4 The Parties' Rights Regarding Selected Assays. Subject to the
exceptions set forth in this Section 5.4, Bayer shall have exclusive rights to
pursue in the Field of Use each Selected Cognate Target that is the basis for a
Selected Assay, such Selected Assay and all Research Orthologues of such
Selected Cognate Target. Bayer may approve, in its sole discretion, a request
by the LLC to grant it co-exclusive rights in the Field of Use outside the
Research Field to pursue a Selected Cognate Target that is the basis for a
Selected Assay, such Selected Assay and all Research Orthologues of such
Selected Cognate Target. Exelixis shall have the exclusive right to pursue
outside the Field of Use each Selected Cognate Target that is the basis for a
Selected Assay, such Selected Assay and all Research Orthologues of such
Selected Cognate Target. Exelixis may develop an Exelixis Assay directed at a
Selected Cognate Target for such purpose.
5.5 Unselected Assays.
(a) If Bayer fails to commence using such LLC Assay to screen for
Collaboration Compounds within the period set forth in Section 3.3, then either
Bayer may select such LLC Assay as a Selected Assay at any time, provided that
the LLC has not already commenced screening of such LLC Assay in the Research
Field (in which case the LLC must have allocated additional FTEs pursuant to
Section 2.5 to perform such work) or already licensed to a Third Party the right
to screen such LLC Assay in the Research Field, subject to Bayer approval.
Exelixis shall have the exclusive right to use each such LLC Assay to screen for
compounds with apparent activity outside the Field of Use.
(b) The LLC shall have the right to use each LLC Assay that is not a
Selected Assay to screen for compounds with apparent activity inside the
Research Field (unless such right is granted to Exelixis pursuant to this
Section 5.5) or within the Field of Use (and all such compounds shall be LLC
Compounds), Exelixis shall have the right to use each such LLC Assay to screen
for compounds with apparent activity outside the Field of Use.
6. Reserved Targets
6.1 Designation of Reserved Targets.
(a) During the Research Term, Bayer may designate as a Reserved
Target any [ * ], provided that the number of Reserved Targets at any one time
never exceeds [ * ] and the cumulative number of Reserved Targets never exceeds
[ * ]. A Reserved Target will be classified as an A List Reserved Target if it
is present in (i) [ * ] or (ii) [ * ] and such target was either (A) [ * ] or
(B) [ * ]. All Reserved Targets that do not qualify as A List Reserved Targets
shall be classified as B List Reserved Targets. The Parties understand and agree
that Exelixis does not want to know the identities of the B List Reserved
Targets. Thus, Bayer will not reveal the identity of any B List Reserved Target
to Exelixis or any member of the LLC other than the CEO, and the CEO shall be
contractually prohibited from disclosing such Information to Exelixis or any
Dedicated FTE or Shared FTE.
(b) Within [ * ], Bayer will submit to Exelixis and the LLC a
written list which identifies each A List Reserved Target and which indicates
the number of B List Reserved
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Targets but does not disclose their identities. Bayer shall simultaneously
provide to the CEO a separate written list that identifies each B List Reserved
Target.
(c) During the Research Term, Bayer may designate new Reserved Targets
by written notification to Exelixis and the LLC, provided that the limitations
set forth in Section 6.1(a) regarding the number of Reserved Targets are not
exceeded. Bayer shall disclose the identity of each new A List Reserved Target
and the number of new B List Reserved Targets in such notification and shall
simultaneously submit to the CEO a written list that identifies each new B List
Reserved Target.
(d) During the Research Term, Bayer may remove particular Reserved
Targets from the list by notifying the LLC and the CEO in writing of such
intent. Upon receipt of such notification, each such Reserved Target shall cease
to be a Reserved Target.
6.2 A List Reserved Targets.
(a) Bayer may perform preliminary research in the Field of Use upon A
List Reserved Targets but may not screen assays based on such Targets or
identify compounds with activity against such Targets prior to selecting the
relevant A List Reserved Target as a Selected A List Reserved Target. Prior to
Bayer's selection of an A List Reserved Target as a Selected A List Reserved
Target, the LLC shall, at the request of Bayer and the allocation of sufficient
resources, perform research upon one or more such A List Reserved Targets,
provided such research is limited to the collection of data for the support of
patent claims directed at such A List Reserved Targets. During the period after
the designation of a target as an A List Reserved Target and before Bayer's
selection of such Target as a Selected A List Reserved Target, Bayer shall have
exclusive rights (subject to the LLC's right to perform the aforementioned work
at the request of Bayer) to pursue such Targets in the Field of Use and Exelixis
has exclusive rights (subject to the option set forth in Section 8.9(b)) to
pursue such Targets outside the Field of Use.
(b) Within [ * ] after its designation of a target as an A List Reserved
Target, Bayer may select any such Target as a Selected A List Reserved Target
upon written notification to the LLC. Such notification shall specify whether
an assay based on such Selected A List Reserved Target shall be developed by the
LLC (in which case it will be an LLC Assay) or by Bayer (in which case it will
be a Bayer Assay). Within [ * ] after the selection of an A List Reserved
Target, Bayer shall [ * ].
(c) The Parties' rights and obligations with respect to Selected A List
Reserved Targets are the same as for Selected Cognate Targets: if the LLC is
developing an LLC Assay based on a particular Selected A List Reserved Target,
then Section 5.1 shall apply to such Selected A List Reserved Target; if Bayer
is developing a Bayer Assay based on a particular Selected A List Reserved
Target, then Section 5.2 shall apply. All milestone and premium fee obligations
set forth in Section 9.3 and 9.4 shall apply to such Targets and their related
assays and compounds ([ * ]).
(d) The Parties' rights and obligations with respect to A List Reserved
Targets that have not been selected [ * ] after designation are the same as for
Unselected Cognate Targets. If Bayer removes an A List Reserved Target from the
list of Reserved Targets, then the
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Parties' rights and obligations with respect to such Target shall be the same as
for an Unselected Non-Cognate Target. In addition, Bayer shall have the option
set forth in Section 8.9(b) with respect to such Targets.
6.3 B List Reserved Targets. Bayer may work upon B List Reserved
Targets independently, with Third Parties, or with Exelixis or the LLC under a
separate agreement. In the event that a B List Reserved Target is identified in
the course of the Target Identification Program, the CEO shall promptly instruct
the LLC to stop work on such B List Reserved Target. If Bayer subsequently
removes a B List Reserved Target from the list of Reserved Targets, then the CEO
shall inform the LLC that it may, if it so desires, resume work on such Target.
7. Product Development
7.1 Development of Collaboration Compounds. Bayer shall have the sole
right and responsibility to conduct Development of Collaboration Compounds,
either itself or through its Affiliates or licensees on its behalf and at its
expense, with the right to file Approval Applications for obtaining and
maintaining Regulatory Approval of Products as soon as reasonably practicable.
Upon deciding to commence Development on a Collaboration Compound, Bayer shall
notify the LLC in writing of such decision. If requested by Bayer in writing,
the LLC shall provide Bayer reasonable assistance, at Bayer's expense, in
conducting such Development efforts.
7.2 Development Expenses. Bayer shall bear all the costs and expenses
incurred by Bayer or its Affiliates relating to the Development of Collaboration
Compounds undertaken under this Agreement and to the procurement of such
Regulatory Approval of Products.
7.3 Reports. Bayer shall maintain records of all Development activities
and all results of any trials, studies and other investigations conducted by or
on behalf of Bayer under this Agreement. At least twice a year, Bayer shall
provide the LLC written reports summarizing the Development status or otherwise
respond informally and reasonably promptly upon the LLC's reasonable written
request.
7.4 Development of LLC Compounds. The LLC may develop LLC Compounds in
the Research Field and pursue Regulatory Approval for products containing such
LLC Compounds, provided the LLC allocates FTEs in addition to the original [ * ]
FTEs, and/or funds for Third Party services, to perform such work. Bayer shall
have the option set forth in Section 8.4 with respect to such LLC Compounds.
7.5 Development of Exelixis Compounds And Products. Exelixis shall bear
all costs and expenses incurred by it in connection with the discovery and
development of compounds and products arising from its use of LLC Know-How and
LLC Patents to discover compounds and develop products outside of its activities
on behalf of the LLC. Bayer shall have the option set forth in Section 8.3 with
respect to those compounds that are Exelixis Agrochemical Compounds.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
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8. Exclusivity; Further Bayer and Exelixis Rights
8.1 Exelixis Exclusivity. [ * ], Exelixis shall not knowingly [ * ].
The Parties recognize that the nature of the Exelixis technology may make it
difficult for Exelixis, acting in good faith, to know whether the results of its
activities undertaken on behalf of Third Parties may be [ * ]. However, if in
the course of performing work for any Third Party, Exelixis determines in good
faith that its activities appear to be [ * ], Exelixis shall refrain from any
further work which appears to be [ * ]. The foregoing restriction on work [ * ]
includes that prohibition that Exelixis shall not knowingly engage in [ * ].
8.2 Exelixis Independent Research Directed At [ * ]. [ * ] Exelixis may
desire to initiate, on its own and not with a Third Party, a research project
involving [ * ]. In such case it shall disclose to the LLC its planned
activities and its reasons for believing that such work is worthwhile. If within
[ * ] after the submission of a written proposal for such independent project to
the LLC by Exelixis, the LLC does not elect in writing to Exelixis to include
such project within the Research, then Exelixis may pursue such work on its own
behalf, at its own expense and without collaboration with Third Parties (other
than Exelixis consultants under customary consulting arrangements). Exelixis
shall report to the LLC on a quarterly basis regarding its work under any such
independent project. At [ * ], Exelixis may submit to the LLC a written report
of its results to that point and request a determination as to whether the LLC
desires to bring such project into the Research. If the LLC elects by written
notice to Exelixis to bring such project within the Research, then the Parties
shall negotiate at arm's length mutually acceptable terms and conditions for
such project to be brought into the Research, the LLC shall allocate a
sufficient number of FTEs in addition to those previously allocated to the
Collaboration to continue the project with reasonable diligence, and the work
shall thereafter be conducted as part of the Research. If the LLC does not elect
to include such work within the Research, then Exelixis shall be free to pursue
it thereafter, alone or with Third Parties.
8.3 Exelixis Agrochemical Compounds. Prior to offering any Third Party
the opportunity to acquire a license to research and develop an Exelixis
Agrochemical Compound and/or commercialize an Exelixis Agrochemical Product,
Exelixis shall provide Bayer with the opportunity to consider whether Bayer or
an Affiliate of Bayer wishes to acquire a license in the Research Field or the
Field of Use to the Exelixis Agrochemical Compound and any current or future
Exelixis Agrochemical Products incorporating such Compound (except for those
Exelixis Agrochemical Products for which Bayer has been offered but failed to
exercise its option to license under this Section 8.3). When presenting Bayer
the opportunity for any such license, Exelixis will provide Bayer in writing
with information regarding [ * ]. The first time that Exelixis offers Bayer the
opportunity to license in the Research Field or Field of Use an Exelixis
Agrochemical Compound active against a particular Target, Exelixis shall also
offer Bayer the opportunity to [ * ]. Subsequent offers to Bayer shall include
those rights set forth in the previous sentence that, at the time of such
offers, have not been exclusively licensed to a Third Party. Bayer shall have [
* ] after such offer in which to inform Exelixis in writing that Bayer or an
Affiliate of Bayer is interested in acquiring such a license. If Bayer
indicates such interest within the [ * ] period, then Exelixis and Bayer or
Bayer's relevant Affiliate shall negotiate in good faith for up to [ * ] to
reach agreement on the terms of a license agreement which shall be set forth in
an executed license agreement. If Bayer fails to notify Exelixis of its
interest or Exelixis and Bayer fail to execute a license agreement within the
applicable period, then Bayer
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or its relevant Affiliate shall provide to Exelixis all information and data
collected or generated by Bayer or its relevant Affiliate with respect to such
Exelixis Agrochemical Compound and Bayer shall have no rights with respect to
such Exelixis Agrochemical Compound or Exelixis Agrochemical Product and
Exelixis shall have unrestricted rights to develop said Exelixis Agrochemical
Compound and commercialize such Exelixis Agrochemical Product, without
compensation to Bayer or the LLC other than that set forth in Section 9.4(b),
either independently or in collaboration with one or more Third Parties, [ * ].
This Section 8.3 shall expire [ * ].
8.4 LLC Compounds. Prior to offering any Third Party the opportunity to
acquire a license to develop an LLC Compound in the Research Field and/or
commercialize a product containing such LLC Compound in the Field of Use, the
LLC shall provide Bayer with written notice of its intention to do so and all of
the information then available to the LLC with respect to such LLC Compounds.
When presenting Bayer the opportunity for any such license, the LLC will provide
Bayer in writing with information regarding [ * ]. The first time that the LLC
offers Bayer the opportunity to license within the Field of Use any LLC Compound
active against a particular Target, the LLC shall also offer Bayer the
opportunity to [ * ]. Subsequent offers to Bayer shall include those rights set
forth in the previous sentence that, at the time of such offers, have not been
exclusively licensed to a Third Party. Bayer shall have [ * ] after such offer
in which to inform the LLC in writing that Bayer or an Affiliate of Bayer is
interested in acquiring such a license. Thereafter, the LLC and Bayer (or such
Bayer Affiliate) shall negotiate in good faith for up to [ * ] to reach
agreement on the terms of a license agreement which shall be set forth in either
an executed license agreement or an executed legally binding heads of agreement.
If Bayer fails to notify the LLC of its interest or the LLC and Bayer (or such
Bayer Affiliate) fail to execute a license agreement within the applicable
period, then Bayer (or such Bayer Affiliate) shall have no rights with respect
to such LLC Compound or product containing such LLC Compound and the LLC shall
have unrestricted rights to develop such LLC Compound in the Research Field and
commercialize such product containing such LLC Compound in the Field of Use
either independently or in collaboration with one or more Third Parties. This
Section 8.4 shall expire [ * ].
8.5 Exelixis Independent Research Collaborations [ * ]. Except as
provided in the penultimate sentence of this Section 8.5, before Exelixis [ * ]
whereby Exelixis would collaborate exclusively with such Third Party during the
Research Term in an area that is [ * ], Exelixis shall notify Bayer and the LLC
in writing in reasonable detail of any such opportunity and provide Bayer and
the LLC with the same type and quality of information it would make available to
such Third Party with respect to such opportunity. Bayer and the LLC shall
thereafter have a [ * ] period in which to notify Exelixis in writing that Bayer
or the LLC wishes to pursue such opportunity. The first such Party, if any, as
between Bayer and the LLC, to provide Exelixis with timely notification of its
interest in the opportunity shall have an additional [ * ] period in which to
negotiate with Exelixis for and execute a binding agreement with Exelixis
setting forth the terms of a collaboration encompassing the subject matter
described by Exelixis in the information provided to Bayer and the LLC prior to
the start of the [ * ] notice period. During the periods set forth above in
this Section 8.5, Exelixis may [ * ] but may not [ * ], and may not [ * ]. If
both Bayer and the LLC fail to notify Exelixis of its interest within the [ * ]
period or Exelixis or any notifying Party fails to execute a license agreement
within the [ * ]
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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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period, then neither Bayer nor the LLC shall have any rights with respect to
such opportunity and Exelixis shall have unrestricted rights (except as set
forth in Section 8.6) to pursue such collaborations with one or more Third
Parties, without compensation to Bayer or the LLC, except as set forth in
Sections 9.4(b) and (c). The option set forth in this Section 8.5 does not
pertain to [ * ]. This Section 8.5 does not obligate Exelixis to enter into a
collaboration with Bayer or the LLC that, in the sole discretion of Exelixis,
Exelixis decides is not in its best interests.
8.6 Exelixis Negative Covenant. Exelixis hereby covenants that it shall
not commercialize in the Research Field an Exelixis Agrochemical Product for
which it has an obligation under Section 8.3 to provide Bayer an opportunity to
consider acquiring a license, unless it has fulfilled its obligations under
Section 8.3. In addition, Exelixis shall [ * ].
8.7 Bayer Undertaking Regarding [ * ]. [ * ], if Bayer elects to conduct
or finance any work at a for-profit organization that is [ * ], then Bayer shall
first offer to the LLC in writing the opportunity to perform such work. If (i)
the LLC fails to notify Bayer within [ * ] following such offer that the LLC is
interested in performing such work, (ii) the LLC fails, after timely notice, to
[ * ] or (iii) Bayer and the LLC fail to execute within [ * ] after the LLC's
timely notice a written agreement for the LLC to perform such work, then Bayer
may conduct or finance such work at a Third Party for-profit organization.
Except as provided in this Section 8.7, Bayer shall retain complete freedom of
operation to conduct research and development activities [ * ].
8.8 Collaboration Compounds. Prior to offering any Third Party the
opportunity to acquire a license to develop a Collaboration Compound upon which
Bayer has ceased Development, Bayer shall provide Exelixis with the opportunity
in writing to consider whether Exelixis wishes to acquire a license to such
Collaboration Compound. Bayer shall [ * ]. Exelixis shall have [ * ] following
its receipt of such writing in which to inform Bayer in writing that it is
interested in acquiring a license to such Collaboration Compound. Thereafter,
Exelixis and Bayer shall have [ * ] in which to negotiate and execute a license
agreement enabling Exelixis to further develop such Collaboration Compound and
to make, have made, import, sell and offer to sell products incorporating such
Collaboration Compound. This Section 8.8 does not obligate Bayer to enter into
a license agreement with Exelixis that, in the sole discretion of Bayer, Bayer
decides is not in its best interests. This Section 8.8 shall expire [ * ].
8.9 Options for Pharmaceutical Collaborations
(a) Exelixis hereby grants Bayer a royalty-free option to collaborate
with Exelixis regarding the use of Cognate Targets, Non-Cognate Targets, and A
List Reserved Targets that have human orthologues and LLC Assays based on such
Targets for pharmacological research and development under still to be
negotiated and agreed upon terms and provisions, provided that Bayer has a
pharmaceutical division or Affiliate at the time of exercise of the option and
further provided that Exelixis does not then have a pre-existing obligation that
would prevent it from collaborating with Bayer with respect to such Target and
such disease area.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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(b) Exelixis hereby grants Bayer a royalty-free option to establish a
pharmaceutical collaboration with Exelixis regarding a Selected Cognate Target,
Selected Non-Cognate Target, or A List Reserved Target that has a human
orthologue, provided that Bayer has a pharmaceutical division or Affiliate at
the time of exercise of the option. If Bayer wishes to exercise this option, it
shall notify Exelixis in writing within (i) [ * ], (ii) [ * ], or (iii) [ * ].
Such notification shall identify the Selected Cognate Target, Selected Non-
Cognate Target or A List Reserved Target and the disease area in which it is
interested in collaborating with Exelixis. Provided Exelixis does not then have
a pre-existing obligation that would prevent it from collaborating with Bayer
with respect to such Target and such disease area, Exelixis and Bayer shall have
[ * ] (or longer upon mutual agreement) following receipt of such notification
to negotiate and enter into a collaboration agreement regarding such Target and
such disease area. During the [ * ] period Exelixis will not [ * ].
8.10 Use of Targets in the Field of Animal Health.
(a) Exelixis and Bayer shall have co-exclusive rights with the right to
sublicense as permitted under Section 4.3 to pursue Unselected Non-Cognate
Targets in the field of animal health (which is part of the Field of Use).
Exelixis and Bayer may also perform Independent Research upon such Targets.
(b) Bayer shall have exclusive rights (with the right to sublicense) to
pursue Cognate Targets, and A List Reserved Targets, in the field of animal
health (which is part of Field of Use). Exelixis may perform research in the
field of animal health upon such Targets as follows: Exelixis shall not begin
work on any genetic entry point that, at such time, is a Cognate Target, or an A
List Reserved Target. If Exelixis discovers a Target during research that is at
such time a Cognate Target or an A List Reserved Target, it can reveal the
identity of such Target to its Third Party collaborator but cannot perform
further work upon such Target in the field of animal health.
(c) Commencing [ * ] after the delivery of an LLC Assay directed at a
Selected Non-Cognate Target, Exelixis shall have the right (with the right to
sublicense as permitted under Section 4.3) to pursue such Selected Non-Cognate
Target in the field of animal health (which is part of the Field of Use),
provided that Bayer is not then developing an animal health product based on
such Target and further provided that any Exelixis collaboration with a Third
Party regarding such Selected Non-Cognate Target is subject to approval by Bayer
if [ * ], and [ * ]. Exelixis and Bayer may also perform Independent Research
upon such Targets.
8.11 Independent Research. Subject to Sections 8.1, 8.2, 8.5, 8.7 or as
otherwise set out in this Agreement, Bayer, Exelixis and the LLC may each
perform Independent Research during the Research Term.
9. Payments
9.1 License Fee And Research Commitment Fee. The LLC shall pay Exelixis a
license fee of $10,000,000 and a separate research commitment fee of $10,000,000
(for aggregate payments under this Section 9.1 of $20,000,000). Exelixis shall
invoice the LLC (and send a copy of the first such invoice to Bayer) for one-
half of each amount on the Effective Date
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and the first anniversary of the Effective Date, and the LLC shall make such
payment within [ * ] thereafter.
9.2 Research Funding. From the Effective Date until the end of the
Research Term, Exelixis will invoice the LLC (and send a copy of the first such
invoice to Bayer) for and the LLC will make within [ * ] thereafter quarterly
advance payments to Exelixis sufficient to pay for the number of Specified FTEs
(as defined in Section 2.5(a)) then performing Research under this Agreement
multiplied by the then current Annual FTE Rate. In any event, for each calendar
quarter, the amount of research funding provided by the LLC to Exelixis shall be
not less than one-quarter of the amount calculated in Section 2.5(a) and shall
only exceed [ * ] in the event that the LLC commits to provide more than [ * ]
in Research funding in the applicable Contract Year as set forth in Section
2.5(a).
9.3 Milestone Payments. Commencing on the Effective Date, Bayer shall pay
the LLC the following amounts within [ * ] after the LLC's invoice following the
occurrence of each of the events specified below:
(a) [ * ] upon (i) [ * ], (ii) [ * ] or (iii) [ * ];
(b) [ * ] upon [ * ];
(c) [ * ] upon [ * ]; and
(d) [ * ] upon [ * ].
9.4 Premium Fee Payments.
(a) Bayer Products. Bayer shall pay the LLC a running premium fee of
[ * ] on the aggregate Net Sales of Bayer Products in addition to amounts
payable above. For each Bayer Product, Bayer's obligations to pay premium fees
will expire on a country-by-country basis on the later of: (i) [ * ] or (ii)
[ * ]. After the expiration of Bayer's premium fee obligation hereunder on a
Bayer Product in a particular country, the license set forth in Section 11.5
with respect to such Bayer Product in such country shall continue in force
perpetually with no further premium fee or other payment obligations.
(b) Exelixis Agrochemical Products. Exelixis shall pay the LLC a
running premium fee of: [ * ] from such Exelixis Agrochemical Product. Exelixis'
obligations to pay premium fees will expire on a country-by-country basis on the
later of: (A) [ * ] or (B) [ * ]. After the expiration of Exelixis' premium fee
obligation hereunder on an Exelixis Agrochemical Product in a particular
country, the license set forth in Section 11.3 with respect to such Exelixis
Agrochemical Product in such country shall continue in force perpetually, with
no further premium fee or other payment obligations.
(c) Exelixis Human Health Products. Exelixis shall pay the LLC a
running premium fee of the lesser of [ * ] on the aggregate Net Sales of each
Exelixis Human Health Product or [ * ] of Exelixis' sublicensing income from
such Exelixis Human Health Product. Exelixis' obligations to pay premium fees
will expire, on a country-by-country basis on the later
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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of: (i) [ * ] or (ii) [ * ]. After the expiration of Exelixis' premium fee
obligation on an Exelixis Human Health Product in a particular country, the
license set forth in Section 11.3 with respect to such Exelixis Human Health
Product in such country shall continue in force perpetually, with no further
premium fee or other payment obligations.
(d) Combination Products. If a Product contains a Collaboration Compound,
an Exelixis Human Health Compound or Exelixis Agrochemical Compound combined as
a single product with one or more other active ingredients (a "Combination
Product"), then Net Sales of such Combination Product for premium fee purposes
under Section 9.4 shall be calculated as follows: the Net Sales of the
Combination Product shall be calculated in accordance with the definition of Net
Sales under Section 1.47, and then such Net Sales shall be adjusted on a
country-by-country basis as follows:
(i) The Net Sales of such Combination Product shall be multiplied by
the fraction A/(A+B), where A is [ * ]; or
(ii) If the [ * ] is not available on an independent basis, the Net
Sales of such Combination Product shall be multiplied by a percentage,
determined by mutual agreement of the Parties, which represents [ * ].
(iii) In the case a synergistic effect of at least [ * ] times
results from the combination of active ingredients in the sold Combination
Products based on evidence on the active ingredients, the Party paying premium
fees for such Product shall give the Party or Parties to whom premium fees are
due notice thereof. The relevant Parties shall promptly after such notice meet
to negotiate and agree in good faith upon a commercially reasonable adjustment
of Net Sales for such Combination Product. Such adjustment shall be based on a
reasonable measure, as agreed by the relevant Parties in good faith, of the
economic value of the contribution of the Collaboration Compound, Exelixis Human
Health Compound or Exelixis Agrochemical Compound as compared to the economic
value of the contribution of the other active ingredient(s) in such Combination
Product.
9.5 Reports on Payments. After the first commercial sale of a Product on
which payments are to be made by Bayer or Exelixis hereunder, the Party with a
payment obligation shall make quarterly written reports to the other Parties
within [ * ] after the end of each calendar quarter, stating in each such
report, separately for each selling Party and each of its Affiliates and
sublicensees, the number, description, and aggregate Net Sales, by country, of
each Product sold during the calendar quarter upon which a payment is to be made
under Section 9.4 above. Subject to any reductions permitted pursuant to the
express terms of this Agreement, concurrently with the making of such reports,
the Party with the payment obligation shall deliver such payment to the Party or
Parties entitled to such payment.
9.6 Payment Method. All payments due under this Agreement shall be
noncreditable and nonrefundable, except as to errors, and as to any amounts
disputed in good faith and determined not to have been due or agreed by the
relevant Parties not to be due, and shall be made by bank wire transfer in
immediately available funds to an account designated by the LLC. All payments
hereunder shall be made in United States dollars.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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9.7 Place of Payments and Currency Conversions. If any currency
conversion is required in connection with the calculation of payments hereunder,
such conversion shall be made using the selling exchange rate for conversion of
the Wall Street Journal for the last business day of the calendar quarter to
which such payment pertains. If at any time legal restrictions prevent the
prompt remittance of any payments owed on Net Sales in any jurisdiction, Bayer
or Exelixis may make such payments by depositing the amount thereof on local
currency in a bank account or other depository in such country in the name of
the LLC. Bayer or Exelixis shall promptly notify the LLC in writing, of the
circumstances leading to such deposit and, at the LLC's request, cooperate with
the LLC to repatriate such amounts.
9.8 Records; Inspection.
(a) Bayer and Exelixis and their Affiliates and sublicensees shall keep
complete, true and accurate books of account and records for the purpose of
determining the payments to be made under this Agreement. Such books and
records shall be kept at the principal place of business of such Party, as the
case may be, for at least [ * ] years following the end of the calendar quarter
to which they pertain.
(b) Such records will be open for inspection during such [ * ] year
period by a public accounting firm to whom Bayer or Exelixis, as applicable, has
no reasonable objection, solely for the purpose of verifying payment statements
hereunder. Such inspections may be made not more than once each calendar year,
at reasonable times and on reasonable prior written notice. Inspections
conducted under this Section 9.8 shall be at the expense of the requesting
Party, unless a variation or error producing an increase exceeding five percent
(5%) of the amount stated for any period covered by the inspection is
established in the course of any such inspection, whereupon all costs relating
to the inspection for such period and the full amount of any unpaid amounts that
are so discovered will be paid promptly by Bayer or Exelixis, as applicable.
(c) All information concerning payments and reports, and all
information learned by a Party in the course of any audit or inspection shall be
subject to the confidentiality provisions set forth in Article 18 of the
Operating Agreement. The public accounting firm employees shall sign customary
confidentiality agreement as a condition precedent to their inspection and shall
report to the LLC only that information which would be contained in a properly
prepared payment report by Bayer or Exelixis, as applicable.
(d) Upon request and subject to confidentiality, any Party shall
provide a written explanation of the discovery and development of any compound
that the requesting Party reasonably suspects may be a Collaboration Compound,
Exelixis Agrochemical Compound or Exelixis Human Health Compound. If the Parties
cannot agree within [ * ], the requesting Party shall: (i) engage an
independent, mutually acceptable technical consultant within [ * ] who is bound
by an appropriate confidentiality agreement to review the source documents for
such discovery and development and determine whether the compound is royalty-
bearing to the LLC, (ii) in the event that no mutually agreeable technical
consultant is found, each Party may engage its own technical consultant within
such [ * ] period and those two consultants shall pick within [ * ] days
thereafter a third consultant to perform the review and make such determination,
or (iii)
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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be deemed to have agreed that the compound in question is not royalty-bearing to
the LLC. The Party whose view is contrary to the decision of the consultant
shall bear the cost of such review.
9.9 Withholding Taxes.
(a) Any Party with a premium fee payment obligation under this
Agreement shall have the right to deduct from the premium fee payments the tax
which a receiving Party is liable to pay thereon under the tax law of the
country from which such payment is being made. The party receiving such payment
shall immediately be sent a tax receipt certifying the payments of the tax, so
that such receiving Party may use it for claiming a credit on the tax payable by
it in its own country. No deduction shall be made if the receiving Party
furnishes a document from the tax authorities of the country from which such
payment is being made by the time of the payment of the premium fees certifying
that the premium fees are exempt from withholding.
(b) German value added tax (VAT) will be administered by Bayer for the
LLC. The LLC will not invoice any VAT to Bayer.
(c) Each Party undertakes to cooperate with the other Parties to
achieve lawful tax arrangements which are most favorable for all Parties,
without prejudice to the rights or treatment of any one Party.
9.10 Subscription Fees. Commencing on the Effective Date, LLC may license
the Sequence Database to Third Parties.
9.11 Relationship To Licenses. The premium fee payments provided for
herein are in consideration of the various services, covenants, allocations of
rights, and grants of licenses set forth in this Agreement. Such premium fees
shall be paid regardless of whether the recipient of such payment then possesses
intellectual property which covers the Product which is the subject of the
premium fee payment, and similarly, such payments shall expire at the end of the
term set forth in Section 9.4(a), 9.4(b), or 9.4(c), respectively, even if the
Party previously receiving such payments continues to hold intellectual property
which covers such Product.
9.12 Late Payment Penalty. Any payment due under this Article 9 that is
not paid by [ * ] after the payment's due date shall accrue interest, which must
be paid by the Party with the payment obligation to the recipient Party, on a
daily basis at a rate equal to [ * ] (or the maximum amount permitted by law, if
less), from the date first owed until paid.
10. Inventions and Patents
10.1 Ownership of Research Intellectual Property.
(a) Bayer shall own the entire right, title and interest in and to
any and all inventions, developments, results, know-how and other Information,
and all intellectual property relating thereto, made solely by Bayer and its
employees or agents and arising from work performed pursuant to this Agreement
after the Effective Date, and Patents covering such intellectual property.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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(b) The LLC shall own the entire right, title and interest in and to any
and all inventions, developments, results, know-how and other Information (other
than Core Improvements), and all intellectual property relating thereto, made
solely by the Dedicated FTEs and Shared FTEs and arising from work performed
pursuant to this Agreement after the Effective Date, and Patents covering such
intellectual property.
(c) Exelixis shall own the entire right, title and interest in and to any
and all inventions, developments, results, know-how and other Information, and
all intellectual property (including Patents) relating thereto, and made solely
by employees or agents of Exelixis other than Dedicated and Shared FTEs and
arising from work performed pursuant to this Agreement after the Effective Date,
and Patents covering such intellectual property.
(d) Exelixis shall own the entire right, title and interest in and to any
and all inventions, developments, results, know-how and other Information
relating to Core Improvements, and all intellectual property relating thereto,
and Patents covering such intellectual property.
(e) Subject to the provisions of Section 10.3(d), the Joint Inventions and
Joint Patents shall be jointly owned by the Parties that made, whether directly
or through their employees or agents (which, in the case of the LLC, shall be
the Dedicated FTEs and the Shared FTEs), such Joint Inventions and Joint
Patents. Each inventing Party shall each own an undivided one-half or one-third
(if the number of inventing Parties is two or three, respectively) interest in
and to such Joint Inventions or Joint Patents. Each joint owner shall have the
right to grant licenses under or to assign its interest in, such Joint Patents,
only to the extent as provided for in this Agreement or as otherwise agreed in
writing by the other joint owner(s). Each Party shall have the right to grant
licenses under its interest in any Joint Patent to the other Parties and their
Affiliates. Bayer may freely grant a license to Bayer AG or an Affiliate of
Bayer under or assign to Bayer AG or an Affiliate of Bayer, Bayer's ownership
interest in any Joint Patent. All questions concerning inventions and/or
inventorship and/or the construction of or effect of Patents shall be decided in
accordance with the laws relating to inventorship and other relevant laws of the
country in which the particular Patent has been filed or granted, as the case
may be.
(f) The Sequence Library and the Sequence Database will be owned
exclusively by the LLC, subject to the licenses granted herein to Exelixis and
Bayer.
10.2 Disclosure of Patentable Inventions. In addition to the disclosures
required under Sections 2.6 and 7.3, each Party shall submit a written report to
the other Parties within [ * ] after the end of each quarter describing any
invention arising during the prior quarter in the course of the Research done
during the Research Term which it believes may be patentable. The LLC and
Exelixis shall provide Bayer with drafts of any patent application which
discloses an LLC Assay or Target prior to filing, allowing adequate time for
review and comment by Bayer if possible; provided, however, that the LLC and/or
Exelixis shall not delay the filing of any patent application pursuant to
Section 10.3 below.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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10.3 Patent Prosecution and Maintenance; Abandonment.
(a) Exelixis Patents.
(i) Exelixis shall retain control over, and shall bear all
expenses related to, the filing, prosecution, and maintenance of all Exelixis
Patents; except as set forth in Section 10.3(a)(ii).
(ii) If Exelixis elects to cease prosecution of or not
maintain any Exelixis Patent that [ * ], Exelixis shall notify [ * ] in writing
not less than [ * ] before any relevant deadline. [ * ] shall have the right to
assume control over the prosecution or maintenance of such Exelixis Patent,
provided that [ * ] shall bear all expenses related thereto; but title to any
such Exelixis Patent shall remain in Exelixis.
(b) LLC Patents.
(i) The LLC shall retain control over, and shall bear all
expenses related to, the filing, prosecution, and maintenance of all LLC
Patents, except as set forth in Section 10.3(b)(ii).
(ii) If the LLC elects to cease prosecution of or not
maintain any LLC Patent, the LLC shall notify Bayer and Exelixis in writing not
less than [ * ] before any relevant deadline. If Bayer gives notice to Exelixis
within [ * ] of notification from the LLC, Bayer shall have the right to assume
control over the prosecution or maintenance of such LLC Patent, provided that
Bayer shall bear all expenses related thereto; but title to any such LLC Patent
shall remain in the LLC. If Bayer does not give such notice, Exelixis shall have
the right to assume control over the prosecution or maintenance of such LLC
Patent, provided that Exelixis shall bear all expenses related thereto; but
title to any such application or patent shall remain in the LLC.
(c) Bayer Patents. Bayer shall retain control over, and shall bear all
expenses related to, the filing, prosecution and maintenance of all Bayer
Patents.
(d) Joint Patents.
(i) Control. The Parties or Party at the time owning any Joint
Patent shall jointly or solely, as applicable, control the filing, prosecution,
and maintenance of such Joint Patent.
(ii) Expenses and Relinquishment of Ownership.
(1) [ * ] shall bear all expenses related to the filing,
prosecution, and maintenance of all Joint Patents at the time jointly owned by [
* ]. If [ * ] elects to not pay any expense related to such Joint Patent, [ * ]
shall notify the other joint owner(s) of such Joint Patent in writing not less
than two (2) months before any relevant deadline, and such notification shall
constitute a relinquishment by [ * ] of its ownership interest in such Joint
Patent, which shall thereafter be jointly or solely owned by the remaining joint
owner(s).
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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(2) [ * ] shall bear all expenses related to the filing,
prosecution, and maintenance of all Joint Patents at the time jointly owned by [
* ] and not jointly owned by [ * ]. If [ * ] elects to not pay any expense
related to such Joint Patent, [ * ] shall notify [ * ] in writing not less than
one (1) month before any relevant deadline, and such notification shall
constitute a relinquishment by [ * ] of its ownership interest in such Joint
Patent, which shall thereafter be solely owned by [ * ].
(3) Each of [ * ] and [ * ] shall bear all expenses related
to the filing, prosecution, and maintenance of all Joint Patents of which it is
then a sole owner.
10.4 Confidential Treatment. All information disclosed under Sections
10.2 and 10.3 shall be treated as confidential and subject to the terms set
forth in Article 18 of the Operating Agreement.
11. Licenses
11.1 LLC Research License.
(a) Bayer hereby grants the LLC a fully paid-up, nonexclusive,
worldwide license, with the right to sublicense only for LLC Assay development
purposes, under all relevant Bayer Know-How and Bayer Patents to conduct its
Research activities within the Research Field under this Agreement, including
without limitation making and using making and using the Bayer Pesticides and
the LLC Assays for Research purposes and making the Sequence Library. Such
license shall expire at the end of the Research Term unless it is continued
pursuant to Section 14.5. This license does not grant the LLC any
commercialization rights, i.e. to make or use Bayer Compounds or Collaboration
Compounds.
(b) Exelixis hereby grants the LLC a fully paid-up, worldwide
license, with the right to sublicense only for LLC Assay development purposes,
under all relevant Exelixis Patents and Exelixis Know-How to perform Research
activities within the Research Field under this Agreement. Such license shall be
exclusive, but shall expire at the end of the Research Term unless such license
is continued thereafter on a non-exclusive basis pursuant to Section 14.4.
11.2 Bayer Research License.
(a) Exelixis hereby grants the LLC a non-exclusive, fully paid-up,
worldwide license (with the right to sublicense only to Bayer) under all
relevant Exelixis Know-How and Exelixis Patents that are necessary to enable
Bayer to conduct Bayer's permitted Research and Development activities hereunder
in the Field of Use to identify and select Collaboration Compounds, including
the right to make and use the Selected Assays within the Field of Use for the
sole purpose of identifying Collaboration Compounds. Subject to Section 4.5, the
LLC may not sublicense to Bayer the right: (i) to make or use Targets pursued by
the LLC or Exelixis or a licensee of either of them, pursuant to Section 4.3 or
5.3, (ii) to make or use an LLC Assay that is not a Selected Assay, (iii) to use
a Selected Assay outside of the Field of Use, or (iv) except with the written
consent of Exelixis, any right to practice Third Party technology which has been
licensed to Exelixis.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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(b) Except to the extent of the limitations set forth in the final sentence
of Section 11.2(a), the LLC hereby grants Bayer a fully paid-up, worldwide
sublicense under the license set forth in Section 11.2(a).
(c) The LLC hereby grants Bayer a non-exclusive, fully paid-up, worldwide
license under all relevant LLC Know-How and LLC Patents to enable Bayer to
conduct Bayer's Research and Development activities hereunder in the Field of
Use to identify and select Collaboration Compounds, including the right to make
and use the Selected Assays for the sole purpose of identifying Collaboration
Compounds. Subject to Section 4.5, this license does not grant Bayer the right:
(i) to make or use Targets pursued by the LLC or Exelixis or a licensee of
either of them, pursuant to the Section 4.3 or 5.3, (ii) to make or use an LLC
Assay that is not a Selected Assay, or (iii) to use a Selected Assay outside of
the Field of Use. Bayer may use the following Confidential Information of the
LLC use in its Independent Research in any field, provided that Bayer does not
[*] using such Confidential Information: [ * ]. Bayer may petition the LLC at
any time during the term of this Agreement to add certain Confidential
Information of the LLC to the foregoing list. Such addition shall only be made
upon the mutual written agreement of all of the Parties.
(d) Bayer may not sublicense its rights under the license and sublicense
granted in this Section 11.2, except to Affiliates or Third Party contractors
performing such Research and Development activities solely on Bayer's behalf.
11.3 Licenses to Exelixis.
(a) Bayer hereby grants to the LLC a fully paid-up, worldwide non-exclusive
license, with the right to sublicense only to Exelixis, under all relevant Bayer
Know-How and Bayer Patents that arise from work performed under this Agreement
solely for Exelixis to conduct its permitted activities in research, development
and commercialization (other than Independent Research) in the Field of Use and
outside the Field of Use under this Agreement. This license does not grant
Exelixis any rights to make or use Bayer Pesticides, Bayer Compounds,
Collaboration Compounds or LLC Compounds.
(b) The LLC hereby grants Exelixis a fully paid-up, worldwide exclusive
sublicense under the license granted in Section 11.3(a), solely for Exelixis to
conduct its permitted activities in research, development and commercialization
(other than Independent Research) in the Field of Use and outside the Field of
Use under this Agreement. Exelixis may grant sublicenses under this sublicense
only to permitted Third Party collaborators of Exelixis and only for the
purposes of collaboratively pursuing Exelixis' permitted research, development
and commercialization activities in the Field of Use and outside the Field of
Use under this Agreement. This license does not grant Exelixis any rights to
make or use Bayer Pesticides, Bayer Compounds, Collaboration Compounds or LLC
Compounds.
(c) Except to the extent of the of the exclusivity specified in this
Agreement, the LLC hereby grants Exelixis a fully paid-up, worldwide license,
with the right to sublicense, under all relevant LLC Patents and the LLC Know-
How to perform research, development and commercialization activities outside
the Research Field. Such license shall be exclusive except as to Bayer's and
the LLC's permitted uses of Selected Assays, Bayer Assays and LLC Assays
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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under this Agreement. Such license shall not convey any rights to make, use or
sell Bayer Pesticides, Bayer Compounds, Collaboration Compounds or LLC
Compounds. Exelixis may use the following Confidential Information of the
LLC in Exelixis' Independent Research in any field, provided that Exelixis
does not [ * ] using any of the following LLC Confidential Information: [ * ].
Exelixis may petition the LLC at any time during the term of this Agreement
to add certain Confidential Information of the LLC to the foregoing list.
Such addition shall only be made upon the mutual written agreement of all of
the Parties.
(d) The LLC hereby grants Exelixis an exclusive, fully worldwide license,
with the right to sublicense, under all relevant LLC Patents and LLC Know-How to
perform Research, Development and commercialization activities in the Research
Field as permitted under Sections 4.3 and 4.6.
11.4 Development License.
(a) Exelixis hereby grants the LLC a worldwide, exclusive license (with
the right to sublicense only to Bayer) under all relevant Exelixis Know-How and
Exelixis Patents for Bayer to conduct Development of Collaboration Compounds.
(b) The LLC hereby grants Bayer a worldwide, exclusive sublicense under
the license set forth in Section 11.4(a) (with the right for Bayer further to
sublicense) for Bayer to conduct Development of Collaboration Compounds.
(c) The LLC hereby grants to Bayer a worldwide, exclusive license (with
the right to sublicense) under all relevant LLC Know-How and LLC Patents to
conduct Development of Collaboration Compounds.
(d) Bayer may not sublicense its rights under the license and sublicense
granted in Section 11.4(b) except to Affiliates or Third Party contractors
performing such Development activities solely on Bayer's behalf.
11.5 Commercialization License.
(a) The LLC hereby grants Bayer and its Affiliates a worldwide, exclusive
license (with the right to sublicense) under all relevant LLC Know-How and LLC
Patents, to the extent required for Bayer, its Affiliates and sublicensees to
make, have made, use, have used, import, have imported, offer to sell, sell and
have sold Bayer Products in the Field of Use.
(b) Exelixis hereby grants Bayer and its Affiliates a worldwide,
exclusive license (with the right to sublicense) under all relevant Exelixis
Know-How and Exelixis Patents, to the extent required for Bayer, its Affiliates
and sublicensees to make, have made, use, have used, import, have imported,
offer to sell, sell and have sold Bayer Products in the Field of Use.
11.6 Joint Patents. Each Party shall have a worldwide, co-exclusive right
to practice the Joint Patents in which it has an ownership interest arising from
the work under this Agreement without any duty to account. Except for licensing
rights and assignment rights expressly granted herein, such right shall not
include a right to grant sublicenses or assignments
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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of ownership interest (other than from Bayer to Bayer AG or a Bayer Affiliate),
except with the mutual consent of all of the owners.
11.7 Sublicenses of Third Party Technology. To the extent that any of the
licenses granted herein include sublicenses of technology licensed from a Third
Party to a Party, each such sublicense is subject to the terms of the license
agreement between such Party and such Third Party.
11.8 Negative Covenant. Each Party agrees that it will not practice
technology licensed to it under this Agreement outside the scope of the licenses
granted herein. Except as specifically provided herein, no Party grants to the
other Parties any license, express or implied, to any technology, know-how,
inventions, improvements, trade secrets or materials that it possesses. Upon the
termination of the Research, neither party shall have any implied license to any
technology, know-how, inventions, improvements, trade secrets or materials of
the other Party except as specifically provided herein.
11.9 Certain Commitments As To Licenses. Each Party will use its
respective commercially reasonable diligent efforts during the Research Term
(which efforts will not, absent express prior written agreement of the relevant
Party hereto, require any Party to pay additional money, whether by increased
royalty rates or other payments, or grant additional rights, to any Third Party)
as follows:
(a) Bayer Commitments. On the part of Bayer, to provide, with respect
to licenses as to which Bayer or its Affiliates become licensees after the
Effective Date within the Research Field, and/or within such areas outside of
the Research Field in which the LLC has, pursuant to Section 2.4 of the
Operating Agreement, designated to be of interest to the LLC, for such license
rights to be sublicensed to the LLC, with or without a further right of the LLC
to sublicense them to Exelixis; and
(b) Exelixis Commitments. On the part of Exelixis, to provide, with
respect to licenses as to which Exelixis or its Affiliates become licensees
after the Effective Date within the Research Field, and/or within such areas
outside of the Research Field in which the LLC has, pursuant to Section 2.4 of
the Operating Agreement, designated to be of interest to the LLC, for such
license rights to be sublicensed to the LLC, with or without a further right of
the LLC to sublicense them to the Bayer; and
(c) LLC Commitments. On the part of the LLC, provide, with respect to
licenses, other than from Bayer or Exelixis, as to which the LLC becomes a
licensee after the Effective Date within the Research Field, and/or within such
areas outside of the Research Field in which the LLC has, pursuant to Section
2.4 of the Operating Agreement, designated to be of interest to the LLC, for
such license rights to be sublicensed by the LLC to Bayer and Exelixis.
12. Enforcement of Patent Rights
12.1 General. Each Party will provide notice to the other Parties of any
infringement of an Exelixis Patent, LLC Patent, Bayer Patent, or Joint Patent.
In any action to enforce any of such Patents against alleged infringement, the
Party or Parties prosecuting such action shall bear
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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all costs and expenses thereof, and the other Parties will provide reasonable
assistance, if requested, in such action at the expense of the Party or Parties
prosecuting such action.
12.2 Exelixis Patents. Exelixis shall have the first right, but not the
obligation, to enforce the Exelixis Patents (other than the Joint Patents)
against any infringer. Any amounts recovered by Exelixis from an infringer of
such Patents shall be retained by Exelixis. If Exelixis does not exercise such
right within [ * ] after notice of infringement of an Exelixis Patent (other
than a Joint Patent) [ * ], then [ * ] has the right to enforce such Exelixis
Patent in the name of Exelixis. Any amounts recovered by [ * ] from an
infringer of such Exelixis Patent shall first be applied to reimburse [ * ]
costs and expenses of the action, and any remaining amounts shall be treated as
revenue of [ * ].
12.3 LLC Patents. The LLC shall have the first right, but not the
obligation, to enforce the LLC Patents (other than the Joint Patents) against
any infringer. If the LLC does not exercise such right within [ * ] after
notice of infringement of an LLC Patent, then Exelixis and Bayer shall each have
the right, but not the obligation, to enforce such LLC Patent in the name of the
LLC, and shall agree on which of them shall enforce such LLC Patent. Any
amounts recovered by an enforcing Party from an infringer of such LLC Patent
shall first be applied to reimburse such enforcing Party's costs and expenses of
the action, and any remaining amounts shall be treated as revenue of [ * ].
12.4 Bayer Patents. Bayer shall have the sole right, but not the
obligation, to enforce the Bayer Patents (other than the Joint Patents) against
any infringer. Any amounts recovered by Bayer from an infringer of such Patents
shall be retained by Bayer.
12.5 Joint Patents.
(a) In the case of a Joint Patent that is at the time jointly owned by
two or more Parties, each then jointly owning Party shall have the right, but
not the obligation, to enforce such Joint Patent in the name of the then joint
owners, and the then jointly owning Parties shall agree on which of them shall
enforce such Joint Patent. Any amounts recovered by an enforcing Party from an
infringer of such Joint Patent shall first be applied to reimburse such
enforcing Party's costs and expenses of the action, and any remaining amounts
shall be divided equally among those Parties that had agreed to accept the
obligation of enforcement.
(b) In the case of a Joint Patent that has become solely owned by a
Party, that Party shall have the right, but not the obligation, to enforce such
Patent against any infringer. Any amounts recovered by such Party from an
infringer of such Patent shall be retained by such Party.
13. Indemnification
13.1 Collaboration Compounds and Products. Subject to compliance with
Section 13.3, Bayer shall indemnify, defend and hold harmless Exelixis, its
Affiliates, the LLC and their respective agents and employees, from and against
any and all losses, liabilities, damages, costs, fees and expenses, including
reasonable legal costs and attorneys' fees ("Losses") resulting from a Third
Party claim, suit or action concerning and to the extent attributable to a
Collaboration
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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Compound, a Bayer Product or the permitted use of a Bayer Pesticide, but
excluding any Losses resulting from the gross negligence or intentionally
wrongful act or omission of the LLC, Exelixis, its Affiliates or sublicensees or
any of their employees or agents.
13.2 Exelixis Products and Personnel. Subject to compliance with Section
13.3, Exelixis shall indemnify, defend and hold harmless Bayer, its Affiliates,
the LLC and their respective agents and employees, from and against any and all
losses, liabilities, damages, costs, fees and expenses, including reasonable
legal costs and attorneys' fees ("Losses") resulting from (a) a Third Party
claim, suit or action concerning and to the extent attributable to an Exelixis
Agrochemical Compound, Exelixis Human Health Compound or a Product containing
such a Compound, and (b) a Third Party claim, suit or action arising from
Exelixis' employment relationship with personnel providing FTE services under
this Agreement (including without limitation claims based on personal injury or
unlawful discharge), but in each case excluding any Losses resulting from the
gross negligence or intentionally wrongful act or omission of the LLC, Bayer,
its Affiliates or sublicensees or any of their employees or agents.
13.3 Indemnity Procedure. In the event a Party is seeking indemnification
under Section 13.1 or 13.2, the Party seeking indemnification shall inform the
indemnifying Party in writing of a claim as soon as reasonably practicable after
it receives notice of the claim, shall permit the indemnifying Party to assume
direction and control of the defense of the claim (including the right to settle
the claim solely for monetary consideration), and, at the expense of the
indemnifying Party, shall cooperate as reasonably requested in the defense of
the claim. Each 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 the indemnified Party by the counsel retained by the
indemnifying Party would be inappropriate due to actual or potential differing
interests among the Parties. The indemnifying Party may not settle such action
or claim, or otherwise consent to an adverse judgment in such action or claim,
that diminishes the rights or interests of an indemnified Party without the
express written consent of such indemnified Party.
14. Term of Agreement And Termination
14.1 Term. This Agreement shall expire upon the latest of: (a) the end of
Research Term, (b) the expiration of all payment obligations of Bayer and
Exelixis hereunder, and (c) the expiration of all LLC Patents. Sections 10.1
and 11.6, Articles 13, 14, 15 and 16, and the commercialization licenses set
forth in Sections 11.3 and 11.5 shall survive such expiration.
14.2 Termination of Research Term. Upon [ * ], the licenses granted to the
LLC under Section 11.1 shall terminate. If such termination of the Research
Term was due to dissolution of the LLC, then Exelixis shall use all unspent
research payments as of the effective date of such termination to wind down the
LLC's Research efforts in an orderly manner with Bayer deemed to have granted an
appropriate license to allow Exelixis to perform such wind down activities. If
such termination of the Research Term was not due to dissolution of the LLC,
then Bayer and the LLC shall have the right to cause Exelixis to perform
continuing research (i.e. Target identification and LLC Assay development)
pursuant to a Research Plan mutually agreed by Bayer and Exelixis for a period
of [ * ] beyond the end of the Research Term to complete the development of LLC
programs under way at the end of the Research Term. If Bayer and the LLC
exercise the aforementioned right, they shall be deemed to have granted
appropriate
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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licenses to Exelixis under the Bayer Know-How, Bayer Patents, LLC Know-How and
LLC Patents to enable Exelixis to perform such continuing research; such
licenses shall expire at the end of such [ * ] period. The number of FTEs to be
supported during such [ * ] period shall be mutually agreed by Bayer and
Exelixis, and Bayer shall pay Exelixis for such work at the Annual FTE Rate then
in effect. Thereafter, such research shall cease, Bayer's payment obligations
under Section 9.2 shall cease, provided that Bayer shall make all such payments
which had accrued prior to the date of such termination, and each Party's rights
and obligations under this Agreement (other than those limited to the Research
Term) with respect to Targets, LLC Assays, Bayer Assays, LLC Compounds,
Collaboration Compounds, Exelixis Agrochemical Compounds, Exelixis Human Health
Compounds, Products and Exelixis' rights outside the Research Field shall
continue as specified in this Agreement. This Agreement shall continue in effect
until the date set forth in Section 14.1 or until terminated pursuant to Section
14.3.
14.3 Material Breach.
(a) If any Party believes that another Party is in material breach of
this Agreement, such Party (the "Non-Breaching Party") shall give notice of such
alleged breach to each Party which it believes to be in material breach (the
"Breaching Party"), with a concurrent notice to the other Party. Such notice
shall state with specificity the nature of the breach. If the Breaching Party
either cures such breach within [ * ] of such notice or, if it is not possible
to cure such breach within such [ * ] period, the Breaching Party commences
diligent, good faith efforts to cure such breach during such [ * ] period and
continues using such efforts for a prompt and successful cure of the breach,
then the Non-Breaching Party shall have no further remedy except the right to
recover money damages, if any, through arbitration pursuant to Article 17 of the
Operating Agreement and to protect its rights in Confidential Information and
intellectual property, either through arbitration or judicial relief.
(b) If the Breaching Party does not cure the alleged breach as
provided in Section 14.3(a), the Non-Breaching Party shall have the right to
commence an arbitration pursuant to Article 17 of the Operating Agreement to
either (i) seek specific performance of this Agreement and/or recover money
damages, or (ii) seek to terminate this Agreement and exercise the rights of a
non-defaulting Party set forth in Section 14.2(c) or 14.2(d) of the Operating
Agreement (termination and dissolution of the LLC or purchase of the interest of
the Defaulting Party). If the arbitrator determines that a material breach of
this Agreement has occurred, the arbitrator shall order specific performance
and/or the payment of money damages, unless the arbitrator determines either
that such relief would be inadequate to compensate the Non-Breaching Party for
the harm resulting from the breach or that in view of the circumstances then
prevailing, the Breaching Party cannot provide adequate assurances that if this
Agreement and the LLC were to continue, the Non-Breaching Party would in the
future receive the benefits of its bargain set forth herein and therein. If the
arbitrator makes a determination that specific performance and/or money damages
would be inadequate or that the Breaching Party cannot provide such adequate
assurances, then the Non-Breaching Party may terminate this Agreement and make
either of the elections set forth in Section 14.2(c) or 14.2(d) of the Operating
Agreement.
14.4 Acquisition Of The LLC By Bayer. Under certain circumstances set
forth in Article 13 of the Operating Agreement, Bayer has the right to purchase
Exelixis' ownership
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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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interest in the LLC. In the event Bayer concludes such a transaction, the
following terms and conditions shall apply. In any appraisal of the value of the
LLC for purposes of establishing the price of any such transaction, the
appraiser shall value the LLC on the basis that the terms and conditions set
forth in this Section 14.4 shall be in effect as of the closing of such
acquisition.
(a) Bayer's acquisition of Exelixis' ownership interest in the LLC shall
terminate any right of Exelixis to receive a portion of the premium fees payable
by Bayer under Section 9.4(a). However, the premium fee obligations of Exelixis
set forth in Sections 9.4(b) and 9.4(c) shall continue in effect.
(b) Exelixis shall provide continuing Research services to the LLC for a
period of [ * ] following the closing of Bayer's acquisition of Exelixis'
interest in the LLC, provided that (i) such work is limited to a continuation of
projects underway at the time of such closing, or related work agreed to by
Exelixis, (ii) Bayer or the LLC pays Exelixis for its FTEs engaged in such
transitional work at the Annual FTE Rate then in effect, and (iii) the level of
FTE effort devoted by Exelixis to the LLC research shall wind down in an orderly
manner mutually agreed in writing by Bayer and Exelixis.
(c) The ownership and license rights applicable to all Assays, Compounds,
Products, and Targets in existence immediately prior to the closing of such
transaction shall continue without modification, except that the license granted
to the LLC in Section 11.1(b): (i) shall continue on an exclusive basis for
[ * ] following the closing of such transaction, following which it shall
continue perpetually on a nonexclusive basis, subject to the modification set
forth in the following sentence, and (ii) may be sublicensed by the LLC to Bayer
and its Affiliates (but not to any Third Party). At the end of the exclusive
period described in the preceding clause (i), the license from Exelixis to the
LLC shall be modified to exclude any license under Third Party technology
licensed to Exelixis and sublicensed to the LLC pursuant to Section 11.1(b).
Rights with respect to Targets, assays, compounds and products arising from the
activities of the Parties under this Agreement shall not be affected by reason
of the acquisition by Bayer, except to the extent that the Research Term shall
then be deemed to have ended as of such closing and, accordingly, the duration
of certain provisions of this Agreement will be affected.
(d) Exelixis shall cooperate reasonably in enabling Bayer and the LLC to
replicate the ability to use the Exelixis technology which was used by the
Dedicated FTEs and Shared FTEs in the performance of Research on behalf of the
LLC in the [ * ] prior to the closing of the acquisition by Bayer. Bayer or the
LLC shall bear all costs associated with such replication of technology and
shall reimburse Exelixis for any costs incurred by Exelixis in that regard (with
internal resources to be reimbursed at the Annual FTE Rate then in effect and
out-of-pocket costs which exceed the customary inclusions within the Annual FTE
Rate to be reimbursed at cost). This Section 14.4(d) shall not require Exelixis
to transfer or sublicense to the LLC any licenses to practice Third Party
technology, but Exelixis shall (i) cooperate with the LLC in approaching any
such Third Parties from which Exelixis has licensed technology used in the
Research to seek licenses directly from such Third Party to the LLC, and (ii) in
those cases, if any, where Exelixis holds an exclusive license with a right of
sublicense, Exelixis shall negotiate in good faith to grant such a sublicense to
the LLC on a basis which generates no net profit to Exelixis and imposes no net
cost on Exelixis by reason of such sublicense or as a result of the LLC's use of
such sublicensed technology. By way of example, under this Section 14.4(d),
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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Exelixis shall cooperate with the LLC in enabling the LLC to purchase equipment
and supplies from Exelixis' vendors, shall share with Exelixis reasonable
quantities of specialty chemicals not readily available from vendors (with
reimbursement of the manufacturing cost of such chemicals), and shall
demonstrate to LLC personnel the use of Exelixis technology.
14.5 Acquisition Of The LLC By Exelixis. Under certain circumstances set
forth in Article 13 of the Operating Agreement, Exelixis has the right to
purchase Bayer's ownership interest in the LLC. In the event Exelixis concludes
such a transaction, the following terms and conditions shall apply. In any
appraisal of the value of the LLC for purposes of establishing the price of any
such transaction, the appraiser shall value the LLC on the basis that the terms
and conditions set forth in this Section 14.5 shall be in effect as of the
closing of such acquisition.
(a) Exelixis' acquisition of Bayer's ownership interest in the LLC
shall terminate any right of Bayer to receive a portion of the premium fees
payable by Exelixis under Sections 9.4(b) and 9.4(c). The premium fee
obligations of Bayer set forth in Section 9.4(a) shall continue in effect but
shall be reduced to a rate of [ * ].
(b) Exelixis shall provide continuing Research services to the LLC for
the benefit of Bayer for a period of up to [ * ] following the closing of
Exelixis' acquisition of Bayer's interest in the LLC, provided that (i) such
work is limited to a completion of any LLC Assays already under development at
the time of such closing, (ii) Bayer or the LLC pays Exelixis for its FTEs
engaged in such transitional work at the Annual FTE Rate then in effect, and
(iii) the level of FTE efforts devoted by Exelixis to the LLC research shall
wind down in orderly manner mutually agreed in writing by Bayer and Exelixis.
(c) The ownership and license rights applicable to all Assays,
Compounds, Products, and Targets in existence immediately prior to the closing
of such transaction shall continue without modification, except that the license
granted to the LLC in Section 11.1(a): (i) shall continue perpetually on a
nonexclusive basis, subject to the modification set forth in the following
sentence, and (ii) may be sublicensed by the LLC to Exelixis and its Affiliates
(but not to any Third Party). The license from Bayer to the LLC shall be
modified to exclude any license under Third Party technology licensed to Bayer
and sublicensed to the LLC pursuant to Section 11.1(a) and the right to use the
Bayer Pesticides. Rights with respect to Targets, assays, compounds and products
arising from the activities of the Parties under this Agreement shall not be
affected by reason of the acquisition by Exelixis, except to the extent that the
Research Term shall then be deemed to have ended as of such closing and,
accordingly, the duration of certain provisions of this Agreement will be
affected.
14.6 Acquisition Of The LLC By A Third Party. The Operating Agreement
requires the approval of Exelixis and Bayer prior to the merger or acquisition
of the LLC by a Third Party. In the event of such a merger or acquisition,
Exelixis, Bayer and the acquiring Third Party may mutually agree to amend this
Agreement. If no such mutual agreement is reached, the Research Term will
terminate upon the closing of such merger or acquisition.
14.7 Termination and Dissolution of the LLC. Under certain circumstances
set forth in Section 12.1 of the Operating Agreement, Exelixis or Bayer has the
right to terminate and dissolve the LLC. In the event that such termination and
dissolution occurs, the Research Term
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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shall terminate and the terms set forth in Section 14.2 of this Agreement and
12.5 of the Operating Agreement shall apply.
15. Representations & Warranties
15.1 Representations and Warranties of Exelixis.
(a) Exelixis is duly organized and validly existing and in good
standing under the laws of Delaware and has full corporate power and authority
to enter into this Agreement and to carry out the provisions hereof.
(b) Exelixis is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder.
(c) As of the Effective Date, Exelixis [ * ].
(d) Subsequent to the Effective Date, [ * ].
(e) Exelixis [ * ]. Exelixis has the rights necessary to grant the
licenses from Exelixis to LLC which are set forth in this agreement.
(f) Exelixis has determined that as of the Effective Date the value
of the exclusive licenses acquired by Exelixis under this Agreement and the
Operating Agreement does not exceed [ * ].
15.2 Representations and Warranties of Bayer.
(a) Bayer is duly organized, validly existing and in good standing
under the laws of Indiana and has full corporate power and authority to enter
into this Agreement and to carry out the provisions hereof.
(b) Bayer is duly authorized to execute and deliver this Agreement
and to perform its obligations hereunder.
(c) Bayer has the rights necessary to grant the licenses from Bayer
to LLC which are set forth in this agreement.
(d) Bayer ha s the rights necessary to grant the licenses set forth
herein to (i) [ * ] and (ii) [ * ].
(e) Bayer has [ * ].
(f) Bayer has determined that as of the Effective Date the value of
the exclusive licenses acquired by Bayer under this Agreement and the Operating
Agreement does not exceed [ * ].
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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16. Miscellaneous
16.1 Dispute Resolution. The dispute resolution procedures set forth in
Article 17 of the Operating Agreement shall apply to all disputes between the
Parties under this Agreement.
16.2 Confidentiality. The confidentiality provisions set forth in
Article 18 of the Operating Agreement shall apply to all Confidential
Information disclosed by one Party to another Party under this Agreement.
16.3 Performance By Affiliates. The Parties recognize that portion of
this Agreement may be performed by Affiliates of Bayer or Exelixis, and that
Products may be commercialized by such Affiliates under appropriate agreements.
Each of Bayer and Exelixis hereby guarantees that any of its Affiliates which
participates in the performance of this Agreement or the commercialization of
Products will comply with the terms and conditions of this Agreement. In the
event of any dispute between Bayer or Exelixis and an Affiliate of such other
Party arising from or related to this Agreement, such dispute may be brought
directly against such other Party under this Agreement without any obligation to
first seek to resolve such dispute or exhaust remedies with respect to such
Affiliate.
16.4 Limitation of Liability. EXCEPT AS SPECIFICALLY PROVIDED IN ARTICLE
13, IN NO EVENT SHALL EITHER PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS
OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL,
SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A CLAIM OR
ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR
OTHERWISE, ARISING OUT OF THIS AGREEMENT. For clarification, the foregoing
sentence shall not be interpreted to limit or to expand the express rights
specifically granted in the sections of this Agreement, including without
limitation Article 12.
16.5 Entire Agreement; Amendment. This Agreement, together with Exhibit
A (which the Parties shall agree upon [ * ] and shall append to this Agreement),
sets forth the agreement among the Parties with respect to the specific subject
matter hereof, and, except as otherwise set forth herein, supersedes and
terminates all prior representations, agreements and understandings among the
Parties regarding the subject matter hereof. No alteration, amendment, change or
addition to this Agreement will be binding upon the Parties unless in writing
and signed by an authorized signatory of each Party.
16.6 Assignment. Subject to the terms of the Operating Agreement, no
Party may assign or transfer this Agreement or any rights or obligations
hereunder without the prior written consent of the other Parties, except that
(a) a Party may make such an assignment without the other Parties' consent to an
Affiliate or to a successor to all or substantially all of the related business
assets of such Party relating to this Agreement, whether by way of a merger,
sale of stock, sale of assets or other similar transaction; and (b) each of
Bayer and Exelixis may contract to Third Parties any of its marketing and sales
rights with respect to Products, and such contracts shall not be considered
assignment of rights and obligations as provided above.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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16.7 Notices. All notices, requests, consents and other communications
hereunder to any Party will be deemed to be sufficient if contained in a written
instrument delivered in person, including delivery by recognized express
courier, fees prepaid, or sent by facsimile transmission or duly sent by first
class registered or certified mail, return receipt requested, postage prepaid,
in each case addressed as set forth below, or to such other address as may
hereinafter be designated in writing by the recipient to the sender pursuant to
this Section 16.7. All such notices, requests, consents and other
communications will be deemed to have been received in the case of personal
delivery, including delivery by express courier, on the date of such delivery;
in the case of facsimile transmission, on the date of transmission; and in the
case of mailing, on the third day after deposit in the U.S. mail, proper postage
prepaid.
If to Exelixis: Exelixis Pharmaceuticals, Inc.
260 Littlefield Avenue
South San Francisco, CA 94080
Attention: Chief Executive Officer
Facsimile: 650-825-2205
With a copy to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Robert L. Jones
Facsimile: 650-857-0663
If to Bayer: Bayer Corporation
8400 Hawthorne Road
Kansas City, MO 64120-0013
Attention: William G. Ferguson, Vice President and
Assistant General Counsel
Facsimile: 816-242-2739
With a copy to: Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, CA 94301
Attention: Bruce W. Jenett
Facsimile: 650-324-0638
If to the LLC: GenOptera LLC
c/o Exelixis Pharmaceuticals, Inc.
260 Littlefield Avenue
South San Francisco, CA 94080
Attention: Chief Executive Officer of GenOptera LLC
Facsimile: 650-825-2205
16.8 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, then such provisions will be enforced to
the maximum extent possible under applicable law and the remainder of such
provisions will be excluded from
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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this Agreement, and the balance of this Agreement will be interpreted as if such
provisions or portion(s) thereof were so excluded and will continue to be
enforceable in accordance with its terms.
16.9 Force Majeure Events. Except as otherwise provided herein, no Party
will be in breach of this Agreement, or liable to the other Parties, for any
loss, damage, detention, delay or failure of performance to the extent such
loss, damage, detention, delay or failure is caused by a Force Majeure Event
provided that the Party claiming excuse uses its commercially reasonable efforts
to overcome the same. In the event of a Force Majeure Event, the obligations of
the affected Party will be suspended as long as such Force Majeure Event
continues.
16.10 Hardship. If, during the period of this Agreement, performance of this
Agreement should lead to unreasonable hardship for one Party taking the
interests of all Parties into account, the Parties will endeavor to agree in
good faith to amend this Agreement in view of such circumstance.
16.11 Electronic Data Interchange. If the Parties elect to facilitate their
activities hereunder by electronically sending and receiving data in agreed
formats (also referred to in general usage as Electronic Data Interchange or
EDI) in substitution for conventional paper-based documents, the terms and
conditions of this Agreement will apply to such EDI activities and
communications as if such EDI communication, and as if such communication were
sent by facsimile.
16.12 Counting Of Time. Whenever days are to be counted under this
Agreement, the first day will not be counted and the last day will be counted,
such that if a notice is delivered on a Monday to one Party, for example, with a
five (5) day reply period hereunder, the reply must be sent to the sending Party
(not received by such sending Party) by such recipient member no later than
11:59 a.m. local time for the sender, on the Saturday next following such
Monday.
16.13 Certain Third Parties. Except with respect to the rights of certain
Persons to be indemnified pursuant to Article 13 of this Agreement, which
Persons are intended as third party beneficiaries of their respective rights be
indemnified as set forth therein, able to enforce their respective rights to
such indemnification as if they were a party hereto, nothing in this Agreement,
express or implied, is intended to confer upon any person, other than the
Parties hereto and their successors and assigns, any rights or remedies under or
by reason of this Agreement.
16.14 No Grant Of Rights. Except as specifically stated herein, no Party
grants to any other Party hereto any rights or license to any intellectual
property rights or other rights of the first Party.
16.15 Captions. The captions to Sections of this Agreement have been
inserted for identification and reference purposes only and will not be used to
construe or interpret this Agreement.
16.16 Costs And Attorneys' Fees. Except as otherwise provided in Article 11
of the Operating Agreement, including the definition of "Damages" under Section
1.21 of the
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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Operating Agreement, if any action, suit or other proceeding is instituted
concerning or arising out of this Agreement or any transaction contemplated
hereunder, the prevailing Party will recover all of such Party's reasonable fees
and costs of attorneys incurred in each such action, suit or other proceeding,
including any and all appeals or petitions therefrom.
16.17 Expenses. Except as otherwise provided in this Agreement (a) all
expenses incurred by a Party in connection with its obligations under this
Agreement will be borne solely by such Party, and (b) each Party will be
responsible for appointing its own employees, agents and representatives, who
will be compensated by such Party.
16.18 Non-Waiver. The failure of a Party in any one or more instances to
insist upon strict performance of any of the terms and conditions of this
Agreement will not be construed as a waiver or relinquishment, to any extent, of
the right to assert or rely upon any such terms or conditions on any future
occasion.
16.19 Disclaimer of Agency. This Agreement will not render any Party the
legal representative or agent of another, nor will any Party have the right or
authority to assume, create, or incur any Third Party liability or obligation of
any kind, express or implied, against or in the name of or on behalf of another
except as expressly set forth in this Agreement or except as may be expressly
agreed in advance in writing by the Party to be bound.
16.20 Further Assurances. The Parties will execute and deliver any further
instruments or documents and perform any additional acts that are or may become
necessary to carry out the purposes and intent of this Agreement.
16.21 Binding Effect. This Agreement will be binding on and inures to the
benefit of each Party and its respective transferees, successors, assigns and
legal representatives.
16.22 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be an original and all of which will constitute
together the same document. This Agreement, which Bayer and Exelixis executed
on December 15, 1999, shall become effective upon execution by the LLC.
16.23 Governing Law. The law of the State of California, excluding that body
of law known as conflict of laws, will be the applicable substantive law for all
matters involving this Agreement, except those governed by federal law, which
will apply to such other matters.
16.24 Official Language. The official text of this Agreement and any
appendices, Exhibits hereto, will be made, written and interpreted in English.
Any notices, accounts, reports, documents, disclosures of information or
statements required by or made under this Agreement, whether during its term or
upon expiration or termination thereof, will be in English. In the event of any
dispute concerning the construction or meaning of this Agreement, reference will
be made only to this Agreement as written in English and not to any other
translation into any other language.
16.25 Internal Section References. All references in this document to
Sections are to Sections hereof except as otherwise indicated.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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[REST OF PAGE INTENTIONALLY LEFT BLANK]
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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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In Witness Whereof, the Parties hereto have duly executed this Agreement as
of the date first above written.
Exelixis Pharmaceuticals, Inc. Bayer Corporation
By: /s/ George Scangos By: /s/ Emil E. Lansu
------------------------------- ------------------------------
Name: George Scangos Name: Emil E. Lansu
------------------------------- ------------------------------
Title: President & CEO Title: Executive Vice President
------------------------------ -----------------------------
GenOptera LLC
By: /s/ Frank F. Reuscher
---------------------------------
Name: Frank F. Reuscher
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Title: Chief Executive Officer
------------------------------
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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<PAGE>
COLLABORATION AGREEMENT
AMONG
EXELIXIS PHARMACEUTICALS, INC.,
BAYER CORPORATION, AND
GENOPTERA LLC
DATED AS OF JANUARY 1, 2000
[*]=CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
1
<PAGE>
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
EXHIBIT 10.8
LLC OPERATING AGREEMENT
-----------------------
GENOPTERA LLC
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This Operating Agreement (the "Agreement"), is entered into as of December
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__, 15, 1999 (the "Effective Date"), by and among Bayer Corporation, an Indiana
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corporation ("Bayer") and Exelixis Pharmaceuticals, Inc., a Delaware corporation
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("Exelixis"), as the initial members (the "Members") of OpteraGenOptera LLC, a
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Delaware limited liability company (the "LLC") to be formed by Bayer and
---
Exelixis on or before January 1, 2000; immediately upon its formation, the LLC
will execute and deliver a counterpart copy hereof and thereupon will become a
party hereto. Terms not otherwise defined in this Agreement will have the
meanings set forth for such terms in Article I hereof.
RECITALS
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WHEREAS, the Members will have formed the LLC, on or before January 1,
2000, as provided in Section 2.1 hereof, to identify and validate biochemical
targets useful within the Field of Use, and to format high throughput screening
assays based upon such targets, in each case within the Field of Use, and in
each case based initially upon certain technology of Exelixis and Bayer AG which
was used in connection with, and certain technology developed under, the
Original Collaboration Agreement, and such other matters as the Members may
agree in writing with each other from time to time, as an amendment hereto; and
WHEREAS, simultaneously with their execution and delivery hereof, Bayer and
Exelixis also have executed and delivered the LLC Collaboration Agreement, which
also will be effective as of January 1, 2000; and
WHEREAS, the Members and the LLC desire to enter into this Agreement, to
set forth the respective ownership interests of the Members in the LLC and the
principles by which the LLC will be operated and governed;
NOW, THEREFORE, in consideration of mutual covenants and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
The following terms will have the meanings set forth below for purposes of
this Agreement:
1.1 Accounting Period" means, for each Fiscal Year, the period beginning
-----------------
on January 1 and ending on December 31, provided that (a) the first Accounting
Period will commence on the date of formation of the LLC and if the LLC is
formed in 1999 will end on December 31,
<PAGE>
1999, and if the LLC is formed in 2000 will end on December 31, 2000, and (b) a
new Accounting Period will commence on any date on which a Substitute Member is
admitted to the LLC.
1.2 "Act" means the Delaware Limited Liability Company Act.
---
1.3 "Adjusted Capital Account" means, with respect to any Member, the
------------------------
balance in the capital account of such Member, increased by the amount of such
Member's share, determined in accordance with Treasury Regulations Section
1.704-2(g), of "partnership minimum gain," within the meaning of Treasury
Regulations Section 1.704-2(d), and such Member's share, determined in
accordance with Treasury Regulations Section 1.704-2(i), of "partner nonrecourse
debt minimum gain," within the meaning of Treasury Regulations Section 1.704-
2(i).
1.4 "Affiliate" means a Person who controls, is controlled by or is under
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common control with (a) the referenced Member or (b) another Person. For
purposes of this definition (1) the word "control" (including, with correlative
meaning, the terms "controlled by" or "is under common control with") means the
power to direct or cause the direction of the management and policies of the
relevant Person, or the ownership of at least fifty percent (50%) of the
aggregate stock or voting power of all classes of stock and/or other voting
securities of such Person if it is a legal entity, and (2) Bayer and Bayer AG
are Affiliates of each other, and (3) for purposes of this Agreement, the LLC is
not an Affiliate of Bayer or of Exelixis, nor is either of Bayer or Exelixis an
Affiliate of the LLC, and (4) Bayer and Bayer AG, on the one hand, and Exelixis,
on the other hand, are not, merely by virtue of this Agreement or the LLC
Collaboration Agreement, deemed to be Affiliates of each other.
1.5 "Agreement" means this Operating Agreement as it may be amended from
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time to time.
1.6 "Appraiser" means an independent investment bank, accounting firm or
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other entity which has no material relationship with either Member or any of
their Affiliates or the LLC, and who is experienced in appraising and
determining the fair market value of agriculture-based, genetic screening-based
or other technology-based companies. For purposes of this Agreement, a
"material relationship" is defined as any relationship, including holding more
than one percent (1%) of the stock of the relevant Person, or having a senior
executive (any LLC officer or similar position) of such bank, firm or other
entity, who is also serving or has served, during the two (2) years immediately
preceding such Appraiser's selection, as an employee, LLC officer or Director,
or similar position, of such relevant Person, or which bank, firm, entity or
senior executive is consulting with or for such relevant Person on any ongoing
retained basis, or in a non-ongoing retention or engagement during the two (2)
years immediately preceding such Appraiser's selection.
1.7 "Auction" and "Auctioneer" will have the meanings set forth for such
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terms in Section 13.5 hereof.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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1.8 "Bayer AG" means a corporation organized under the laws of Germany,
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which is the parent corporation of Bayer.
1.9 "Bankruptcy" means, with respect to any Person, that a petition has
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been filed by or against such Person as a "debtor" and the adjudication of such
Person as a bankrupt under the provisions of the bankruptcy laws of the United
States have commenced, or that such Person has made an assignment for the
benefit of its creditors generally or a receiver has been appointed for
substantially all of the property and assets of such Person, unless the same has
been vacated, set aside or stayed within sixty (60) days after such filing.
1.10 "Buyout" means the purchase by one Member of all of the Membership
------
Interest of the other Member pursuant to the provisions of Article XIII hereof.
1.11 "Capital Account" means, for each Member, a separate account
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maintained by the LLC in accordance with the following provisions:
(a) Increases. The Capital Account of each Member will be increased
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by:
(i) Money and Property Contributed. The amount of money and the
------------------------------
agreed fair market value of any property contributed to the LLC by such Member,
or paid by such Member for the benefit of the LLC pursuant to this Agreement
(net of any liabilities secured by such property that the LLC is considered to
assume or hold subject to for purposes of Section 752 of the Code), in each case
as a Capital Contribution by such Member,
(ii) Share of Net Income, Etc. Such Member's share of Net
------------------------
Income (or items thereof) and other items of LLC income and gain allocated to it
pursuant to this Agreement, and
(iii) Certain Assumption of Liabilities. The amount of
---------------------------------
liabilities of the LLC assumed by such Member, to the extent not taken into
account under Section 1.11(a)(i) hereof, and any other amounts required by
Treasury Regulations Section 1.704-1(b), if the Management Committee determines
that such increase is consistent with the economic arrangement among such
Members as expressed in this Agreement; and
(b) Decreases. The Capital Account of each Member will be decreased
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by:
(i) Money And Property Distributed. The amount of money and
------------------------------
the agreed fair market value of any property distributed by the LLC to such
Member pursuant to the provisions of this Agreement (net of any liabilities
secured by such property that such Member is considered to assume or hold
subject to for purposes of Section 752 of the Code),
(ii) Share of Net Loss, Etc. Such Member's share of Net Loss
----------------------
(or items thereof) and other items of LLC loss and deduction allocated to it
pursuant to this Agreement, and
(iii) Certain Assumption of Liabilities. The amount of
---------------------------------
liabilities of such Member assumed by the LLC (to the extent not taken into
account under Section 1.11(a)(i)
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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hereof) and any other amounts required by Treasury Regulations Section 1.704-
1(b), if the Management Committee determines that such decrease is consistent
with the economic arrangement among such Members as expressed in this Agreement.
1.12 "Capital Contribution" of a Member means the contribution by such
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Member to the LLC pursuant to Article IV hereof.
1.13 "Carrying Value" means, with respect to any LLC asset, such asset's
--------------
adjusted basis for federal income tax purposes, except as follows:
(a) Initial Carrying Value of Contributed Asset. The initial Carrying
-------------------------------------------
Value of any asset contributed by a Member to the LLC will be the fair market
value of the asset upon contribution, as agreed upon in writing by the
contributing Member and the LLC.
(b) Adjustments Upon Certain Acquisitions And Distributions. In the
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discretion of the Management Committee, or upon the written request of either
Member to the Management Committee, with a copy to the other Member, the
Carrying Values of all LLC assets may be adjusted to equal their respective fair
market values, as determined by the Management Committee, and the resulting
unrecognized gain or loss allocated to the Capital Accounts of the Members as
though such assets had been sold for their respective fair market values as of
the following times: (i) the acquisition of an additional interest in the LLC by
any Member in exchange for more than a de minimis Capital Contribution; and (ii)
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the distribution by the LLC to a Member of more than a de minimis amount of LLC
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assets, unless all Members receive simultaneous distributions of either
undivided interests in the distributed property or identical LLC assets in
proportion to their interests in the LLC.
(c) Certain Adjustments to Equal Fair Market Value On Liquidation or
----------------------------------------------------------------
Termination of LLC. The Carrying Values of all LLC assets will be adjusted to
- ------------------
equal their respective fair market values, as determined by the Management
Committee, and the resulting unrecognized gain or loss allocated to the Capital
Accounts of such Members as though such assets had been sold for their
respective fair market values as of the following times: (i) the date the LLC is
liquidated within the meaning of Treasury Regulations Section 1.704-1
(b)(2)(ii)(g); and (ii) the termination of the LLC pursuant to the provisions of
this Agreement.
(d) Certain Increases or Decreases. The Carrying Values of LLC assets
------------------------------
will be increased or decreased to the extent required under Treasury Regulations
Section 1.704-1(b)(2)(iv)(m) if the adjusted tax basis of such LLC assets is
adjusted pursuant to Code Sections 732, 734 or 743.
(e) Adjustment To Equal Fair Market Value On Distribution. The
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Carrying Value of an LLC asset that is distributed (whether in liquidation of
the LLC or otherwise) to one or more Members will be adjusted to equal its fair
market value, as determined by the Management Committee, and the resulting
unrecognized gain or loss allocated to the Capital Accounts of such Members as
though such asset had been sold for such fair market value.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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(f) Adjustment For Depreciation, Etc. The Carrying Value of an LLC
--------------------------------
asset will be adjusted by the depreciation, amortization or other cost recovery
deductions, if any, taken into account by the LLC with respect to such asset in
computing Net Profit or Net Loss.
1.14 "Certificate of Formation" means the Certificate of formation of the
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LLC.
1.15 "Changed Circumstance" means any of the following:
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(a) Continuing Force Majeure Event. A Continuing Force Majeure Event
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occurs with respect to a Member.
(b) Exelixis-Specific Matters. Any or all of the following will be a
-------------------------
Changed Circumstance with respect only to Exelixis:
(i) Certain Sales of Assets. Subject to the last sentence of
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this Section 1.15(b)(i), the sale, lease, conveyance or other disposition of [ *
] or more of the net value, as determined using United States generally accepted
accounting principles, of the assets of Exelixis, as an entirety or
substantially as an entirety, to any other Person or to any "group," within the
meaning of Section 10(d)(3) of the Exchange Act, that includes such Person, and
in each case other than Bayer or Bayer AG, in one or a series of transactions.
For purposes of this Section 1.15(b)(i), any transaction as a result of which
the holders of all classes of stock and/or other voting securities of Exelixis
immediately prior to such transaction own, directly or indirectly, at least [ *
] of the aggregate voting stock or voting power of all classes of stock and/or
other voting securities of the transferee Person immediately after such
transaction, will not constitute a Changed Circumstance as to Exelixis, unless,
and until the date upon which, Bayer gives Exelixis written notice, which notice
Bayer must give within [ * ] after Bayer has received from Exelixis, under
Section 13.2(a)(i) hereof, a Proposed Changed Circumstances Notice of such
event, or has received from Exelixis, under Section 13.2(a)(ii) hereof, a Final
Notice of such proposed event, that one or more of the transferee or proposed
transferee Person(s) and/or the Affiliate(s) of such Person(s), as relevant, is
(or are), [ * ].
(ii) Certain Changes of Control. Subject to the provisions of
--------------------------
Section 1.15(b)(ii)(A) and (B) hereof, any transaction or series of transactions
(as a result of a tender offer, merger, consolidation or otherwise) that
involves a transfer of securities of Exelixis, if as a result of such transfer
any Person, including a "group," within the meaning of Section 10(d)(3) of the
Exchange Act, that includes such Person, and in each case other than Bayer or
Bayer AG, acquires "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of [ * ] or more of the aggregate stock and/or other voting
securities of Exelixis, and such Person or "group" did not, immediately before
such transaction, hold directly or indirectly, [ * ] or more of the aggregate
stock or voting power of all classes of stock and/or other voting securities of
Exelixis. For purposes of this Section 1.15(b)(ii):
(A) Requirement Of Certain Notice By Bayer. Such event will
--------------------------------------
not constitute a Changed Circumstance as to Exelixis unless, and until the date
upon which, Bayer gives written notice to the Management Committee and to
Exelixis, which notice Bayer must give within [ * ] after Bayer has received
from Exelixis, under Section 13.2(a)(i) hereof, a
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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Proposed Changed Circumstances Notice of such event, or has received from
Exelixis, under Section 13.2(a)(ii) hereof, a Final Notice of such proposed
event, that, in the good faith judgment of Bayer, such event does or would
materially adversely impact the business, operations and/or financial potential
of the LLC, and/or that one or more of the Persons, including their Affiliates,
as relevant, to whom such equity is transferred, or to whom such equity is
proposed to be transferred, is (or are), [ * ]; and
(B) Certain Equity Financings By Exelixis. The closing of
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any equity financing of Exelixis after the Effective Date, by the issuance by
Exelixis of its own securities (including without limitation stock of Exelixis
and/or securities, such as options, warrants or convertible promissory notes,
exercisable for or convertible by their terms into stock of Exelixis), will not
constitute a Changed Circumstance as to Exelixis unless, and until the date upon
which, Bayer gives Exelixis written notice, which notice Bayer must give within
[ * ] after Bayer has received from Exelixis, under Section 13.2(a)(i) hereof, a
Proposed Changed Circumstances Notice of such event, or has received from
Exelixis, under Section 13.2(a)(ii) hereof, a Final Notice of such proposed
event, that the Person(s), including a "group," within the meaning of Section
10(d)(3) of the Exchange Act, that includes such Person(s), and in each case
other than Bayer or Bayer AG, , to whom such equity is issued is (or are),
[ * ].
(iii) Certain Resignations or Terminations, Etc. Subject to the
-----------------------------------------
provisions of Section 1.15(b)(iii)(D) hereof, the resignation, termination,
demotion, death or disability of, cumulatively, [ * ] or more Key Exelixis
Individuals, as follows:
(A) Resignation. The resignation, at any time prior to
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[ * ], by a Key Exelixis Individual from all employment and consultancy
relationships with Exelixis and all of its Affiliates. For purposes of this
Agreement, a Key Exelixis Individual will be deemed to have resigned from all
employment and consultancy relationships with Exelixis and all of its Affiliates
on the date after which such individual is neither an employee nor serving as a
consultant under a written agreement with Exelixis or such Affiliate which
requires that such individual render services actively, and not merely be
available on a standby-by or retained on-call basis, for at least one-half of
such individual's full working time.
(B) Termination. The termination, with or without cause, at
-----------
any time prior to [ * ], by a Key Exelixis Individual, from all employment and
consultancy relationships with Exelixis and all of its Affiliates, whether by
death, disability or otherwise.
(C) Disability or Demotion Without Resignation or
---------------------------------------------
Termination. At any time prior to [ * ], the disability of a Key Exelixis
- -----------
Individual (if there is no termination or resignation by such individual nor by
Exelixis as a result of such disability), to the extent that, or any demotion of
such Key Exelixis Individual to a position of authority and/or title with
Exelixis and/or its Affiliates that, in either case, in the good faith judgment
of Bayer after consultation with Exelixis, and as so notified in writing by
Bayer to the Management Committee, does or would materially adversely impact the
business, operations and/or financial potential of the LLC.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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(D) Exclusions; Consultation With Bayer, Bayer Approval of
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Certain Replacements. This Section 1.15(b)(iii) will not apply as to any Key
- --------------------
Exelixis Individual who, immediately upon such termination or resignation with
Exelixis and all of its Affiliates, commences full-time employment or full-time
consultancy with Bayer, or Bayer AG, or with the LLC with Bayer's prior written
consent thereto. This Section 1.15(b)(iii) also will not apply with respect to
the termination, resignation, death, disability or demotion of any Key Exelixis
Individual, whether or not an FTE, until the [ * ] anniversary of the date of
such event, if the position held by such individual is filled by Exelixis within
such [ * ] period, provided that:
(1) Consultation With Bayer. Exelixis will consult in
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good faith with Bayer as to the replacement for such individual.
(2) Bayer Approval of Certain Replacements. Bayer's
--------------------------------------
approval, which approval Bayer will not unreasonably or untimely withhold, will
in each case be required for the individual replacement selected by Exelixis for
each of the positions of [ * ] (or equivalent position) of Exelixis (occupied by
[ * ] at the Effective Date), and [ * ] (or equivalent position) of Exelixis
(occupied by [ * ] at the Effective Date). Furthermore, if any [ * ] of the
following positions becomes vacant within [ * ] of each other by the
termination, resignation, death, disability or demotion of any Key Exelixis
Individual, Bayer's approval, which approval Bayer will not unreasonably or
untimely withhold, will be required for the individual replacement selected by
Exelixis for each of such [ * ] positions: (a) [ * ] of Exelixis (or [ * ] if
there is then no [ * ] (occupied by [ * ] at the Effective Date), (b) [ * ] (or
equivalent position) of Exelixis (occupied by [ * ] at the Effective Date), (c)
[ * ] (or equivalent position) of Exelixis, and (d) [ * ] (or equivalent
position) of Exelixis. The [ * ] period referred to in this Section
1.15(b)(iii)(D)(2) will commence on the date of, as relevant, the termination,
resignation, death, disability or demotion of the first of the [ * ] Key
Exelixis Individuals in question.
(c) Bayer Specific Matters. Either or both of the following will be a
----------------------
Changed Circumstance with respect only to Bayer, provided that, for purposes of
this Section 1.15(c), the term "insecticide" means [ * ]:
-----------
(i) Certain Sales Of Assets. Subject to the last sentence of
-----------------------
this Section 1.15(c)(i), the sale, lease, conveyance or other disposition, in
one or a series of transactions to any other Person or "group," within the
meaning of Section 10(d)(3) of the Exchange Act, that includes such Person, and
in each case other than Exelixis or Bayer AG, of [ * ] or more of the net value,
as determined under United States generally accepted accounting principles, of
those assets of Bayer constituting at the time in question Bayer's insecticide
business (as the term "insecticide" is defined in the first paragraph of Section
1.15(c) hereof), or of [ * ] or more of the net value, as determined under
United States generally accepted accounting principles, of the overall assets of
Bayer if Bayer has not previously sold, leased, conveyed or otherwise disposed
of [ * ] or more of the net value of its insecticide business. For purposes of
this Section 1.15(c)(i), any transaction as a result of which the holders of all
classes of stock and/or other voting securities of Bayer immediately prior to
such transaction own, directly or indirectly, at least [ * ] of the aggregate
voting stock or voting power of all classes of stock and/or other voting
securities of the transferee Person immediately after such transaction, will not
constitute a Changed Circumstance as to Bayer.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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(ii) Certain Changes Of Control. Subject to the provisions of
--------------------------
Section 1.15(c)(ii)(A) and (B) hereof, any transaction or series of transactions
(as a result of a tender offer, merger, consolidation or otherwise) that
involves a transfer of securities of Bayer (or, if Bayer's insecticide business
then is being conducted in a separate legal entity that is at the time an
Affiliate of Bayer, then involving a transfer of securities of such entity), if
as a result of such transfer any Person, including a "group," within the meaning
of Section 10(d)(3) of the Exchange Act, that includes such Person, and in each
case other than Exelixis or Bayer AG, acquires "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act) of [ * ] or more of the aggregate
stock and/or other voting securities of Bayer or of such separate legal entity,
and such Person or "group" did not, immediately before such transaction, hold
directly or indirectly, [ * ] or more of the aggregate stock or voting power of
all classes of stock and/or other voting securities of Bayer or of such separate
legal entity, as relevant. For purposes of this Section 1.15(b)(ii):
(A) Requirement Of Certain Notice By Exelixis. Such event
-----------------------------------------
will not constitute a Changed Circumstance as to Bayer unless, and until the
date upon which, Exelixis gives written notice to the Management Committee and
to Bayer that, in the good faith judgment of Exelixis, such event does or would
materially adversely impact the business, operations and/or financial potential
of the LLC, which notice Exelixis must give within [ * ] after Exelixis has
received from Bayer, under Section 13.2(a)(i) hereof, a Proposed Changed
Circumstances Notice of such event, or has received from Bayer, under Section
13.2(a)(ii) hereof, a Final Notice of such proposed event.
(B) Certain Conditions. Such event will constitute a
------------------
Changed Circumstance as to Bayer only (1) if at the time in question Bayer's
insecticide business is being conducted in whole or in material part by or
within a separate legal entity other than Bayer or Bayer AG, and at least [ * ]
of the aggregate stock or voting power of all classes of stock and/or other
voting securities of such entity is held by Bayer or by Bayer AG immediately
before the consummation of such transaction, or (2) if at the time Bayer's
insecticide business is being conducted by Bayer, and if Bayer AG, immediately
before the consummation of such transaction (a) does not own, directly or
indirectly, at least [ * ] of the aggregate voting stock or voting power of all
classes of stock and/or other voting securities of Bayer and (b) does not
otherwise have the power to direct or cause the direction of the management and
policies of the insecticide business of Bayer.
(d) LLC Lack Of Freedom To Operate. Subject to the last sentence of
------------------------------
this Section 1.15(d), the [ * ] anniversary of the delivery by Bayer to Exelixis
of a "Lack Of Freedom To Operate Notice". A "Lack Of Freedom To Operate Notice"
---------------------------------
means Bayer's written notice that, in the good faith judgment of Bayer, after
Bayer has consulted with Bayer's patent counsel and with Exelixis, and after
Bayer's patent counsel has consulted with Exelixis' patent counsel, with respect
thereto, there exist sufficient dominant patents, or other intellectual property
rights, of any third party (other than an Affiliate of Bayer or an Affiliate of
Exelixis), with respect to the subject and focus of the LLC Collaboration
Agreement, and/or of the LLC, as to create a material risk of exposure of the
LLC and/or of Bayer or its Affiliates to an action for infringement by such
third party by reason of any intellectual property licensed to the LLC by
Exelixis and/or by any intellectual property belonging to the LLC (apart from
any such
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
intellectual property licensed to the LLC by Bayer or by any Bayer Affiliate),
and to create a failure of the essential purpose of the LLC and of the LLC
Collaboration Agreement if the LLC and the LLC Collaboration Agreement were to
continue. Such event will not constitute a Changed Circumstance if, prior to
such [ * ] anniversary, Exelixis and/or the LLC have executed with such third
party a license, or an agreement not to bring an action for infringement as to
the relevant intellectual property, in either case in favor of the LLC, and in
favor of Bayer and Exelixis and their respective Affiliates, with respect to the
intellectual property rights or alleged intellectual property rights of such
third party in question, meeting the criteria set forth in the next sentence.
Such license (i) must be approved by the Management Committee, and by Exelixis
if Exelixis is to be a party to the license, or is to be responsible for any
payments thereunder, as is described in clause (ii) of this Section 1.15(d)
immediately following, and (ii) may contain provision for the payment to the
licensor of commercially reasonable license commitment or upfront fees,
royalties or premium fees, provided that (A) if the potential infringement of
such third party's right is determined by Bayer, after the consultation
described in the first sentence of this Section 1.15(d), to derive primarily
from intellectual property rights of Exelixis licensed to the LLC, then [ * ]
will be responsible for payment of any such license or commitment fees,
royalties or premium fees thereunder, and (B) if the potential infringement of
such third party's right is determined by Bayer, after the consultation
described in the first sentence hereof, to derive primarily from intellectual
property rights of the LLC licensed in to the LLC, then [ * ] will be
responsible for payment of any such license or commitment fees, royalties or
premium fees thereunder.
1.16 "Code" means the Internal Revenue Code of 1986, as amended.
----
1.17 "Collateral Agreements" means any license or other agreement to which
---------------------
the LLC is a party or by which it is bound, and any license or other agreement
to which either or both Members are a party or by which either or both Members
are bound and that relate to the LLC, other than (a) the LLC Collaboration
Agreement, (b) this Agreement, and (c) any agreements between Bayer and Bayer
AG.
1.18 "Commencement Date" means January 1, 2000, or such other date as the
-----------------
Members agree in writing as an amendment hereto
1.19 "Confidential Information" means, with respect to a party hereto,
------------------------
information that is owned or controlled by such party, its Affiliates or
sublicensees, including information of third parties known to such party by
reason of any collaboration with such third party or under any confidentiality
agreement with such third party, that is disclosed by such party hereto, to one
or both of the other parties hereto pursuant to this Agreement, and that is
identified by the disclosing party in writing, or is acknowledged by the
receiving party in writing, to be confidential to the disclosing party or to a
third party at the time of disclosure to the receiving party if disclosed in
tangible form, or is confirmed by the disclosing party to the receiving party as
confidential within thirty (30) days after disclosure if initially disclosed
orally by the disclosing party. Confidential Information will not include any
information which:
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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(a) Already Known Without Breach. Was already known to the receiving
----------------------------
party, without breach of any obligation of confidentiality by any party, at the
time of disclosure by the disclosing party;
(b) Generally Available Or In Public Domain Without Breach. Was
------------------------------------------------------
generally available to the public or otherwise part of the public domain at the
time of its disclosure to the receiving party by the disclosing party, or became
generally available to the public or otherwise part of the public domain after
its disclosure to the receiving party by the disclosing party, in each case
without breach of any obligation of confidentiality by the receiving party;
(c) Freely Disclosed By Certain Third Parties. Was disclosed to the
-----------------------------------------
receiving party, other than under an obligation of confidentiality, by a third
party who had no obligation to the disclosing party not to disclose such
information to others;
(d) Freely Disclosed By Disclosing Party To Others. Is disclosed by
----------------------------------------------
the disclosing party to others without an obligation of confidentiality;
(e) Required To Be Disclosed. Is required to be disclosed pursuant to
------------------------
law, subject, except for disclosure of financial information to the extent
required by securities laws to be disclosed, to the protective provisions set
forth in Section 18.6 hereof; or
(f) Independently Developed. The receiving party can document was
-----------------------
subsequently and independently developed by employees or others on behalf of the
receiving party without use of any Confidential Information disclosed to the
receiving party or such others by the disclosing party.
1.20 "Continuing Force Majeure Event" means a Force Majeure Event as to the
------------------------------
Affected Member, which continues for at least [ * ], on a [ * ] anniversary
calculation, after delivery of written notice to the Affected Member by the Non-
Affected Member, with a copy to the Management Committee, reciting facts therein
in reasonable detail regarding (a) the date upon which, in the good faith
judgment and knowledge of the Non-Affected Member, such Force Majeure Event
commenced for the Affected Member, (b) the general nature of such Force Majeure
Event, and (c) that the Force Majeure Event (i) is having or would have, in the
good faith judgment of the Non-Affected Member, a material adverse effect upon
the Affected Member's ability to perform such Affected Member's obligations
under this Agreement, the LLC Agreement, and/or the relevant Collateral
Agreements, and (ii) does have or would have, in the good faith judgment of the
Non-Affected Member, a material adverse effect on the business or operations of
the LLC.
1.21 "Damages" means, subject to the provisions of Article XI hereof, all
-------
costs, liabilities, obligations, damages, fines, penalties, deficiencies, losses
and judgments, including reasonable fees and costs of attorneys, accountants,
and other customary and commercially reasonable advisors, in each case after the
application of any amounts recoverable under insurance contracts or similar
arrangements and from other third parties, by the Person claiming indemnity
under this Agreement.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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1.22 "Deadlock" means the inability of the Members to resolve a dispute in
--------
accordance with the provisions of Section 17.1 hereof before arbitration under
Section 17.2 hereof, including without limitation the failure of the Management
Committee to timely agree on a budget and/or Strategic Plan for the LLC as
provided in Section 8.8 hereof.
1.23 "Dissociated Member" means a Member who has suffered a Bankruptcy or
------------------
Dissolution.
1.24 "Dissolution" of a Member means that such Member has terminated its
-----------
existence, whether partnership or corporate, wound up its affairs and dissolved,
provided that a change in the membership constitution of any Member that is a
general partnership will not constitute "Dissolution" hereunder, whether or not
such Member is deemed technically dissolved for partnership law purposes, for so
long as the business of such Member is continued.
1.25 "Dissolution Event" as to a Member means:
-----------------
(a) Attachment, Etc. Attachment, execution or other judicial seizure
---------------
of all or any substantial part of a Member's assets, or of a Member's interest
in the LLC, or any part thereof, and in each case remaining undismissed or
undischarged for a period of [ * ] after the levy thereof, if the occurrence of
such attachment, execution or other judicial seizure has, in the good faith
judgment of the Non-Affected Member, communicated in writing by the Non-Affected
Member to the Affected Member and to the Management Committee, a materially
adverse effect upon the performance by such Affected Member of its obligations
under this Agreement, the LLC Collaboration Agreement, and/or the relevant
Collateral Agreements, provided that such attachment, execution or seizure will
not constitute a Dissolution Event if the Affected Member posts a bond
sufficient to fully satisfy the amount of such claim or judgment within [ * ]
after the levy thereof and the LLC's assets, and/or, as relevant, such Affected
Member's interest in the LLC, are thereby released from the lien of such
attachment; and/or
(b) Bankruptcy or Dissolution Of A Member. The Bankruptcy or
-------------------------------------
Dissolution of a Member.
1.26 "Event of Default" and "Affected Member" and "Non-Affected Member" and
---------------- --------------- -------------------
"Default Notice" will have the meanings set forth for such terms in Article XIV
--------------
hereof.
1.27 "Excess Negative Balance" for purposes of Section 9.2 hereof, means
-----------------------
the excess of the negative balance in a Member's Adjusted Capital Account
(computed with any adjustments which are required by Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)) over the amount such Member is obligated to
restore to the LLC, computed under the principles of Treasury Regulations
Section 1.704-1(b)(2)(ii)(c), inclusive of any addition to such restoration
obligation pursuant to application of the provisions of Treasury Regulations
Section 1.704-2.
1.28 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
1.29 "Fair Market Value" means the fair market value of a Membership
-----------------
Interest as determined under Section 13.1 hereof.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
1.30 "Field of Use" will have the same meaning, at the time in question
------------
under this Agreement, as is given for such term at the time in question under
the LLC Collaboration Agreement.
1.31 "Fiscal Year" means the period from January 1 to December 31 of each
-----------
year, or as otherwise required by law or as otherwise determined by the
Management Committee.
1.32 "Force Majeure Event" means, as to a Member, an event or condition
-------------------
having a material adverse effect upon such Member due to circumstances beyond
such Member's reasonable control and that by the exercise of commercially
reasonable due diligence it is unable to prevent. Circumstances beyond the
reasonable control of a Member include, but are not limited to, fire, strikes,
insurrections, riots, embargoes, shortages, war-time rationing or preferences,
delays in transportation, inability to obtain supplies of raw materials or
requirements or regulations of any government or any other civil or military
authority in the relevant jurisdiction.
1.33 "FTE" means a full-time equivalent employee or consultant, as the case
---
may be.
1.34 "FTE Amount" means the amount required to be paid by the LLC to
----------
Exelixis under the LLC Collaboration Agreement for the FTE's.
1.35 "JSC" means the Joint Scientific Committee, or its successor
---
committee, established by the Members as provided in the Section 6.13(a) of this
Agreement.
1.36 "Key Exelixis Individual" means, as relevant, the individual who at
-----------------------
the time in question is filling the position of [ * ] (or [ * ], if there is no
[ * ]) of Exelixis (occupied by [ * ] at the Effective Date), or of [ * ] (or
equivalent position) of Exelixis (occupied by [ * ] at the Effective Date), or
of [ * ] (or equivalent position) of Exelixis (occupied by [ * ] at the
Effective Date), or of [ * ] (or equivalent position) of Exelixis (occupied by
[ * ] at the Effective Date).
1.37 "LLC Collaboration Agreement" means that certain LLC Collaboration
---------------------------
Agreement of even date herewith among Bayer, Exelixis and the LLC, as it may be
amended after the Effective Date in accordance with its terms.
1.38 "LLC Operating Expense Amounts" means (a) professionals' fees and
-----------------------------
costs incurred by the LLC (or, as to patent matters referred to in clause (i)
immediately following, if so requested by the Management Committee in writing of
Bayer, then professionals' fees and costs incurred by Bayer on behalf of the
LLC) in the conduct of its business for (i) preparing, applying for, maintaining
and defending and prosecuting alleged infringement of, LLC patents throughout
the world as determined by the Management Committee, including FTE expenses
(other than the FTE Amount) and out of pocket costs incurred by Exelixis in
connection with such activities that in each case have been mutually agreed to
by the LLC and Exelixis in writing, and (ii) the salary and benefits of any LLC
officer or LLC employee (FTE's not being employees of the LLC)to the extent not
paid directly by Bayer or by Exelixis, as relevant, to such individual, and
(iii) amounts that are paid by Bayer pursuant to Section 2.10 hereof for
insurance; and (b) amounts determined by the Management Committee as needed for
the operations of the LLC, which have been (i) identified in any annual budget
for the LLC, as it may have been amended, which has been
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
approved by the Management Committee as provided herein, or (ii) otherwise
approved by the Management Committee as being required for the operations of the
LLC, which will include all amounts, if any, determined by the Management
Committee to be needed by the LLC for Research (as defined in the LLC
Collaboration Agreement) funding beyond the minimum [ * ] (or such then-current
amount as may be provided in any amendment hereto) per calendar year required to
be paid by the LLC to Exelixis under the LLC Collaboration Agreement for
Research funding, to the extent that sufficient third-party funds described in
Section 4.3(a) hereof (excluding premium fees from the Members and milestone
payments from Bayer under the LLC Collaboration Agreement) are not available for
such Research funding. In each case, LLC Operating Expense Amounts will not
include (1) the minimum [ * ] (or such then-current amount as may be provided in
any amendment hereto), in the calendar year in question, of the additional
Capital Contributions of Bayer called for under Section 4.2 hereof to be
expended by the LLC under the LLC Collaboration Agreement to fund Research
funding , nor (2) any premium fee payments to the LLC by Bayer or by Exelixis,
nor (3) any milestone payments by Bayer to the LLC under the LLC Collaboration
Agreement.
1.39 "Management Committee" means the Management Committee of the LLC.
--------------------
1.40 "Member" means Bayer, or Exelixis, or any other Person who holds a
------
Membership Interest in the LLC and who is admitted to the LLC as a Member in
accordance with the provisions of this Agreement.
1.41 "Members" means both Members, or, when there are more than two, all
-------
Members.
1.42 "Member Representative" means each employee of or consultant to Bayer
---------------------
and each employee of or consultant to Exelixis selected to serve on the
Management Committee as provided herein.
1.43 "Membership Interest" means the interest of a Member in the LLC.
-------------------
1.44 "Net Income" or "Net Loss" means, respectively, the net book income or
---------- --------
loss of the LLC for any relevant period. The net book income or loss of the LLC
will be computed in accordance with federal income tax principles under the
method of accounting elected by the LLC for federal income tax purposes,
adjusted by:
(a) Tax-Exempt Income, Etc. Including as income or deductions, as
----------------------
appropriate, any tax-exempt income and related expenses that are neither
properly included in the computation of taxable income nor capitalized for
federal income tax purposes;
(b) LLC Organizational Expenses. Including as a deduction when paid
---------------------------
or incurred (depending on the LLC's method of accounting) any amounts paid to
organize the LLC except that amounts for which an election is properly made by
the LLC under Code Section 709(b) will be accounted for as provided therein;
(c) Certain Losses On Sale Or Exchange Of Property. Including as a
----------------------------------------------
deduction any losses incurred by the LLC in connection with the sale or exchange
of property
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
notwithstanding that such losses may be disallowed to the LLC for federal income
tax purposes under the related party rules of the Code, including Code Sections
267(a)(1) or 707(b);
(d) Certain Gain Or Loss On Certain Dispositions. Calculating the
--------------------------------------------
gain or loss on disposition of LLC assets and the depreciation, amortization or
other cost- recovery deductions, if any, with respect to LLC assets by reference
to their Carrying Value rather than their adjusted tax basis; and
(e) Certain Exclusions. Excluding as an item of income, gain, loss or
------------------
deduction any items allocated pursuant to Section 9.2 hereof or any gross income
allocated under Section 9.1(b) hereof.
1.45 "Percentage Interest" means, as to the relevant Member, the interest
-------------------
of such Member in the LLC, which initially will be sixty percent (60%) for Bayer
and forty percent (40%) for Exelixis, as such Percentage Interest may be
automatically adjusted by application of Article XVI hereof.
1.46 "Person" means a natural person, corporation, partnership (whether
------
general or limited), a limited liability company, or any trust, estate,
association, custodian, nominee or any other individual or entity in its own or
representative capacity, and in each case, as to a legal entity, whether formed
under the laws of the United States or of any state thereof or of any non-United
States jurisdiction.
1.47 "Original Collaboration Agreement" means that certain Collaboration
--------------------------------
Agreement dated as of May 1, 1998, as amended, by and between Exelixis and Bayer
AG.
1.48 "Pro Rata Share" as to a Member's right of first offer under Article
--------------
XVI hereof, means the Percentage Interest of such Member in the LLC, calculated
without giving effect to the relevant offer by the LLC, multiplied times the
percentage of interest, or units, or other securities, offered by the LLC.
1.49 "Regulatory Allocations" will have the meaning set forth for such term
----------------------
in Section 9.2(h) hereof.
1.50 "Research Field" will have the same meaning, at the time in question
--------------
under this Agreement, as is given for such term at the time in question under
the LLC Collaboration Agreement.
1.51 "SEC" means the Securities and Exchange Commission.
---
1.52 "Securities Act" means the Securities Act of 1933, as amended.
--------------
1.53 "Subscribing Members" will have the meaning for such term set forth in
-------------------
Section 16.1 hereof.
1.54 "Substantial Disagreement" means the failure of the Management
------------------------
Committee, and/or of the Members, if the Members' approval is required under
this Agreement in addition to
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
Management Committee approval, to reach agreement, within the relevant time
period required under this Agreement, on the operations of the LLC, including
(a) the budget for the LLC, and/or the Strategic Plan for the LLC, and any
respective amendment thereto, and/or (b) any other issue which has, or is likely
to have, in either case in the good faith view of either Member as so
communicated in writing to the Management Committee and to the other Member, a
material adverse impact on the business or operations or financial potential of
the LLC or of the notifying Member, including without limitation selection and
commercialization of assays, targets, or the like, in each case involving, and
only with respect to, the LLC. Any failure of the Management Committee or the
Members to (1) approve a proposed modification of the Research Field or Field of
Use, or (2) agree upon raising additional capital for the LLC, or (3) agree as
to issuance of additional Membership Interests, or (4) agree as to admitting
Substitute Members will not be a "Substantial Disagreement" nor subject to the
provisions of Section 17.1 or 17.2 hereof. For purposes of Section 13.5 hereof,
any dispute over the existence of a Force Majeure Event, or with respect to any
written agreement to which the LLC is a party or by which it is bound, will not
be a "Substantial Disagreement," the resolution of such disputes being governed
solely by Sections 17.1 and 17.2 hereof.
1.55 "Substitute Member" means a Person who has, pursuant to this
-----------------
Agreement, been admitted to all the rights of membership in the LLC as a Member.
1.56 "Treasury Regulations" means regulations issued pursuant to the Code.
--------------------
1.57 "Tax Matters Member" means Bayer.
------------------
1.58 "Unadjusted Excess Negative Balance," for purposes of Section 9.2
----------------------------------
hereof, will have the same meaning as Excess Negative Balance, except that the
Unadjusted Excess Negative Balance of a Member will be computed without
effecting the reductions to such Member's Capital Account that are described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(d).
ARTICLE II
FORMATION OF THE LLC AND RELATED MATTERS
2.1 Formation Of The LLC. The Members will have formed the LLC pursuant
--------------------
to the Act on or before January 1, 2000, to be in legal existence on January 1,
2000, by causing the Certificate of Formation to be filed in the Office of the
Secretary of the LLC of State of Delaware, and by this Agreement intend to
establish rules and regulations governing the LLC's ownership and control upon
and after its creation. The LLC will not commence business prior to January 1,
2000 without the prior written consent of both Bayer and Exelixis.
2.2 Name And Principal Place Of Business Of The LLC. Unless and until
-----------------------------------------------
amended in accordance with this Agreement and the Act, the name of the LLC will
be OpteraGenOptera LLC. The principal place of business of the LLC will be
located at the premises of Exelixis, at 260 Littlefield Avenue, South San
Francisco, CA 94080, or such other place as the Management Committee from time
to time determines.
2.3 Delaware Registered Office And Agent For Services Of Process. The LLC
------------------------------------------------------------
will maintain a Delaware registered office and agent for service of process as
required by Section 104
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
of the Act. The Delaware registered office and agent for service of process will
be The Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite L100,
Dover, Delaware 19904, or such other place and person as the Management
Committee may designate.
2.4 Purpose. The purpose of the LLC is to engage, subject to the other
-------
provisions of this Agreement, in any lawful act or activity for which a limited
liability company may be organized under the Act, including without limitation,
and to the extent permitted hereunder and thereunder, the entry by the LLC into
and performance of its obligations under the LLC Collaboration Agreement and
agreements with third parties and other documents and instruments, including
without limitation those connected with collaborative and/or licensing
relationships, for research and development within or outside of the Research
Field, and/or commercialization, within or outside of the Field of Use, of
intellectual property licensed to or to which the LLC otherwise has relevant
rights, in each case relevant to the purpose, from time to time during the term
hereof, of the LLC.
2.5 Term. The term of the LLC will commence upon the later to occur of
----
(a) the filing of a Certificate of Formation for the LLC in the office of the
Secretary of State of Delaware or (b) the execution of this Agreement by the two
initial Members, and will continue in perpetuity unless terminated earlier as
provided herein.
2.6 Review At End Of Research Term. The Members will meet to discuss in
------------------------------
good faith the future of the LLC and their involvement therein no later than [ *
] prior to the end of the Research Term, as defined in and as determined under
the LLC Collaboration Agreement.
2.7 Approval And Ratification Of LLC Collaboration Agreement and
------------------------------------------------------------
Collateral Agreements; Commitment To Perform Obligations. Bayer and Exelixis,
- --------------------------------------------------------
as the intended initial Members, hereby approve and ratify, on behalf of the
LLC, prospectively as of the Commencement Date, the execution and delivery by
the Chief Executive Officer of the LLC, on behalf of the LLC, of, and the LLC's
performance of its obligations under, the LLC Collaboration Agreement and such
Collateral Agreements as are listed on Exhibit A attached hereto as existing at
---------
the Commencement Date, and as they may exist from time to time during the term
of the LLC. The Members and the LLC hereby agree and commit to performing their
respective obligations under those of the LLC Collaboration Agreement and such
Collateral Agreements as they may exist at the Effective Date, or the
Commencement Date, or may thereafter exist, in each case to which the Member(s)
and/or the LLC is a party or by which it is or they are bound.
2.8 Management To Budget And Strategic Plan. Upon approval by the
---------------------------------------
Management Committee of each of the LLC's annual budgets and Strategic Plans as
provided in Section 8.8 hereof, the LLC will implement and will conduct its
affairs in accordance with such relevant budget and Strategic Plan.
2.9 Bank Accounts. The LLC will, subject to the provisions of Section 4.5
-------------
hereof, maintain bank accounts in such banks as the Management Committee may
designate exclusively for the deposit and disbursement of funds of the LLC. All
funds received by the LLC will, subject to the provisions of Section 4.5 hereof,
be promptly deposited in such accounts. The
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
signatories on such account(s) will be determined from time to time by the
Management Committee.
2.10 Insurance. The LLC will be insured on its own behalf with insurers
---------
who maintain an A.M. Best rating of "A" or better for all property, liability
and workers' compensation insurance and such other insurance as is required
under applicable mortgages, leases, agreements and other instruments and
statutes, or as determined by the Management Committee and, as provided under
Section 11.1(e) hereof, such insurance covering the Member Representatives,
officers, employees, consultants and agents of the LLC, as the Management
Committee determines to be appropriate or necessary. Bayer will use its good
faith efforts to include the LLC, the Member Representatives, the members of the
JSC, the officers of the LLC, and the employees of the LLC (if any), under
Bayer's insurance programs if the coverage thereunder and premiums therefor
would be less expensive than if the LLC obtained such insurance on its own,
provided that if such inclusion results in any additional cost for premiums to
Bayer from its insurers, the LLC will reimburse such excess as an expenses to
Bayer as LLC Operating Expense Amounts pursuant to Section 10.1(b)(ii) hereof.
ARTICLE III
MEMBERSHIP
3.1 Members. The initial Members of the LLC will be Bayer and Exelixis.
-------
Additional Persons may be admitted to the LLC as a Member only upon the prior
written consent of both Members and upon such terms and conditions as both of
(or all of, if there are then more than two Members) Members and the LLC agree
in writing with such additional Person as an amendment hereto.
3.2 Representations And Warranties. Each Member hereby severally
------------------------------
represents and warrants to the LLC (with future Members so representing as of
the date upon which they become a Member by execution and delivery of a
counterpart copy hereof) and to the other Member (or other Members, if then more
than two), as follows:
(a) Authorization. Such Member is a corporation, duly organized,
-------------
validly existing, and in good standing under the law of its state of
organization, and it has full power and authority to execute and enter into this
Agreement and to perform its obligations hereunder, and all actions necessary
for the due authorization, execution, delivery and performance by such Member of
this Agreement have been duly taken;
(b) Compliance With Other Instruments. Such Member's authorization,
---------------------------------
execution, delivery, and performance of this Agreement do not conflict with any
other agreement or arrangement to which such Member is a party or by which it is
bound;
(c) Purchase Entirely For Own Account. Such Member is acquiring its
---------------------------------
Membership Interest in the LLC for such Member's own account for investment
purposes only and not with a view to or for the resale, distribution,
subdivision or fractionalization thereof and has no contract understanding,
undertaking, agreement or arrangement of any kind with any
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
Person to sell, transfer or pledge to any Person such Membership Interest or any
part thereof nor does such Member have any plans to enter into any such
agreement;
(d) Investment Experience. By reason of its business or financial
---------------------
experience, such Member has the capacity to protect its own interests in
connection with the transactions contemplated hereunder, is able to bear the
risks of an investment in the LLC, and at the present time could afford a
complete loss of such investment;
(e) Disclosure Of Information. Such Member is aware of the LLC's
-------------------------
business affairs and financial condition and has acquired sufficient information
about the LLC to reach an informed and knowledgeable decision to acquire an
interest in the LLC;
(f) Federal And State Securities Laws. If federal and state
---------------------------------
securities laws apply to the Membership Interests, such Member acknowledges that
the Membership Interests have not been registered under the Securities Act or
any state securities laws, inasmuch as they are being acquired in a transaction
not involving a public offering, and under such laws, may not be resold or
transferred by such Member without appropriate registration or the availability
of an exemption from such requirements. In this connection, such Member
represents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
3.3 Resignation Or Withdrawal Of A Member. Except as specifically
-------------------------------------
provided herein, neither Member may withdraw from membership in the LLC or
withdraw such Member's interest in the capital of the LLC. A Dissociated Member
or its legal representative will be entitled to participate in the winding up of
the LLC to the same extent as the other Member.
3.4 Transfer Or Assignment Of Membership Interest; Admission Of Substitute
----------------------------------------------------------------------
Members. Neither Member may transfer, sell, encumber, mortgage, assign or
- -------
otherwise dispose of any portion of its Membership Interest except on such
terms, including any amendment hereto, as the other Member may agree in writing.
Any purported transfer, sale, encumbrance, mortgage, assignment, or disposition
of a Membership Interest in contravention of this Section 3.4 will be void and
of no effect to, on or against the LLC, any Member, any creditor of the LLC or
any claimant against the LLC. Notwithstanding any other provision of this
Agreement, no Person will be admitted as a Substitute Member and admitted to all
the rights of the Member that assigned its respective Membership Interest,
without the prior written approval of both Members. If so admitted, the
Substitute Member will have all the rights and powers of, and will be subject to
all the restrictions and liabilities of, such Member who originally assigned the
Membership Interest. The admission of a Substitute Member will not release
either Member who previously assigned its Membership Interest from any liability
of such assigning Member to the LLC that may have existed before such
substitution. Consents required hereunder may be given in advance of any
transfer by any writing signed by a Member. A Substitute Member, upon admission
to the LLC, will be, and be deemed referred to herein as, a Member for all
purposes thereafter.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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ARTICLE IV
CONTRIBUTIONS TO CAPITAL;
OUTSOURCED TREASURY OPERATIONS OF LLC
4.1 Initial Cash Contribution By Bayer. On the Commencement Date, Bayer
----------------------------------
will contribute to the LLC, as Bayer's initial Capital Contribution to the LLC
to its Capital Account, a total of ten million dollars ($10,000,000.00) in cash
on the Commencement Date.
4.2 Additional Cash Contributions.
-----------------------------
(a) First Anniversary Cash Contribution By Bayer. If at the first
--------------------------------------------
anniversary of the Commencement Date (i) the LLC is still in existence, and (ii)
neither Bayer nor Exelixis has terminated its participation as a Member in the
LLC, then, on the first anniversary of the Commencement Date, Bayer will
contribute an additional ten million dollars ($10,000,000.00) in cash to the
LLC, as an additional Capital Contribution by Bayer to its Capital Account.
(b) FTE Amount Contribution By Bayer. Bayer will contribute to the
--------------------------------
LLC, in cash, in each case as a Capital Contribution by Bayer to its Capital
Account additional to Bayer's Capital Contributions under Sections 4.1 and
4.2(a) hereof, at the times and in the amounts specified in the LLC
Collaboration Agreement as in effect at the time in question, the FTE Amount, up
to a maximum FTE Amount of [ * ], (or such other amount as may then be required
under this Agreement if amended after the Effective Date to so provide), for
each successive twelve (12) month period from and after the Commencement Date.
(c) LLC Operating Expense Amounts. In addition, subject to the
-----------------------------
limitations set forth in Section 4.3 hereof, Bayer will pay in cash to the LLC,
or to such third parties as the Chief Executive Officer of the LLC and/or Chief
Financial Officer of the LLC of the LLC directs Bayer in writing, with each such
payment by Bayer to the LLC or to such third party being a Capital Contribution
by Bayer to its Capital Account under Sections 4.1 and 4.2(a) and (b) hereof,
(i) upon at least ten (10) days' prior written notice by the Chief Executive
Officer of the LLC and/or Chief Financial Officer of the LLC of the LLC to
Bayer, with a copy to the Management Committee, [ * ] LLC Operating Expense
Amounts set forth in the LLC's then-approved budget for such quarter, and (ii)
upon at least thirty (30) days' prior written notice from the Chief Executive
Officer of the LLC and/or Chief Financial Officer of the LLC of the LLC to
Bayer, with a copy to the Management Committee, such other LLC Operating Expense
Amounts as the Management Committee has determined are necessary to the
operations of the LLC beyond such budget, either by amendment to a previously-
approved budget as provided herein, or on an urgent need basis, as will be set
forth in the relevant notice to Bayer. Any payments by Bayer directly of the
salary or consulting fees, bonus (as provided within the LLC budget), expenses
and benefits for any individual furnished by Bayer and serving as an LLC officer
or other employee of the LLC, as provided under Section 7.4 hereof, whether paid
directly by Bayer to such individual or paid by Bayer to the LLC as part of LLC
Operating Expenses, will be considered as an additional Capital Contribution in
cash by Bayer to its Capital Account, as part of the LLC Operating Expenses for
purposes of distributions under Section 10.1(b)(iv)(A) hereof. Any payments by
Exelixis directly (as provided within the LLC budget or otherwise as provided
for in Section 7.4 hereof) of the salary or consulting fees,
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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bonus, expenses and benefits for any individual furnished by Exelixis and
serving as an LLC officer or other employee of the LLC, will be considered as a
Capital Contribution in cash by Exelixis to its Capital Account, as will be
considered as part of the LLC Operating Expenses for purposes of distributions
under Section 10.1(b)(iv)(B) hereof.
4.3 Use Of Certain Funds For LLC Operating Expenses; Limitations On
---------------------------------------------------------------
Bayer's Obligation To Make Capital Contributions To The LLC; Limitation On
- --------------------------------------------------------------------------
Capital Contributions By Exelixis. Notwithstanding the provisions of Section
- ---------------------------------
4.2 hereof:
(a) Use Of Certain Funds For Operating Expenses. Except as may be
-------------------------------------------
otherwise determined from time to time by the Management Committee, the LLC may
use, for payment of LLC Operating Expenses, prior to the LLC demanding funds
from Bayer for LLC Operating Expenses under the provisions of Section 4.2(c)
hereof, all amounts received by the LLC from third parties, including without
limitation interest, license fees or other payments, that are not required, by
their terms as received by the LLC from such third party or by law, to be held
in escrow, as a creditable or refundable deposit, or otherwise required to be
held against a future event. To the extent that such funds are so used, then
the demand by the LLC to Bayer for LLC Operating Expense amounts occurring next
after such use will be only for the amount then needed for LLC Operating
Expenses after taking into account such use of such other funds.
(b) Limitations As To Bayer Payment To LLC Of LLC Operating Expense
---------------------------------------------------------------
Amounts Arising From Existence Of Sufficient Other LLC Operating Funds. Bayer's
- ----------------------------------------------------------------------
obligation to pay any LLC Operating Expense Amounts to the LLC, as a Capital
Contribution or otherwise, will be, at Bayer's sole election communicated in
writing to Exelixis and to the Management Committee, suspended for so long as,
and to the extent that, the FTE Amount equals or exceeds [ * ] (or equals or
exceeds such other minimum payment of the FTE Amount as is provided hereunder if
this Agreement is amended to provide for such other minimum amount), and the LLC
has, in the view of the Management Committee, sufficient cash, net of
distributions required by this Agreement to be made, from third-party funds
described in Section 4.3(a) hereof, to fund LLC Operating Expense Amounts. The
Management Committee will review such funds-available issue on a regular basis
at its meetings. The Management Committee will promptly communicate in writing
to both Members the Management Committee's sufficient-funds conclusion, and the
amounts expected to be needed from Bayer, if any, beyond such funds, for LLC
Operating Expenses, during the [ * ] period following such determination by the
Management Committee.
(c) Certain Suspension Or Termination Of Bayer's Obligation To Pay LLC
------------------------------------------------------------------
Operating Expense Amounts And FTE Amount To The LLC. Bayer's obligation to pay
- ---------------------------------------------------
to the LLC any LLC Operating Expense Amounts and any FTE Amount will be, at
Bayer's sole election communicated in writing to the Management Committee and to
Exelixis, suspended for so long as Exelixis is a Affected Member hereunder,
and/or if Exelixis has suffered a Dissolution Event, and/or for so long as there
exists with respect to Exelixis a Continuing Force Majeure Event. Bayer's
obligation to pay to the LLC any LLC Operating Expense Amounts and any FTE
Amount will automatically terminate effective upon (i) the end of the Research
Term under the LLC Collaboration Agreement if the Research Term is not renewed
or otherwise extended by a
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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writing signed by the LLC and Exelixis, or (ii) any termination, for whatever
reason, of the LLC Collaboration Agreement.
(d) Limitations On Capital Contributions By Exelixis. Exelixis will
------------------------------------------------
not be required to make any cash or other Capital Contributions to the LLC,
including without limitation any LLC Operating Expenses, without the prior
written approval of both Members, provided that any payments by Exelixis of the
salary or consulting fees, expenses, bonus and benefits for any individual
furnished by Exelixis and serving as an LLC officer or other employee of the
LLC, as provided under Section 7.4 hereof, whether paid directly by Exelixis to
such individual or contributed by Exelixis to the LLC, will be considered as a
Capital Contribution by Exelixis in cash to its Capital Account.
4.4 Nature Of Licenses, Milestone Payments And Premium Fees, And Of
---------------------------------------------------------------
Certain Other Assets Assigned To The LLC. Licenses granted by Bayer and
- ----------------------------------------
Exelixis to the LLC under the LLC Collaboration Agreement or otherwise are
licenses only and are not, and are not intended by the parties to be, Capital
Contributions by the licensor to the LLC. Milestone payments and premium fee
payments made to the LLC pursuant to the LLC Collaboration Agreement will be
income to the LLC and will not be, and are not intended by the paying party to
be, Capital Contributions to the LLC by the paying party. The following are not
intended to be and will not be, when so assigned, a Capital Contribution to the
LLC by the assigning Member: (a) the rights of each Member in and to the EST
Library and EST Database as defined in the LLC Collaboration Agreement, which
have been generated under the Original Agreement and which are jointly owned by
Bayer AG and Exelixis at the Effective Date (the interest of Bayer AG to be
licensed or assigned to Bayer upon the Commencement Date), which rights
automatically, and without further action by any party hereto, will be assigned
to the LLC upon the Commencement Date (Bayer assigning its license interest
received from Bayer AG), simultaneously upon termination of the Original
Collaboration Agreement, pursuant to a certain Termination Agreement between
Exelixis and Bayer AG, and (b) all intellectual property assigned by Bayer to
the LLC under Section 10.1(g) of the LLC Collaboration Agreement relating to or
arising from work performed on A List Reserved Targets, as specified in such
Section 10.1(g).
4.5 Outsourced Treasury Operations Of LLC. Subject to the last sentence
-------------------------------------
of this Section 4.5, financial management treasury functions of the LLC will be
provided to the LLC by Bayer [ * ]. Cash of the LLC determined by the Chief
Financial Officer of the LLC of the LLC not to be needed on a daily basis can be
loaned by the LLC to Bayer as the Chief Financial Officer of the LLC believes
appropriate, subject to such further direction, procedures or limitations upon
the Chief Financial Officer of the LLC's powers and discretion as the Management
Committee may communicate to the Chief Financial Officer of the LLC in writing
from time to time. Bayer will pay interest to the LLC on all such amounts
loaned to Bayer, on a daily basis at a rate equal to [ * ]. Monthly financial
statements of the LLC as to such financial management functions will be prepared
and distributed by Bayer, for and on behalf of the LLC, to the Management
Committee, within fifteen (15) days after the end of each calendar month during
the time Bayer is providing such operations to the LLC. Such financial
statements and the records of such accounts, insofar as they relate to cash of
the LLC so loaned to Bayer, will be subject to inspection and audit by the LLC,
at its expense, or by Exelixis, at its expense, subject to such customary
confidentiality agreements as Bayer may in good faith request of the
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
inspecting Person. Bayer may withdraw from performing such financial management
functions at any time upon at least [ * ] prior written notice to the Management
Committee, with a copy of such notice to Exelixis.
ARTICLE V
ACTION BY MEMBERS
5.1 Meetings Of Members. All meetings of Members for the election of the
-------------------
Management Committee will be held at such place as may be fixed from time to
time in writing by the Management Committee in the notice to the Members of such
meeting. Meetings of Members for any other purpose may be held at such time and
place, within or without the State of California, as will be stated in the
notice of the meeting or in a duly executed waiver of notice thereof. Members
may participate in a meeting of Members by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting will
constitute presence in person at the meeting. The
5.2 Annual Meetings.
---------------
(a) Date And Time. Annual meetings of Members, commencing with the
-------------
year 1999, will be held on such date and at such time as will be designated from
time to time by the Management Committee and stated in the notice of the
meeting, at which the Members will elect the Management Committee, and transact
such other business as may properly be brought before the meeting.
(b) Notice Of Annual Meetings. Written notice of the annual meeting
-------------------------
stating the place, date and hour of the meeting will be given to each Member at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
5.3 Special Meetings.
----------------
(a) Call Of Special Meetings. Special meetings of the Members, for
------------------------
any purpose, may be called by the Chief Executive Officer of the LLC, and will
be called by the Chief Executive Officer of the LLC or Secretary of the LLC of
the LLC at the request in writing of at least a majority of the then-authorized
number of members of the Management Committee, or at the request in writing of
either Member, and in each case a copy of such request will be given to the
other Member. A request for a meeting of the Management Committee initiated by
such majority of the Management Committee or by either Member will state the
purpose of the proposed meeting. A special meeting of the Members for the
election of a new Management Committee may be called by either Member, upon at
least ninety (90) days prior written notice to the other Member and to the
Management Committee.
(b) Notice Of Special Meetings. Written notice of a special meeting
--------------------------
stating the place, date and hour of the meeting, and the purpose for which the
meeting is called, will be given to each Member not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
(c) Business To Be Conducted At Special Meeting. Business transacted
--- -------------------------------------------
at any special meeting of Members will be limited to the purposes stated in the
notice of such meeting.
5.4 Member List. At the written request of either Member, the Secretary
-----------
of the LLC will prepare and make, at least ten (10) days before each meeting of
Members, a complete list of such Members at the meeting, showing the address of
each Member and the Membership Interest registered in the name of each Member.
The list may be examined by either Member, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
before the meeting. The list will also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
Member who is present.
5.5 Quorum.
------
(a) Quorum. The presence of a majority of all of the Members, if
------
there are more than two Members at the time in question, or the presence of both
Members if there are only two Members at the time in question, or the presence
of their proxies, as relevant, at a meeting of the Members, will constitute a
quorum at all meetings of Members for the transaction of business except as
otherwise provided by the Act.
(b) Lack Of Quorum; Adjournment. If a quorum is not present or
---------------------------
represented at any meeting of Members, the Member present in person, or
represented by proxy, may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. Upon resumption of an adjourned meeting, any business may be
transacted that might have been transacted before the meeting was adjourned. If
the adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, written notice of the
adjourned meeting will be given to each Member.
5.6 Validity Of Proxies. No proxy will be voted after [ * ] after its
-------------------
date, unless such proxy expressly provides for a longer period. Except to the
extent otherwise required by the Act, Members will vote as a single class.
5.7 Action Without Meeting. Except to the extent otherwise required by
----------------------
the Act, any action which may be taken by the Members at a meeting may be taken
by unanimous written consent signed by both Members.
5.8 Member Vote Required. Except to the extent otherwise required by the
--------------------
Act or as otherwise set forth in this Agreement, any action or item requiring
the approval of such Members, the consent of such Members, the affirmative vote
of the Members or the like, will require the unanimous approval, consent, vote
or the like of both Members.
ARTICLE VI
MANAGEMENT COMMITTEE AND JSC
6.1 Management By Management Committee. Except for matters for which the
----------------------------------
approval of the Members is required by the Act or this Agreement, and except to
the extent
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
managed by the officers of the LLC under the supervision of the Management
Committee, the LLC will be managed and controlled by the Management Committee in
accordance with the Act and with the terms of this Agreement. The Management
Committee may exercise all powers of the LLC and may do all such lawful acts and
things as are not by the Act, the Certificate of Formation, or this Agreement,
directed or required to be exercised or done by the Members themselves. It is
intended by the parties hereto that the powers and authority of the Management
Committee will be substantially the same as the powers and authority of a Board
of Directors of a corporation formed under the laws of the State of Delaware,
provided that approval of the Management Committee or any committee thereof is
subject to the sole discretion and judgment of the Member Representatives,
acting in the interests of their respective appointing Members and not as
fiduciaries of the LLC or of any Member.
6.2 Management Committee Number, Nominees, Vacancies.
------------------------------------------------
(a) Number And Composition Of Management Committee. Unless otherwise
----------------------------------------------
agreed in writing by the Members as an amendment hereto, (a) the Management
Committee will consist of five (5) Member Representatives, and (b) Bayer will
appoint three (3) Member Representatives, one of whom, if Bayer so desires, may
be the Chief Executive Officer of the LLC of the LLC, and Exelixis will appoint
two (2) Member Representatives, one of whom initially, and for so long as the
relevant individual is employed by or is a consultant to, Exelixis or its
Affiliates ,will be [ * ]. Each Member Representative will be a senior LLC
officer or senior representative of the relevant Member authorized to make
decisions with respect to matters within the scope of the Management Committee's
authority. The initial Member Representatives each will be selected and
notified to the other Member in writing within thirty (30) days after the
Commencement Date, as the initial Management Committee.
(b) Appointment, Removal And Replacement Of Member Representatives.
--------------------------------------------------------------
Each Member will appoint, may remove (with or without cause), and may replace
its Member Representatives during the existence of the LLC, at such Member's
sole discretion, and any such appointments, removals and replacements will be
notified in writing by the appointing, or removing or replacing, Member, to the
other Member and to the Management Committee. No Member will have any authority
to appoint, remove or replace Member Representatives for the other Member. If a
Member Representative for any reason no longer is serving as any of an employee,
LLC officer or Director or correlative position (as applicable) of, nor as a
consultant to, the relevant Member or at least one of its Affiliates (the LLC
not being deemed to be an Affiliate of either Member for this purpose) the
relevant Member will promptly notify the other Member in writing, and such
individual will be deemed to have resigned as a Member Representative as of the
date of such complete cessation, and the relevant Member will as soon thereafter
as possible appoint a new Member Representative to replace such departing
individual.
(c) Alternates; Service Term. An alternate Member Representative,
------------------------
designated by a Member in writing to the other Member, may serve temporarily,
for no longer than [ * ] from the date of appointment by such Member, in the
absence of a permanent Member Representative previously designated by such
Member. Individuals serving on the Management Committee will hold office until
the next meeting, whether annual or special, of Members, at which the Management
Committee is elected and such duly elected Member Representatives are
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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qualified. Any Member Representative may resign at any time by giving written
notice thereof to each Member and to the remaining Member Representatives.
6.3 Meetings Of The Management Committee; Quorum And Vote Required For
------------------------------------------------------------------
Decisions; Observer Rights.
- --------------------------
(a) Meetings of The Management Committee.
------------------------------------
(i) Location. The Management Committee may hold meetings, both
--------
regular and special, either within or without the State of California.
(ii) Regular Meetings. Regular meetings of the Management
----------------
Committee will be held upon at least thirty (30) days' written notice at times
and places determined by the Management Committee, provided that the Management
Committee will meet at least every six (6) months during the existence of the
LLC, with at least one (1) of such meetings during the relevant twelve (12)
month period being held in the San Francisco, California Bay Area for so long as
(i) Exelixis is a Member and (ii) Exelixis' principal offices are located in the
San Francisco, California Bay Area.
(iii) Special Meetings. Special meetings of the Management
----------------
Committee may be called by the Chief Executive Officer of the LLC on at least
four (4) days' prior written notice to each Member Representative by mail or at
least forty-eight (48) hours' prior notice to each Member Representative,
delivered either personally or by facsimile transmission. Special meetings of
the Management Committee will be called by the Chief Executive Officer of the
LLC if so requested in writing by either Member, which requesting Member will
send a copy thereof to the other Member and to the Management Committee.
(iv) Waiver Of Or Consent To Notice. Notice of any meeting of the
------------------------------
Management Committee or of any committee thereof need not be given to any Member
Representative who, before or after the relevant meeting, signs a waiver of such
notice or consents in writing to the holding of such meeting, or who attends
such meeting without protest, prior to the commencement of such meeting, of lack
of such notice.
(b) Quorum and Vote Required For Decisions.
--------------------------------------
(i) Quorum. At all meetings of the Management Committee, three
------
(3) Member Representatives, one of whom must be a Member Representative
appointed by Exelixis, will constitute a quorum for the transaction of business
by the Management Committee. If a quorum is not present at any meeting of the
Management Committee, the members of the Management Committee present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present.
(ii) Vote Required. Except as the Members may otherwise agree in
-------------
writing as an amendment hereto, and except as may be otherwise required by law,
all decisions required by law to be made, or chosen to be made, by the
Management Committee will require the consent, whether at a duly called and held
meeting or in writing, of at least a majority of the Member
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
Representatives, or, if only a quorum is present, then of all such Member
Representatives present; provided, however, that the consent, whether at a duly
called and held meeting or in writing, of four (4) Member Representatives, or,
if only a quorum is present, then of all such Member Representatives present,
one (1) of whom in each case must be a Member Representative appointed by
Exelixis, will be required for any decision under any of Sections 6.7(a)-(d),
(f)-(l), (p), and (r) hereof.
(c) Observer Rights; Guests. Each Member may have one or more
-----------------------
observers present as guests at any meeting of the Management Committee or
committee thereof. Guests may be present, by invitation of the Management
Committee, during all or any portion of any meeting of the Management Committee.
The number of such observers and/or guests at a given meeting for a given Member
will be determined in good faith by the Chief Executive Officer of the LLC. The
Management Committee or the Chief Executive Officer of the LLC may require, as a
condition of such observer's or guest's attendance at such meeting, the
execution and delivery by such observer or guest of a customary confidentiality
agreement with and in favor of the LLC. The Management Committee may exclude
any observer or guest from any portion of the meeting deemed, by a majority of
the Member Representatives present at the meeting, to be privileged, or
otherwise inappropriate for discussion with such observer or guest present. The
LLC's obligations under this Section 6.3(c) will terminate upon the earliest of
the date of termination of the LLC or the date upon which there is only one (1)
Member.
6.4 Committees Of The Management Committee.
--------------------------------------
(a) Creation Of And Membership On Committees. The Management Committee
----------------------------------------
may designate one or more committees, which will have such name(s) as may be
determined from time to time by the Management Committee. Each such committee
will keep regular minutes of its meetings. Each such committees will have at
least one (1) Member Representative of Bayer approved by Bayer and at least one
(1) Member Representative of Exelixis approved by Exelixis except as the Members
may otherwise agree in writing with each other as an amendment hereto. Subject
to the representation of Bayer and Exelixis on any such committee as provided in
the immediately preceding sentence, the Management Committee may designate
members of the Management Committee as alternate members of any committee, who
may replace any absent or disqualified members of the Committee at any meeting
of such committee. Upon disqualification for any reason, removal, or
resignation of a member of a committee, the Member whose Member Representative
was so disqualified, removed, or who resigned, will promptly appoint another
Member Representative to such committee as a replacement.
(b) Powers Of Committees; Decisions Of Committees. Any such
---------------------------------------------
committee, to the extent provided in the relevant resolution of the Management
Committee, will have and may exercise all the powers and authority of the
Management Committee in the management of the business and affairs of the LLC,
provided that (i) all decisions of such committee will require the vote of at
least a majority of the authorized number of Member Representatives on such
committee, or, if Member Representatives appointed by Exelixis are not a
majority of such Committee, then such greater number of committee member as will
require the vote of at least one (1) Member Representative serving thereon who
was appointed by Exelixis, in order for approval to be valid, and (ii) no such
committee will have the power or authority to amend the
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
Certificate of Formation, adopt an agreement of merger or consolidation, or of
the sale, lease or exchange of all or substantially all of the LLC's property
and assets, dissolve the LLC or revoke a dissolution previously approved as
provided in this Agreement, or amend this Agreement; and (iii) with respect to
matters other than those described in clause (ii) of this Section 6.4(b), unless
the relevant resolution of the Management Committee expressly so provides, such
committee will not have the power or authority to do any other act which
requires the consent of the Management Committee hereunder or by law.
6.5 Action Without Meeting; Conference Call Participation. Any action
-----------------------------------------------------
required or permitted to be taken at any meeting of the Management Committee or
of any committee thereof may be taken without a meeting, if the number of Member
Representatives required under hereunder for action by the Management Committee
or by such committee, as the case may be, consent thereto in writing, and such
writing is filed with the minutes of proceedings of the Management Committee or
of such committee. Member Representatives serving on the Management Committee,
or on any committee designated by the Management Committee, may participate in a
meeting of the Management Committee or any such committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting will constitute presence in person at the meeting.
6.6 Meeting Materials And Minutes. Materials to be considered at any
-----------------------------
meeting of the Management Committee or committee thereof will be distributed to
the relevant Member Representatives at least five (5) days prior to the meeting,
and draft minutes of each such meeting, and any written consents as to action by
the Management Committee, will be distributed to the Members and to all Member
Representatives within thirty (30) days after the date of the relevant meeting
or the date of obtaining the required signatures on such consent, as applicable.
6.7 Matters Requiring Management Committee Approval. In addition to any
-----------------------------------------------
approval that may be required by the Act or otherwise by law, and in addition to
any approval thereof by the Members or the Chief Executive Officer of the LLC,
the following will require approval by the Management Committee, subject to the
voting requirements provided in Section 6.3(b) hereof as to Management Committee
decisions:
(a) Amendment. Any amendment of the Certificate of Formation of the
---------
LLC or of this Agreement;
(b) Admission. Admission of an additional Member or a Substitute
---------
Member;
(c) Raising Additional Capital; Issuances Of Additional Membership
--------------------------------------------------------------
Interests. Raising by the LLC of capital additional to that provided for under
- ---------
Article IV hereof, or the issuance by the LLC of additional Membership
Interests;
(d) Certain Approvals As To Budget, Strategic Plan, Alteration of
-------------------------------------------------------------
Primary Purpose Or Business Of the LLC Or Definition Of Field Of Use. Approval
- --------------------------------------------------------------------
of (i) the LLC's budget on an annual basis, including without limitation, as
will be set forth in such budget, the
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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salaries or consulting fees, as relevant, bonus criteria and limits, if any,
expenses policy, and benefits to be paid by the LLC (or by the relevant Member
directly to its relevant then-serving personnel) to LLC officers and to any LLC
employees (FTE's not being considered, for purposes of this Agreement or
otherwise, LLC employees), and any material modification to such budget (any
change in such relevant salary or consulting fees, bonus criteria and limits,
expenses policy and/or benefits being considered to be a material modification),
and (ii) the LLC's Strategic Plan and any material modification thereto, and
(iii) any alteration of the primary purpose or business of the LLC, and (iv) any
amendment to the LLC Collaboration Agreement, including without limitation any
change therein of the definition of the Research Field or of the Field of Use,
or (v) any amendment to any Collateral Agreement to which the LLC is a party;
and which initially was required to be approved under this Section 6.7. The
approval by the Management Committee of the Strategic Plan and/or or any budget
or modification thereto will not be deemed to include therein an approval of any
other matter, such as raising additional capital or the issuance of additional
Membership Interests, which requires Management Committee approval under this
Section 6.7, unless such matter is specifically and separately approved by the
Management Committee as provided in this Section 6.7(d) and is subject to
further approval by the Members as required under this Agreement.
(e) Appointment Of The Chief Executive Officer of the LLC, Chief
------------------------------------------------------------
Financial Officer of the LLC, Secretary of the LLC And Other Officers Of The
- ----------------------------------------------------------------------------
LLC; Approval of Certain Salary And Related Matters. Appointment of the Chief
- ---------------------------------------------------
Executive Officer of the LLC and Chief Financial Officer of the LLC, Secretary
of the LLC, and of any other officers of the LLC desired by the Management
Committee, and their respective replacements from time to time, and confirmation
of the salaries or consulting fees, bonus limits and bonus amounts payable
within such limits, expenses policy and benefits, in each case as represented in
the then current-budget, for LLC officers and any LLC employees, to the extent
not set by the Chief Executive Officer of the LLC, as provided under Section 7.4
hereof, under such budget.
(f) Certain Agreements. Any agreement committing the LLC to an
------------------
obligation in excess of, or any single expenditure or related expenditures by
the LLC in excess of, in each case, [ * ], or any group of unrelated
expenditures in excess, in the aggregate, of [ * ], in each case that is not
already identified in reasonable detail in an LLC budget as approved by the
Management Committee, and any license from a third party described in Section
1.15(d) hereof.
(g) Certain Liens And Encumbrances. Creation of any lien or
------------------------------
encumbrance on the assets of the LLC which lien or encumbrance is not specified
in or referred to in reasonable detail in an approved LLC budget or approved
amendment thereto.
(h) Dissolution Vote. A vote to dissolve the LLC.
----------------
(i) Sale of LLC Assets. The transfer, sale, exchange or other
------------------
disposition of all, or substantially all, of the LLC's assets as part of a
single transaction or plan.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
(j) Merger. The merger of the LLC with any other Person or any
------
recapitalization of the LLC, including any reincorporation of the LLC into a
jurisdiction other than Delaware.
(k) Certain Transactions. A transaction between the LLC and either
--------------------
Member, or with any Affiliate of either Member, including the execution or
delivery of any binding agreement (i) between the LLC and either Member or any
Affiliate of either Member for the provision of goods or services to the LLC, or
(ii) between the LLC and any third party, including either Member or any
Affiliate of either Member, with respect to research and/or development and/or
commercialization, including any sales or marketing arrangements, relating to
any intellectual property and/or technology of the LLC outside of the Research
Field, including without limitation any license to or other grant of rights to,
and any license or other grant of rights by, the LLC, other than under the LLC
Collaboration Agreement.
(l) Certain Research And Development By LLC Outside Of The Research
---------------------------------------------------------------
Field. Any research and/or development outside of the Research Field by the
- -----
LLC, whether within the LLC or by a third party, other than Exelixis, for the
benefit of the LLC, other than under the LLC Collaboration Agreement.
(m) Withholding Of Cash Available For Distribution. The withholding
----------------------------------------------
by the LLC of any cash that is available for distribution as such availability
is determined by the Management Committee pursuant to Section 10.1(b) hereof,
provided that such withholding will be subject to the provisions of Section
10.1(b) as to distributions that must be made by the LLC under certain
circumstances.
(n) Compromise Or Return. A decision by the Management Committee to
--------------------
compromise the obligation of a Member to return money or property paid or
distributed unlawfully from the LLC, or to compromise the obligation of a Member
with respect to a Capital Contribution to the LLC as otherwise provided herein.
(o) Appointment of Independent Auditors. Appointment of a nationally-
-----------------------------------
recognized firm of certified public accountants to serve as the LLC's
independent auditors.
(p) Changes In The Duties Of LLC Officers. Any changes in the duties
-------------------------------------
of any LLC officer other than any such change required by law as the LLC is so
advised by its legal counsel.
(q) Research Plan. Approval of the Research Plan under the LLC
-------------
Collaboration Agreement, and of any changes thereto in accordance with the
provisions of the LLC Collaboration Agreement.
(r) Core Improvements and Exelixis Core Technology. Determinations by
----------------------------------------------
the LLC with respect to Core Improvements and Exelixis Core Technology pursuant
to the LLC Collaboration Agreement, including Sections 1.20 and 1.28 thereof.
6.8 Delivery And Approval Of Annual Operating Plan And Budget And
-------------------------------------------------------------
Three Year Strategic Plan. The Management Committee will prepare and deliver to
- -------------------------
each Member as
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
soon as practicable after its preparation, and in any event no later than [ * ]
before the close of each Fiscal Year of the LLC: (a) an annual operating plan,
including a Research Plan, and budget for the LLC, prepared on a monthly basis,
for the next Fiscal Year, and (b) a three (3) year strategic plan (the
"Strategic Plan") for the LLC for next [ * ] Fiscal Years of the LLC, provided
--------------
that the LLC's initial budget and Strategic Plan will be approved by the
Management Committee and delivered to the Members no later than [ * ] after the
Commencement Date. The Management Committee will also promptly furnish to each
Member all amendments to the annual operating plan and budget and Strategic
Plan, if any. Except for the initial operating plan and budget and Strategic
Plan, to be delivered as provided in the first sentence of this Section 6.8, the
Management Committee and the Members will agree upon each prospective operating
plan and budget and Strategic Plan no later than [ * ] before the end of the
relevant Fiscal Year in which they are delivered to the Members. Failure to so
timely agree will be considered to be a "Substantial Disagreement" to be
resolved as provided under Article XVII hereof, provided that approval of
raising additional capital or issuing additional Membership Interests will be
subject to the approval of the Members pursuant to Article III hereof.
6.9 Compensation And Reimbursement Of Member Representatives And Members
--------------------------------------------------------------------
Of The JSC. Each Member will pay all salary, and all consulting fees (as
- ----------
applicable), and all expenses, of its Member Representatives and of its members
of the JSC, which payments will not, except as the Members may agree with each
other in writing, be deemed to be a Capital Contribution to the LLC by the
relevant Member.
6.10 No Exclusive Duty To LLC; No Rights To Participation Or Income.
--------------------------------------------------------------
Neither the Management Committee nor any Member Representative, nor any LLC
officer, will be required to manage the LLC as such individual's sole and
exclusive function, and such individual, and either Member, may have other
business interests and may engage in other activities in addition to those
relating to the LLC, subject to the confidentiality obligations hereof, and not
in violation of the obligations of the Members to each other under the LLC
Collaboration Agreement and under applicable Collateral Agreements as they may
then exist. Neither the LLC, nor the Management Committee, nor any Member
Representative, nor any LLC officer, employee or agent of, or consultant to, the
LLC, will have any right, by virtue of this Agreement, to share or participate
in investments or activities of the LLC or of any Member or to any income or
proceeds derived therefrom.
6.11 Amendment Of Certificate of Formation Or Agreement. The Management
--------------------------------------------------
Committee will have the duty and authority to amend the Certificate of Formation
or this Agreement as and to the extent necessary to reflect any and all changes
or corrections necessary or appropriate as a result of any action taken in
accordance with the terms of this Agreement by the Members or by the Management
Committee.
6.12 Member Assistance To the Management Committee And Officers. Each
----------------------------------------------------------
Member will cooperate to a commercially reasonable extent with the Management
Committee, and its committees, and the Management Committee's and such
committees' authorized representatives, including without limitation the
officers of the LLC, during regular business hours of the relevant Member, or
such committee thereof, with respect to performance of the Management
Committee's or such committees' or such LLC officer's obligations hereunder,
subject to the
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
confidentiality provisions of Article XVIII hereof, and to such other customary
confidentiality agreements as the relevant Member may request.
6.13 Matters Involving The JSC.
-------------------------
(a) Composition Of The JSC.
----------------------
(i) Number Of Member And Composition Of The JSC. The JSC will
-------------------------------------------
consist of six (6) members, three (3) appointed by Exelixis and three (3)
appointed by Bayer. Each member of the JSC will be a senior LLC officer or
senior representative of the relevant Member or one of its Affiliates,
authorized to review and make recommendations to the Chief Executive LLC officer
and to the Management Committee with respect to matters within the scope of the
JSC's authority. The initial members of the JSC each will be selected and
notified by each Member to the Management Committee, within thirty (30) days
after the Commencement Date, as the initial JSC.
(ii) Appointment, Removal And Replacement Of Members Of The JSC.
----------------------------------------------------------
Each Member will appoint, may remove (with or without cause), and may replace
its members of the JSC during the existence of the JSC, at such Member's sole
discretion, and any such appointments, removals and replacements will be
notified in writing by the appointing, or removing or replacing, Member, to the
other members of the JSC and to the Management Committee. No Member will have
any authority to appoint, remove or replace JSC members for the other Member. If
a member of the JSC for any reason no longer is serving as any of an employee,
LLC officer or Director or correlative position (as applicable) of, nor as a
consultant to, the relevant Member or at least one of its Affiliates (the LLC
not being deemed to be an Affiliate of either Member for this purpose), the
relevant Member will promptly notify the other members of the JSC and the
Management Committee in writing, and such individual will be deemed to have
resigned as a member of the JSC as of the date of such complete cessation, and
the relevant Member will as soon thereafter as possible appoint a new JSC member
to replace such departing individual.
(iii) Alternates; Service Term. An alternate member of the JSC,
------------------------
designated by a Member in writing to the other members of the JSC and the
Management Committee, may serve temporarily in the absence of a permanent member
of the JSC previously designated by such Member. Individuals serving on the JSC
will hold such position until the earliest of the date of their resignation or
removal from the JSC, or their death. Any member of the JSC may resign at any
time by giving written notice thereof to the Management Committee and to the
remaining members of the JSC.
(b) Function Of The JSC; Meetings. The JSC will have solely an
-----------------------------
advisory role to the Chief Executive Officer of the LLC and to the Management
Committee, and will provide such guidance as to scientific and technical matters
involving the business of the LLC, including without limitation the Research
Plan as defined under the LLC Collaboration Agreement, as the Chief Executive
Officer of the LLC and/or the Management Committee may in good faith request
orally or in writing, in reasonable detail, and upon reasonable notice. Neither
the JSC nor any member thereof, acting as a member of the JSC, will have any
authority
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
on behalf of the LLC or either Member to execute any document or instrument, or
take any other action, that would bind the LLC or either Member. The JSC will
report to the Chief Executive Officer of the LLC and to the Management
Committee, but will have no duty to report to, or to provide guidance or
information to, either Member. The JSC will meet at such times and places, in
person and/or by conference telephone call, as the members of the JSC agree,
provided that the JSC will meet at least once during each calendar quarter
during the Research Term, as defined in and as determined under the LLC
Collaboration Agreement.
(c) Compensation And Reimbursement Of Members Of JSC. Each Member
------------------------------------------------
will pay all salary and all consulting fees (as applicable), expenses and
benefits, of its members of the JSC.
(d) No Exclusive Duty To LLC; No Rights To Participation Or Income.
--------------------------------------------------------------
No member of the JSC will be required to serve in such capacity as such
individual's sole and exclusive function, and such individual may have other
business interests and may engage in other activities in addition to those
relating to the LLC, subject to the confidentiality obligations hereof, and
under any separate written customary confidentiality agreements which the Chief
Executive Officer of the LLC believes necessary or appropriate for such JSC
member to sign. No member of the JSC will have any right, by virtue of this
Agreement, to share or participate in investments or activities of the LLC or of
any Member or to any income or proceeds derived therefrom.
(e) Changes in Size, Function And Powers; Termination, Of The JSC.
-------------------------------------------------------------
Upon mutual written agreement of the Members from time to time during the
existence of the JSC, the number of members of the JSC can be increased or
decreased, the function and powers of the JSC may be amended, and the JSC may be
terminated in its entirety. The JSC will terminate automatically (i) when the
Research Term (as defined in the LLC Collaboration Agreement) ends unless the
Members agree in writing to extend the existence of the JSC, or (ii) if Exelixis
ceases to be a Member or its Membership Interest is purchased by Bayer as
provided herein, unless Bayer and Exelixis then otherwise agree in writing.
ARTICLE VII
LLC OFFICERS, EMPLOYEES AND CONSULTANTS
7.1 Election Of Officers; Required Officers; Initial Officers. The
---------------------------------------------------------
officers of the LLC will be elected by the Management Committee and will include
a Chief Executive Officer of the LLC and a Chief Financial Officer of the LLC
(each of whom will be an individual nominated by Bayer and approved by the
Management Committee), and a Secretary of the LLC. The Management Committee may
create such other offices and elect such other officers therefor as they deem
appropriate. Any number of offices may be held by one person, except that the
Chief Executive Officer of the LLC and Chief Financial Officer of the LLC
positions must be held by two separate individuals. Each individual who will
serve as the initial Chief Executive Officer of the LLC, Chief Financial Officer
of the LLC and Secretary of the LLC will be designated and appointed to serve as
such no later than the Commencement Date, in writing by the Members to each
other and to the Management Committee.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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7.2 Term Of Office; Duties. Each LLC officer will hold office for such
----------------------
term as will be determined from time to time by the Management Committee. The
duties of any LLC officers other than the Chief Executive Officer of the LLC,
Chief Financial Officer of the LLC and Secretary of the LLC, which are set forth
herein, and any lawful duties of such three (3) officers beyond those specified
herein, will be established from time to time by the Management Committee, or as
to such officers, other than the Chief Executive Officer of the LLC, by the
Chief Executive Officer of the LLC acting under specific authority granted by
the Management Committee.
7.3 Reporting; Employee And Consultant Invention Assignment And
-----------------------------------------------------------
Confidentiality Agreements.
- --------------------------
(a) Reporting. The Chief Executive Officer of the LLC will report to
---------
the Management Committee. All other officers and employees of the LLC will
report to the Chief Executive Officer of the LLC and to the Management
Committee.
(b) Employee And Consultant Invention Assignment And Confidentiality
----------------------------------------------------------------
Agreements. Each LLC officer and each LLC employee will, upon assuming office
- ----------
or beginning employment (whether full-time or part-time) with the LLC, execute
and deliver a customary invention assignment and confidentiality agreement with
the LLC, with provisions substantially similar to those contained in Article
XVIII hereof, which agreements in each case will name Bayer and Exelixis and
their respective Affiliates as intended third party beneficiaries thereof. Each
consultant retained by the LLC (including any officer of the LLC who serves in
such capacity as a consultant) also will execute and deliver to the LLC such
customary consulting agreement as the Chief Executive Officer of the LLC (or the
Management Committee, with respect to any service of the Chief Executive Officer
of the LLC as a consultant to the LLC) requests, containing provisions
substantially similar to those contained in Article XVIII hereof, which
agreements in each case will name Bayer and Exelixis and their respective
Affiliates as intended third party beneficiaries thereof. The confidentiality
provisions of each such agreement between the LLC and any LLC officer, LLC
employee or LLC consultant, also will provide that any Confidential Information
of Exelixis or of any third-party collaborator with, or potential collaborator
with, Exelixis, that is not specific to and intended by Exelixis to be used,
lawfully, in the Research (as defined under the LLC Collaboration Agreement) or
in the performance by Exelixis of its obligations under the LLC Collaboration
Agreement, and that becomes known to such individual in the course of such
individual's involvement with the LLC, will be subject to such confidentiality
provisions of such agreement with the LLC and further will provide that such
Confidential Information will not be disclosed by such individual to either
Bayer or the LLC without the express prior written permission of the relevant
third party.
7.4 Compensation Of LLC Officers And LLC Employees; Reimbursement. The
-------------------------------------------------------------
salaries, bonuses and benefits, if any, and reimbursement of all LLC officers
and agents of the LLC employees will be fixed by the Management Committee, or by
the Chief Executive Officer of the LLC, if so authorized by the Management
Committee, as to officers other than himself or herself, and will be as
reflected in the LLC's then-current approved budget. The LLC will pay the
salary or consulting fees of, and will furnish itself or through a third party
or parties all benefits for, those
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
officers of the LLC who are employees of or consultants to the LLC while they
are so employed by the LLC, and of all other employees of and consultants to the
LLC, who are not in each case otherwise furnished by Bayer or Exelixis. Each of
Bayer and/or Exelixis, as the case may be, will pay the salary or consulting fee
of, and any bonus amounts determined by the Management Committee to be payable
to, and will reimburse the expense of, and will furnish itself or through a
third party or parties all relevant benefits for, any employee of or consultant
to such Member if and so long as such employee is so employed by, or serving as
a consultant to, such Member and also then is serving as an LLC officer or
otherwise as an employee of or consultant to the LLC, provided that all such
salary or consulting fees, bonus amounts, expenses and benefits so paid by the
relevant Member will be not greater than the relevant amounts therefor as
reflected in the LLC budget as in effect most recently before such payment is
made by the relevant Member.
7.5 Duties Of The Chief Executive Officer of the LLC. Unless the
------------------------------------------------
Management Committee determines otherwise, and so communicates in writing to the
Chief Executive Officer of the LLC, the Chief Executive Officer of the LLC will
be the principal officer of the LLC, and will preside as Chairperson at all
meetings of the Members, and will be responsible for the following:
(a) Hiring And Termination Of Employees Of And Consultants To The LLC.
-----------------------------------------------------------------
The hiring and termination by the LLC of any employees of or consultants to the
LLC (which will not include any FTE unless and until such FTE becomes an
employee of or consultant to the LLC as provided in this Agreement), and the
establishment of salaries and benefits therefor pursuant to an approved LLC
budget.
(b) Oversight And Supervision Of LLC Collaboration Agreement,
---------------------------------------------------------
Implementation of Research Plan, And Approval Of Certain Changes In the Research
- --------------------------------------------------------------------------------
Plan. General oversight and supervision of the LLC Collaboration Agreement, and
- ----
implementation of the Research Plan (as defined in the LLC Collaboration
Agreement), and approval of certain changes to the Research Plan that do not
change or extend beyond the Research Field and do not materially adversely
impact the budget for or progress of any Research Plan. Each such change when
approved by the Chief Executive Officer of the LLC will be promptly communicated
by the Chief Executive Officer of the LLC in writing to the JSC and to the
Management Committee. Any increases in overall expenditures remaining under
such Research Plan must be approved in accordance with Article VI hereof.
(c) Execution And Delivery Of Agreements, Etc. Execution and delivery
-----------------------------------------
of documents for, contracting for, negotiating on behalf of and binding, and
otherwise representing, the interests of the LLC as authorized by the Management
Committee in any job description created by, or any resolution passed by, the
Management Committee, except where required or permitted by this Agreement or by
law to be otherwise signed and executed by other or additional parties, and
except where the signing and execution thereof has been expressly delegated by
the Management Committee to some other LLC officer or agent of the LLC.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
(d) Other Specific Matters. Such other matters and actions as are
----------------------
specifically authorized in writing by the Management Committee prior to the
taking of such action or as ratified by the Management Committee after the
taking of such action.
7.6 Duties Of The Secretary of the LLC. The Secretary of the LLC will
----------------------------------
attend all meetings of the Members and will record all the proceedings of the
meetings of such Members in a book to be kept for that purpose. The Secretary
of the LLC will give, or cause to be given, on behalf of the LLC, written notice
of all meetings of the Members and of the Management Committee and of committees
thereof, and will perform such other duties as may be prescribed by the
Management Committee or Chief Executive Officer of the LLC.
7.7 Duties Of The Chief Financial Officer of the LLC. The Chief Financial
------------------------------------------------
Officer of the LLC will perform or will supervise such functions with respect to
financial and cash management for the LLC as are customary and as may be
specified by the Chief Executive Officer of the LLC or the Management Committee
to the Chief Financial Officer of the LLC.
7.8 Certain Standards Of Care. In discharging their respective duties,
-------------------------
the Management Committee and each LLC officer will be fully protected in relying
in good faith upon any such records and upon such information, opinions, reports
or statements by any other person, as to matters the Management Committee or LLC
officer reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the LLC, including information, opinions, reports or statements as to the
value and amount of the assets, liabilities, profits or losses of the LLC or any
other facts pertinent to the existence and amount of assets from which
distributions to Members might properly be paid. Neither a Member, nor any
Member Representative, nor any LLC officer, will be liable or obligated to the
Members for any act or omission performed or omitted to be performed by such
Member or such individual in good faith pursuant to authority granted to such
Member or individual by this Agreement or the Act, which causes or results in
any loss or damage to the LLC or the Members. Neither the Management Committee
nor any LLC officer, in any way guarantee the return of a Member's capital or a
profit for either Member from the operations of the LLC.
7.9 Resignation Of Officers; Removal. Any LLC officer may resign at any
--------------------------------
time by giving written notice thereof to each Member and to the Management
Committee. Any LLC officer other than the Chief Executive Officer of the LLC
may be removed and replaced, with or without cause, upon the decision of the
Chief Executive Officer of the LLC or of at least a majority of the Member
Representatives, provided that, so long as Bayer is providing financial
management and treasury functions to the LLC under Section 4.5 hereof, the Chief
Executive Officer of the LLC, and the Chief Financial Officer of the LLC, may
only be removed or replaced by the Management Committee with Bayer's prior
written approval.
7.10 Employees And Consultants; Certain Matters Relating To FTE'S.
------------------------------------------------------------
(a) Employees And Consultants of LLC. The LLC may employ such
--------------------------------
employees and consultants as the Management Committee or the Chief Executive
Officer of the LLC believes are necessary or appropriate in order for the LLC to
conduct its business. Any
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
employees of or consultants to the LLC will be paid directly by the LLC and
furnished such benefits and other terms of employment or consultancy as the LLC,
by the Chief Executive Officer of the LLC and Management Committee, believe
necessary and appropriate as in the best interests of the LLC and the Members'
interests therein.
(b) Certain Matters As To FTE's And Other Personnel. Any FTE's
-----------------------------------------------
seconded full-time to the LLC by Exelixis (referred to in the LLC Collaboration
Agreement as "Dedicated FTE's"), and any FTE's within Exelixis working part-time
on behalf of the LLC (referred to in the LLC Collaboration Agreement as "Shared
FTE's"), will, during the term of the LLC Collaboration Agreement, be and remain
employees of Exelixis, and Exelixis will remain liable for salaries, benefits,
including without limitation stock options and other equity awards as determined
by Exelixis, and other matters and liabilities with respect thereto, and for
termination or alteration of the terms of, their employment by Exelixis,
provided that:
(i) Hiring Upon Certain Termination of LLC Collaboration
----------------------------------------------------
Agreement or Buyout By Bayer of Exelixis' Membership Interest. If the LLC
- -------------------------------------------------------------
Collaboration Agreement is terminated by Bayer or by Exelixis, or if Bayer buys
out the Membership Interest of Exelixis pursuant to the provisions of Article
XIII of this Agreement, then the LLC and/or Bayer, as Bayer deems appropriate in
its sole discretion, may offer employment or consultancy to, and may hire, any
Dedicated FTE directly as an employees of or as a consultant to the LLC and/or
Bayer, and
(ii) Hiring Of Non-Solicited Individuals Who Leave Exelixis.
------------------------------------------------------
Subject to the provisions of Section 7.10(c) hereof, and to any lawful
restraints, including those by contract, against such hiring, and to
confidentiality obligations of the relevant individual, the LLC or Bayer may,
during the term of this Agreement or thereafter, make offers to and hire as an
employee or consultant, to work on Bayer or LLC matters, or both, any person who
has voluntarily terminated such person's employment or consultancy with
Exelixis, or whose employment has been terminated by Exelixis, and
(iii) Exelixis Rights To Hire. Subject to the provisions of
-----------------------
Section 7.10(c) hereof, and to any lawful restraints, including those by
contract, against such hiring, and to confidentiality obligations of the
relevant individual, Exelixis may, during the term of this Agreement or
thereafter, make offers to and hire as an employee or consultant, to work on
Exelixis or LLC matters or both, any person who has voluntarily terminated such
person's employment or consultancy with the LLC or Bayer or whose employment has
been terminated by the LLC or Bayer.
(iv) Certain Information About FTE's; Bayer Right To Request
-------------------------------------------------------
Replacement of FTE's.
- --------------------
(A) Certain Information About FTE's. During the term of the
-------------------------------
LLC Collaboration Agreement, Exelixis will provide the LLC and Bayer in writing:
(1) within fifteen (15) days after the end of each calendar quarter, (a) the
names of the then-current FTE's as at the end of such quarter, broken out by
Dedicated FTE's and Shared FTE's, and (b) a detailed statement of account that
shows the time spent by the Shared FTE's and LLC project on
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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which such time was spent during such preceding quarter, and (2) within five (5)
days after cessation, for any reason, by any individual of such individual's
service to the LLC as an a Dedicated FTE, notice of such cessation and a general
description of the reason therefor. Exelixis will consult with the LLC and Bayer
prior to Exelixis terminating an a Dedicated FTE as an employee of or consultant
to Exelixis, as to reassigning an a Dedicated FTE to tasks other than under the
LLC Collaboration Agreement, and as to hiring a replacement for a Dedicated
FTE.
(B) Bayer Right To Request Replacement of FTE's. Bayer may,
-------------------------------------------
a reasonable number of times during the term of the LLC Collaboration Agreement,
request in writing to Exelixis that Exelixis replace a Dedicated FTE, or a
Shared FTE (but not request that Exelixis terminate the employment by Exelixis
of any Dedicated FTE or Shared FTE), if in the good faith judgment of Bayer, as
so stated in such request, the continued involvement of such Dedicated FTE or
Shared FTE the LLC or with work under the LLC Collaboration Agreement, is or
would be detrimental to the best interests of the LLC or of Bayer. Upon such
request, Exelixis will promptly take such corrective measures as Exelixis deems
appropriate in its good faith judgment. If, after such corrective measures have
been completed, Bayer still desires replacement of such individual, Bayer may
repeat its request. Upon such repeated request, Exelixis will promptly replace
such individual as an FTE with another person as a Dedicated FTE or Shared FTE,
as the case may be, provided that Exelixis will determine, after consultation
with Bayer and giving due regard to the business of the LLC, who the replacement
will be. Exelixis will promptly hire a qualified new employee or retain a
qualified new consultant to fulfill such replacement obligation if Exelixis
cannot supply a suitable replacement from Exelixis' then-existing employees or
consultants.
(v) Certain Information About Technical Personnel FTE's.
-------------------------
Exelixis will provide the LLC and Bayer in writing, within fifteen (15) days
after the close of each calendar quarter during the term hereof, with the total
number of FTE's serving as employees of or as consultants to Exelixis during
such preceding quarter, who have technical qualifications at least to the level
of a Shared FTE ("Technical Personnel FTE's"), but excluding all Dedicated FTE's
-------------------------
and excluding the portion, out of total time spent by Shared FTE's during such
quarter, that was spent on LLC matters during such quarter by Shared FTE's then
working with the LLC.
(c) Nonsolicitation. During the term hereof and for a period of
---------------
[ * ] thereafter, neither the LLC, nor any of its officers, nor either of the
Members, nor any Member Representative or member of the JSC appointed by such
Member, will solicit any employee of or consultant to either of the other
parties hereto to terminate such employee's or consultant's relationship with
such other party.
ARTICLE VIII
ACCOUNTING AND RECORDS
8.1 Financial And Tax Reporting. The LLC will prepare its financial
---------------------------
statements in accordance with United States generally accepted accounting
principles as from time to time in effect and will prepare its income tax
information returns using such methods of accounting and
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
tax year as the Tax Matters Member deems necessary or appropriate under the Code
and Treasury Regulations.
8.2 Supervision; Inspection Of Books And Records. Proper and complete
--------------------------------------------
books of account and records of the business of the LLC (including those books
and records identified in Section 18-305 of the Act) will be kept under the
supervision of the Management Committee at the LLC's principal office and at
such other place as designated by the Management Committee. The Management
Committee will give written notice to each Member of any change in the location
of the books and records. The books and records of the LLC will be open to
inspection, audit and copying by any Member or its authorized representative,
upon reasonable or prior written notice at any time during business hours for
any purpose reasonably related to such Member's interest in the LLC. Any
information so obtained or copied will be Confidential Information. Any such
inspection and copying will be at the expense of the inspecting Member.
8.3 Reliance On Records And Books Of Account. Any Member or Member
----------------------------------------
Representative or LLC officer, to the extent such LLC officer was acting in good
faith in preparation thereof, will be fully protected in relying in good faith
upon the records and books of account of the LLC and upon such information,
opinions, reports or statements presented to the LLC by its Tax Matters Member,
any of its Members, officers, employees or committees, or by any other person,
as to matters the Tax Matters Member or other Member reasonably believes are
within such other person's professional or expert competence and who has been
selected with reasonable care by or on behalf of the LLC, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits or losses of the LLC or any other facts pertinent to the
existence and amount of assets from which distributions to either or both
Members from the LLC might properly be paid.
8.4 Tax Matters Member. Bayer will serve as the Tax Matters Member, which
------------------
will be the "tax matters partner" within the meaning of Code Section 6231. The
Tax Matters Member (or the other Member if it receives such notification) will
provide notice to the other Member, as provided in Code Section 6223(g), of any
administrative or judicial proceeding for the adjustment of LLC items and will
keep the other Member reasonably and timely informed as to all material facts
and developments about tax matters involving the LLC. The Tax Matters Member
will ensure that the other Member is a notice partner as provided in Code
Section 6223(b). The Tax Matters Member may hire tax counsel and accountants,
at the expense of the LLC, in connection with any representation of the LLC.
8.5 Tax Returns.
-----------
(a) Filing. The Tax Matters Member will, as soon as practicable, but
------
in no event later than seventy-five (75) days after the end of each Fiscal Year,
cause the LLC to file a federal income tax information return and to transmit to
each Member a schedule showing such Member's distributive share of the LLC's
income, deductions and credits, and all other information necessary for such
Members to timely file their federal income tax returns. The Tax Matters Member
similarly will cause the LLC to file, and to provide information to such Members
regarding, all appropriate state and local income tax returns.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
(b) Drafts And Certain Disputes. The Tax Matters Member will prepare
---------------------------
or cause to be prepared, and will submit to the Members and to the Chief
Executive Officer of the LLC, drafts of all LLC tax returns as soon as
reasonably practical, and in any event no later than forty-five ( 45) days, in
advance of the filing due date thereof to permit review by the Members and the
LLC prior to filing. If either of the Members or the LLC disagrees with the
proposed treatment of an item on the return prepared by or for the Tax Matters
Member, the dispute will be resolved as provided in Section 17.3 hereof. If the
dispute has not been resolved by the due date of the particular return, the Tax
Matters Member will timely file the particular return and the content of the
return as filed will be determined by the Tax Matters Member in its sole
discretion. Upon resolution of the relevant dispute between the Members and the
LLC, if such resolution provides for the reporting of any item which is
inconsistent with the manner in which such item was reported on the return as
filed by the Tax Matters Member, the Tax Matters Member will prepare and file an
amended return using the agreed basis of reporting. The Tax Matters Member may
file such requests for extensions of time to file any returns as it deems
appropriate.
(c) Cooperation. Each Member and the LLC will maintain and provide to
-----------
the Tax Matters Member all information necessary for the preparation and support
of all LLC tax returns. Such information will be provided to the Tax Matters
Member within a reasonable time after it is requested by the Tax Matters
Partner, and in a commercially reasonable manner, by each Member and the LLC at
their respective expense.
8.6 Annual Reports. The LLC will deliver to each Person (or such Person's
--------------
legal representative) who was a Member during any part of the Fiscal Year in
question, within ninety (90) days after the end of each Fiscal Year of the LLC:
(a) a balance sheet for the LLC as of the close of the Fiscal Year and a profit
and loss statement for the Fiscal Year then ended, all in reasonable detail, and
(b) a report setting forth the Capital Accounts of each Member and a description
of the manner of their calculation. The annual financial statements of the LLC
will be audited and reported on as of the end of each Fiscal Year by a firm of
independent certified public accountants selected by the Management Committee.
The Chief Executive Officer of the LLC will be responsible for preparing or
having prepared such reports, at the expense of the LLC, as may be reasonably
requested by either Member.
8.7 Other Financial And Accounting Reports. In addition to the annual
--------------------------------------
report described in Section 8.6 hereof, the LLC will prepare or cause to be
prepared and delivered to the Members such other financial and accounting
reports, within [ * ] after the end of each calendar quarter during the
existence of the LLC, as the Management Committee deems appropriate or
necessary, or as either Member requests in good faith in writing to the
Management Committee, with a copy to the other Members.
8.8 Confidentiality. All information received pursuant to this Section 8
---------------
will be Confidential Information, subject to the exceptions therefor set forth
in Section 1.20 hereof.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
ARTICLE IX
ALLOCATIONS
9.1 Allocation Of Net Income And Net Loss. For each Accounting Period:
-------------------------------------
(a) Deductions. All deductions of the LLC will be allocated to Bayer
----------
until the earlier of the time at which (x) Bayer has been allocated deductions
and Net Loss equal to Bayer's cumulative Capital Contributions through the date
of allocation or (y) taking into account planned distributions following the
relevant year-end, the balances in Bayer's Capital Account and Exelixis' Capital
Account are in proportion to their Percentage Interests.
(b) Allocations Of Net Income And Net Loss. Following the allocations
--------------------------------------
provided in Section 9.1(a) hereof, Net Income and Net Loss will be allocated
between Bayer and Exelixis in proportion to their Percentage Interests, except
that the Members will first be allocated gross income until cumulative
allocations of gross income equal cumulative periodic distributions made or
planned to be made to them following the relevant year-end pursuant to Section
10(b)(i) hereof.
(c) Certain Allocations. It is agreed between the Members that Bayer
-------------------
is funding, to the extent of Bayer's Capital Contributions under Section 4.2
hereof and to the extent of its milestone payments under the LLC Collaboration
Agreement, all expenditures for research and experimentation of the LLC, whether
directly or as paid by the LLC to Exelixis under the LLC Collaboration
Agreement, and that Bayer will be allocated all deductions for expenditures
under Code Section 174 (and all associated credits under Section 41 of the Code)
to the extent of the deductions funded through such Capital Contributions and
milestone payments. All other expenditures under Code Section 174 (and
associated credits) will be allocated in proportion to Percentage Interests of
the Members.
9.2 Other Allocations; Qualified Income Offset; Minimum Gain Chargeback.
-------------------------------------------------------------------
Notwithstanding the provisions of Section 9.1 hereof, the following special
allocations will be made in the order set forth herein. Terms appearing in
quotation marks in this Section 9.2 have the meanings set forth in Treasury
Regulations Section 1.704-2, and this Section 9.2 is intended to comply with
such Treasury Regulations.
(a) Nonrecourse Deductions. All "nonrecourse deductions" will be
----------------------
allocated in proportion to the Member Percentage Interests from time to time.
(b) Partner Nonrecourse Deductions. All "partner nonrecourse
------------------------------
deductions" will be specially allocated to those Members who bear the economic
risk of loss with respect to the "partner nonrecourse debt" to which such
"partner nonrecourse deductions" are attributable.
(c) Partnership Minimum Gain. Except as otherwise provided in
------------------------
Treasury Regulations Section 1.704-2(f), if there is a net decrease in
"partnership minimum gain" during any Fiscal Year, each Member will be specially
allocated items of LLC net income and net loss for such Fiscal Year (and, if
necessary, future Fiscal Years) in an amount equal to such Member's share of the
net decrease. This Section 9.2(c) is intended to comply with the
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
"minimum gain chargeback" requirement in Treasury Regulations Section 1.704-2
and will be interpreted accordingly.
(d) Partner Nonrecourse Debt Minimum Gain. Except as otherwise
-------------------------------------
provided in Treasury Regulations Section 1.704-2(i)(4), if there is a net
decrease in "partner nonrecourse debt minimum gain" attributable to a "partner
nonrecourse debt" during any Fiscal Year, each Member who has a share of such
"partner nonrecourse debt minimum gain" will be specially allocated items of
income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal
Years) in an amount equal to that share. This Section 9.2(d) is intended to
comply with the "minimum gain chargeback" requirements of Treasury Regulations
Section 1.704-2 and will be interpreted accordingly.
(e) Certain Reallocations. If a Member's Adjusted Capital Account has
---------------------
an Unadjusted Excess Negative Balance at the end of any Fiscal Year, such Member
will be reallocated items of income and gain for such Fiscal Year (and, if
necessary, future Fiscal Years) in the amount necessary to eliminate such
Unadjusted Excess Negative Balance as quickly as possible.
(f) Qualified Income Offset. If a Member unexpectedly receives any
-----------------------
adjustments, allocations or distributions described in Treasury Regulations
Sections 1.704-1(b)(2)(ii)(d)(4) through (d)(6), items of LLC income and gain
will be specially allocated to such Member any Excess Negative Balance in such
Member's Capital Account created thereby as quickly as possible. This Section
9.2(f) is intended to constitute a "qualified income offset" within the meaning
of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and will be interpreted
accordingly.
(g) Certain Limitations. A Member will not be allocated any item of
-------------------
LLC loss or deduction to the extent such allocation would cause such Member's
Adjusted Capital Account to have an Excess Negative Balance.
(h) Certain Powers Of Tax Matters Partner. The allocations set forth
-------------------------------------
in the preceding provisions of this Section 9.2 (the "Regulatory Allocations")
----------------------
are intended to comply with certain requirements of the Treasury Regulations.
It is the intent of the Members that, to the extent possible, all Regulatory
Allocations will be offset with other Regulatory Allocations or with special
allocations of other items of income, gain, loss or deduction pursuant to this
Section 9.2(h). Therefore, notwithstanding any other provision of this Agreement
(other than the provisions governing the Regulatory Allocations) the Tax Matters
Member will make such offsetting special allocations of LLC income, gain, loss
or deduction in whatever manner it determines appropriate, to the end that each
Member's Adjusted Capital Account balance should equal the balance such Member
would have had if the Regulatory Allocations were not part of this Agreement and
all LLC items were allocated pursuant to Section 9.1 hereof. In exercising its
discretion under this Section 9.2(h), the Tax Matters Member will take into
account future Regulatory Allocations under Sections 9.2(c) and (d) hereof that,
although not yet made, are likely to offset other Regulatory Allocations
previously made under Sections 9.2(a) and (b) hereof.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
9.3 Special Tax Provisions.
----------------------
(a) Membership Status. The Members intend that the LLC will be
-----------------
treated as a partnership for all federal income tax purposes and each Member
agrees that it will not, on any federal, state, local or other tax return, take
a position inconsistent with such intent.
(b) Tax Allocations. Except as otherwise provided in this Article
---------------
VIII or required by the Code and Treasury Regulations, items of income, gain,
loss or deduction recognized for income tax purposes will be allocated in the
same manner that the corresponding items entering into the calculation of Net
Income and Net Loss are allocated pursuant to this Agreement.
(c) Section 704(c) Adjustments. In accordance with Code Section
--------------------------
704(c) and the Treasury Regulations thereunder, items of income, gain, loss and
deduction with respect to an asset, if any, contributed to the capital of the
LLC will, solely for tax purposes, be allocated between the Members so as to
take account of any variation between the adjusted basis of such property to the
LLC for federal income tax purposes and its fair market value upon contribution
to the LLC, in the manner determined by the Tax Matters Member. If the Carrying
Value of any asset is adjusted pursuant to the terms of this Agreement,
subsequent allocations of income, gain, loss and deduction with respect to such
asset will take account of any variation between the adjusted basis of such
asset to the LLC for federal income tax purposes and its Carrying Value in the
same manner as under Code Section 704(c) and the Treasury Regulations
thereunder, in the manner determined by the Tax Matters Member.
(d) Section 754 Election. An election under Code Section 754 election
--------------------
may be made for the LLC at the written request of either Member, a copy of which
the requesting Member will deliver to the Management Committee. In the event of
an adjustment to the adjusted tax basis of any LLC asset under Code Section
734(b) or Code Section 743(b) pursuant to a Section 754 election, subsequent
allocations of tax items will reflect such adjustment consistent with the
Treasury Regulations promulgated under Code Sections 704, 734 and 743.
(e) Allocations Upon Transfers Of LLC Interests. If during an
-------------------------------------------
Accounting Period, a Member assigns or transfers its Membership Interest to
another Person properly in accordance with the provisions of Section 3.4 hereof,
items of Net Income and Net Loss, together with corresponding tax items, that
otherwise would have been allocated to the transferring or assigning member with
regard to such Accounting Period will be allocated between the transferring or
assigning member and the transferee in accordance with their respective
Membership Interest during the Accounting Period using any method permitted by
Code Section 706 and selected by the Tax Matters Member.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
ARTICLE X
DISTRIBUTIONS; WITHHOLDING TAXES
10.1 Distributions To Members.
------------------------
(a) General. Except as otherwise provided in this Article X, Members
-------
will share ratably all nonliquidating distributions from the LLC in proportion
to their Percentage Interests
(b) Management Of LLC On Budget; Specific Required Distributions. The
------------------------------------------------------------
Management Committee will operate the LLC on a budget that will permit
distribution in full of all premium fees the LLC receives from the Members and
of the milestone payments received by the LLC from Bayer. Subject to the
provisions set forth in Sections 10.1(b)(i) and 10.2 hereof, cash of the LLC
will be distributed in the manner and order set forth below, within [ * ] after
the end of the preceding fiscal year of the LLC, or promptly after the delivery
to the LLC by its independent accounts of audited LLC financial statements for
such immediately preceding year if such audited statements are delivered to the
LLC by such accountants after such sixty day period has expired:
(i) Distributions To Members Of Premium Fee Income And Milestone
------------------------------------------------------------
Payment Income Of The LLC; Reserve. Nonliquidating distributions will first be
- ----------------------------------
made in cash promptly, and in any event within thirty (30) days, after the close
of each calendar quarter during the term of the LLC: (A) to the Members, in
accordance with their Percentage Interests, of all income of the LLC from
premium fees received by the LLC during such preceding quarter from either
Member under the LLC Collaboration Agreement or under any Collateral Agreements
as they may then exist, provided that, if Exelixis does not, at the time of such
distribution, hold exactly forty percent (40%) of the total Percentage Interests
of the LLC then outstanding, Exelixis nevertheless will have distributed to it
under this Section 10.1(b)(i), provided it still is a Member at the time of such
distribution, an amount of such premium fee income of the LLC equal to that
which would have been distributed to Exelixis had it held, at the time of such
distribution, forty percent (40%) of the total Percentage Interests of the LLC
then outstanding, and then (B) to Exelixis only, provided it still is a Member
at the time of such distribution, all income received by the LLC during such
preceding quarter as milestone payments from Bayer under the LLC Collaboration
Agreement. The LLC will, after making such distribution of premium fee
payments from the Members and of milestone payments from Bayer, make an adequate
reserve for the anticipated payment by the LLC of the full FTE Amounts, and of
other budgeted, and other then-anticipated but not budgeted, operating expenses
and payments expected by the Management Committee to be required to be made by
the LLC during the then-prospective [ * ] period (the "Reserve").
(ii) Certain Distributions To Bayer For Patent And Insurance
-------------------------------------------------------
Expenses. Commencing as to, and after the close of, the first fiscal year of the
- --------
LLC (or as to fiscal year 2000, ending on December 31, 2000, if the LLC is
created prior to January 1, 2000), to the extent that after making the
distributions required to be made under Section 10.1(b)(i) hereof to the Members
during the immediately preceding fiscal year, and if there is then still cash of
the LLC available for distribution to the Members after making the Reserve
required to
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
be made under Section 10.1(b)(i) hereof, there will next be distributed to Bayer
in cash, to the extent not then already distributed by the LLC to Bayer, an
amount equal to all LLC Operating Expense Amounts actually paid by Bayer to or
on behalf of the LLC during such immediately preceding fiscal year, as an
additional Capital Contribution by Bayer, for expenditure by the LLC for patent
prosecution, insurance and related matters for the LLC, provided that no
distribution will be made to Bayer under this Section 10(b)(ii) with respect to
such fiscal year unless the total amount of Capital Contribution to the LLC by
Bayer during such fiscal year equaled or exceeded [ * ] (or such then-current
amount as may be provided in any amendment hereto). The distribution to Bayer
provided for under this Section 10(b)(ii) will be made within [ * ] after the
end of each fiscal year of the LLC (commencing after the close of the relevant
first fiscal year of the LLC as provided above in this Section 10(b)(i)), or
promptly after the delivery to the LLC by its independent accounts of audited
LLC financial statements for such fiscal year if such audited statements are
delivered to the LLC by such accountants after such [ * ] period has expired.
(iii) Distributions To Members For Taxes. At the same time as the
----------------------------------
distribution to Bayer, if any, is made pursuant to Section 10.1(b)(ii) hereof,
then to the extent that there is then still cash of the LLC available for
distribution to the Members, after making the distributions described in
Sections 10.1(b)(i) and (ii) hereof, and after making the Reserve required to be
made under Section 10.1(b)(i) hereof, there will next be distributed to the
Members in cash, if requested in writing by either Member, an amount, to each
Member in proportion to its Percentage Interest, as is necessary, as determined
by the Management Committee in good faith after consultation with each Member,
to pay taxes owed by such Member on income (but not sales, VAT or ad valorem
----------
taxes) required to be paid by the Members solely by reason of being a Member of
the LLC, to the extent that the amount of taxes owed by either Member is greater
than the amount of cash already distributed to such Member by the LLC with
respect to the period for which such tax is due.
(iv) Certain Distributions To Member(s) For Salary, Expenses,
-------------------------------------------------------
Bonuses And Benefits Of LLC Officers And LLC Employees. At the same time as the
- ------------------------------------------------------
distributions, if any, are made to the Members pursuant to Sections 10.1(b)(ii)
and (iii) hereof, then to the extent that there is still cash of the LLC
available for distribution to the Members, after making such distributions, and
after making the Reserve required to be made under Section 10.1(b)(i) hereof,
then there will next be distributed in cash to Bayer (and to Exelixis on an
equal ranking basis with Bayer, prorated between Bayer and Exelixis as to the
respective amounts of salary or consulting fee amounts and expenses paid and
reimbursed, and benefits paid, if during the fiscal year immediately preceding
such distribution any employee of or consultant to Exelixis was serving as an
LLC officer), provided that no distribution will be made to Bayer under this
Section 10(b)(iii) with respect to any year unless the total amount of Capital
Contribution to the LLC by Bayer during such fiscal year equaled or exceeded
[ * ] (or such then-current amount as may be provided in any amendment hereto):
(A) LLC Employee Salary And Consulting Fees And Related
---------------------------------------------------
Amounts Paid By Bayer. All amounts of salary or consulting fee, as applicable,
- ---------------------
bonuses paid from the LLC (if any, and in each case as determined by the
Management Committee pursuant to the then-current LLC budget), expenses and
benefits, as applicable, actually paid by Bayer
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
directly to those of its employees and consultants serving as officers or
employees of or as consultants to the LLC, or paid by Bayer to the LLC during
the immediately preceding year as an additional Capital Contribution, as part of
the LLC Operating Expense Amounts for expenditure by the LLC for such payments
of salary or consulting fee and benefits to such employees and consultants,
prorated according to the amount of time, out of total work time, such
individual spent during such year in service as LLC officer or employee of or
consultant to the LLC, and
(B) LLC Employee Salary And Consulting Fees And Related
---------------------------------------------------
Amounts Paid By Exelixis. As to Exelixis as relevant, the amounts actually paid
- ------------------------
by Exelixis during the immediately preceding year directly to such of its
employees and consultants serving as officers of or employees of or consultants
to the LLCLLC officer(s), of salary or consulting fee, as applicable, bonuses
paid from the LLC (if any, and in each case as determined by the Management
Committee pursuant to the then-current LLC budget), expenses, and benefits for
such individual, prorated according to the amount of time, out of total work
time, such individual spent during such year in service as LLC officer or
employee of or consultant to the LLC.
(v) Distributions To Both Members. At the same time as the
-----------------------------
distributions, if any, are made to the Members pursuant to Sections 10.1(b)(ii)-
(iv) hereof, then to the extent that there is still cash of the LLC available
for distribution to the Members, after making such distributions, and after
making the Reserve required to be made under Section 10.1(b)(i) hereof, then
such cash will be distributed to the Members in accordance with their Percentage
Interests.
10.2 Restriction On Distributions And Withdrawals.
--------------------------------------------
(a) Limitations. The LLC will not make any distribution, other than
-----------
of premium payment and milestone payment amounts as provided under Section
10.1(b)(i) hereof, unless immediately after giving effect to the distribution,
all liabilities of the LLC, other than liabilities to Members on account of
their interest in the LLC and liabilities as to which recourse of creditors is
limited to specified property of the LLC, do not exceed the fair value of the
LLC's assets; provided that (i) the fair value of any property that is subject
to a liability as to which recourse of creditors is so limited will be included
in the LLC assets only to the extent that the fair value of the property exceeds
such liability, and (ii) if after making the distribution of premium payment and
milestone payment amounts as provided under Section 10.1(b)(i) hereof, the
amount of cash remaining in the LLC does not equal or exceed the required
Reserve as determined by the Management Committee under Section 10.1(b)(i)
hereof, then upon the written request of the Management Committee, Bayer will
promptly make an additional Capital Contribution to the LLC in cash of an
amount, as an LLC Operating Expense, that is so requested by the Management
Committee, which amount will not be greater than the difference between the
amount of cash then in the LLC and the amount of the Reserve.
(b) Liability For Certain Distributions. Except as otherwise
-----------------------------------
required by law, no Member will be liable to the LLC for the amount of a
distribution received provided that, at the time of the distribution, such
Member did not know that the distribution was in violation of Section 10.2(a)
hereof. A Member who receives a distribution in violation of Section 10.2(a)
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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hereof, and who knows at the time of the distribution that the distribution
violated such condition, will be liable to the LLC for the amount of such
distribution.
10.3 Withholding Taxes. The LLC will at all times be entitled to make
-----------------
payments with respect to any Member in amounts required to discharge any
obligation of the LLC to withhold or make payments to any governmental authority
with respect to any federal, state, local or other jurisdictional tax liability
of such Member arising as a result of such Member's Membership Interest in the
LLC. To the extent each such payment satisfies an obligation of the LLC to
withhold with respect to any distribution to a Member on which the LLC did not
withhold or with respect to any Member's allocable share of the income of the
LLC, each such payment will be deemed to be a loan by the LLC to such Member
(which loan will be deemed to be immediately due and payable) and will not be
deemed a distribution to such Member. The amount of such payments made with
respect to such Member, plus interest, on each such amount from the date of each
such payment until such amount is repaid to the LLC at an interest rate per
annum equal to [ * ], will be repaid to the LLC by (a) deduction from any cash
distributions made to such Member pursuant to this Agreement; (b) deduction from
any non-cash distributions made to such Member or (c) earlier payment by such
Member to the LLC, in each case as determined by the Management Committee in its
sole discretion. The Management Committee may, in its sole discretion, defer
making distributions to any Member owing amounts to the LLC pursuant to this
Section 10.3 until such amounts are paid to the LLC and the LLC may in addition
exercise against such Member any other rights of a creditor with respect to such
amounts due.
ARTICLE XI
INDEMNIFICATION AND LIMITATION OF LIABILITY
11.1 Indemnification.
---------------
(a) Indemnification By LLC Of Certain Indemnitees. To the fullest
---------------------------------------------
extent permitted by the Act and by law, the LLC, in accordance with this Section
11.1, will indemnify and hold harmless the Management Committee, the Member
Representatives, each LLC officer, employee, consultant or agent of the LLC, and
each Member and its Affiliates, and the partners, members, stockholders, as
relevant, of each Member and its Affiliates, and the controlling persons,
officers, Directors or equivalents, and employees and agents of each Member or
Affiliate, as applicable, (collectively, the "Indemnitees"), any and all Damages
-----------
arising from any and all claims, demands, actions, suits or proceedings (civil,
criminal, administrative or investigative) in which the Indemnitee may be
involved, as a party or otherwise, by reason of the Indemnitee's management of,
or involvement in, the affairs of the LLC, or rendering of advice or
consultation with respect thereto, or which otherwise relate to the LLC, its
properties, business or affairs, if such Indemnitee acted in good faith and in a
manner such Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the LLC, and, with respect to any criminal proceeding, had no
reasonable cause to believe the conduct of such Indemnitee was unlawful. The
termination of a proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere, or its equivalent, will not, of itself, create a
---- ----------
presumption that such Indemnitee did not act in good faith and in a manner which
such Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the LLC or that such Indemnitee had
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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reasonable cause to believe that such Indemnitee's conduct was unlawful (unless
there has been a final adjudication in the proceeding that such Indemnitee did
not act in good faith and in a manner which such Indemnitee reasonably believed
to be in or not opposed to the best interests of the LLC; or that such
Indemnitee did have reasonable cause to believe that such Indemnitee's conduct
was unlawful).
(b) Certain Other Indemnification By LLC. The LLC may also indemnify
------------------------------------
and hold harmless, as an Indemnitee hereunder, any individual who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action by or in the right of the LLC to procure a judgment in its
favor by reason of the fact that such individual is or was a Member
Representative, or an LLC officer, employee, consultant or agent of the LLC,
against expenses actually or reasonably incurred by such individual in
connection with the defense or settlement of such action, if such individual
acted in good faith and in a manner such individual reasonably believed to be
in, or not opposed to, the best interests of the LLC, except that
indemnification will be made in respect of any claim, issue or matter as to
which such individual will have been adjudged to be liable for misconduct in the
performance of the Individual's duty to the LLC only to the extent that the
court in which such action or suit was brought, or another court of appropriate
jurisdiction, determines upon application that, despite the adjudication of
liability, but in view of all circumstance of the case, such individual is
fairly and reasonably entitled to indemnity for such expenses which such court
will deem proper. To the extent that such individual has been successful on the
merits or otherwise in defense of any proceedings referred to herein, or in
defense of any claim, issue or matter therein, such individual will be
indemnified by the LLC against expenses actually and reasonably incurred by such
individual in connection therewith. Notwithstanding the foregoing, no
individual will be entitled to indemnification hereunder for any conduct arising
from the gross negligence or willful misconduct of such individual or reckless
disregard in the performance by such individual of such individual's duties
under this Agreement.
(c) Payment Or Advancement Of Certain Expenses. Expenses (including
------------------------------------------
reasonable fees and costs of attorneys) incurred in defending any proceeding
under Sections 11.1(a) or (b) hereof may be paid by the LLC in advance of the
final disposition of such proceeding upon receipt of an undertaking by or on
behalf of the Indemnitee or Person to repay such amount if it will ultimately be
determined that the Indemnitee or Person is not entitled to be indemnified by
the LLC as authorized hereunder.
(d) No Exclusivity. The indemnification provided by this Section 11.1
--------------
will not be deemed to be exclusive of any other rights to which any Person may
be entitled under any agreement, or as a matter of law, or otherwise, both as to
action in a Person's official capacity and to action in any other capacity.
(e) Certain Insurance. Subject to the provisions of Section 2.10
-----------------
hereof, the Management Committee will have power to purchase and maintain
insurance on behalf of the LLC and at the expense of the LLC, against any
liability asserted against or incurred by any Person entitled under this Section
11.1 to be indemnified in any such capacity whether or not the LLC would have
the power to indemnify such Person against such liability under the provisions
of this Agreement.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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11.2 Liability For Finder's Or Broker's Fees. Each Member will be
---------------------------------------
responsible for paying any finder's or broker's fee and any other Damages owed
any third party that such Member incurs or which is claimed by such third party
against the other Member and/or LLC, based directly or indirectly on the
negotiation of, or the entry by the parties hereto into, this Agreement, and
will indemnify the LLC and the other Member, and the other Indemnitees, against
any obligation to pay any such fee.
11.3 Liability In Event Of Default. The Affected Member will be liable to
-----------------------------
the LLC and to the Non-Affected Member, and to such other Indemnitees as are
relevant, for any and all Damages suffered or incurred by the LLC or the Non-
Affected Member or such other Indemnitee(s) as a result of such Event of
Default.
11.4 Limitation Of Liability. Each Member's liability under this Article
-----------------------
XI will be limited as set forth in the Act and other applicable law.
Notwithstanding anything to the contrary herein contained (a) the debts,
obligations and liabilities of the LLC will be solely the debts, obligations and
liabilities of the LLC; and no Member or Member Representative or LLC officer or
any other Indemnitee will be obligated personally for any such debt, obligation
or liability of the LLC solely by reason of such Person, or such Person's
related Indemnitee, being a Member or Member Representative or LLC officer, and
the LLC will hold such Person, or such Person's related Indemnitee, harmless
from any such debt, obligation or liability, and (b) as to any Member who has
made a Capital Contribution to the LLC, such Member will not be liable, absent
fraud, for any debts or losses of the LLC beyond the total amount of such
Member's Capital Contribution.
ARTICLE XII
TERMINATION
12.1 Termination.
-----------
(a) Certain Events Not Leading To Termination. Except as provided
-----------------------------------------
under Section 14.3 of the LLC Collaboration Agreement, the LLC will not
terminate solely due to any termination or expiration of the LLC Collaboration
Agreement or of any Collateral Agreements unless both Members otherwise agree in
writing.
(b) Termination By Mutual Agreement Or Ordered Dissolution Of LLC.
-------------------------------------------------------------
The LLC will be terminated and dissolved, its assets disposed of and its affairs
wound up upon the first to occur of the following:
(i) Affirmative Vote Of Members. The affirmative vote in writing
---------------------------
of both Members to terminate and dissolve the LLC; or
(ii) Dissolution Of LLC By Court Order Or Authority. Any
----------------------------------------------
dissolution of the LLC ordered by a final binding judgment or order by a court
of competent jurisdiction or by a regulatory authority, when such judgment or
order is not voluntarily initiated by either Member (other than a voluntary
initiation by such Member acting upon the advice of its outside legal counsel
that the continuation of the LLC, or of such Member as a member of the LLC,
would be unlawful), if there is no Buyout as provided in Section 13.5 hereof.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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(c) Termination of LLC By Notice From Non-Affected Member For
---------------------------------------------------------
Dissolution Event, Changed Circumstance, And/Or Event Of Default Affecting Other
- --------------------------------------------------------------------------------
Member.
- ------
(i) Notice by the Affected Member of Certain Events. If any of
-----------------------------------------------
the following events occurs as to a Member, the Affected Member will give
written notice thereof to the Non-Affected Member, with a copy to the Management
Committee, as promptly as possible after the coming into being of such event,
specifying therein in reasonable detail the nature of such event and the date of
its commencement; the Affected Member also will give written notice to the Non-
Affected Member, with a copy to the Management Committee, as promptly as
possible after the cure or cessation of such event, specifying the date upon
which such cure or cessation occurred, the provisions of Section 13.2 hereof
being applicable in the event of a notice by the Non-Affected Member as to a
sale of assets of change of control Changed Circumstance:
(A) Dissolution Event. The occurrence of a Dissolution
-----------------
Event as to the Affected Member; or
(B) Event of Default. The existence of any uncured Event of
----------------
Default by the Affected Member; or
(C) Changed Circumstance. The existence of a Changed
--------------------
Circumstance for such Affected Member.
(ii) Termination. Unless the Non-Affected Member has elected,
-----------
pursuant to the provisions of Section 13.2(b) hereof to exercise its Buyout
right, The the LLC will be terminated and dissolved if after receiving notice of
an event under Section 12.1(c)(i) hereof from the Affected Member, the Non-
Affected Member gives written notice of its election, based upon the occurrence
or existence of such event, to terminate and dissolve the LLC (the Non-Affected
Member's "Termination Notice"). Such Termination Notice (A) must be given no
------------------
later than [ * ] after the date the Non-Affected Member receives the initial
written notice from the Affected Member (or its trustee or relevant similar
party) as to the occurrence of the relevant event if it is a Dissolution Event
or an Event of Default or a Changed Circumstance other than a sale of assets or
change of control Changed Circumstance (for which reference is made to Section
13.2 hereof), or, as applicable, (2) within the time period specified in Section
13.2(b) hereof if it is a sale of assets of change of control Changed
Circumstance), and (or within such shorter period as set forth in Section
13.2(a)(2) hereof), (B) must be given to the Affected Member (and/or such
Affected Member's trustee or similar third party in the event of Dissolution or
Bankruptcy of the Affected Member), with a copy to the Management Committee, and
(C) if such event is a Continuing Force Majeure Event, such notice must so state
and must contain the other statements required under Section 1.20 hereof, and
the [ * ] period provided in clause (A) of this Section 12.1(c)(ii) will
commence after expiration of the [ * ] period set forth in Section 1.19 hereof,
and. (D)Such Termination Notice must have been given by the Non-Affected Member
to the Affected Member and the Management Committee before the Affected Member
has delivered any written notice to the Non-Affected Member and the Management
Committee that the relevant event has ceased to exist or has been fully cured.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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(d) Nature Of Rights Of Non-Affected Member. The right of the
---------------------------------------
Non-Affected Member under this Section 12.1 to give notice of its election to
terminate and dissolve the LLC is independent of such Non-Affected Member's
right to, in lieu of such election, exercise its Buyout rights under Article
XIII hereof with respect to the Membership Interest of the Affected Member.
12.2 Authority To Wind Up. The Management Committee will have all
--------------------
necessary power and authority required to marshal the assets of the LLC, to pay
its creditors, to distribute assets and otherwise wind up the business and
affairs of the LLC, including without limitation the authority to continue to
conduct the business and affairs of the LLC insofar as such continued operation
remains consistent, in the judgment of the Management Committee, with the
orderly winding up of the LLC.
12.3 Winding Up And Certificate Of Cancellation. The winding up of the LLC
------------------------------------------
will be completed when all debts, liabilities and obligations of the LLC have
been paid and discharged or reasonably adequate provision therefor has been
made, and all of the remaining property and assets of the LLC have been
distributed to such Members. Upon the completion of winding up of the LLC, a
Certificate of Cancellation will be filed by the Chief Executive Officer of the
LLC with the Secretary of State of Delaware.
12.4 Refund Of Certain Amounts To Bayer; Distribution Of Assets.
----------------------------------------------------------
(a) Refund Of Certain Amounts To Bayer. Upon dissolution and winding
----------------------------------
up of the LLC, after all debts, liabilities and obligations of the LLC have been
paid and discharged or reasonably adequate provision therefor has been made, any
amounts of unexpended funds received by the LLC from Bayer as a Capital
Contribution of Bayer that then remain as an asset of the LLC will be refunded
to Bayer by the LLC prior to any distribution of assets of the LLC to either
Member. Such refund will not be deemed to be a distribution to Bayer by the
LLC, but upon such refund, Bayer's Capital Account will be reduced by the amount
so refunded.
(b) Distribution Of Assets.
----------------------
(i) General. Upon dissolution and winding up of the LLC, the
-------
affairs of the LLC will be wound up by the Chief Executive Officer of the LLC
and the LLC will be liquidated by the Management Committee. Unless the Members
consent in writing to a distribution in kind of the assets of the LLC, and
except as provided in Section 12.5 hereof, the assets of the LLC will be sold
pursuant to such liquidation.. If both Members do not consent in writing to a
distribution of LLC assets in kind, but the Management Committee determines that
an immediate sale of all or certain of the LLC assets would be financially
inadvisable for the LLC and the Members, the Management Committee may defer sale
of the relevant LLC assets for a reasonable time; provided that the liquidation
of the LLC will be completed within the time required by Treasury Regulations
Section 1.704-1(b)(ii)(b)(2). Subject to the provisions of Section 12.5 hereof,
(A) if any LLC assets are distributed in kind, they will be distributed on the
basis of the fair market value thereof as determined by appraisal, as may be
ordered by the Management Committee, the costs of which appraisal will be paid
by the LLC, and will be deemed to have been sold at such fair market value for
purposes of the allocations under Article
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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IX hereof, and (B) unless both Members otherwise agree in writing, if any LLC
assets are to be distributed in kind, they will be distributed to such Members,
as joint tenants, in undivided interests in proportion to distributions to which
such Members are entitled under this Section 12.4. The LLC will terminate when
all of its assets have been sold and/or distributed and all of its affairs have
been wound up.
(ii) Order Of Distribution. Subject to the provisions of Section 12.5
---------------------
hereof, the assets of the LLC, whether cash or in kind, will be distributed in
accordance with the Act, A) first, in the amount of premium payments and
milestone payments received by the LLC, but not previously distributed to the
Members, to the Members, provided that the provisions of Section 10.1(b)(i)
hereof with respect to calculation of the amount to be distributed to Exelixis
will apply pursuant to the provisions of Section 12.5 hereof, (B) then to the
creditors of the LLC in the order of priority provided by law, (C) then to the
Members in accordance with the provisions of Section 12.5 hereof in the amount
of third party revenue of the LLC not previously distributed to the Members by
the LLC, and then (D) (A) first to creditors of the LLC in the order of priority
provided by law, then (B) premium payments, milestone payments and third party
revenue of the LLC not previously distributed to the Members will be distributed
to the Members provided that the provisions of Section 10.1(b)(i) hereof with
respect to calculation of the amount to be distributed to Exelixis will apply
pursuant to the provisions of Section 12.5 hereof, and then (C) to the Members
in proportion to their remaining Capital Accounts. Except as specifically
provided otherwise herein, no Member will have any obligation at any time to
repay or restore to the LLC all or any part of any distribution made to such
Member from the LLC in accordance with this Section 12.4, nor to make any
additional contribution of capital to the LLC.
12.5 Certain Matters With Respect To Intellectual Property Rights Of the
-------------------------------------------------------------------
LLC.
- ---
(a) Distribution In Kind To Members As Joint Owners. Except as may be
-----------------------------------------------
otherwise provided in the LLC Collaboration Agreement or any Collateral
Agreements as they may then exist, the intellectual property rights of the LLC
(exclusive of intellectual property rights of any other Person licensed to the
LLC and not assignable without the consent of such Person) developed or obtained
by the LLC and existing on the date of termination of the LLC, will not be
liquidated (other than the LLC's trade names, trademarks, service marks,
emblems, logos, symbols and insignia and rights with respect thereto, including
registrations and registration rights, all of which will be liquidated) but will
instead be distributed in kind to the Members as joint owners who will each own
an undivided joint interest therein with the rights described in Section 12.5(b)
hereof.
(b) Respective Rights of Members In LLC Assets Distributed In Kind.
--------------------------------------------------------------
Upon and after such distribution in kind, unless the Members agree otherwise in
writing, or until one Member, if ever, upon or after such distribution purchases
all of the other Member's jointly-owned rights therein, each Member, as a joint
owner of such distributed intellectual property rights in accordance with
Section 12.5(a) hereof, will have such rights with respect thereto as such
Member had under the LLC Collaboration Agreement as in effect most recently
before the date of such distribution in kind, and the right to grant licenses to
third parties and to use and practice such rights without accounting to the
other Member, subject in all cases to the first-referenced Member's compliance
with the terms thereof.
(c) Adjustment Of Capital Accounts. The Capital Accounts of the
------------------------------
Members will be adjusted in the manner required by Section 1.704-
1(b)(2)(iv)(e)(1) of the Treasury Regulations to reflect the unrealized income,
gain, loss and deduction inherent in such
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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distributed intellectual property rights. After such adjustment to the Capital
Accounts of the Members have been made, all future distributions on liquidation
of the LLC will take into account such distribution-in-kind of intellectual
property to the Members.
(d) Payment Of Premium Fee Or Royalty Obligations, Or Milestone
-----------------------------------------------------------
Payment Obligations. Except as may be otherwise provided under the LLC
- -------------------
Collaboration Agreement or as otherwise agreed in writing by the Members, any
premium fee or royalty obligations, and any milestone payment obligations, by
either Member to the LLC will be paid thereafter directly by such Member to the
other Member to the extent permitted by law. No distribution of intellectual
property rights of the LLC as provided in this Section 12.5 will relieve either
Member from its obligations hereunder, or under any other binding agreement to
which such Member is a party or to which it is subject, to continue to pay
premium fees, royalty payments, milestone payments or other running or periodic
amounts, however denominated, thereunder according to the relevant terms of this
Agreement or of such other agreements.
(e) Certain Assistance. If one Member seeks to sell or assign all or
------------------
part of its jointly-owned interest in such distributed intellectual property to
a third party or parties, in a jurisdiction in which such sale or assignment
requires by law, as advised by the requesting Member's intellectual property
counsel the consent or acknowledgment of the other Member as joint owner of such
intellectual property, such other Member will execute and delivery such
customary documents, at its own expense, to assist the selling or assigning
Member to complete such sale or assignment, as the selling or assigning Member
requests in good faith of such other Member.
(f) Effect On Licenses To Bayer Patents And Bayer Know-How, And On
--------------------------------------------------------------
Exelixis Patents And Exelixis Know-How, In The Event Of Termination. In the
- -------------------------------------------------------------------
event of termination pursuant to this Article XII, if the LLC Collaboration
Agreement then is still in effect, the conditions, if any, relevant to such
termination as may be specified in the LLC Collaboration Agreement, including
Article XIV thereof, will apply.
ARTICLE XIII
BUYOUT BY A MEMBER OF THE
MEMBERSHIP INTEREST OF THE OTHER MEMBER
13.1 Determination Of Fair Market Value. For purposes of this Agreement
----------------------------------
the "Affected Member" is the Member who suffers, or proposes to suffer (with
---------------
respect to a Proposed Changed Circumstance Notice, as defined in Section
13.2(a)(i) hereof), a Changed Circumstance, or who suffers an Event of Default
or Dissolution or Bankruptcy, as applicable, and the other Member is the "Non-
---
Affected Member". For purposes of this Article XIII, Fair Market Value will be
- ---------------
whatever it is agreed to be in writing between the Members no later than the
earlier of (a) [ * ] after the date the Proposed Changed Circumstance Notice is
given under Section 13.2(a)(i) hereof by the Affected Member to the Non-Affected
Member, if such Proposed Changed Circumstance Notice contains the names of the
relevant Person(s) therein which cause it to be deemed, under the provisions of
Section 13.2(a)(i) hereof, to be a Final Notice or (b) [ * ] after the date the
Final Notice is given, as required under Section 13.2(a)(ii) hereof, by the
Affected Member to the Non-Affected Member as to the event relevant to such
Affected Member.;
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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provided that if the Members independently cannot agree on the Fair Market Value
of the Affected Member's Membership Interest within such relevant [ * ] period,
then the procedures set forth in Sections 13.1(a)-(h) hereof will apply to
determine such Fair Market Value:
(a) Member Statements Of Fair Market Value. Each of the Affected
--------------------------------------
Member and the Non-Affected Member will deliver to the other in writing, within
[ * ] after the close of such initial [ * ] period, the delivering Member's
statement as to the Fair Market Value of the Affected Member's Membership
Interest.
(b) Procedure If Both Statements Are The Same. If the Fair Market
-----------------------------------------
Value stated in both Members' statements is the same, then such amount will be
the Fair Market Value of the Affected Member's Membership Interest.
(c) Procedure If Statements Within [ * ] Range. If the Fair Market
------------------------------------------
Value stated in one Member's written statement is higher than the Fair Market
Value stated in the other Member's written statement, but is not greater than
[ * ] of the lower statement, then Fair Market Value will be the average of the
two statements.
(d) Procedure If Statements Outside Of [ * ] Range. If the Fair
----------------------------------------------
Market Value stated in one Member's written statement is greater than [ * ] of
the Fair Market Value stated in the other Member's written statement, then Fair
Market Value will be determined by an Appraiser selected by the mutual written
agreement of the Members within [ * ] after the delivery by each Member to the
other of their statements, provided that if the Members cannot agree on an
Appraiser within such [ * ] period, then:
(i) Selection Of An Appraiser By Each Member. Each Member will,
----------------------------------------
within [ * ] after the earlier of the date upon which the Members agree in
writing that they cannot agree on such Appraiser, or such initial thirty days
have expired, select an Appraiser;
(ii) Selection By Two Appraisers Of Third Appraiser. The
----------------------------------------------
Appraisers selected pursuant to Section 13.1(d)(i) hereof mutually will select a
third Appraiser within [ * ] after their selection; and
(iii) Determination By Single Appraiser Of Fair Market Value. The
------------------------------------------------------
third Appraiser so chosen will singly determine Fair Market Value by delivering
his or her determination of Fair Market Value in writing to each Member as soon
as possible after his or her selection, setting forth in such writing such bases
and conclusions as such Appraiser deems appropriate and customary therefor. If
the Fair Market Value as determined by such Appraiser is the average of the two
Members' statements, then such average will be Fair Market Value. If the Fair
Market Value as determined by such Appraiser is above the average of the two
Members' statements, but not greater than the higher of the two Members'
statements, then Fair Market value will be the average between such Appraiser's
determination and such higher Member statement. If the Fair Market Value as
determined by such Appraiser is below the average of the two Members'
statements, but not less than the lower of the two Members' statements, then
Fair Market value will be the average between such Appraiser's determination and
such lower Member statement. If the Fair Market Value as determined by such
Appraiser is
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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greater than the higher of the two Members' statements, then Fair Market value
will be such higher Member statement. If the Fair Market Value as determined by
such Appraiser is lower than the lower of the two Members' statements, then Fair
Market value will be such lower Member statement.
(e) Appraiser's Determination Binding Absent Demonstrable Factual Or
----------------------------------------------------------------
Mathematical Error Or Fraud. Any determination by an Appraiser of Fair Market
- ---------------------------
value as provided herein will be binding upon the Members and the LLC absent
demonstrable mathematical or factual error, or fraud .
(f) Certain Governing Principles For Determination of Fair Market
-------------------------------------------------------------
Value. Any determination of Fair Market Value pursuant to this Section 13.1
- -----
will take into consideration all relevant factors, including the conditions
referred to in Section 13.6 hereof and any Event of Default if such purchase is
being made by the Non-Affected Member under Section 13.3 hereof, and any
Bankruptcy of a Member if such purchase is being made by the other Member under
Section 13.4 hereof, but only in each case to the extent that such Event of
Default or Bankruptcy reduces the value of the relevant Membership Interest, and
will be calculated by multiplying (x) the price that a willing buyer will pay
and a willing seller will accept for the purchase of all of the assets and
business of the LLC as a going concern immediately prior to the transaction
giving rise to the determination of Fair Market Value and without any discount
for lack of liquidity or control and assuming that all agreements between the
LLC and the Members that were in effect prior to such transaction would have
continued in effect by (y) the Percentage Interest in the LLC being acquired.
(g) Fees And Costs Of Appraisers. Each Member will bear the fees and
----------------------------
costs of any Appraiser that such Member selects as one of the two Appraisers
selected to determine the third. The fees and costs of any third Appraiser
selected pursuant to Section 13.1(d)(i)(B) hereof, will be borne one-half (1/2)
by each Member. Each Member will bear its respective internal costs connected
with any such appraisal, including those associated of its own determination for
its statement of Fair Market Value.
(h) Cooperation. Each Member will cooperate in all commercially
-----------
reasonable respects and in good faith in the appraisal process, including
without limitation providing such information as is reasonably requested by the
Appraiser(s), but provided that the furnishing of such information may, in the
good faith judgment of the furnishing Member, be conditioned on such
Appraiser(s) executing and delivering a customary confidentiality agreement with
the furnishing Member with respect thereto.
13.2 Changed Circumstance Buyout And Notices With Respect Thereto.
------------------------------------------------------------
(a) Proposed Changed Circumstances Notice By Affected Member; Final
---------------------------------------------------------------
Notice By Affected Member Of Changed Circumstance; Non-Affected Member's Notice
- -------------------------------------------------------------------------------
of Intention As To Buyout Rights And Termination Rights; Waiver.
- ---------------------------------------------------------------
(i) Proposed Changed Circumstances Notice By Affected Member.
--------------------------------------------------------
If either Exelixis or Bayer proposes to enter into a transaction that would, if
consummated, be a
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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sale of assets or proposed change of control as described in Section 1.15(b)(i)
or (ii) hereof as to Exelixis, or Section 1.15(c) hereof as to Bayer, then,
within [ * ] after such Affected Member [ * ] with respect to such proposed
event with any Person other than Bayer or its Affiliates, or the LLC, as to
Exelixis, and other than Exelixis, or the LLC, or each other, with respect to
Bayer and Bayer AG, the Affected Member will give the Non-Affected Member
written notice (a "Proposed Changed Circumstances Notice") as to the general
-------------------------------------
nature of the proposed event. The fact of the giving of which Proposed Changed
Circumstances Notice and the contents thereof will be Confidential Information
of the Affected Member. Such Proposed Changed Circumstances Notice need not
specify the name of the other party or parties to such proposed transaction,
and/or certain details related thereto, if such information is prohibited from
disclosure under an executed written nondisclosure agreement between the
Affected Member and such other party or parties. In addition, with respect to
any matter relating to a Changed Circumstance described in, respectively,
Sections 1.15(b)(i) or (ii) hereof, as to Exelixis, or Sections 1.15(c) hereof,
as to Bayer, the Affected Member will promptly give written notice (which will
be considered to be an amendment to the initially-given Proposed Changed
Circumstances Notice) to the Non-Affected Member, with a copy to the Management
Committee, of any material change, adverse or beneficial, with respect to such
proposed Changed Circumstance, including without limitation (if terms were
disclosed in a previously-delivered Proposed Changed Circumstances Notice) any
change in the terms proposed with respect to such Changed Circumstance, and/or
(if the names of other party or parties to the relevant proposed Changed
Circumstance were disclosed in a previously-delivered Proposed Changed
Circumstances Notice), any change in the name(s) of the other party or parties
to such proposed Changed Circumstance. Such Proposed Changed Circumstances
Notice will be deemed to be the Final Notice given for purposes of Section 13.1
hereof, and Section 13.2(a)(ii), (iii) or (iv) hereof, only if, (1) it is given
with respect to the signing by the Affected Party of a binding agreement,
including without limitation a letter of intent or heads of agreement which
contains any binding provision apart from a binding obligation of
confidentiality, and when,(2) it contains the name(s) of the other party or
parties to such proposed transaction.
(ii) Final Notice By Affected Member Of Changed Circumstance. In
-------------------------------------------------------
addition to giving the Non-Affected Member a Proposed Changed Circumstances
Notice , at any time, but no later than [ * ] after the occurrence or
consummation of the relevant Changed Circumstance as to the Affected Member,
such Affected Member will give written notice of such occurrence or consummation
to the Non-Affected Member and the Management Committee, specifying in
reasonable detail the nature of such Changed Circumstance (a "Final Notice"),
------------
and will specify therein the name(s) of the other party or parties to such
proposed Changed Circumstance if such Changed Circumstance is a sale of assets
or proposed change of control as described in Section 1.15(b)(i) or (ii) hereof
as to Exelixis, or Section 1.15(c) hereof as to Bayer. In addition, the
Affected Member will promptly give written notice (which will be considered to
be an amendment to the initially-given Final Notice) to the Non-Affected Member,
with a copy to the Management Committee, of any material change, adverse or
beneficial, in such Changed Circumstance, including without limitation any
change in the terms proposed for, and/or in the name(s) of the other party or
parties to such proposed transaction, as to any matter relating to a Changed
Circumstance described in, respectively, Sections 1.15(b)(i) or (ii) hereof, as
to Exelixis, or Sections 1.15(c) hereof, as to Bayer. The giving of such Final
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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Notice (including any updates as to subsequent developments), and the contents
thereof, or portions thereof, will be Confidential Information of such Affected
Member hereunder if the Affected Member so declares in such Final Notice, and/or
may be subject to such confidentiality as to certain details thereof as may be
required under any confidentiality agreement, with any other Person, other than
Bayer or Bayer's Affiliates or the LLC, to which such Affected Member is a party
or by which it is bound, or as otherwise may be required by law.
(iii) Non-Affected Member's Notice of Intention As To Buyout Rights
-------------------------------------------------------------
And Termination Rights. Within [ * ] after the Non-Affected Member's receipt of
- ----------------------
a Proposed Changed Circumstances Notice from the Affected Member given under
Section 13.2(a)(i) hereof which states the name(s) of the other party or parties
to such proposed transaction as relevant (thus causing such Proposed Changed
Circumstances Notice to be deemed to be a Final Notice), or, as relevant, within
[ * ] after the Non-Affected Member's receipt of the Final Notice in the event
of the consummation of the relevant sale of assets or change of control
constituting the Changed Circumstance, the Non-Affected Member may, but is not
required to, give written notice to the Affected Member, with a copy to the
Management Committee, (a "Non-Affected Member's Notice of Intention") of such
-----------------------------------------
Non-Affected Member's intention to (A) exercise or to waive (specifying which it
elects) such Non-Affected Member's Buyout rights under Section 13.2(b) hereof,
or to (B) exercise or to waive (specifying which it elects) its termination
rights under Section 12.1(c) hereof (in which case such Non-Affected Member's
Notice of Intention will constitute its written notice of termination election
under Section 12.1(c) hereof if the Non-Affected Member states therein its
election to so terminate). Any such Non-Affected Member's Notice of Intention,
if given, may be, by its terms, made contingent upon the actual consummation of
the relevant Changed Circumstance, such that if such consummation does not
occur, then such Non-Affected Member's Notice of Intention may be withdrawn and
rescinded by the Non-Affected Member, without penalty, by written notice to the
Affected Member, with a copy to the Management Committee, of such withdrawal and
rescission. Such notice of withdrawal and rescission may be given at any time
after the proposed consummation date if by the date of giving of such notice of
withdrawal and rescission the Non-Affected Member has not consummated its Buyout
rights or if by such date the LLC has not commenced liquidation and dissolution
by reason of such termination election. The fact of the giving of any Non-
Affected Member's Notice of Intention, and the contents thereof, will be
Confidential Information of the Non-Affected Member.
(iv) Waiver By Affected Member Of Buyout Or Termination Right As To
--------------------------------------------------------------
Certain Changed Circumstances. Subject to the last sentence of this Section
- -----------------------------
13.2(a)(iv), the right of the Non-Affected Member to exercise its Buyout rights
under Section 13.2(b) hereof, or to terminate the LLC under Section 12.1(c)
hereof, will be deemed to be irrevocably waived by the Non-Affected Member as to
the matter(s) described in the relevant Final Notice under Section 13.2(a)(ii)
hereof (or deemed Final Notice under Section 13.2(a)(i) hereof) from the
Affected Member as to the relevant Changed Circumstance if, the Non-Affected
Member either (A) affirmatively and specifically waives its Buyout or
termination right hereunder, in writing to the Affected Member, with a copy to
the Management Committee, or (B) fails, within the relevant [ * ] period
specified under Section 13.2(a)(i) or (ii) hereof, to give written notice to the
Affected Member, with a copy to the Management Committee, as to such Non-
Affected Member's intention to exercise its Buyout or termination rights
hereunder. The Non-Affected
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
Member will not be deemed to have waived its Buyout rights or termination rights
hereunder if with the [ * ] period provided for giving by such Non-Affected
Member of its Non-Affected Member's Notice of Intention under Section
13.2(a)(iii) hereof, or within twenty (20) days after it has given any such Non-
Affected Member's Notice of Intention, the Affected Member, as required by
Section 13.2(a)(i) or (ii) hereof, as relevant, gives the Non-Affected Member
written notice of any material change in a Changed Circumstance, (in which case
the notice election and waiver provisions of this Article XIII applicable to the
Non-Affected Member will again apply, and will run from the date of such written
notice by the Affected Member of such material change in the relevant Changed
Circumstance).
(b) Purchase Right Of Non-Affected Member. Upon the occurrence of a
-------------------------------------
Changed Circumstance, provided the Non-Affected Member receiving the Proposed
Changed Circumstance Notice or Final Notice, as the case may be, relating
thereto has not previously given the Affected Member a Non-Affected Member's
Notice of Intention demanding dissolution of the LLC or has not waived or been
deemed to waive, under Section 13.2(a)(iv) hereof, such Changed Circumstance,
the Non-Affected Member may, as hereinafter provided, purchase all but not
less than all of the Membership Interest of the Affected Member for Fair
Market Value. Within [ * ] after the determination of Fair Market Value
pursuant to Section 13.1 hereof, the Non-Affected Member will either submit an
irrevocable written offer to the Affected Member with a copy to the Management
Committee, to purchase such Affected Member's Membership Interest for Fair
Market Value for cash or such other consideration as the Members agree in
writing, or will notify the Affected Member in writing, with a copy to the
Management Committee, that no offer will be made. If an offer is made, the
closing of the transaction will occur within [ * ] after the date of such
written offer, but such period will automatically be extended as necessary to
give effect to any delay days caused by obtaining any required regulatory
approvals. The purchase price for such Affected Member's Membership Interest
will be paid by the Affected Member in cash or such other consideration as the
selling Member and the purchasing Member may agree in writing. If no offer is
timely made by the Non-Affected Member under this Section 13.2(b), then the
provisions of this Agreement, including those of Articles XII and XV hereof,
will apply.
(c) Effect On Licenses In The Event Of Changed Circumstances Buyout.
---------------------------------------------------------------
In the event of a Changed Circumstances Buyout pursuant to Section 12.2(b)
hereof, the conditions, if any, relevant thereto as may be specified in the LLC
Collaboration Agreement, will apply, and are incorporated herein by reference
only to the extent necessary for each application.
13.3 Default Buyout. In the event of an uncured Event of Default, provided
--------------
the Non-Affected Member has not previously given to the Affected Member written
notice demanding dissolution of the LLC, the Non-Affected Member may, as
hereinafter provided, purchase all but not less than all of the Affected
Member's Membership Interest for Fair Market Value. Within [ * ] after the
determination of Fair Market Value, the Non-Affected Member will either submit
an irrevocable written offer to the Affected Member, with a copy to the
Management Committee, or will notify the Affected Member in writing, with a copy
to the Management Committee, that no offer will be made. If an offer is made,
the closing of the transaction will occur within [ * ] after the date of such
written offer, but giving effect to any delay days caused by obtaining
appropriate
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
regulatory approvals. The purchase price for such Membership Interest will be
paid in cash or such other consideration as the selling Member and the
purchasing Member may agree in writing. If no offer is timely made by the Non-
Affected Member under this Section 13.3, then the provisions of this Agreement,
including those of Articles XII and XV hereof, will apply.
13.4 Buyout Upon Bankruptcy Or Dissolution Of A Member. Upon obtaining
-------------------------------------------------
actual knowledge of the Bankruptcy or Dissolution of a Member, the other Member
will have the right, by giving written notice thereof to the bankrupt Member, or
trustee therefor , and to the Management Committee, to purchase or cause its
designee to purchase the Membership Interest of such Affected Member for Fair
Market Value. Within [ * ] after the determination of Fair Market Value, the
Non-Affected Member will either submit an irrevocable written offer to the
Affected Member, or such Affected Member's trustee, with a copy to the
Management Committee, to purchase such Affected Member's Membership Interest for
Fair Market Value, or will notify the Affected Member in writing, with a copy to
the Management Committee, that no offer will be made. If an offer is made, the
closing of the transaction will occur within [ * ] after the date of such
written offer, but giving effect to any delay days caused by obtaining
appropriate regulatory approvals. The purchase price for such Membership
Interest will be paid in cash or such other consideration as the selling Member
(or the trustee of the selling Member) and the purchasing Member may agree in
writing. If no offer is timely made by the Non-Affected Member under this
Section 13.4 then the provisions of this Agreement, including those under
Articles XII and XV hereof, will apply.
13.5 Auction Buyout Upon Deadlock On Substantial Disagreement After Fourth
---------------------------------------------------------------------
Anniversary Of Commencement Date, Or Upon Dissolution Of LLC Due To Judicial Or
- -------------------------------------------------------------------------------
Regulatory Decision, Or Upon Delivery Of Lack Of Freedom To Operate Notice. If
- --------------------------------------------------------------------------
(1) the Members reach Deadlock on a Substantial Disagreement (but not as to
Deadlock as to any other dispute), at any time after the [ * ] anniversary of
the Commencement Date, or (2) dissolution of the LLC is ordered by a final
judgment by a court of competent jurisdiction or by the nonappealable order or
decision of a regulatory authority, which dissolution does not arise by reason
of action taken by either Member, or (3) on the [ * ] anniversary of the
delivery by Bayer to Exelixis of a Lack Of Freedom To Operate Notice under
Section 1.15(d) hereof, the license(s) described in Section 1.15(d) hereof have
not the come into being and if Bayer and Exelixis have not agreed otherwise in
writing that such state of matters does not constitute a Changed Circumstance as
described in such Section 1.15(d) hereof, or (4) if Exelixis does not increase
the number of its Technical Personnel FTE's within the time period set forth in
Section 1.15(e) hereof, and if both Members wish to purchase the Membership
Interest of the other Member, then either Member may purchase the Membership
Interest from the other, in either case in accordance with the following
procedures:
(a) Appraisal Of Fair Market Value. The Fair Market Value of each
------------------------------
Member's Membership Interest (which together will constitute one hundred percent
(100%) of the Fair Market Value of the LLC) will be determined and reported to
the Members in writing by an Appraiser selected using the procedure set forth in
Section 13.1(d) hereof, and provided that the provisions of Sections 13.1(e)-(g)
hereof also will apply to the actions and results of such Appraiser's
determination.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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(b) Purchase By One Member Or The Other's Membership Interest
---------------------------------------------------------
Voluntarily If Fair Market Value Is Agreed. If, upon receiving the Appraiser's
- ------------------------------------------
determination of the Fair Market Value of each other's Membership Interest, one
Member wishes to sell and the other to buy at such Fair Market Value, such
Member will so notify the other Member in writing and within [ * ] after its
receipt of such determination, and they will consummate such transaction as soon
as possible on such terms as they agree in writing.
(c) Auctioneer. If the Members do not agree on the Fair Market Value
----------
of each other's Membership Interest within such [ * ] period, then the
"Auctioneer" will be the Appraiser selected pursuant to Section 13.1 hereof,
whether by mutual written agreement of the Members or as selected by their two
independent third party Appraisers.
(d) Fees And Expenses Of Auctioneer. The fees and expenses of the
-------------------------------
Auctioneer, for acting as such, will be paid one-half (1/2) each by the Members.
(e) Auction and Auction Process; Conduct of Auction; Closing of
-----------------------------------------------------------
Purchase Of Relevant Membership Interest.
- ----------------------------------------
(i) Auction And Auction Process. The Auctioneer will conduct an
---------------------------
auction (the "Auction"), under the procedure as hereinafter provided, commencing
-------
on the [ * ] day following the date of the Auctioneer's selection, to determine,
as hereinafter provided, which Member will, as will be determined by the
Auctioneer as provided herein, purchase the other Member's Membership Interest.
The Auction will be conducted by the Auctioneer in an even-handed, equitable and
impartial manner in accordance with the provisions of this Section 13.5 and in
accordance with any further provisions specified in writing to the Members by
the Auctioneer (subject to the last clause of this sentence as to agreement by
the Members), which in each case which are consistent with and do not contravene
the provisions of this Section 13.5, provided that the Members may mutually
agree in writing to any lawful procedures with respect to the Auction, which
writing will be binding on the Auctioneer and the Members, will constitute an
amendment hereto, and will be controlling over any procedures specified by the
Auctioneer.
(ii) Bid Process; Bids Based Upon Percentage Interest To Which Bid
-------------------------------------------------------------
Relates; Non-Accepted Bids; Determination of Winning Bid; Purchase and Closing.
- ------------------------------------------------------------------------------
(A) Bid Process. Bayer will make the first bid in the
-----------
Auction by submitting its bid for Exelixis' Membership Interest in writing to
the Auctioneer, which first bid must be made within [ * ] after the Auctioneer's
selection, and must be at least equal to the Fair Market Value of Exelixis'
Membership Interest as determined by the Appraiser, after which the Members will
alternate in submitting bids in writing to the Auctioneer for each other's
Membership Interest. The Auctioneer will promptly notify each Member in writing
of the Auctioneer's receipt of a bid and the amount of such bid, after which the
Member who had not made the previous bid will have [ * ] to submit its bid to
the Auctioneer.
(B) Bids Based Upon Percentage Interest To Which Bid Relates.
--------------------------------------------------------
Each bid by the relevant Member will be based upon the relative Percentage
Interest
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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that is held by the other Member, such that, if the Percentage Interests of
Bayer and Exelixis were the same at the time of the Auction as they are at the
Commencement Date, then any bid by Bayer for Exelixis' interest will be based
upon Exelixis' forty percent (40%) interest in the LLC, and any bid by Exelixis
will be based upon Bayer's sixty percent (60%) interest in the LLC.
(C) Non-Accepted (Invalid) Bids. Any bid submitted to the
---------------------------
Auctioneer (other than with respect to the first bid by Bayer in the Auction
process) that does not exceed the immediately preceding bid of the same bidding
Member by at least [ * ] of such bidder's last bid for the other Member's
Membership Interest will be considered an invalid bid and will not be accepted
by the Auctioneer.
(D) Determination By Auctioneer of Winning Bid; Notification.
--------------------------------------------------------
If a Member does not submit a bid (or an invalid bid is submitted as specified
in Section 13.5(c)(ii)(C) hereof, and no subsequent valid bid is submitted) in
such [ * ] period or at such time as a Member states in writing to the
Auctioneer that such Member is unwilling to submit any further bids, the
Auctioneer will declare the Auction completed and will notify the Members and
the Management Committee promptly in writing that it is completed. Upon such
completion of the Auction process, the Auctioneer will determine, in such
Auctioneer's sole good faith discretion, which determination will be binding
upon the Members absent demonstrable mathematical or factual error, or fraud,
which Member's final bid in the Auction process is more fair to the other
Member, taking into account the relative Percentage Interests of the Members,
than the other Member's bid. The Auctioneer will notify the Members in writing
as to the Auctioneer's decision, within [ * ] after the Auctioneer's decision,
specifying the winning bidder Member and the amount of the winning bid as so
determined by the Auctioneer.
(iii) Purchase By Winning Bidding Member Of Other Member's
----------------------------------------------------
Membership Interest. The winning bidding Member will purchase the other
- -------------------
Member's Membership Interest at the price submitted by such winning bidding
Member in its winning bid.
(iv) Closing. The purchase by the winning bid Member from the
-------
other Member, at the price specified in such high bid, and for cash or such
other consideration as the Members agree in writing, will occur within [ * ]
after the date the winning bid is declared by the Auctioneer, but giving effect
to any delay days caused by obtaining appropriate regulatory approvals.
13.6 Arbitration Upon Deadlock On Substantial Disagreement Prior To Fourth
---------------------------------------------------------------------
Anniversary Of Commencement Date. If there exists Deadlock on a Substantial
- --------------
Disagreement prior to the [ * ] anniversary of the Commencement Date, the
Deadlock will be resolved by arbitration pursuant to the provisions of Section
17.2 hereof, and neither Member will have the right under this Article XIII to
buy out the other Member's Membership Interest solely by reason of such Deadlock
on Substantial Disagreement.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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ARTICLE XIV
DEFAULT
14.1 Events Of Default. An "Event of Default" will be considered to have
----------------- ----------------
occurred with respect to a Member (which Member will be considered for purposes
of this Agreement as the Affected Member with respect to such Event of Default)
if:
(a) Failure To Make Capital Contribution. Such Affected Member fails
------------------------------------
to make a Capital Contribution required of it pursuant to Article IV hereof and
such failure continues for [ * ] after such Affected Member has been given
written notice thereof by the Non-Affected Member or by the Management
Committee; and/or
(b) Insufficient Technical Personnel FTE's Of Exelixis. If at the
--------------------------------------------------
close of any calendar quarter during the term hereof, (i) Exelixis had serving
as full-time employees or as full-time consultants to Exelixis during such
quarter a total of less than [ * ] Technical Personnel FTE's (as defined in
Section 7.10(b)(v) hereof), and (ii) if within [ * ] after delivery to Bayer by
the LLC of the report as to Technical Personnel FTE's for such quarter required
under Section 7.10(b)(v) hereof, Bayer gives written notice to Exelixis that, in
the good faith judgment of Bayer, Exelixis has insufficient Technical Personnel
FTE's to warrant continuing the LLC, and (iii) Exelixis does not increase the
number of Technical Personnel FTE's to at least [ * ] within [ * ] after
delivery of such notice by Bayer; and/or
(c) Certain Other Failures. Such Affected Member fails to perform or
----------------------
violates any other material term or condition of this Agreement and such failure
or violation continues for [ * ] or more days after such Affected Member has
been given written notice thereof by the Non-Affected Member or by the
Management Committee; provided that nothing herein will limit the Affected
Member's obligation to pay damages for such breach during such cure period;
and/or
(d) Certain Actions. Such Affected Member otherwise causes the
---------------
dissolution of the LLC in contravention of the terms of this Agreement; and/or
(e) Material Breach of Collaboration Agreement. Such Affected Member
------------------------------------------
fails to cure a breach of the LLC Collaboration Agreement (as defined in Section
14.3 thereof) and the Non-Affected Member exercises its rights pursuant to
Section 14.2(c) or (d) of this Agreement; and
(f) Notice By Non-Affected Member. Written notice
-----------------------------
has been given to the Affected Member by the Non-Affected Member, with a copy of
the Management Committee, reciting facts therein in reasonable detail regarding
(i) the date upon which, in the good faith judgment and knowledge of the Non-
Affected Member, such Event of Default occurred for the Affected Member, (ii)
the general nature of such Event of Default and (iii) that the Event of Default
(A) is having or would have, in the good faith judgment of the Non-Affected
Member, a material adverse effect upon the Affected Member's ability to perform
such Affected Member's obligations under this Agreement, the LLC Collaboration
Agreement, and/or the relevant
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
Collateral Agreements, and (B) which does have or would have, in the good faith
judgment of the Non-Affected Member, a material adverse effect on the business
or operations of the LLC.
14.2 Remedies of Default. Except as limited by Section 14.1(c) of this
-------------------
Agreement and by Section 14.3(b) of the LLC Collaboration Agreement, upon the
occurrence of, and during the continuance of, an Event of Default, the Non-
Affected Member may elect any or all of the following remedies:
(a) Injunctive Relief. The Non-Affected Member may seek to enjoin
-----------------
such default or to obtain specific performance of the Affected Member's
obligations; or
(b) Withhold Payments To The LLC. The Non-Affected Member then may
----------------------------
withhold payments otherwise required hereunder to be made to the LLC; or
(c) Termination And Dissolution Of LLC. The Non-Affected Member may
----------------------------------
elect to terminate and dissolve the LLC as provided in Section 12.1(b)(iii)(C)
hereof, in which event the affairs of the LLC will be wound up as provided in
Article XII hereof; or
(d) Purchase Of Membership Interest. The Non-Affected Member may
-------------------------------
elect to purchase the Affected Member's entire Membership Interest pursuant to
Section 13.3 hereof.
14.3 Election Of Remedies. The election of a remedy specified under
--------------------
Section 14.2(a) hereof by the Non-Affected Member will be made by giving written
notice (a "Default Notice") to the Affected Member, with a copy to the
--------------
Management Committee, at any time that the Event of Default has occurred and is
continuing. If an election by the Non-Affected Member is made pursuant to
Section 14.2(a) hereof to seek an injunction, specific performance or other
equitable relief, and a final judgment in such action is rendered denying such
equitable remedy, then the Non-Affected Member may elect to pursue the remedy
specified in Section 14.2(a) hereof to the extent such remedy is available
unless, prior to the giving of such notice, the Affected Member has cured the
relevant Event of Default in full or the final judgment denying equitable relief
specifically held that there was no Event of Default by the Affected Member.
The election of any remedy by the Non-Affected Member pursuant to Section 14.2
hereof and to this Section 14.3 will not for any purpose be deemed to be a
waiver by the Non-Affected Member of any other remedy available to the Non-
Affected Member under applicable law.
ARTICLE XV
EFFECT OF CERTAIN EVENTS
15.1 Certain Changed Circumstance Applicable To Either Member. If a
--------------------------------------------------------
Changed Circumstance occurs with respect to either Member during the term of the
LLC, then unless otherwise agreed in writing by the Members, LLC Collaboration
Agreement and the Collateral Agreements as they may then exist will, unless and
to the extent that they otherwise so provide, remain in full force and effect.
15.2 Certain Changed Circumstance Applicable To Exelixis. If a Changed
---------------------------------------------------
Circumstance occurs with respect to Exelixis, and if Bayer, in its sole
discretion, does not timely elect to terminate the LLC under Section 12.1
hereof, then:
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
(a) Continuation Of LLC. The LLC will continue in existence; and
-------------------
(b) Continuation Of Certain Agreements. The LLC Collaboration
----------------------------------
Agreement and the Collateral Agreements as they may then exist will, to the
extent they so provide, remain in full force and effect; and
(c) Continuation Of Assay Development Within LLC. Assay development
--------------------------------------------
within the LLC will continue until the end of the Research Term, as defined in
the LLC Collaboration Agreement; and
(d) Updates Of HelioTag. Bayer and the LLC will continue to get
-------------------
updates of HelioTag (as it may be renamed after the Commencement Date) from
Exelixis in the manner delivered prior to such event; and
(e) Continuation Of LLC And Of Percentage Interests. If Bayer does
-----------------------------------------------
not purchase Exelixis' Membership Interest as provided under Article XIII
hereof, the Members will retain their respective Membership Interests and
Percentage Interests; and
(f) Certain Conditions Applicable To Exelixis During Interim Period.
---------------------------------------------------------------
If pursuant to Section 13.2(a)(iii) hereof Bayer not has waived, or been deemed
to have waived, its Buyout right, then for the period between the date of such
notice from Exelixis to Bayer as to such Changed Circumstance and the earliest
of (1) the date of the Buyout by Bayer of Exelixis' Membership Interest, (2) the
termination of the LLC pursuant to the terms hereof, or (3) the closing of the
transaction involving Exelixis which gave rise to the Changed Circumstance, as
relevant:
(i) Independent Member Representatives And Members Of The JSC.
---------------------------------------------------------
Exelixis must immediately appoint and have serving during such period as its
Member Representatives and as its members of the JSC individuals who are
independent of Exelixis, and
(ii) Exelixis Access To Certain Information. Exelixis will have
--------------------------------------
access to data and intellectual property that is generated by the LLC with
respect to research and development upon such terms as the Management Committee
determines in good faith, but will continue to get such financial information as
is provided under Section 8.6 hereof.
(iii) Certain Resumption Of Rights Of Exelixis. If pursuant to
----------------------------------------
Section 13.2(a)(iii) hereof Bayer does not waive, or is not deemed thereunder to
waive, its Buyout right, but does not thereafter timely exercise its Buyout
right, or if before Bayer exercises such Buyout right such Changed Circumstance
ceases to exist, the cessation of which Exelixis will immediately notify Bayer
in writing, with a copy to the Management Committee, then Exelixis' rights as to
whom it may appoint as Member Representatives and members of the JSC, and its
other rights hereunder, including its rights to any information of the LLC, will
resume as in effect immediately prior to such Changed Circumstance coming into
being.
15.3 Certain Changed Circumstance Applicable To Bayer. If a Changed
------------------------------------------------
Circumstance occurs with respect to Bayer, and if Exelixis, in its sole
discretion, does not timely elect to terminate the LLC as provided in Section
12.1 hereof, then:
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
(a) Continuation Of LLC. The LLC will continue in existence; and
-------------------
(b) Continuation Of Certain Agreements. The LLC Collaboration
----------------------------------
Agreement and the Collateral Agreements as they may then exist will, to the
extent they so provide, remain in full force and effect; and
(c) Continuation Of Assay Development Within LLC. Assay development
--------------------------------------------
within the LLC will continue until the end of the Research Term, as defined in
the LLC Collaboration Agreement; and
(d) Updates Of HelioTag. The LLC will continue to get updates of
-------------------
HelioTag (as it may be renamed after the Commencement Date) from Exelixis in the
manner delivered prior to such event; and
(e) Continuation Of LLC And Of Percentage Interests. If Exelixis does
-----------------------------------------------
not purchase Bayer's Membership Interest as provided under Article XIII hereof,
the Members will retain their respective Membership Interests and Percentage
Interests; and
(f) Certain Conditions Applicable To Bayer During Interim Period. If
------------------------------------------------------------
pursuant to Section 13.2(a)(iii) hereof Exelixis not has waived, or been deemed
to have waived, its Buyout right, then for the period between the date of such
notice from Bayer to Exelixis as to such Changed Circumstance and the earliest
of (1) the date of the Buyout by Exelixis of Bayer's Membership Interest, or (2)
the termination of the LLC pursuant to the terms hereof, or (3) the closing of
the transaction involving Bayer which gave rise to the Changed Circumstance, as
relevant:
(i) Independent Member Representatives And Members Of The JSC.
---------------------------------------------------------
Bayer must immediately appoint and have serving during such period as its Member
Representatives and as its members of the JSC individuals who are independent of
Bayer, and
(ii) Bayer Access To Certain Information. Bayer will have
-----------------------------------
access to data and intellectual property that is generated by the LLC with
respect to research and development upon such terms as the Management Committee
determines in good faith, but will continue to get such financial information as
is provided under Section 8.6 hereof.
(iii) Certain Resumption Of Rights Of Bayer. If pursuant to
-------------------------------------
Section 13.2(a)(iii) hereof Exelixis does not waive, or is not deemed thereunder
to waive, its Buyout right, but does not thereafter timely exercise its Buyout
right, or if before Exelixis exercises such Buyout right such Changed
Circumstance ceases to exist, the cessation of which Bayer will immediately
notify Exelixis in writing, with a copy to the Management Committee, then
Bayer's rights as to whom it may appoint as Member Representatives and members
of the JSC, and its other rights hereunder, including its rights to any
information of the LLC, will resume as in effect immediately prior to such
Changed Circumstance coming into being.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
ARTICLE XVI
RIGHT OF FIRST OFFER
16.1 Exercise Of Rights; Adjustment Of Percentage Interests.
------------------------------------------------------
(a) Notice Of Proposed Issuance of Additional Membership Interests Or
-----------------------------------------------------------------
Other Interests. If the LLC proposes to issue any additional Membership
- ---------------
Interests or any other interests in the LLC, including without limitation any
equity security of the LLC, and including therein without limitation convertible
promissory notes, warrants or options to purchase an interest in the LLC, and
such proposal has been approved by the Management Committee, the LLC will give
each Member prior written notice of the LLC's intention, describing the
additional Membership Interests or other interests in the LLC, the price and the
general terms and conditions upon which the LLC proposes to issue such
additional Membership Interests or other interests in the LLC and the
anticipated effect on such Member's Percentage Interest.
(b) Exercise Of Right By Members. Each Member will have [ * ] after
----------------------------
the giving of such notice, and [ * ] after the giving of any notice of a
material change in such offering (which change notice the LLC promptly will
deliver to each Member), to elect by giving written notice thereof to the
Management Committee, to purchase, for the price and upon the terms and
conditions specified in the LLC's notice, up to the total of additional
Membership Interests or other interests in the LLC offered, in each case with a
right of oversubscription for each Member, the amount of which oversubscription
to be specified in such written notice to the LLC.
(c) Procedure In The Event Of Oversubscription By Members. If both
-----------------------------------------------------
Members subscribe (the "Subscribing Members") for more than the total of
-------------------
additional Membership Interests or other interests in the LLC Offered (whether
such total is all of such additional Membership Interests or other interests in
the LLC, then the Subscribing Members, together, will be entitled to purchase
only their respective Pro Rata Share, up to the total of additional Membership
Interests or other interests in the LLC offered.
(d) Automatic Adjustment Of Percentage Interests. The Percentage
--------------------------------------------
Interests of the Members will automatically, without any executed amendment
hereto being requested, be adjusted, from and after the issuance of such
additional Membership Interests, to reflect the result of such issuance.
16.2 Issuance Of New Securities To Other Persons. If the Members do not
-------------------------------------------
together or singly purchase all of the Membership Interests or other interests
in the LLC so offered, then the LLC will, if both Members have so agreed in
writing, have [ * ] following exercise by the Members of their rights of first
offer hereunder to sell to other Persons the additional Membership Interests or
other interests in the LLC in respect of which the rights of purchase of the
Members were not exercised, at a price and upon general terms and conditions no
more favorable to the purchasers thereof than specified in the LLC's notice to
the Members pursuant to Section 16.1 hereof. If the LLC has not sold the
additional Membership Interests or other interests in the LLC within such [ * ],
the LLC will not thereafter issue or sell any additional
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
Membership Interests or other interests in the LLC without first offering such
securities to the Members, in the manner provided in this Section 16.2.
16.3 Termination Of Rights Of First Offer. The rights of first offer
------------------------------------
established by this Section 16 will terminate as to all Members upon the
termination of the LLC.
ARTICLE XVII
DISPUTE RESOLUTION
17.1 Procedure Before Arbitration. Any dispute between the Members other
----------------------------
than a dispute over a tax reporting matter, which will be resolved as provided
in Section 17.3 hereof, and other than a dispute involving intellectual property
of either Member or of the LLC, for which judicial resolution will be available
to any party, but otherwise including without limitation a Substantial
Disagreement and in each case involving, and only with respect to, the LLC, will
be attempted to be resolved by the Members in accordance with the following
procedure before the provisions of Section 17.2 hereof will apply:
(a) Notice. One Member will notify the other Member in writing of the
------
nature of the dispute in reasonable detail, with a copy to the Management
Committee. If the Members cannot resolve such dispute within [ * ] after such
notice is given, they will, by the end of such [ * ], agree on the issues giving
rise to the dispute and will submit the matter, and such agreed issues, in
writing to their respective Chief Executive Officer or equivalent.
(b) Appointment Of Senior Executives. Within [ * ] after their
--------------------------------
receipt of such notice of the dispute, the respective Chief Executive Officer of
each Member (or a senior executive of the relevant Member (or, as to Bayer, at
its election, a senior executive of Bayer AG) notified as such in writing
promptly by such Member to the other Member), each will appoint a single
delegate from among their respective senior executives who will have full power
and authority to resolve the dispute. The respective delegates will then have a
period of an additional [ * ] after the expiration of such initial [ * ] period
within which to meet and attempt to resolve the dispute. If the senior
executives cannot resolve the dispute within such time period, then the Chief
Executive Officers of the Members (or their respective pre-specified senior
executives, as relevant), will meet to attempt to resolve the dispute.
(c) Deadlock. If the dispute has not been resolved within [ * ] after
--------
the date of the original notice from one Member to the other of the dispute
given as provided in Section 17.1(a) hereof, then either Member may certify to
the other in writing, with a copy to the Management Committee, at any time
within [ * ] after the expiration of such [ * ] period that the Members have
reached Deadlock.
(d) Purchase Of Membership Interest Upon Deadlock After Fourth
----------------------------------------------------------
Anniversary Of Commencement Date. If either Member certifies to the other in
- --------------
writing that Deadlock has been reached with respect to a Substantial
Disagreement after the fourth anniversary of the Commencement Date, then the LLC
Collaboration Agreement will continue, but either Member may then offer to
purchase the Membership Interest of the other in accordance with the provisions
of Section 13.5 hereof. If the relevant Member declines in
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
writing to, or does not timely, pursue such purchase process, then the matter
will be resolved by arbitration as provided in Section 17.2 hereof.
(e) Procedure For Resolution If Deadlock For Other Than Substantial
---------------------------------------------------------------
Disagreement, Or Deadlock On Substantial Disagreement Prior To [ * ]
- --------------------------------------------------------------------
Anniversary. If either Member certifies to the other in writing that Deadlock
- -----------
has been reached with respect to a dispute other than one involving a
Substantial Disagreement, or that Deadlock has been reached, prior to the [ * ]
anniversary of the Commencement Date, with respect to a Substantial Disagreement
then the parties agree that the LLC Collaboration Agreement will continue, but
the matter will be resolved by arbitration as provided in Section 17.2 hereof.
17.2 Resolution By Arbitration.
-------------------------
(a) General. Except with respect to any dispute involving the
-------
Confidential Information or intellectual property of either party, for which the
parties hereto may seek judicial relief, any dispute between or among any of the
parties to this Agreement that arises out of or relates to this Agreement,
including a Substantial Disagreement, will, after the procedures described in
Section 17.1 have been followed to their conclusion, be finally settled by
binding arbitration in accordance with the Rules of the International Chamber of
Commerce (the "ICC"). Any disputes between the parties with respect to
---
arbitration procedures will be resolved by arbitration under this Section 17.2.
The arbitration will take place in New York, New York. The parties will, before
the hearing of any dispute by such arbitrators, make discovery and disclosure of
all materials relevant to the subject matter of such dispute, including the
taking of depositions at times and places mutually agreeable to the parties,
subject to such reasonable and customary further nondisclosure agreements or
agreements relating to attorney-client privilege as either party may reasonably
and in good faith request of the other in connection with such discovery and
disclosure. Subject to such protective measures, the parties will make available
to the arbitrators and to each other and their relevant professional advisors,
access to materials in written, electronically stored, or other form, including
access by computer over secured links, as the requesting arbitrator or party
reasonably and in good faith requests. Neither party will be required to
furnish such access in any medium other than that in which the relevant material
is stored at the time of such request. The parties hereby agree to exclude any
application or appeal to the courts in connection with any question of law
arising in the course of the referral to arbitration or out of the award. Each
of the parties will appoint one arbitrator and the two so nominated will, in
turn, choose a third arbitrator. if the arbitrators chosen by the parties cannot
agree on the choice of the third arbitrator within a period of thirty (30) days
after their nomination, then the third arbitrator will be appointed by the ICC.
The language of the arbitration will be English.
(b) Applicable Law. The law of the State of California, excluding
--------------
that body of law known as conflict of laws, will be the applicable substantive
law for all matters except those governed by the Act and by federal law, which
will apply to such other matters. The applicable procedural law will be the law
of the place of arbitration.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
(c) Arbitrator Decisions. The arbitrators will decide in accordance
--------------------
with the terms of this Agreement and will take into account any appropriate
trade usages applicable to the transaction. The arbitrators will state in
writing the reasons upon which the award is based.
(d) Award Of Arbitrators. The award of the arbitrators will be final
--------------------
and binding upon the parties, and may, at the arbitrators' discretion, include
costs of the arbitration, reasonable fees and costs of attorneys, experts and
other witnesses. Judgment upon the award may be entered in any court having
jurisdiction. An application may be made to any such court for judicial
acceptance of the award and an order of enforcement.
17.3 Resolution Of Certain Disputes Over Tax Matters. If either of the
-----------------------------------------------
Members or the LLC disagrees with the proposed treatment of an item on the
return prepared by or for the Tax Matters Member, the Members and the LLC will
promptly seek to resolve the disagreement through good faith discussions. If
the dispute cannot be so resolved, the Members and the LLC will engage the
services of a mutually agreed nationally recognized law firm or accounting firm
(which may be any law firm or accounting firm then retained by the LLC, or by
either Member, otherwise for general or specific matters) to resolve the matter.
The decision of such law firm or accounting firm on such matter, absent
demonstrable factual error or mathematical error, or fraud, will be binding on
the Members and the LLC. Such firm's fees and costs will be borne one-third by
each Member and one-third by the LLC.
ARTICLE XVIII
CONFIDENTIALITY
18.1 Obligations Of Confidentiality. The provisions of this Article XVIII
------------------------------
will apply to all Confidential Information disclosed by one party hereto to one
or more of the other parties hereto, whether prior to or after the Commencement
Date, and which is not otherwise the subject of a written nondisclosure
agreement between the relevant parties. Each party hereto (a) will hold the
other parties' Confidential Information in strict confidence, (b) will not
disclose such Confidential Information to any third parties and will take all
reasonable steps to prevent such disclosure, which steps will include at least
those taken by such relevant other party to protect such other party's own
confidential information of like kind, and (c) will not use any Confidential
Information of the other party for any purpose except for the business of the
LLC or as specifically permitted by the LLC Collaboration Agreement. Each
receiving party may disclose the disclosing party's Confidential Information to
the receiving party's responsible employees and consultants who have a bona fide
need to know, but only to the extent necessary to carry out the purposes of the
LLC. Each receiving party will instruct all such employees and consultants not
to disclose such Confidential Information to third parties, including other
consultants, without the prior written permission of the disclosing party.
18.2 Certain Confidential Information. The existence of this Agreement and
--------------------------------
its terms, and the existence and terms of the LLC Collaboration Agreement and
the Collateral Agreements as they may then exist are Confidential Information of
each party hereto.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
18.3 Return Of Confidential Information. Upon the disclosing party's
----------------------------------
request, the receiving party will promptly return to the disclosing party all
tangible items containing or consisting of the disclosing party's Confidential
Information and all copies thereof
18.4 No Other Rights. Nothing contained in this Agreement will be
---------------
construed as granting any rights to the receiving party, by license or
otherwise, to any of the disclosing party's Confidential Information except as
specified in this Agreement
18.5 Acknowledgment. Each Member and the LLC acknowledge that the
--------------
unauthorized disclosure or use of the disclosing party's Confidential
Information would cause irreparable harm and significant injury to the
disclosing party, the degree of which may be difficult to ascertain.
Accordingly, each Member agrees that the disclosing party will have the right to
seek an immediate injunction enjoining any breach of this Agreement by the
receiving party or its employees or consultants, as well as the right to pursue
any and all other rights and remedies available at law or in equity for such
breach.
18.6 Disclosure Required By Law. If the receiving party (or its
--------------------------
Affiliates) is required, whether by oral questions, interrogatories, requests
for information or documents, subpoena, civil investigative demand or similar
process, by any competent government authority, including pursuant to any
applicable rule of any stock exchange, self-regulatory organization or other
government agency, including without limitation such disclosure in connection
with any public offering of securities by either Member or their relevant
Affiliates, to disclose any Confidential Information of the disclosing party,
the receiving party will promptly notify the disclosing party in writing, in
reasonable detail, of such request or requirement and will cooperate with the
disclosing party in seeking appropriate protective arrangements requested by the
disclosing party. If, in the absence of a protective order or the receipt of a
waiver in writing by the disclosing party of such protective order, the
receiving party (or any of its Affiliates) is in the written opinion of the
receiving party's counsel compelled to disclose the Confidential Information,
the receiving party (or its Affiliates) may disclose only so much of the
Confidential Information to the party compelling disclosure as is required by
law. The receiving party will exercise (and will cause its Affiliates to
exercise) commercially reasonable best efforts to obtain appropriate protective
arrangements or other reliable assurance that confidential treatment will be
accorded to Confidential Information of the disclosing party in the event of
such required disclosure.
18.7 Public Announcements. During the term of this Agreement, neither the
--------------------
LLC nor either Member will (except as may otherwise be required by law as
described in, and subject to the provisions of, Section 18.6 hereof) issue any
press release or other public announcement or disclosure, with respect to this
Agreement or any of the Collateral Agreements as they may then exist, or any of
the transactions contemplated hereby or thereby, nor any material development
relating to any of the foregoing, without the prior written consent of both
Members.
18.8 Survival Of Confidentiality Obligations. The provisions set forth in
---------------------------------------
this Article XVIII will survive any expiration or termination of this Agreement,
for a period of [ * ] after the effective date of such expiration or
termination.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
ARTICLE XIX
MISCELLANEOUS
19.1 Further Assurances. The parties hereto will execute and deliver any
------------------
further instruments or documents and perform any additional acts that are or may
become necessary to effectuate and carry on the LLC created by this Agreement
and to carry out the purposes and intent of this Agreement.
19.2 Binding Effect. Subject to the restrictions on transfer set forth in
--------------
Section 3.4 hereof, this Agreement will be binding on and inures to the benefit
of the Members and their respective transferees, successors, assigns and legal
representatives.
19.3 Entire Agreement; Amendment; Incorporation Of Exhibits By Reference.
-------------------------------------------------------------------
This Agreement sets forth the agreement between the Members (or among the
Members if there are more than two (2) Members) with respect to the specific
subject matter hereof, and, except as otherwise set forth herein, supersedes and
terminates all prior representations, agreements and understandings between the
Members (or among the Members if there are more than two (2) Members) regarding
the subject matter hereof. No alteration, amendment, change or addition to this
Agreement will be binding upon the Members or the LLC unless in writing and
signed by an authorized signatory of each Member, in which case such amendment
also will be binding upon the LLC. Each Exhibit hereto is incorporated herein
by reference.
19.4 Assignment. Neither Member (nor any Member if there are more than two
----------
(2) Members) may assign or transfer this Agreement or any of such Member's
rights or obligations hereunder without the prior written consent of the other
Member.
19.5 Notices. All notices, requests, consents and other communications
-------
hereunder to any party will be deemed to be sufficient if contained in a written
instrument delivered in person, including delivery by recognized express
courier, fees prepaid, or sent by facsimile transmission or duly sent by first
class registered or certified mail, return receipt requested, postage prepaid,
in each case addressed as set forth below, or to such other address as may
hereinafter be designated in writing by the recipient to the sender pursuant to
this Section 19.5. All such notices, requests, consents and other
communications will be deemed to have been received in the case of personal
delivery, including delivery by express courier, on the date of such delivery;
in the case of facsimile transmission, on the date of transmission; and in the
case of mailing, on the third day after deposit in the U.S. mail, proper postage
prepaid. All notices to the Management Committee will be given to each Member
Representative then serving, at such address for such Member Representative as
is shown at the relevant time in the records of the LLC.
If to Exelixis: Exelixis Pharmaceuticals, Inc.
Attention: Chief Executive Officer
260 Littlefield Avenue
South San Francisco, CA 94080
Facsimile: 650-825-2205
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
With a copy to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Robert L. Jones
Facsimile: 650-857-0663
If to Bayer: Bayer Corporation
Attention: William G. Ferguson, Vice President and
Assistant General Counsel
8400 Hawthorne Road
Kansas City, MO 64120-0013 l
Facsimile: 816-242-2739
With a copy to: Heller Ehrman White & McAuliffe
Attention: Bruce W. Jenett
525 University Avenue
Palo Alto, CA 94301
Facsimile: 650-324-0638
If to the LLC: GenOptera LLC
Attention: Chief Executive Officer
c/o Exelixis Pharmaceuticals, Inc.
260 Littlefield Avenue
South San Francisco, CA 94080
Facsimile: 650-825-2205
19.6 Electronic Data Interchange. If both Members and/or the LLC elect to
---------------------------
facilitate their activities hereunder by electronically sending and receiving
data in agreed formats (also referred to in general usage as Electronic Data
Interchange or EDI) in substitution for conventional paper-based documents, the
terms and conditions of this Agreement will apply to such EDI activities and
communications as if such EDI communication , and as if such communication were
sent by facsimile.
19.7 Severability. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, then such provisions will be enforced to
the maximum extent possible under applicable law and the remainder of such
provisions) will be excluded from this Agreement, and the balance of this
Agreement will be interpreted as if such provisions) or portion(s) thereof were
so excluded and will continue to be enforceable in accordance with its terms.
19.8 Counting Of Time. Whenever days are to be counted under this
----------------
Agreement, the first day will not be counted and the day will be counted, such
that if a notice is delivered on a Monday to one Member, for example, with a
five (5) day reply period hereunder, the reply must
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
be given to the sending Member (not received by such sending Member) by such
recipient member no later than 11:59 a.m. local time for the sender, on the
Saturday next following such Monday.
19.9 Force Majeure Events. Except as otherwise provided herein, no Member
--------------------
will be in breach of this Agreement, or liable to the other Member, or to the
LLC, for any loss, damage, detention, delay or failure of performance to the
extent such loss, damage, detention, delay or failure is caused by a Force
Majeure Event provided that the party claiming excuse uses its commercially
reasonable efforts to overcome the same. In the event of a Force Majeure Event,
the obligations of the Affected Member will be suspended as long as such Force
Majeure Event continues, but such suspension will have no effect upon the rights
of the Members to terminate the LLC, as provided in Section 12.1(c)(iii) hereof,
or of one Member to purchase the Membership Interest of the other Member as
provided in Section 13.2 hereof, in the event of a Continuing Force Majeure
Event.
19.10 Hardship If, during the period of this Agreement, performance of
--------
this Agreement should lead to unreasonable hardship for one or other Member
taking the interests of both Members into account, both Members will endeavor to
agree in good faith to amend this Agreement in view of such circumstance.
19.11 Non-Waiver. The failure of a Member in any one or more instances to
----------
insist upon strict performance of any of the terms and conditions of this
Agreement will not be construed as a waiver or relinquishment, to any extent, of
the right to assert or rely upon any such terms or conditions on any future
occasion.
19.12 Disclaimer Of Agency; No Right Of Members To Commit Or Bind LLC.
---------------------------------------------------------------
This Agreement will not render either Member the legal representative or agent
of another, nor will either Member have the right or authority to assume,
create, or incur any third party liability or obligation of any kind, express or
implied, against or in the name of or on behalf of another except as expressly
set forth in this Agreement or except as may be expressly agreed in advance in
writing by the Member to be bound. Except as expressly provided herein, or
except as expressly consented to in writing by the other Member in advance of
such commitment, no Member will have the right to commit or bind the LLC.
19.13 Certain Third Parties. Except with respect to the rights of certain
---------------------
Persons to be indemnified pursuant to Article XI of this Agreement, which
Persons are intended as third party beneficiaries of their respective rights be
indemnified as set forth therein, able to enforce their respective rights to
such indemnification as if they were a party hereto, nothing in this Agreement,
express or implied, is intended to confer upon any person, other than the
parties hereto and their successors and assigns, any rights or remedies under or
by reason of this Agreement.
19.14 No Grant Of Rights. Except as specifically stated herein, neither
------------------
Member, nor the LLC, grants to any other party hereto and rights or license to
any intellectual property rights or other rights of the first party.
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
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<PAGE>
19.15 Expenses. Except as otherwise provided in this Agreement (a) all
--------
expenses incurred by a Member in connection with its obligations under this
Agreement will be borne solely by such Member, and (b) each Member will be
responsible for appointing its own employees, agents and representatives, who
will be compensated by such Member.
19.16 Captions. The captions to Sections of this Agreement have been
--------
inserted for identification and reference purposes only and will not be used to
construe or interpret this Agreement.
19.17 Costs And Attorneys' Fees. Except as otherwise provided in Article
-------------------------
XI hereof, including therein the definition of "Damages" under Section 1.21
hereof, if any action, suit or other proceeding is instituted concerning or
arising out of this Agreement or any transaction contemplated hereunder, the
prevailing party will recover all of such party's reasonable fees and costs of
attorneys incurred in each such action, suit or other proceeding, including any
and all appeals or petitions therefrom.
19.18 Governing Law. The law of the State of California, excluding that
-------------
body of law known as conflict of laws, will be the applicable substantive law
for all matters involving this Agreement, except those governed by the Act and
by federal law, which will apply to such other matters.
19.19 Waiver Of Action For Partition. Each Member hereby irrevocably
------------------------------
waives during the term of the LLC any right that such Member may have to
maintain any action for partition with respect to the property of the LLC.
19.20 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be an original and both of which will
constitute together the same document.
19.21 Official Language. The official text of this Agreement and any
-----------------
appendices, Exhibits and Schedules hereto, will be made, written and interpreted
in English. Any notices, accounts, reports, documents, disclosures of
information or statements required by or made under this Agreement, whether
during its term or upon expiration or termination thereof, will be in English.
In the event of any dispute concerning the construction or meaning of this
Agreement, reference will be made only to this Agreement as written in English
and not to any other translation into any other language.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
BAYER CORPORATION EXELIXIS PHARMACEUTICALS, INC.
By: /s/ Emil E. Lansu By: /s/ George Scangos
---------------------------- -----------------------------
Name: Emil E. Lansu Name: George Scangos
--------------------------- ---------------------------
Title: Executive Vice President Title: President & CEO
------------------------- --------------------------
Date signed: December 16, 1999 Date signed: December 16, 1999
------------------- ----------------------
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
-73-
<PAGE>
GENOPTERA LLC
By: /s/ Frank F. Reuscher
----------------------------
Name: Frank F. Reuscher
Title: Chief Executive Officer
Date signed: December 15, 1999
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
-74-
<PAGE>
EXHIBIT A
---------
LIST OF COLLATERAL AGREEMENTS
-----------------------------
[NONE AT THE EFFECTIVE DATE]
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
-i-
<PAGE>
EXHIBIT 10.9
COOPERATION AGREEMENT
This COOPERATION AGREEMENT (the "Agreement") is made as of September 15,
1998, by and between EXELIXIS PHARMACEUTICALS, INC., a Delaware corporation
("Exelixis"), and ARTEMIS PHARMACEUTICALS GMBH, a corporation organized under
the laws of the Federal Republic of Germany ("Artemis").
RECITALS
WHEREAS, Exelixis is engaged in the development of model genetic screening
systems using the fruit fly Drosophila melanogaster and the nematode worm C.
elegans and Artemis is engaged in the development of model genetic screening
systems using zebrafish and mouse genetic technology;
WHEREAS, Exelixis and Artemis desire to work together using each other's
technology and expertise to identify and validate drug screening targets;
WHEREAS, the Chief Executive Officer of Exelixis (the "Exelixis CEO") and
the Geschaftsfuhrer of Artemis (the "Artemis Geschaftsfuhrer") will meet from to
time as necessary to discuss opportunities available to either of the companies
to commercialize the technology being developed by the companies and products
developed therefrom;
WHEREAS, Exelixis has established a committee (the "Exelixis Committee")
pursuant to resolutions of the Board of Directors of Exelixis adopted on July 8,
1998, a copy of which are attached hereto as Annex A (the "Exelixis Board
Resolutions"), comprised of representatives of Exelixis and representatives of
the shareholders of Artemis, with the powers, authority, duties and
responsibilities set forth in such resolutions;
WHEREAS, Exelixis, Artemis and the other parties signatory thereto have
entered into a Shareholders' Agreement dated as of September 15, 1998, a copy of
which is attached hereto as Annex B (the "Artemis Shareholders Agreement"),
pursuant to which the shareholders of Artemis have established a committee (the
"Artemis Committee") comprised of representatives of Exelixis and
representatives of the other shareholders of Artemis with the powers, authority,
duties and responsibilities set forth in the Artemis Shareholders Agreement; and
WHEREAS, the Exelixis Committee shall have two primary functions: (i) to
approve all arrangements to be entered into by Exelixis with any third party
regarding the development, marketing, sales, promotion, manufacturing or other
commercialization of Exelixis' technology or any products developed therefrom
and (ii) to make recommendations to the Board regarding certain significant
transactions involving Exelixis; the functions of the Artemis Committee shall be
substantially similar to the functions of the Exelixis Committee with respect to
commercialization arrangements and certain significant transactions involving
Artemis.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Exelixis and Artemis hereby agree as follows:
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SECTION 1. COMMERCIALIZATION OPPORTUNITIES.
1.1 Exelixis Commercialization Opportunities. Exelixis hereby agrees that
in the event that an opportunity arises regarding an agreement with a third
party for the development of Exelixis' technology and the marketing, sales,
co-promotion, manufacturing or other commercialization arrangements with respect
to Exelixis' technology or any products developed therefrom (an "Exelixis
Commercialization Arrangement"), the Exelixis CEO will notify the Artemis
Geschaftsfuhrer and the two will meet to discuss the proposal and to negotiate
the terms of any Exelixis Commercialization Arrangement, including, but not
limited to, any necessary allocation of responsibilities between Exelixis and
Artemis, the amount and structure of royalty payments, milestone payments and
any other fees and the allocation of such payments between Exelixis and Artemis,
the payment of commercialization expenses and the terms of any license agreement
between the two parties.
1.2 Artemis; Commercialization Opportunities. Artemis hereby agrees that in
the event that an opportunity arises regarding an agreement with a third party
for the development of Artemis' technology and the marketing, sales,
co-promotion, manufacturing or other commercialization arrangements with respect
to Artemis' technology or any products developed therefrom (an "Artemis
Commercialization Arrangement"), the Artemis Geschaftsfuhrer will notify the
Exelixis CEO and the two will meet to discuss the proposal and to negotiate the
terms of any Artemis Commercialization Arrangement, including, but not limited
to, any necessary allocation of responsibilities between Exelixis and Artemis,
the amount and structure of royalty payments, milestone payments and any other
fees and the allocation of such payments between Exelixis and Artemis, the
payment of commercialization expenses and the terms of any license agreement
between the two parties.
SECTION 2. COMMITTEE APPROVAL.
2.1 Exelixis Committee Approval. Exelixis hereby agrees that prior to
executing a definitive agreement with respect to an Exelixis Commercialization
Arrangement, the Exelixis CEO will present such agreement to the Exelixis
Committee for its approval, and such agreement will be subject to the
affirmative vote or a majority of the Exelixis Committee members.
2.2 Artemis Committee Approval. Artemis hereby agrees that prior to
executing a definitive agreement with respect to an Artemis Commercialization
Arrangement, the Artemis Geschaftsfuhrer will present such agreement to the
Artemis Committee for its approval, and such agreement will be subject to the
affirmative vote of a majority of the Artemis Committee members.
SECTION 3. TERM.
This Agreement shall be effective for a period of five years, commencing as
of the date of this Agreement, or for such other period as shall be agreed to by
Exelixis and Artemis. This Agreement shall terminate in the event that the
members of the Exelixis Committee and the Artemis Committee are not identical or
the functions of the Exelixis Committee and the Artemis are not substantially
similar.
2
<PAGE>
SECTION 4. MISCELLANEOUS.
4.1 Relationship of the Parties. Nothing contained in this Agreement is
intended or is to be construed to constitute Exelixis and Artemis as partners or
joint venturers or one party as an employee of any other party. Except as
expressly provided herein, neither Exelixis nor Artemis shall have any express
or implied right or authority to assume or create any obligations on behalf of
or in the name of the other or to bind each other to any contract, agreement or
undertaking with any third party.
4.2 Further Assurances. Each of Exelixis and Artemis hereby agree to duly
execute and deliver, or cause to be duly executed and delivered, such further
instruments and do and cause to be done such further acts and things, including,
without limitation, the filing of such' additional assignments, agreements,
documents and instruments, that may be necessary or as the other party hereto
may at any time and from time to time reasonably request in connection with this
Agreement or to carry out more effectively the provisions and purposes of this
Agreement.
4.3 Successors and Assigns. The terms and provisions of this Agreement
shall inure to the benefit of, and be binding upon, Exelixis, Artemis, and their
respective successors and assigns; provided, however, that Exelixis and Artemis
may not assign or otherwise transfer any of their respective rights and
interests, nor delegate any of their respective obligations, hereunder,
including, without limitation, pursuant to a merger or consolidation, without
the prior written consent of the other party hereto. Subject to the foregoing,
any reference to Exelixis or Artemis hereunder shall be deemed to include the
successors thereto and .assigns thereof.
4.4 Amendments. No amendment, modification, waiver, termination or
discharge of any provision of this Agreement, nor consent by either party to any
departure therefrom, shall in any event be effective unless the same shall be in
writing signed by Exelixis and Artemis, and each amendment, modification,
waiver, termination or discharge shall be effective only in the specific
instance and for the specific purpose for which given.
4.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, as applied to contracts made
and performed entirely within the State of New York. Except as otherwise
provided herein, any claim or controversy arising out of or related to this
contract or any breach hereof shall be submitted to a court of competent
jurisdiction in the State of New York, and each of Exelixis and Artemis hereby
consent to the jurisdiction and venue of such court.
4.6 Severability. If any provision hereof should be held invalid, illegal
or unenforceable in any respect in any jurisdiction, then, to the fullest extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intentions of the parties hereto as nearly as may be possible and(b)
such invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction. To the
extent permitted by applicable law, Exelixis and Artemis hereby waive any
provision of law that would render any provision hereof prohibited or
unenforceable in any respect.
4.7 Headings. The headings of the Sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed a part of this Agreement.
3
<PAGE>
4.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, taken together,
shall constitute one and the same instrument.
4.9 Entire Agreement. This Agreement, together with any agreements
referenced herein, constitute, on and as of the date hereof, the entire
agreement of Exelixis and Artemis with respect to the subject matter hereof, and
all prior or contemporaneous understandings or agreements, whether written or
oral between Exelixis and Artemis with respect to such subject matter are hereby
superseded in their entirety.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
EXELIXIS PHARMACEUTICALS, INC.
/s/ George Scangos
___________________________________
By:
Name: George Scangos
Title: President and CEO
ARTEMUS PHARMACEUTICALS GMBH
/s/ Peter Stadler
___________________________________
By:
Name: Peter Stadler
Title: CEO
5
<PAGE>
ANNEX A
RESOLUTIONS OF THE BOARD OF DIRECTORS OF EXELIXIS
A. Formation and Conduct of the Exelixis Committee
WHEREAS, in connection with the Cooperation Agreement, the Board desires to
establish a committee (the "Exelixis Committee") comprised of representatives of
Exelixis and Artemis; the Exelixis Committee shall have two primary functions:
(i) to approve all arrangements to be entered into by the Corporation with any
third party regarding the development, marketing, sales, promotion,
manufacturing or other commercialization of the Corporation's technology or any
products developed therefrom and certain other material agreements and (ii) to
make recommendations to the Board regarding certain significant transactions
involving, the Corporation; and WHEREAS, the shareholders of Artemis will
establish a similar committee (the "Artemis Committee") pursuant to the terms of
the Shareholders Agreement and Artemis' Articles of Association; the members of
the Artemis Committee shall be identical to the members of the Exelixis
Committee and the functions of the Artemis Committee shall be substantially
similar to the Exelixis Committee with respect to commercialization arrangements
and certain significant transactions involving Artemis.
RESOLVED, that the Exelixis Committee shall have five members, three of
which shall be appointed by the Board (the "Exelixis-Committee Members") and two
of which shall be appointed by Artemis as representatives of the other
shareholders of Artemis (the "Artemis Committee Members");
RESOLVED, that the Exelixis Committee shall be comprised of the following
persons: George A. Scangos, Stelios Papadopoulos and Jean-Francois Formela, as
the Exelixis designees, and Peter Stadler and Jurgen Drews, as the Artemis
designees;
RESOLVED, that each Exelixis Committee Member designated by the Corporation
shall serve for a five-year term and until such time as his successor has been
appointed by the Board or until his earlier resignation or removal and each
Exelixis Committee Member designated by Artemis shall serve for a five-year term
or until such time as Artemis shall notify the Committee of his resignation or
removal; Members of the Exelixis Committee may resign at any time; the Exelixis
Committee Members may only be removed by this Board and the Artemis Committee
Members may only be removed by Artemis; vacancies on the Exelixis Committee
resulting from resignation, removal or other cause may only be filled, in the
case of an Exelixis Committee Member, by the Board and, in the case of an
Artemis Committee Member, by Artemis; RESOLVED, that the Exelixis Committee
shall remain in effect until the earlier of five years from the date of
Cooperation Agreement or the termination of the Cooperation Agreement, provided,
however, in the event that the term of the Cooperation Agreement is extended,
the Exelixis Committee shall remain in effect for such extended period;
RESOLVED, that 80% of the members of the Exelixis Committee shall
constitute a quorum for the transaction of business at any meeting of the
Exelixis Committee, provided that in the event that a quorum is not present at
two consecutive meetings, a third meeting will be convened within one week of
the last scheduled meeting at which a quorum was not present and for purposes of
such meeting, a majority of the members of the Exelixis Committee will
constitute a quorum; meetings of the Exelixis Committee may be convened upon 15
days notice;
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<PAGE>
RESOLVED, that, except as provided in paragraph B(3) below, the affirmative
vote of a majority of the members of the Exelixis Committee present at a meeting
at which a quorum is present shall be the act of the Exelixis Committee; and
RESOLVED, that the expenses of each Exelixis Committee Member shall be paid
by Exelixis and the expenses of each Artemis Committee Member shall be paid by
Artemis.
B. Exelixis Committee Functions
RESOLVED, that upon the approval of a majority of the members of the
Exelixis Committee present at a meeting at which a quorum is present, the proper
officers of the Corporation be, and each of them hereby is authorized to enter
into agreements on behalf of the Corporation in connection with the following
transactions:
(i) Third-party Commercialization Arrangements. All arrangements to be
entered into by the Corporation with any third party regarding the
development, marketing, sales, promotion, manufacturing or other
commercialization of Exelixis' technology, expertise or any products
developed therefrom;
(ii) Material Agreements. Any material agreement to be entered into by
the Corporation with any third party, other than material agreements to be
entered into in connection with the transactions described in paragraphs
(I)-(6) below; and
(iii) Incurrence of Indebtedness. Borrowing funds or incurring any
indebtedness in excess of US$500,000.
RESOLVED, that in connection with the Board's consideration of any of the
following transactions, it shall consider the recommendation of the Exelixis
Committee, which recommendation, except as otherwise provided in paragraph (3)
below, shall require the approval of a majority of the members of the Exelixis
Committee present at a meeting at which a quorum is present:
(1) Capital Transactions. Increasing or reducing the Corporation's
authorized capital or creating any additional class of capital stock of the
Corporation, or selling or issuing shares of capital stock (or securities
convertible into or exchangeable for capital stock or warrants, options or
rights to acquire shares of capital stock or to acquire securities
convertible into or exchangeable for capital stock) of the Corporation,
except for (A) shares of the Company's Common Stock, par value $.001 per
share (the "Common Stock") issuable upon conversion of the Corporation's
outstanding Series A Convertible Preferred Stock, par value $.001 per
share, Series B Convertible Preferred Stock, par value $.001 per share, and
Series C Convertible Preferred Stock; (B) shares issuable upon exercise of
any warrants, options or rights to acquire shares of capital stock of the
Company outstanding on the date of the Cooperation Agreement; and (C)
options granted pursuant to the terms of any stock option or other employee
benefit plan existing on the date of the Cooperation Agreement;
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<PAGE>
(2) Asset Sales. Selling, leasing, exchanging, transferring or
otherwise disposing of, directly or indirectly, in a single transaction or
series of related transactions, all or substantially all of the
Corporation's property and assets;
(3) Business Combinations. (A) Entering into any business combination
between the Corporation and Artemis whether by merger, consolidation,
transfer of assets or otherwise (a "Business Combination") during the
period commencing 18 months from the date of the Cooperation Agreement and
terminating on the fifth anniversary of such date (the "Initial Period"),
provided, however, any Business Combination to be entered into prior to, or
in the event that the term of the Cooperation Agreement is extended, after,
the Initial Period shall require the unanimous vote of the members of the
Exelixis Committee or (B) entering into any Business Combination with a
third party other than Artemis;
(4) Dissolution of the Corporation. (A) Seeking the liquidation,
reorganization, dissolution or winding-up of the Corporation, (B) applying
for or consenting to the appointment of, or the taking possession by, a
receiver, custodian, trustee or liquidator for itself or of all or a
substantial part of the Corporation's assets, (C) make a general assignment
for the benefit of the Corporation's creditors, (D) commencing a voluntary
case under the United States' Bankruptcy Code;
(5) Declaring or paying any dividends on the Common Stock; or
(6) Repurchasing or redeeming any capital stock or other securities or
capital stock of the Corporation.
C. Appointment of Exelixis Members to the Artemis Committee
RESOLVED, that George A. Scangos, Stelios Papadopoulos and Jean-Francois
Formela, be and each of them hereby is, appointed as a member of the Artemis
Committee, to serve for a five-year term and until such time as his successor
has been appointed by this Board or until his earlier resignation or removal.
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ANNEX B
ARTEMIS SHAREHOLDERS' AGREEMENT
9
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Courtesy Translation
SHAREHOLDERS' AGREEMENT
between and among the shareholders of Artemis Pharmaceuticals GmbH:
1. Prof. Dr. Peter Stadler,
2. Prof. Dr. Christiane Nusslein-Volhard,
3. Prof. Dr. Klaus Rajewsky,
4. EXELIXIS Pharmaceuticals, Inc.,
5. FEI Biomedicine Private Equity Holding AG, Basel
6. (a) Atlas Venture Fund II, L.P.
(b) Atlas Venture Germany B.V., Netherlands
(c) Oxford Ventures
(d) Global Life Science Holding V GmbH
(e) Advent International Corporation
(f) Stelios Papadopoulos
(g) Charles Cohen
(h) Forward Ventures
. (the parties in 5. - 6. are also referred to as the "Investors") -and
7. Max-Planck-Geseilschaft, Munich ("MPG").
(hereinafter together referred to as the "Shareholders")
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PREAMBLE
Artemis Pharmaceuticals GmbH (hereinafter referred to as the
"Corporation"), a corporation organized under German Law, is engaged in the
development and/or utilization of biological/genetical model systems for
identifying new research methods and/or effective molecules for the
identification of effective therapies and/or medications for the treatment of
various diseases. Zebrafish Danio Rerio and mice play an important role as model
organisms in this respect. The Corporation intends to further its development
and the development of its products by concluding cooperation agreements and
creating strategic alliances with pharmaceutical companies.
In order to achieve its goals more effectively, the Corporation has agreed
on a strategically oriented cooperation with EXELIXIS Pharmaceuticals, Inc.,
South San Francisco, a corporation organized under the law of the State of
Delaware, USA (hereinafter "EXELIXIS"). EXELIXIS is also utilizing
biological/genetical model systems (fruit flies and nematode worms) for purposes
of active substance research and development.
Through the Corporation, the Shareholders plan to jointly employ their
technologies, their expertise and their capital for reaching the goals of the
Corporation. In this context, wherever advantageous and possible for the
Corporation and EXELIXIS, research activities and the activities for marketing
the products and technologies of both companies shall be coordinated and
adjusted to each other.
The Shareholders will work towards the Corporation and EXELIXIS consulting
each other in the cooperative spirit of trust with respect to reaching the
aforementioned objectives. Furthermore they shall both contribute to create a
framework which is' advantageous for a later merger of both companies to be
mutually agreed upon.
ARTICLE 1
ARTICLE OF ASSOCIATION
The parties will [on the day this contract is signed] agree to the Articles
of Association set forth in Exhibit 1. The Articles of Association can only be
amended by a majority vote of 75% of the parties to this Agreement. Thereby the
voting ratios of the contractual parties shall correspond to the amount of their
respective quota in the registered capital.
ARTICLE 2
CAPITALIZATION
On 08.10.1998 the parties agreed to a capital increase in accordance with
Exhibit 2a and on 08.. i 998 to a capital increase in accordance with Exhibit 2b
and subscribe to the capital contributions to the registered capital
correspondingly.
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ARTICLE 3
MANAGING DIRECTORS
The parties agree that, for the duration of this Agreement, Prof. Dr. Peter
Stadler will be named as the sole managing director of the business. Prof. Dr.
Stadler will not be bound by the limitations of (S).181 BGB (German Civil Code).
ARTICLE 4
SHAREHOLDER ADVISORY BOARD
1. The five members of the Shareholder Advisory Board pursuant to (S).I 1
of the Articles of Association shall be constituted as follows: three members
will be appointed by EXELIXIS, one member will be appointed jointly by Prof. Dr.
Stadler, Prof. Dr. Niisslein-Volhard, Prof. Dr. Rajewsky and MPG, and one member
will be appointed by the Investors. As a result of this provision, initially
George A. Scangos, Ph.D., Stelios Papadopoulos, Ph.D., and Dr. med. Jean-
Francois Formela are appointed by EXELIXIS, Prof. Dr. Peter Stadler is appointed
by Prof. Dr. Stadler, Prof. Dr. Niisslein-Volhard, Prof. Dr. Rajewsky and MPG,
and Prof. Dr. Jiirgen Drews is appointed by the Investors as members of the
Shareholder Advisory Board. The parties agree that these members of the
Shareholder Advisory Board shall only be replaced for important reasons by the
parties entitled to appoint the member being replaced.
2. The parties agree that the measures of the managing director listed in
Exhibit 3 require the approval of the Shareholder Advisory Board.
3. The parties assume the obligation to vote for the resolutions and
measures listed in Exhibit 4 during shareholders' meetings, if the Shareholder
Advisory Board has decided % on such measures.
ARTICLE 5
DURATION OF THE AGREEMENT
This Agreement is effective for a period of five years. It is established
on the basis that EXELIXIS will establish a committee (the "Committee") the five
members of which must be identical with the members of the Shareholder Advisory
Board set forth in (S). 4 Para. I in its respective composition, and that the
Board of Directors of EXELIXIS requires the approval of the Committee with
regard to the measures listed in Exhibits 3 and 4. If anything regarding the
composition of the Committee existing at EXEL1XIS, or regarding the matters
requiring approval by the Committee is changed, the provisions of this
Shareholders Agreement shall immediately become ineffective without replacement,
unless the parties agree to a conforming provision that is appropriate for the
new -4- situation. The same applies if thc voting quorum for the Committee does
not require at least the presence of 80% of its members or if thc passing of a
resolution by the Committee docs not take place with a majority of thc members
present. In case the Committee quorum was not present at two consecutive
meetings, a lesser quorum is permissible at the following meeting.
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ARTICLE 6
EXCLUSIVE ADVISORY CONTRACTS
Prof. Dr. Nusslein-Voihard and Prof. Dr. Rajewsky will place their know-how
exclusively at the disposal of the Company and EXELIXIS with regards to
commercial application and based on advisory contracts still to be negotiated.
ARTICLE 7
STOCK-OPTION PLAN
1. Managing employees shall participate directly in the success of the
Company by means of a stock-option plan. The required' quotas will be sold by
Prof. Dr. Stadler, Prof. Dr. Christiane Nusslein-Volhard and Prof. Dr. Klaus
Rajewsky at nominal value to the beneficiaries of this plan, either directly or
indirectly through a third party. Prof. Dr. Stadler will make up to 7,38 % of
his quota, Prof. Dr. Christiane Nusslein-Volhard will make up to 7,72 % of her
quota and Prof. Dr. Klaus Rajewsky will make up to 7,72 % of his quota available
for this purpose.
2. In the event of a later merger with Exelixis employees of the Company
shall be treated equally to their respective Exelixis counterparts. He who has
worked for a comparable period of time with a comparable scientific background
in a comparable position, shall receive the same equity interest in the new
company as his Exelixis counterpart.
ARTICLE 8
JOINTLY HELD QUOTA
If a quota is held jointly by several persons, they are obliged to appoint
a joint representative who will exercise their rights from. the quota. As long
as a joint representative has not been appointed, the rights from the quota
shall rest.
ARTICLE 9
CHOICE OF LAW / JURISDICTION
This Agreement is governed by German law.
ARTICLE 10
WRITTEN FORM REQUIREMENT
Changes and supplements to this Agreement require the written form.
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ARTICLE 11
ARBITRATION
For all differences of opinion that arise between the parties with regard
to the effectiveness, interpretation, application and implementation of this
Agreement and of the relevant arbitration agreement, the agreement pursuant to
Exhibit 5 shall apply.
ARTICLE 12
SEVERABILITY
If provisions of this Agreement or a provision thereof included at some
later time be entirely or partially legally ineffective or unenforceable or
should provisions later lose their legal effectiveness or enforceability, the
validity of the remaining provisions of this Agreement shall not be affected as
a result. The same applies if it becomes apparent that the Agreement contains an
omission. In place of the ineffective or unenforceable provision, or, to fill
such omission, a reasonable provision shall apply which to the extent legally
possible comes as close as possible to what the parties wanted or to the sense
and purpose of the Agreement, if the parties had considered the issue at the
time of conclusion of this Agreement or at a later inclusion of a provision.
This shall also apply if the ineffectiveness of a provision is due to an
explicit measure of performance or time (deadline or appointed time) listed in
the Agreement; in this case a legally permitted measure of performance or time
(deadline or appointed time) that approximates the intent as closely as possible
shall be deemed agreed upon.
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Courtesy Translation
ARTICLES OF ASSOCIATION
I. GENERAL PROVISIONS
Section 1. Firm, Registered Office and Fiscal Year
1. The name of the Corporation shall be Artemis Pharmaceuticals
GmbH
2. The Corporation shall have its registered office in Koln.
3. The fiscal year of the Corporation shall be the calendar year.
Section 2. Purpose of the Corporation
1. The purpose of the Corporation is the research and development of
new therapies, diagnostic methods, and pharmaceutical products to treat diverse
illnesses through the use of genetic, biochemical and biological means. The
production of pharmaceutical products in each case follows through licensed
pharmaceutical producers. The pharmaceutical products will be stored with the
manufacturer. Distribution shall take place exclusively through the wholesale
pharmaceutical business.
2. Moreover, the Corporation may be involved in any business suitable
to promote its above purpose. The Corporation may establish other companies and
branch offices and participate in other companies.
Section 3. Notifications
Any notifications by the Corporation shall be published in the
Bundesanzeiger exclusively, to the extent that public notifications are required
by law.
II. REGISTERED CAPITAL AND QUOTAS
Section 4. Registered Capital
1. The Corporation's registered capital shall amount to DM 347.500,-
(Deutsche Mark three-hundred-forty-seven-thousand-five-hundred) unless paragraph
2 provides for a different amount.
2. The registered capital has been increased by resolution as of
27.08.1998 by DM 152,500,- maximum (Deutsche Mark one-hundred-fifty
two-thousand-five-hundred). The final amount of the capital increase will result
from the aggregate amount of the shares subscribed by 01.11.1998.
Section 5. Jointly held Quotas
If a quota is held jointly by several persons, they are obliged to appoint
a joint representative who will exercise their rights with respect to the quota.
As long as a joint representative has not been appointed, the rights from the
quota shall rest.
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Section 6. Redeeming Quotas
1. The redemption of a quota requires a resolution of the shareholders'
meeting and is only permissible with the approval of the affected shareholder.
The approval of the affected shareholder is not required when
a. bankruptcy or composition proceedings have legally commenced
concerning his assets or when the commencement of bankruptcy proceedings has
been refused due to insufficient assets;
b. foreclosure has taken place into the quota and the levy of
execution has not been stayed within one month or when the creditor pursues its
realization;
c. a shareholder raises a legal claim for judicial dissolution or
when a shareholder declares his notice of withdrawal from the Corporation or
d. another important reason exists.
2. The redemption shall take place against payment. The payment amount
is determined by the ordinary value of the quota, which shall be determined
according to the fiscal regulations in their respective valid form for the
valuation of quotas, the value of which cannot be derived from sale. The
situation on the last balance sheet date of the Corporation shall be decisive,
however, each of the shareholders may request, at his own cost, an adjustment of
the valuation to and as of the redemption effective date. In case of dispute
upon the request of any shareholder, the value of the quota shall be determined
in a legally binding way by an arbitrator, who must be an auditor, named by the
Chamber of Industry and Commerce in Dusseldorf. Real property and buildings; if
any, shall be valued at their expertly appraised fair market value.
Section 7. Disposals of Quotas
1. The transfer of a quota, in whole or in part, and all other
assignments with respect to a quota in the Corporation require the approval of
the Shareholder Advisory Board to be effective. Any transfer of a quota in
contravention of this provision shall be ineffective.
2. Every shareholder has the right to transfer his quota in its
entirety to an acquiring party who is not a shareholder, insofar as the transfer
proceeds in accordance with the following provisions:
a. The shareholder who wishes to transfer a quota must first offer
it to the other shareholders by sending written notice via registered mail and
with written notice to the Corporation. The notice must state the price and
other conditions of the transfer. Every shareholder has the right to acquire the
quota in accordance with the stated conditions if he declares his willingness to
acquire within two months of the receipt of the written offer by sending written
notice via registered mail and with written notice to the Corporation.
b. The right to acquire can only be exercised with respect to the
entire quota offered. If several shareholders exercise the right to acquire, in
the absence of a different understanding between them, the right to acquire
shall be deemed exercised by the shareholders
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in the ratio of their quota hitherto, whereby an indivisible maximum amount
falls to the shareholder with the lowest quota. The sale and assignment of the
quota must occur in notarial form within four weeks of the exercise of the right
to acquire.
c. In case the right to acquire is not exercised or the authorized
transferee fails to contribute to the sale and assignment within the set period,
then the Corporation -4-or a third party named by the Corporation is entitled
to acquire the quota, if the willingness to acquire is declared within one
month. The exercise of the right to acquire or the naming of a third party
requires the approval of the Shareholder Advisory Board.
d. Should a quota fail to transfer in accordance with !et. (a)
through (c), then the shareholder may within a period of six months transfer the
offered quota to one or more third parties for the given, or for the acquirer
less favorable, conditions. The Shareholder Advisory Board is obligated to
dispense its approval in accordance with para. 1.
III. MANAGING DIRECTORS
Section 8. Management and Representation
1. The Corporation shall have one or several managing directors. If
only one managing director has been nominated, he shall be the sole
representative of the Corporation. If several managing directors have been
nominated, the Corporation shall be represented jointly by two managing
directors or by one managing director together with a person granted power of
attorney according to the Commercial Code [Prokurist].
2. By means of a shareholder resolution,
a. if there are several managing directors, individuals among them
may be granted , the power of sole representation;
b. it may be resolved that a managing director may only be
dismissed for important reason;
c. a managing director may be freed from the provisions of (S).181
BGB (German Civil Code).
3. The managing directors are only allowed to take part in certain
transactions, as determined by the Shareholder Advisory Board, with the approval
of the Shareholder Advisory Board.
IV. SHAREHOLDERS
Section 9. Shareholder Resolutions
1. Shareholder resolutions are passed during shareholders' meeting.
They may also be passed in writing, by telex, by telegram, by telecopy, by
telephone or by video conference if all shareholders agree. Resolutions passed
without a meeting must be documented in writing by the managing directors and
distributed in writing to all shareholders.
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2. Shareholder resolutions are passed with a majority of the votes
cast, unless the law or the Articles of Association require more than a majority
vote.
Section 10. Shareholders' Meeting
1. The shareholders' meeting shall be held at the registered office or
another location, as determined by the shareholders.
2. The managing director shall call the shareholder meeting, announcing
the agenda by registered letter at least two weeks prior notice, not including
the day of dispatch of the invitation and the date of the meeting. In urgent
cases, the managing director may shorten this period.
3. The shareholders' meeting will elect a chairman from its members.
4. The shareholders' meeting is capable of rendering resolutions if at
least 75% of the share capital is present. An absent shareholder may be
represented by another shareholder. If a shareholders' meeting does not
constitute a quorum, a second meeting with the same agenda must be convened
within one week, which meeting shall be capable of rendering resolutions
regardless of the amount of registered capital represented; such circumstance
must be pointed out in the invitation.
5. The regular shareholders' meeting will convene within the first
seven months of the fiscal year. It will pass resolutions regarding the
determination of annual financial statements and the use of profits, formal
approval of the managing directors, as well as the choice of an auditor.
6. Any resolutions passed during a shareholders' meeting shall be
recorded in the minutes of the meeting. Such minutes shall be signed by the
chairman and sent to the shareholders without delay. Should a resolution be
passed in writing, by telex, by telegram, by telecopy, by telephone or by
video-conference, the chairman or the managing directors shall notify all
shareholders in writing of such resolution.
Section 11. Shareholder Advisory Board
1. The Corporation shall have an advisory board ("Shareholder Advisory
Board") comprised of five members.
2. The members of the Shareholder Advisory Board will be nominated at
the shareholders' meeting for a period of 5 years. Renomination is permitted.
However, their respective terms shall not terminate prior to a new nomination or
renomination.
3. The Shareholder Advisory Board elects from among its members a
chairman and his representative and may create its own rules of procedure.
4. The Shareholder Advisory Board passes its resolutions at sessions
that are convened by the chairman upon notice of the agenda, as well as the
inclusion of any relevant written documents, in compliance with a notice period
of 15 days.
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5. The Shareholder Advisory Board is capable of passing resolutions if
all members have been properly invited and 80 % of the members of the
Shareholder Advisory Board are present. An absent member of the Shareholder
Advisory Board may appoint in writing another member of the Shareholder Advisory
Board as a representative. If the Board does not constitute a quorum in two
consecutive meetings, a third meeting with the same agenda must be convened
within one week, which meeting shall be capable of rendering resolutions
regardless of the number of members present; such circumstance must be pointed
out in the notice."
6. The Shareholder Advisory Board passes resolutions by a majority
vote. If one share- holder has appointed more than one Shareholder Advisory
Board member, then these Shareholder Advisory Board members can only exercise
their votes jointly or abstain from casting their votes jointly. Abstentions
count as votes not cast.
7. If no member of the Shareholder Advisory Board objects, then a
resolution may be passed in writing, by telex, by telegram, by telecopy, by
telephone or by video-conference.
8. The Shareholder Advisory Board acts through its chairman or, if he
is prevented from doing so, through a representative.
9. The provisions of the German Stock Corporation Act (Aktiengesetz)
(hereinafter "AktG") are not applicable with respect to the Shareholder Advisory
Board.
10. The Shareholder Advisory Board encompasses the following tasks and
authorities:
a. advising the managing directors;
b. nominating and dismissing the managing directors as well as
discharging them from their responsibilities;
c. conclusion, modification, revocation, or termination of
employment contracts with the managing directors;
d. determining and deciding on transactions which require approval
in accordance with (S).8 para. 3.
V. ANNUAL FINANCIAL STATEMENTS AND USE OF PROFITS
Section 12. Annual Financial Statements
1. The managing directors shall prepare the annual financial statements
and the status report for the preceding fiscal year in the first three months of
a fiscal year and submit these for examination to the auditor, insofar as an
examination is legally required or is provided for by means of a Shareholder
Advisory Board resolution.
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2. The managing directors have the obligation to present expediently to
the shareholders the annual financial statements, the status report and any
audit report of the auditor upon their completion, together with their proposal
for a use of the profits.
3. The shareholders' meeting will decide upon the use of profits with a
majority vote of 75%.
Section 13. Exchanges of Goods/Services with Shareholders
Other than pursuant to resolutions regarding the use of profits, the
Corporation may not direct a pecuniary benefit to a shareholder or an enterprise
affiliated with the shareholder in accordance with (S). 15 AktG which has its
origin in the shareholder relationship. The provisions of (S)(S). 57, 62 AktG
shall apply correspondingly.
VI. FINAL PROVISIONS
Section 14. Arbitration
1. For all differences of opinion that arise between the parties or
between shareholders and the Corporation with regard to the effectiveness,
interpretation, application and implementation of these Articles of Association
and of this arbitration clause, an arbitration tribunal shall render a decision,
insofar as is legally permitted, without recourse to litigation.
2. The arbitration `tribunal is comprised of two associate judges and
one chairman. The party that wishes to go to the arbitration tribunal must so
notify the other party, including the concurrent naming of an arbitrator,
through registered mail, and request the other party for their part to name an
arbitrator within a set period of two weeks after receipt of the letter. The two
named arbitrators elect the chairman of the arbitration tribunal, who must be
qualified to be a judge. If the other party does not meet the request deadline
for naming an arbitrator or if the two named arbitrators are unable to agree on
the person who will serve as chairman within two weeks of the naming of the
second arbitrator, then the second arbitrator or the chairman will be elected
upon the request of a party by the president of the Upper State Court
(Oberlandesgerichts) at Dusseldorf.
3. If for any reason an arbitrator resigns after the formation of the
arbitration tribunal, another arbitrator must be elected in his place; the
corresponding provisions of para. 2 are applicable to the election.
4. If the side of either the plaintiff or the defendant involves two or
more persons, these persons operate as one party in the sense of the foregoing
provision. They shall decide upon the person to be named as arbitrator by the
party among themselves by means of a simple majority of heads.
5. As for the remaining procedures of the arbitration tribunal, the
provisions of the 10th book of the German Code of Civil Procedure
(ZivilprozeBordnung) shall be applicable. The arbitration award will only be
documented in writing upon the request of a party. Insofar as the participation
of a regular court is required, the respective Regional Court
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(Landgericht) competent for the registered office of the Corporation shall have
exclusively jurisdiction.
6. In case the arbitration award is repealed by a regular court, the
arbitration agreement is not used up. The parties shall in this case renew their
efforts and convene/another arbitration tribunal put together in accordance with
the above provisions. Those arbitrators who participated in the earlier
procedure are excluded from participating in the new proceeding.
Section 15. Severability
If provisions of these Articles of Association or a provision thereof
included at some later time be entirely or partially legally ineffective or
unenforceable or should provisions later lose their legal effectiveness or
enforceability, the validity of the remaining provisions of these Articles of
Association shall not be affected as a result. The same applies if it becomes
apparent that the Articles of Association contain an omission. In place of the
ineffective or unenforceable pro-vision, or, to fill such omission, a reasonable
provision shall apply which to the extent legally possible comes as close as
possible to what-the parties wanted or to the sense and purpose of the Articles
of Association, if the parties had considered the issue at the time of
conclusion of these Articles of Association or at a later inclusion of a
provision. This shall also apply if the in-effectiveness of a provision is due
to an explicit measure of performance or time (deadline or appointed :time)
listed in the Articles of Association; in this case a legally permitted measure
of performance or time (deadline or appointed time) that approximates the intent
as closely as possible shall be deemed agreed upon.
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Courtesy Translation
SHAREHOLDERS' AGREEMENT
between and among the shareholders of Artemis Pharmaceuticals GmbH:
1. Prof. Dr. Peter Stadler,
2. Prof. Dr. Christiane Nusslein-Volhard,
3. Prof. Dr. Klaus Rajewsky,
4. EXELIXIS Pharmaceuticals, Inc.,
5. FEI Biomedicine Private Equity. Holding AG, Basel
6. (a) Atlas Venture Fund II, L.P.
(b) Atlas Venture Germany B.V., Netherlands
(c) Oxford Bioscience Partners (Bermuda) Limited Partnership,
(d) Oxford Bioscience Partners L.P.,
(e) Global Life Science Holding V GmbH
(f) Adwest Limited Partnership,
(g) Advent Partners Limited Partnership,
(h) Advent Performance Materials Limited Partnership
(i) Rodent II Limited Partnership,
(j) Stelios Papadopoulos
(k) Biotechvest L.P.,
. (the parties in 5. - 6. are also referred to as the "Investors") -, and
7. Max Planck-Gesellschaft zur Forderung der Wissenschaften, Berlin
("MPG").
(hereinafter jointly referred to as the "Shareholders")
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PREAMBLE
Artemis Pharmaceuticals GmbH (hereinafter referred to as the
"Corporation"), a corporation organized under German Law, is engaged in the
development and/or utilization of biological/genetic, al model systems for
identifying new research methods and/or effective molecules for the
identification of effective therapies and/or medications for the treatment of
various diseases. Zebrafish Danio Rerio and mice play an important role as model
organisms in this respect. The Corporation intends to further its development
and the development of its products by concluding cooperation agreements and
creating strategic alliances with pharmaceutical companies.
In order to achieve its goals more effectively, the Corporation has agreed
on a strategically oriented cooperation with EXELIXIS Pharmaceuticals, Inc.,
South San Francisco, a corporation organized under the law of the State of
Delaware, USA (hereinafter "EXELIXIS"). EXELIXIS is also utilizing
biological/genetical model systems (fruit flies and nematode worms) for purposes
of active substance research and development.
Through the Corporation, the Shareholders plan to jointly employ their
technologies, their expertise and their capital for reaching the goals of the
Corporation. In this context, wherever advantageous and possible for the
Corporation and EXELIXIS, research activities and the activities for marketing
the products and technologies of both companies shall be coordinated and
adjusted to each other.
The Shareholders will work towards the Corporation and EXELIXIS consulting
each other in the cooperative spirit of trust with respect to reaching the
aforementioned objectives. Furthermore they shall both contribute to create a
framework which is advantageous for a later merger of both companies to be
mutually agreed upon.
ARTICLE 1
ARTICLES OF ASSOCIATION
The parties will [on the day this contract is signed] agree to the Articles
of Association set forth in Exhibit 1. The Articles of Association can only be
amended by a majority vote of 75 % of the parties to this Agreement. Thereby the
voting ratios of the contractual parties shall correspond to the amount of their
respective quota in the registered capital.
ARTICLE 2
CAPITALIZATION
On 08.10.1998 the parties agreed to a capital increase in accordance with
Exhibit 2 a and on 08.27.1998 to a capital increase in accordance with Exhibit 2
b and subscribe to the capital contributions to the registered capital
correspondingly.
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ARTICLE 3
MANAGING DIRECTORS
The parties agree that, for the duration of this Agreement, Prof. Dr. Peter
Stadler will be named as the sole managing director of the business. Prof. Dr.
Stadler will not be bound by the limitations ofss.181 BGB (German Civil Code).'
ARTICLE 4
SHAREHOLDER ADVISORY BOARD
1. The five members of the Shareholder Advisory Board pursuant toss.11 of
the Articles of Association shall be constituted as follows: three members will
be appointed by EXELIXIS, one member will be appointed jointly by Prof. Dr.
Stadler, Prof. Dr. Nusslein- Volhard, Prof. Dr. Rajewsky and MPG, and one member
will be appointed by the Investors. As a result of this provision, initially
George A. Scangos, Ph.D., Stelios Papadopoulos, Ph.D., and Dr. med.
Jean-Francois Formela are appointed by EXELIXIS, P/of. Dr. Peter Stadler is
appointed by Prof. Dr. Stadler, Prof. Dr. Nusslein-Volhard, Prof. Dr. Rajewsky
and MPG, and Prof. Dr. Jurgen Drews is appointed by the Investors as members of
the Shareholder Advisory Board. The parties agree that these members of the
Shareholder Advisory Board shall only be replaced for important reasons by the
parties entitled to appoint the member being replaced.
2. The parties agree that the measures of the managing director listed in
Exhibit 3 require the approval of the Shareholder Advisory Board.
3. The parties assume the obligation to vote for the resolutions and
measures listed in Exhibit 4 during shareholders' meetings, if the Shareholder
Advisory Board has decided on such measures.
ARTICLE 5
DURATION OF THE AGREEMENT
This Agreement is effective for a period of five years. It is established
on the basis that EXELIXIS will establish a committee (the "Committee") the five
members of which must be identical with the members of the Shareholder Advisory
Board set forth in ss. 4 Para. ! in its respective composition, and that the
Board of Directors of EXELIXIS requires the approval of the Committee with
regard to the measures listed in Exhibits3 and 4. If anything regarding the
composition of the Committee existing at EXELIXIS, or regarding the matters
requiring approval by the Committee is changed, the provisions of this
Shareholders Agreement shall immediately become ineffective without replacement,
unless the parties agree to a conforming provision that is appropriate for the
new situation. The same applies if the voting quorum for the Committee does not
require at least the presence of 80 % of its members or if the passing of a
resolution by the Committee does not take place with a majority of the members
present. In case the Committee quorum was not present at two consecutive
meetings, a lesser quorum is permissible at the following meeting.
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ARTICLE 6
EXCLUSIVE ADVISORY CONTRACTS
Prof. Dr. Nusslein-Volhard and Prof. Dr. Rajewsky will place their know-how
exclusively at the disposal of the Company and EXELIXIS with regards to
commercial application and based on advisory contracts still to be negotiated."
ARTICLE 7
STOCK-OPTION PLAN
1. Managing employees shall participate directly in the success of the
Company by means of a stock-option plan. The required quotas will be sold by
Prof. Dr. Stadler, Prof. Dr. Christiane Nusslein-Volhard and Prof. Dr. Klans
Rajewsky at nominal value to the beneficiaries of this plan, either directly or
indirectly through a third party. Prof. Dr. Stadler will make up to 7,38 % of
his quota, Prof. Dr. Christiane Nusslein-Volhard will make up to 7,72 % of her
quota and Prof. Dr. Klaus Rajewsky will make up to 7,72 % of his quota available
for this purpose.
2. In the event of a later merger with Exelixis employees of the Company
shall be treated equally to their respective Exelixis counterparts. He who has
worked for a comparable period of time with a comparable scientific background
in a comparable position, shall receive the same equity interest in the new
company as his Exelixis counterpart.
ARTICLE 8
JOINTLY HELD QUOTA
If a quota is held jointly by several persons, they are obliged to appoint
a joint representative who will exercise their rights from the quota. As long as
a joint representative has not been appointed, the rights from the quota shall
rest.
ARTICLE 9
CHOICE OF LAW / JURISDICTION
This Agreement is governed by German law.
ARTICLE 10
WRITTEN FORM REQUIREMENT
Changes and supplements to this Agreement require the written form.
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ARTICLE 11
ARBITRATION
For all differences of opinion that arise between the parties with regard
to the effectiveness, interpretation, application and implementation of this
Agreement and of the relevant arbitration agreement, the agreement pursuant to
Exhibit S shall apply.
ARTICLE 12
SEVERABILITY
If provisions of this Agreement or a provision thereof included at some
later time be entirely or partially legally ineffective or unenforceable or
should provisions later lose their legal effectiveness or enforceability, the
validity of the remaining provisions of this Agreement shall not be affected as
a result. The same applies if it becomes apparent that the Agreement contains an
omission. In place of the ineffective or unenforceable provision, or, to fill
such omission, a reasonable provision shall apply which to the extent legally
possible comes as close as possible to what the parties wanted or to the sense
and purpose of the Agreement, if the parties had considered the issue at the
time of conclusion of this Agreement or at a later inclusion of a provision.
This shall also apply if the ineffectiveness or a provision is due to an
explicit measure of performance or time (deadline or appointed time) listed in
the Agreement; in this case a legally permitted measure of performance or time
(deadline or appointed time) that approximates the intent as closely as possible
shall be deemed agreed upon.
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SIGNATURE PAGE FOR
ARTEMIS PHARMACEUTICALS GmbH
SHAREHOLDERS' AGREEMENT
The undersigned, subject to acceptance by the Company, hereby agrees to all
of the terms of said agreement and agrees to be bound by the terms and
provisions thereof.
Date:______________
(Individual Signature)
---------------------------------------
Printed Name (First, Middle, Last)
---------------------------------------
(Signature)
(Corporation or Other Entity Signature)
---------------------------------------
Name of Entity (Print)
By:
------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.10
SUBLEASE AGREEMENT
ARRIS PHARMACEUTICAL CORPORATION, Sublessor
EXELIXIS PHARMACEUTICALS, INC., Sublessee
260 Littlefield Avenue, Suite A
South San Francisco, California
<PAGE>
SUBLEASE AGREEMENT
This Sublease Agreement ("Sublease") dated as of June 1, 1997 (the
"Commencement Date"), is entered into by and between Arris Pharmaceutical
Corporation, a Delaware corporation (hereinafter "Sublessor"), and Exelixis
Pharmaceuticals, Inc., a Delaware corporation (hereinafter "Sublessee"), and is
subject to the terms and conditions of that certain Lease (the "Master Lease")
dated June 22, 1993 (as amended by that certain First Amendment to Lease dated
October 25, 1993) entered into by Utah Partners, Ltd., a California limited
partnership ("Master Lessor"), and Khepri Pharmaceuticals, Inc., a Delaware
corporation, as Lessee. A copy of the Master Lease has been delivered to
Sublessee. Sublessor is the successor by merger to Khepri Pharmaceuticals, Inc.
1. Premises.
(a) Phase I Premises. As of the Commencement Date, Sublessor hereby
leases to Sublessee, and Sublessee hereby hires from Sublessor, on and subject
to the terms and conditions hereinafter set forth, those certain premises
(hereinafter referred to as the "Phase I Premises"), situated in the City of
South San Francisco, County of San Mateo, State of California, commonly known as
260 Littlefield Avenue, and consisting of approximately 9,497 rentable square
feet, as more particularly described on Exhibit "A" hereto.
(b) Phase II Premises. As of April 1, 1998, or such earlier or later
date upon which actual delivery to Sublessee occurs pursuant to Section 2(c)
below (the "Phase II Delivery Date"), Sublessor hereby leases to Sublessee, and
Sublessee hereby hires from Sublessor, on and subject to the conditions
hereinafter set forth, those certain premises adjacent to the Phase I Premises
(hereinafter referred to as the "Phase II Premises"), as more particularly
described on Exhibit "A" hereto. For all purposes hereof, until the Phase II
Delivery Date, the term "Premises" shall refer to the Phase I Premises.
Thereafter the term "Premises" shall refer to both the Phase I Premises and the
Phase II Premises.
(c) Common Areas. Sublessee shall have the right, in common with other
tenants of Master Lessor, to use the Common Areas of the property (as defined in
the Master Lease).
2. Sublease Term; Delivery of Possession.
(a) Term. The term of this Sublease shall begin on the Commencement
Date and end on July 15, 2005 (the "Expiration Date"), unless sooner terminated
pursuant to any provision of this Sublease or of the Master Lease.
(b) Delivery of Possession.
(1) If for any reason Sublessor cannot deliver possession of the
Phase I Premises by the Commencement Date, or possession of the Phase II
Premises by the Phase II Delivery Date, Sublessor shall not be subject to any
liability therefore, nor shall such failure
1.
<PAGE>
affect the validity of this Sublease or the obligations of Sublessee hereunder
or extend the term hereof, but in such case Sublessee shall not be obligated to
pay rent until possession of the applicable portion of the Premises is tendered
to Sublessee; provided, however, that if Sublessor shall not have delivered
possession of the Premises within ninety (90) days after either the Commencement
Date or the Phase II Delivery Date, as applicable, Sublessee may, at Sublessee's
option, by notice in writing to Sublessor within ten (10) days thereafter,
cancel this Sublease, in which event the parties shall be discharged from all
obligations hereunder. Notwithstanding the foregoing, Sublessee's cancellation
of this Sublease as to the Phase II Premises shall not terminate this Sublease
as to the Phase I Premises.
(2) The Premises shall be delivered by Sublessor subject to all
applicable zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises, and Sublessee accepts the
Premises subject thereto. Sublessee shall accept the Premises in "as-is"
condition. Sublessor has made no representation or warranty as to the condition
of the Premises, their compliance with existing federal, state or local laws,
ordinances or regulations (including without limitation the Americans with
Disabilities Act), or the suitability of the Premises for the conduct of
Sublessee's business. Sublessor shall have no obligation to improve, restore,
repair, paint or clean the Premises. At the request of Sublessee, Sublessor
shall deliver to Sublessee a copy of the closure report from the City of South
San Francisco if such report has been received by Sublessor.
(c) Early Possession.
(1) In the event Sublessee, with Sublessor's consent, takes
possession prior to the Commencement Date, such occupancy shall be subject to
all the provisions of this Sublease except for the payment of rent due
hereunder. Sublessee's early possession shall not advance the termination date
of this Sublease.
(2) In the event the Phase II Premises become available prior to
April 1, 1998, Sublessor may offer the Phase II Premises to Sublessee, and if
such earlier date is on or after February 1, 1998, and Sublessee has received
not less than three weeks prior written notice of the date such possession will
be delivered, Sublessee shall accept possession of the Phase II Premises on such
earlier date. If such date is earlier than February l, 1998, Sublessee shall
have the right but not the obligation to accept possession of the Premises on
such earlier date. The Phase II Delivery Date shall be the date the Premises are
delivered to Sublessee in accordance with this Subsection 2c(2).
(3) Without limitation of any other provision of this Sublease,
failure of Sublessee to occupy the Phase II Premises on the Phase II Delivery
Date shall constitute a default under this Sublease.
3. Rent.
(a) Base Rent. Sublessee shall pay to Sublessor without deduction, set
off, prior notice or demand, as rent for the Premises, monthly rent ("Base
Rent") as set forth in the rent schedule below. Sublessee shall pay Sublessor
upon the execution hereof the sum of Sixty
2.
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Thousand Two Hundred Forty Dollars ($60,240.00) as rent for the first full
calendar month after the Phase II Delivery Date.
(1) From the Commencement Date until the Phase II Delivery Date,
Sublessee shall pay to Sublessor the sum of $16,144.90 per month, prorated for
any partial month.
(2) From and after the Phase II Delivery Date, Sublessee shall pay
to Sublessor Base Rent as follows:
Rent Schedule
Time Period Base Rent Per Month
----------------------------------------- ------------------------
Phase II Delivery Date to 9/30/98 * $60,240
10/01/98 to 7/31/00 $61,660
8/01/00 to 7/31/01 $63,200
8/01/01 to 7/31/02 $65,000
8/01/02 to 12/31/02 $72,238
1/01/03 to 7/31/03 $75,210
8/01/03 to 7/31/04 $76,845
8/01/04 to 7/15/05 ** $78,480
*prorated if Phase II Delivery Date is not the 1st day of the month
**prorated during last month
(b) Operating Expenses. Sublessee shall pay as additional rent the
amounts for which Sublessor is liable to Master Lessor pursuant to Section 6
(Operating Expenses) of the Master Lease, together with other expenses of the
Premises for which Sublessor is responsible (excluding any late charges or
penalties not caused by Sublessee), including without limitation utilities,
trash removal, phone, water, sewer, security, access and fire control systems
(maintenance and lease payments). When incorporated into this Sublease,
references to "Landlord" in Sections 6.b. and 6.c. of the Master Lease shall be
deemed to include Master Lessor and/or Sublessor. With respect to Section 6.e.
as incorporated into this Sublease, Sublessor shall have fifteen (15) days
following receipt of Master Lessor's annual reconciliation within which to
provide Sublessor's reconciliation to Sublessee. Notwithstanding the foregoing,
until the Phase II Delivery Date, Sublessee shall only be liable for 29% of the
Operating Expenses and other expenses, that being the percentage allocable to
the Initial Premises. Following the Phase II Delivery Date, Sublessee shall be
liable for all Operating Expenses and
3.
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other expenses allocable to the Premises. Sublessee's obligation to pay its
share of Operating Expenses shall be prorated annually based on actual days.
4. Security Deposit. Sublessee shall deposit with Sublessor upon execution
hereof the sum of Seventy Five Thousand Dollars ($75,000.00) as security for
Sublessee's faithful performance of Sublessee's obligations hereunder. Sublessee
hereby grants Sublessor a security interest in the Security Deposit to secure
performance of Sublessee's obligations hereunder. If Sublessee defaults with
respect to any provision of this Sublease, Sublessor may use, apply or retain
all or any part of the Security Deposit for the payment of any Rent or other sum
in default, for the payment of any amount which Sublessor may expend or become
obligated to expend by reason of Sublessee's default, or to compensate Sublessor
for any loss or damage which Sublessor may suffer by reason of Sublessee's
default. Sublessor shall have no obligation to apply the Security Deposit in
such manner and may exercise any right or remedy available under this Sublease
or at law or in equity with or without resort to the Security Deposit. The
Security Deposit does not constitute prepayment of the last month's rent (or any
other). If any portion of the Security Deposit is used or applied, Sublessee
shall deposit with Sublessor, within ten (10) days after written demand
therefor, cash in an amount sufficient to restore the Security Deposit to its
original amount. Sublessor shall not be required to keep the Security Deposit
separate from its general funds. The Security Deposit, or such much of it as may
remain, shall be returned, without interest, to Sublessee within thirty (30)
days after expiration of the term hereof. If any bankruptcy, insolvency,
reorganization, receivership or other similar proceedings shall be instituted by
or against Sublessee, the Security Deposit shall be applied first to the payment
of rent and additional charges due to Sublessor for the period prior to the
institution of such proceedings, and any balance of the Security Deposit may
thereafter be retained and held by Sublessor in accordance with the terms of
this section.
5. Use. The Premises shall be used and occupied only for laboratory,
research and development, wet chemistry, biological laboratories, related
offices and uses which are ancillary thereto, and which are consistent with the
requirements and limitations set forth in the Master Lease, and for no other
purpose without the prior written consent of Sublessor and Master Lessor.
Sublessor agrees not to unreasonably withhold, delay or condition its consent to
any such requested change.
6. Master Lease.
(a) Sublease Is Subordinate to Master Lease. This Sublease is subject
and subordinate to the Master Lease. Sublessee represents and warrants to
Sublessor that it has read and is familiar with the terms and conditions of the
Master Lease. Sublessee shall not commit or permit to be committed on the
Premises any act or omission which shall violate any term or condition of the
Master Lease. If the Master Lease terminates, this Sublease shall terminate.
Sublessor shall have no liability to Sublessee if the Master Lease terminates
without fault of Sublessor.
(b) Application of Master Lease Provisions. Except as otherwise
expressly provided in this Sublease, Sublessee shall assume and perform the
obligations of Sublessor as Lessee under the Master Lease. Therefore, except as
otherwise provided, for the purpose of this Sublease, wherever in the Master
Lease "Landlord" is used, it shall be deemed to mean
4.
<PAGE>
Sublessor, and wherever in the Master Lease "Tenant" is used, it shall be deemed
to mean Sublessee, and wherever in the Master Lease "Lease" is used, it shall be
deemed to mean this Sublease.
(c) Incorporation of Master Lease Provisions.
(1) All of the terms and conditions in the Master Lease are
incorporated herein except for: Basic Lease Provisions; 1 (Premises); 3 (Term);
5 (Base Rent); 8 (Tenant Improvements); 9.a. and 9.e. (Use of Premises); 10.c.
(Ownership of Alterations) 11.b. (Landlord's Ongoing Obligations); 11.c.
(Landlord's Delivery Obligations); 12 (Damage or Destruction); 13 (Eminent
Domain); 14.c. (Casualty Insurance); 15.e. (Payment on Sublet); 18 (Security
Deposit); 19 (Acceptance of Premises); 20 (Holding Over); 36 (Notices); 39.h.
(Entire Agreement); and Schedule A; Exhibit D (Construction Rider); and Exhibit
E (Memorandum).
(2) Except as otherwise provided herein, Sublessor is responsible
for all financial obligations of the tenant under the Master Lease. Whenever any
provision of the Master Lease has not been incorporated herein, except as
otherwise provided, any provision of the Addendum which pertains to a provision
of the Master Lease which has not been incorporated herein, shall not be
incorporated herein. In addition, Master Lease Addendum Section 25 (stated to
pertain to Section 14.b., but really pertaining to Section 14.c.), Master Lease
Addendum Section 42 (pertaining to Master Lease Section 34) and Master Lease
Addendum Section 46 (pertaining to options to extend) shall not be incorporated
into this Sublease.
(d) Indemnity. Without in any way limiting Sublessee's assumption of
the indemnity set forth in the Master Lease, Sublessee hereby agrees to defend,
indemnify and hold Sublessor and Master Lessor harmless from and against any and
all losses, liabilities, causes of action, judgments, costs, damages, expenses,
claims or demands, including reasonable attorney's fees, arising out of
Sublessee's failure to comply with or perform Sublessee's obligations under this
Sublease.
(e) Master Lease in Effect. Sublessor represents to Sublessee that the
Master Lease is in full force and effect and that, to Sublessor's knowledge, no
default exists on the part of any party to the Master Lease. Subject to the
terms and provisions of this Sublease, Sublessor agrees to keep the Master Lease
in full force and effect during the term of this Sublease, subject, however, to
any earlier termination of the Master Lease without the default of Sublessor.
(f) Default. Any act or omission by Sublessee which would constitute a
breach or default by Sublessor under Section 16 of the Master Lease shall
constitute a default on the part of Sublessee hereunder. In the event of any
breach or default by Sublessee hereunder or under the Master Lease, Sublessor
shall have all of the rights and remedies afforded Master Lessor under the
Master Lease, and in addition Sublessor shall have the right, but without any
obligation to do so, to cure any such breach or default by Sublessee, with
Sublessee to be obligated to reimburse Sublessor immediately upon demand for all
costs which Sublessor may incur in effecting the cure of such breach or default.
5.
<PAGE>
7. Alterations. Notwithstanding the provisions of Section 10.a. of the
Master Lease, any alteration which requires Master Lessor's approval pursuant
to the Master Lease shall not be commenced by Sublessee unless and until such
consent is obtained. Any alteration made by Sublessee shall become a part of
the Premises, and at Sublessor's election, shall be surrendered to Sublessor at
the end of the Sublease term. Notwithstanding the foregoing, except as
otherwise provided in the Master Lease, any alteration made by Sublessee shall
remain Sublessee's property throughout the Sublease term. In the event
Sublessor is (or becomes) obligated under the Master Lease to remove any of
Sublessee's alterations, Sublessee shall be obligated to remove same at
Sublessee's sole cost and expense and to restore the Premises to its condition
prior to the alteration. Sublessee shall (i) pay to Sublessor, or at direction
of Sublessor, directly to Master Lessor, an amount equal to one percent (1%) of
the total cost of the alterations (and for purposes of calculating the total
costs, such cost shall include architectural and engineering fees but shall not
include permit fees) as compensation to Master Lessor for miscellaneous costs
and time incurred by Master Lessor in connection with the alterations, and (ii)
reimburse Master Lessor any reasonable amounts it pays to architect, engineers
or other consultants in connection with reviewing such alterations. Such
amounts shall be paid in advance of, or during or upon completion of the
alterations, as Master Lessor shall determine and Sublessee shall submit such
evidence of the cost of the alterations as master Lessor may reasonably require.
8. Repairs. Pursuant to Section 11.b. of the Master Lease, Master Lessor
is responsible to repair and maintain the roof, exterior walls, foundation and
HVAC system (including distribution ducts) (provided that the cost of
maintaining, repairing and replacing the HVAC system shall be included in
Operating Expenses, pursuant to the terms of Section 6 of the Master Lease),
unexposed portions of the building plumbing and electrical systems (except to
the extent installed or modified by Sublessor or Sublessee), the Common Areas,
and structural portions of the Building. Master Lessor also has the obligation
to repair certain categories of items as provided in Section 17 of the Addendum
to the Master Lease. Sublessor's sole obligation to Sublessee shall be to
request performance of such obligations by Master Lessor. In the event Master
Lessor breaches its obligations, Sublessor will assign to Sublessee its right to
enforce such obligation and shall otherwise cooperate with Sublessee in
connection therewith, provided, however, Sublessee, at its sole cost and
expense, shall be responsible for enforcement thereof without reimbursement from
Sublessor. Sublessee, not Master Lessor, shall be responsible for the repair of
the roof and structural portions of the Building to the extent the need for
maintenance or repair is caused in whole or in part by the act, neglect, fault
or omission of any duty of Sublessee, its agents, servants, contractors,
subcontractors, employees or invitees, in which case Sublessee shall pay to
Sublessor the cost of the maintenance and repairs caused in whole or in part by
Sublessee (except (i) to the extent the damage is covered by any insurance
maintained by Master Lessor, or, (ii) if Master Lessor fails to maintain the
insurance required to be maintained by Master Lessor pursuant to the terms of
the Master Lease, to the extent the damage would have been covered by insurance,
if Master Lessor had maintained the required insurance). There shall be no
abatement of rent and no liability of Master Lessor or Sublessor by reason of
any injury to or interference with Sublessee's business arising from the making
of any repairs, alterations or improvements in or to the fixtures, appurtenances
and equipment therein, provided that Sublessor shall request Master Lessor to
use reasonable efforts to minimize the interruption of Sublessee's use and
occupancy of the Premises in connection with its performance of the repairs and
maintenance (although nothing contained herein shall be deemed
6.
<PAGE>
to obligate Master Lessor to pay any overtime costs in order to minimize such
interference, or otherwise to perform the repairs or maintenance during hours
other than normal business hours).
9. Insurance.
(a) Property Insurance. Sublessee shall, at its sole cost and'
expense, obtain and maintain in force a policy or policies of fire and property
damage insurance providing protection against those perils included within the
classification of "all risk" insurance from an insurance company or companies
reasonably satisfactory to Sublessor and Master Lessor and in a form reasonably
satisfactory to Sublessor and Master Lessor insuring the Tenant Improvements (as
defined in the Master Lease) and all other improvements, in an amount equal to
the full replacement cost thereof (which amount shall be subject to Sublessor's
and Master Lessor's approval). The insurance policy or policies shall name
Master Lessor and Sublessor and the lenders of either of them, if any, as
additional insureds and shall provide that the policy or policies may not be
canceled on less than thirty (30) days prior written notice to Master Lessor,
Sublessor and the lenders of either of them. If Sublessee fails to carry the
insurance or to furnish Sublessor with copies of all the policies after a
request to do so, Sublessor shall have the right to obtain the insurance and
collect the costs thereof from Sublessee as additional rent.
(b) Liability Insurance. In addition to the above referenced
insurance, Sublessee shall maintain liability insurance coverage as required by
Section 14 of the Master Lease which has been incorporated into this Sublease by
reference. Each policy of insurance which Sublessee is required to maintain
pursuant to this Lease shall name both Sublessor and Master Lessor as additional
insureds (including cross-liability endorsements). Sublessee's insurance
coverage shall be primary and non-contributory as respects any insurance
maintained by Sublessor and/or Master Lessor. Sublessee shall deliver evidence
of the coverage required hereunder (i) within seven (7) days after execution and
delivery of this Sublease by Sublessor and Sublessee, and (ii) within ten (10)
days of the renewal date for each policy of insurance required hereunder.
(c) Master Lessor Insurance. Pursuant to the terms of the Master Lease
as provided in Section 25 of the Addendum thereto, Master Lessor is obligated to
maintain certain insurance coverage with respect to certain perils and to
maintain a certain level of liability coverage. Sublessor's sole obligation to
Sublessee with respect to Master Lessor's obligations pursuant to said Section
25 shall be to request performance of such obligations by Master Lessor. In the
event Master Lessor breaches its obligations, Sublessor will assign to Sublessee
its right to enforce such obligation and shall otherwise cooperate with
Sublessee in connection therewith, provided, however, Sublessee, at its sole
cost and expense, shall be responsible for enforcement thereof without
reimbursement from Sublessor.
(d) Evidence of Insurance. Upon the Commencement Date (or upon the
date of early possession if early possession is granted hereunder), Sublessee
shall deliver to Sublessor and Master Lessor certificates of insurance showing
that Sublessee has the insurance required hereunder.
7.
<PAGE>
10. Damage or Destruction.
(a) Master Lessor Has Obligation to Restore. If the Premises are
damaged or destroyed, Master Lessor has the obligation pursuant to Section 12 of
the Master Lease to promptly and diligently repair the Premises, unless Master
Lessor has the right to terminate. If Master Lessor fails to perform its
obligations pursuant to Section 12 of the Master Lease, Sublessor's sole
obligation to Sublessee shall be to request performance of such obligations by
Master Lessor. In the event Master Lessor breaches its obligations, Sublessor
will assign to Sublessee its right to enforce such obligation, provided,
however, Sublessee, at its sole cost and expense, shall be responsible for
enforcement thereof without reimbursement from Sublessor.
(b) Termination of Master Lease. If the Master Lease terminates
pursuant to Section 12 of the Master Lease, this Sublease shall terminate
concurrently with the termination of the Master Lease.
(c) Sublessee Notice; Right to Terminate. In the event that Sublessor
receives notice from Master Lessor pursuant to Section 12 of the Master Lease of
Master Lessor's determination that repair of the Premises or the Building cannot
be completed within two hundred seventy (270) days after a casualty, Sublessor
shall so notify Sublessee in writing and shall request Sublessee to notify it
whether Sublessee agrees to continue this Sublease in effect. Within twenty
(20) days following written request from Sublessor, Sublessee shall give notice
to Sublessor in writing whether Sublessee agrees to continue this Sublease in
effect if Master Lessor reasonably determines that the repair of the Premises or
the Building cannot be completed within two hundred seventy (270) days after the
casualty. If Sublessee does not so agree to continue this Sublease in effect,
then Sublessor may elect to terminate the Master Lease and this Sublease. If
Sublessee agrees to continue this Sublease in effect as aforesaid, then
Sublessor shall have no right to exercise its right to terminate the Master
Lease or this Sublease. If (i) Master Lessor reasonably determines that the
repair of the Premises or the Building cannot be completed within two hundred
seventy (270) days after the casualty, (ii) neither Master Lessor nor Sublessor
have elected to terminate the Master Lease, and (iii) Sublessee agrees to
continue this Sublease in effect notwithstanding the time to reconstruct, then
this Sublease shall continue in effect, and Sublessee shall fulfill all of the
obligations of Sublessor pursuant to the provisions of Section 12 of the Master
Lease.
(d) Limited Obligation to Repair. Master Lessor's obligation, should
Master Lessor elect or be obligated to repair or rebuild, shall be limited to
replacing/restoring the Building shell and Building systems so that the Building
shell and Building systems as repaired and restored are comparable (in scope of
improvements) to the Building shell and Building systems which were in existence
on the Master Lease Commencement Date. Master Lessor shall have no obligation
to replace or restore the Tenant Improvements or any other alterations installed
by Sublessor or Sublessee. If this Sublease has not been terminated, Sublessee
shall be obligated to (i) with respect to those portions of the Premises which
are damaged and were built out for office use as of the Master Lease
Commencement Date, either: (A) promptly build-out those portions with new tenant
improvements approved by Master Lessor and Sublessor in accordance with Exhibit
D to the Master Lease, and spend an amount equal to or greater than the Building
Standard Improvements Allowance (defined below) on the build-out; (B) promptly
build-out-those portions with new tenant improvements approved by Master Lessor
and
8.
<PAGE>
Sublessor in accordance with Exhibit D and spend an amount less than the
Building Standard Improvement Allowance (in which case promptly upon completion
of the Tenant Improvements, Sublessee shall pay to Sublessor the difference
between the amount spent by Sublessee for new tenant improvements and the
Building Standard Improvements Allowance); or (C) pay to Sublessor an amount
equal to the Building Standard Improvements Allowance multiplied by the rentable
square footage of the office space so affected; and (ii) with respect to those
portions of the Premises which are damaged, but were not built out for office
use as of the Master Lease Commencement Date, either: (A) promptly construct new
tenant improvements approved by Master Lessor and Sublessor in accordance with
Exhibit D in the space so affected (and expend no less than the Tenant
Improvement Allowance for the improvements); (B) promptly construct new tenant
improvements approved by Master Lessor and Sublessor in accordance with Exhibit
D in the space so affected, expending less than the Tenant Improvement Allowance
(in which case Tenant shall pay to Sublessor the difference between the amount
expended and the Tenant Improvement Allowance promptly upon completion of the
construction); or (C) pay to Sublessor an amount equal to the Tenant Improvement
Allowance applicable to the affected space. Any payment by Tenant to Sublessor
in accordance with subsections (i) (C) or (ii) (C) of the preceding sentence
must be made upon the earlier of ten (10) days following Sublessee's receipt of
insurance proceeds thereof, or ninety (90) days after the occurrence of the
damage or destruction, or Sublessee shall be deemed to have elected to restore
and rebuild the portions of the Premises which were damaged. As used herein, the
term "Building Standard Improvements Allowance" shall have the meaning set forth
in Section 12.c. of the Master Lease. Sublessee shall at its sole cost and
expense restore all improvements made by Sublessee.
(e) Abatement of Rent. Rent under this Sublease shall abate to the
same extent as the rent owing by Sublessor under the Master Lease abates.
(f) Damage Near End of Term. In addition to the rights to terminate
specified in Section 10.c. of this Sublease, either Sublessor or Sublessee
shall have the right to cancel and terminate this Sublease as of the date of the
occurrence of destruction or damage if the Premises or the Building is
substantially destroyed or damaged (i.e., there is damage or destruction which
Landlord determines would require more than four (4) months to repair) and made
untenantable during the last twelve (12) months of the term of the Master Lease.
Sublessor and Sublessee shall give notice of their election to terminate this
Sublease under this subsection f. within thirty (30) days after Master Lessor
or Sublessor determines that the damage or destruction would require more than
four (4) months to repair. If either Master Lessor or Sublessor elect to
terminate the Master Lease pursuant to Section 12.e. of the Master Lease, this
Sublease shall terminate concurrently with the termination of the Master Lease.
If neither Master Lessor nor Sublessor terminates the Master Lease and if either
Sublessor or Sublessee elects to terminate this Sublease, the repair of the
damage shall be governed by Sections 12.c. or 12.e. of the Master Lease, as the
case may be.
(g) Insurance Proceeds. If this Sublease is terminated, Master Lessor
and Sublessor may each keep all their respective insurance proceeds resulting
from the damage except for those proceeds, if any, which specifically insure
Sublessee's personal property and trade fixtures which Sublessee has a right .or
obligation to remove upon the expiration of the Sublease term. Sublessor shall
be entitled to receive from Sublessee the proceeds of insurance carried by
Sublessee with respect to Tenant Improvements or other alterations installed in
the
9.
<PAGE>
Premises by Sublessor or at Sublessor's expense. To the extent that Sublessee
has paid for any alterations regardless of whether the alterations may become
the property of Sublessor upon termination of this Sublease, Sublessee shall
receive any portion of the insurance proceeds payable with respect to the then
unamortized cost (based on an 8-year, straight line, amortization schedule) for
the applicable alterations, reduced by the amounts necessary to pay off any
equipment lease or other lien against the applicable alteration, and the balance
of the proceeds, if any, will be payable to Sublessor. With respect to those
alterations which Sublessee is obligated to remove at the end of the Sublease
term which are the property of Sublessee, all proceeds shall be paid to
Sublessee.
(h) Uninsured Casualty. If the Master Lease terminates pursuant to the
provisions of Section 12.g. of the Master Lease, this Sublease shall terminate.
Sublessor shall have no obligation to deposit funds with Master Lessor pursuant
to said Section 12.g.; provided, however, if Sublessor and Sublessee have so
agreed that Sublessee will provide the funds for deposit with Master Lessor in
that amount which Sublessor is permitted to contribute to repairs in order to
keep the Master Lease from terminating pursuant to Section 12.g., then upon
Sublessee providing such funds, this Sublease shall continue in effect.
11. Eminent Domain. If all or any part of the Premises is taken for
public or quasi-public use by a governmental authority under the power of
eminent domain or is conveyed to a governmental authority in lieu of such
taking, and if the taking or conveyance causes the remaining part of the
Premises to be untenantable and inadequate for use by Sublessee for the purpose
for which they were leased, then Sublessee, at its option and by giving notice
within fifteen (15) days after the taking, may terminate this Sublease as of the
date Sublessee is required to surrender possession of the Premises. If a part
of the Premises is taken or conveyed but the remaining part is tenantable and
adequate for Sublessee's use, then this Sublease shall be terminated as to the
part taken or conveyed as of the date Sublessee surrenders possession; Master
Lessor is obligated, at no cost or expenses to Sublessor or Sublessee, to
restore the Premises (other than any Tenant Improvements) to a complete
architectural unit of a design comparable to the design of the Premises (other
than any Tenant Improvements or alterations) immediately prior to the
condemnation, and the rent shall be reduced based on any decrease in use to
Sublessee of the Premises. All compensation awarded for the taking or
conveyance shall be the property of Master Lessor and Sublessor, as their
interests may appear, and Sublessee hereby assigns to Sublessor all its right,
title and interest in and to the award, unless the governmental authority makes
only one (1) award, and the award contains compensation for the value of moving
expenses, Sublessee's personal property, trade fixtures and alterations, in
which case, subject to the rights of any mortgagee or beneficiary of a deed of
trust holding a lien, Sublessee shall be entitled to the compensation paid for
Sublessee's moving expenses, trade fixtures, personal property and the portion
of the award attributable to the then unamortized cost of alterations and
improvements constructed at Sublessee's expense (which are to be amortized on a
straight line basis over the term of this Sublease). Sublessee shall have the
right, however, to recover from the governmental authority, but not from
Sublessor or Master Lessor, except as provided in the preceding sentence, such
compensation as may be awarded to Sublessee on account of the interruption of
Sublessee's business, moving and relocation expenses and removal of Sublessee's
trade fixtures and personal properly.
10.
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12. Assignment and Subletting. Sublessee shall obtain the consent and
approval of Sublessor and Master Lessor pursuant to Section 15 of the Master
Lease prior to any further sublease or assignment of this Sublease.
Notwithstanding any provision of this Sublease to the contrary, if Sublessor
consents to a sublease or assignment, Sublessee shall pay to Sublessor on a
monthly basis as additional Rent, on the date Base Rent is due, an amount equal
to fifty percent (50%) of the amount by which the rent payable to Sublessee
("Subrent") under the sublease or assignment exceeds the rent due for the
applicable portion of the Premises after deducting from the Subrent (A) the
reasonable out-of-pocket costs incurred by Sublessee for brokerage commissions
and tenant concessions (which concessions are not reflected in the reduced
Subrent), and (B) the costs of any additional improvements constructed by
Sublessee in connection with the sublease or assignment (amortized on a straight
line basis over the term of the sublease). Sublessor shall not unreasonably
withhold, delay, or condition such consent.
13. Access to Premises. Master Lessor shall have the same right of access
to the Premises as Sublessor.
14. Surrender at End of Term. Sublessee shall surrender the Premises to
Sublessor in the same condition received, broom clean, except for any
alterations Sublessee is not required to remove, normal wear and tear, acts of
God, damage, destruction (except to the extent Sublessee is obligated to restore
the same under Section 10 of this Sublease) and eminent domain covered by the
provisions of this Sublease. Sublessee shall remove from the Premises all of
Sublessee's personal property and trade fixtures and any alterations and
improvements Sublessee is required to remove, and shall repair all damage caused
by the removal. Sublessee shall obtain and deliver to Sublessor a closure
certificate if required by the City of South San Francisco. Sublessee shall
indemnify Sublessor against all loss or liability resulting from delay by
Sublessee in so surrendering the Premises, including without limitation, any
claims made by any succeeding tenant, losses to Sublessor due to lost
opportunities to lease to a succeeding tenant, and attorneys' fees and costs.
15. Signs. Master Lessor shall have the same approval rights with respect
to signs as Sublessor.
16. Holding Over. This Sublease shall terminate without further notice at
the expiration of the Sublease term. Any holding over by Sublessee after the
expiration or sooner termination of this Sublease without the consent of
Sublessor shall be construed to be a tenancy at sufferance. Rent for the
Premises during any tenancy at sufferance, or if Sublessor shall have consented
to Sublessee's holding over, shall be at a rate equal to 150% of the Base Rent
for the last month of the term, and shall otherwise be on the terms and
conditions herein specified insofar as applicable, including, without
limitation, those providing for additional rent.
17. Brokers. For the purposes of Section 29 of the Master Lease as
incorporated into this Sublease, Cornish & Cary Commercial-Oncor International
is the only broker to whom a Commission is owing, which commission shall be paid
by Fibrogen, Inc.
18. Notices. All notices or demands of any kind required to be given by
Sublessor or Sublessee hereunder shall be in writing and shall be delivered
personally or sent by registered or certified mail, return receipt requested, to
Sublessor or Sublessee, respectively, at the following
11.
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addresses, or at such other address as such party shall designate by written
notice to the other party. Such addresses are:
Sublessor:
180 Kimball Way
South San Francisco, CA 94080
Attention: Chief Financial Officer
Sublessee:
260 Littlefield Road
South San Francisco, CA 94080
Attention: Mr. Remi Barbier
Personal delivery may be accomplished by means of commercial "overnight" or
"express" delivery services. Notices shall be deemed delivered upon receipt or
refusal to accept delivery. All rent and other payments due under this Sublease
or the Master Lease shall be made by Sublessee to Sublessor at the above
address.
19. Attorneys' Fees. Without in any way limiting the provisions of
Section 28 of the Master Lease, if there is any legal action or proceeding
between Sublessor and Sublessee to enforce any provision of this Sublease, or to
protect or to establish any right or remedy of either party hereunder, the
prevailing party in such action or proceeding shall be entitled to recover from
the other party all costs and expenses, including reasonable attorneys' fees and
expert witness fees incurred by such prevailing party in connection with any
such action or any appeal in connection therewith.
20. Consent of Master Lessor. This Sublease is contingent upon Sublessor
obtaining the consent of Master Lessor. Sublessee shall pay all costs and
expenses payable by Sublessor to Master Lessor or Simeon Commercial Properties
pursuant to Paragraph 8 of the Consent to Sublease and Agreement executed by
Master Lessor, Sublessor and Sublessee, up to a maximum amount of $5,000.
12.
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In Witness Whereof, the undersigned have executed this Sublease as of the
dates set forth below.
Sublessor:
Arris Pharmaceutical Corporation,
a Delaware corporation
By: /s/ Fred Ruegsegger Date: July 6, 1997
-------------------------------- ----------------------------------
Its: VP + CFO
-------------------------------
Sublessee:
Exelixis Pharmaceuticals, Inc.,
a Delaware corporation
By: /s/ Remi Barbier Date: July 6, 1997
-------------------------------- -----------------------------------
Its: Chief Operating Officer
-------------------------------
Landlord:
Utah Partners Limited a California Limited Partnership, by Simeon Commercial
Properties, A California Corporation, General Partner
By: /s/ Curt B. Setzer Date: July 6, 1997
-------------------------------- ----------------------------------
Its: VP
-------------------------------
13.
<PAGE>
EXHIBIT 10.11
THIS BUILD-TO-SUIT LEASE ("Lease") is made and entered into as of May ___,
1999, by and between BRITANNIA POINTE GRAND LIMITED PARTNERSHIP, a Delaware
limited partnership ("Landlord"), and EXELIXIS PHARMACEUTICALS, INC., a Delaware
corporation ("Tenant").
THE PARTIES AGREE AS FOLLOWS:
1. PROPERTY
--------
1.1 Lease of Buildings and Property.
--------------------------------
(a) Landlord leases to Tenant and Tenant hires and leases from
Landlord, on the terms, covenants and conditions hereinafter set forth, (i) the
building ("Building 1") to be constructed pursuant to Article 5 hereof and
Exhibit C attached hereto on the real property described as the Phase 1 Property
in Exhibit A attached hereto and designated as the Phase 1 Property in Exhibit B
attached hereto (the "Phase 1 Property"), and (ii) at Tenant's option (as
hereinafter set forth), the building ("Building 2") to be constructed pursuant
to Article 5 hereof and Exhibit C attached hereto on either the real property
described as the Phase 2-A Property in Exhibit A attached hereto and designated
as the Phase 2-A Property in Exhibit B attached hereto (the "Phase 2-A
Property") or the real property described as the Phase 2-B Property in Exhibit A
attached hereto and designated as the Phase 2-B Property in Exhibit B attached
hereto (the "Phase 2-B Property"). Building 1 and Building 2 are sometimes
hereinafter collectively called the "Buildings" (although such term shall
generally be construed to include Building 2 only if Tenant exercises its option
under Section 1.1(c)(ii) or (iii), as applicable, unless the context clearly or
reasonably requires otherwise); the Phase 2-A and Phase 2-B Properties are
sometimes hereinafter collectively called the "Phase 2 Properties," and the one
of those two properties on which Building 2 is actually constructed (if Tenant
exercises its option under Section 1.1(c)(ii) or (iii), as applicable) is
sometimes hereinafter called the "Phase 2 Property"; and the Phase 1 Property
and the Phase 2-A and/or Phase 2-B Properties, as applicable, are sometimes
hereinafter collectively called the "Property" or the "Properties," as the
context may require. Building 1 shall consist of a three (3) story office and
laboratory building containing approximately 70,000 square feet. Building 2 is
presently intended to consist of a two (2) story office and laboratory building
containing approximately 45,000 square feet, but the size and configuration of
Building 2 cannot be finally determined until the site for Building 2 is finally
identified. The location of the Phase 1, Phase 2-A and Phase 2-B Properties is,
and the location of the proposed Buildings on those respective Properties (to
the extent presently known or contemplated) is intended to be, substantially as
shown on the site plan attached hereto as Exhibit B (the "Site Plan"). The
Properties are located on Harbor Way in the City of South San Francisco, County
of San Mateo, State of California, adjacent to and across the street from the
Britannia Pointe Grand Business Park (which is also owned and operated by
Landlord) on East Grand Avenue and Harbor Way. The Buildings and the other
improvements to be constructed on the applicable Properties pursuant to Article
5 hereof and Exhibit C attached hereto are sometimes referred to collectively
herein as the "Improvements." The parking areas, driveways, sidewalks,
landscaped areas and other portions of the Properties that lie outside the
exterior walls of the Buildings to be constructed on the Properties, as depicted
in the Site Plan and as hereafter modified by Landlord from time to time in
accordance with the provisions of this Lease, are sometimes referred to herein
as the "Common Areas"; provided, however, that the term "Common Areas" shall
also include the parking areas, driveways, sidewalks, landscaped areas and other
portions of the remainder of the Britannia Pointe Grand Business Park that lie
outside the exterior walls of the other buildings existing from time to time in
the Britannia Pointe Grand Business Park.
(b) As an appurtenance to Tenant's leasing of the Buildings pursuant
to Section 1.1(a), Landlord hereby grants to Tenant, for the benefit of Tenant
and its employees, suppliers, shippers, customers and invitees, during the term
of this Lease, the non-exclusive right to use, in common with others entitled to
such use, (i) those portions of the Common Areas improved from time to time for
use as parking areas, driveways, sidewalks, landscaped areas, or for other
common purposes, and (ii) all access easements and similar rights and privileges
relating to or appurtenant to the Property and created or existing from time to
time under any access easement agreements, declarations of covenants, conditions
and restrictions, or other written agreements now or hereafter of record with
respect to the Property, subject however to
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any limitations applicable to such rights and privileges under applicable law,
under this Lease and/or under the written agreements creating such rights and
privileges.
(c) The parties acknowledge that as of the date of this Lease, Landlord
does not own either of the Phase 2 Properties. Landlord agrees to use its best
efforts (including a willingness to pay the fair market value of the respective
Phase 2 Properties, as such value may exist from time to time) to Acquire the
Phase 2 Properties, either by private negotiation or by invoking condemnation or
other assistance from the City of South San Francisco, within a time frame
consistent with the time frame contemplated in this Lease for the construction
of Building 2 for occupancy by Tenant under this Lease. If Landlord, despite
the exercise of such best efforts, is delayed in its Acquisition of either or
both of the Phase 2 Properties or is ultimately unable to Acquire either or both
of the Phase 2 Properties, Landlord shall not be liable for any damages caused
by such delay or inability, nor shall any such delay or inability affect the
validity of this Lease or the obligations of Landlord and Tenant hereunder with
respect to the Phase 1 Property and Building 1. If Landlord is able to Acquire
one or both of the Phase 2 Properties, then the procedure for identifying the
site of Building 2 and determining the parties' rights and obligations with
respect thereto shall be as follows:
(i) The parties mutually acknowledge that their first preference for a
site for Building 2 is the Phase 2-A Property, that their second preference for
a site for Building 2 is the Phase 2-B Property, and that the MetaXen Building
Option provided in Section 1.3 hereof with respect to the MetaXen Space is
intended primarily as a possible solution for Tenant's space needs in the
unlikely event that Landlord's efforts to Acquire the Phase 2 Properties are
unsuccessful as to both of the Phase 2 Properties. Landlord agrees to keep
Tenant informed, on a regular basis (and promptly following any material change
in circumstances), regarding Landlord's efforts to Acquire the Phase 2-A
Property and the Phase 2-B Property and regarding the availability of the
MetaXen Space.
(ii) If Landlord Acquires the Phase 2-A Property, then Landlord shall
promptly give Tenant written notice thereof (the "Phase 2-A Acquisition Notice")
and Tenant shall have an option (the "Phase 2-A Option"), during the period
extending from the date Tenant receives the Phase 2-A Acquisition Notice until
the date three (3) months thereafter (the "Phase 2-A Option Period"), to elect
to have Building 2 constructed on the Phase 2-A Property. The Phase 2-A Option
shall be conditional upon Landlord's Acquisition of the Phase 2-A Property,
shall not apply during any period in which Tenant is in default, beyond any
applicable cure period, under this Lease and shall be exercisable only by
written notice from Tenant to Landlord prior to 5:00 p.m. local time in Oakland,
California on the last day of the Phase 2-A Option Period. During the Phase 2-A
Option Period, Landlord and Tenant shall negotiate, diligently and in good
faith, regarding the size, location and general layout of the building to be
constructed as Building 2 on the Phase 2-A Property, the proposed timing of the
construction of the building shell and tenant improvements in such Building 2,
the terms for construction of the tenant improvements to be constructed in such
Building 2 and the rent and other economic terms to be applicable to such
Building 2. Subject to the outcome of such negotiations, it is generally the
intention of the parties that the size and general layout of Building 2 would be
designed to maximize the square footage of Building 2, consistent with
applicable local laws and requirements; that the timing of the construction of
the building shell and tenant improvements (or at least the first phase of
tenant improvements, if applicable) would provide for completion and delivery
thereof twelve (12) months after the Phase 1 Rent Commencement Date as
hereinafter defined; that the term of the lease with respect to Building 2 would
be coterminous with the term of this Lease as it is then in effect with respect
to Building 1; that the tenant improvement allowance and other terms relating to
the construction of tenant improvements in Building 2 would be no less favorable
to Tenant in any material respect than the terms set forth in this Lease with
respect to Building 1; and that the rent and other economic terms applicable to
Building 2 would be substantially the same as the economic terms applicable to
Building 1 as set forth in this Lease, but (w) adjusted to take into account
differences in the size of the respective buildings and in Landlord's reasonably
estimated costs of land acquisition (provided, however, that to the extent the
acquisition costs for the applicable property cannot then be estimated with
reasonable precision because the property value is to be determined through an
eminent domain proceeding which has not yet been completed, the acquisition
costs would be estimated based on the land value established by the appraiser
for the City of South San Francisco or its Redevelopment Agency in connection
with the eminent domain proceeding and the parties would agree that to the
extent Landlord's actual acquisition costs eventually paid to the owner of the
subject property exceed that estimated amount, the rent and other economic terms
would be
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adjusted to reflect an increase in the estimated acquisition costs by one-half
(1/2) of such excess, such adjustment to be made in a manner and to an extent
appropriate to the relative weighting of the land acquisition costs in the
overall determination of the rent and other economic terms), costs of
construction (including any necessary fill), costs of demolition of any then
existing improvements and cost of money (determined by reference to changes in
the Bank of America prime rate in effect in the San Francisco Bay Area from time
to time) with respect to the Phase 2-A Property, and (x) implemented in such a
matter that on the Phase 2 Rent Commencement Date (as hereinafter defined), the
rental rate applicable to Building 2 shall be the same rental rate per square
foot then applicable to Building 1 as set forth in Section 3.1(a) hereof (the
intentions of the parties as described in the foregoing sentence, including any
adjustments expressly contemplated therein, being sometimes hereinafter
collectively called the "Baseline Terms and Conditions"). Effective upon the
date Landlord delivers the Phase 2-A Acquisition Notice to Tenant, any remaining
rights and obligations of the parties with respect to the Phase 2-B Property and
the MetaXen Space under Section 1.1(c)(iii) and Section 1.3 of this Lease,
respectively, shall terminate and be of no further force or effect (except to
the extent that any rights of Tenant with respect to the Phase 2-B Property
and/or the MetaXen Space have previously been exercised by Tenant in a final and
binding manner pursuant to Section 1.1(c)(iii) or Section 1.3 of this Lease, as
applicable).
(A) If Landlord and Tenant reach mutual agreement during the Phase 2-A
Option Period on all material terms and conditions to be applicable to Building
2 as contemplated in the preceding paragraph, then Tenant's written exercise of
the Phase 2-A Option prior to the expiration of the Phase 2-A Option Period
shall create an obligation binding on both parties for the construction and
leasing of Building 2 on such agreed terms and conditions, in which event
Landlord and Tenant shall promptly (and in all events within sixty (60) days
after Tenant's exercise of the Phase 2-A Option) enter into a lease amendment
covering such Building 2 and incorporating such agreed terms and conditions. If
Landlord and Tenant fail to reach mutual agreement during the Phase 2-A Option
Period on any material terms or conditions to be applicable to Building 2 as
contemplated in the preceding paragraph, then Tenant's written exercise of the
Phase 2-A Option prior to the expiration of the Phase 2-A Option Period shall
create an obligation binding on both parties for the construction and leasing of
Building 2 on the Baseline Terms and Conditions, applied in accordance with the
provisions of Section 1.1(c)(v) hereof, in which event Landlord and Tenant shall
promptly proceed to determine the applicable Baseline Terms and Conditions in
accordance with Section 1.1(c)(v) and thereafter shall promptly (and in all
events within sixty (60) days after such determination) enter into a lease
amendment covering such Building 2 and incorporating the applicable Baseline
Terms and Conditions as determined under Section 1.1(c)(v).
(B) If, at the time Landlord gives Tenant the Phase 2-A Acquisition
Notice, Tenant has already exercised the Phase 2-B Option under Section
1.1(c)(iii) hereof but Landlord has not yet commenced actual construction of
Building 2 on the Phase 2-B Property pursuant to such exercise, then Tenant may
elect, by written notice to Landlord at any time prior to the earlier of (y)
Landlord's commencement of actual construction of Building 2 on the Phase 2-B
Property or (z) the expiration of the Phase 2-A Option Period, to rescind
Tenant's exercise of the Phase 2-B Option (and any lease amendment or other
documents to the extent they implement or reflect that exercise) and
concurrently to exercise the Phase 2-A Option under this Section 1.1(c)(ii);
following Landlord's commencement of actual construction of Building 2 on the
Phase 2-B Property pursuant to an exercise of the Phase 2-B Option by Tenant,
however, Tenant's sole rights with respect to the Phase 2-A Property under this
Section 1.1(c)(ii) shall be to have the Phase 2-A Option construed, at Tenant's
option, as an option to lease a third building to be constructed on the Phase 2-
A Property for occupancy by Tenant under this Lease, in which event the
existence, exercise and/or non-exercise of such option by Tenant shall have no
effect on the parties' respective contractual obligations with respect to the
Phase 2-B Property pursuant to Tenant's exercise of the Phase 2-B Option. To
the extent the provisions of this Section 1.1(c)(ii), including (but not limited
to) those relating to Baseline Terms and Conditions, are then to be applied to a
third building for tenant to be constructed on the Phase 2-A Property, the
parties assume and intend (notwithstanding any other provisions of this Section
1.1(c)(ii) to the contrary) that the lease term with respect to such third
building would be seventeen (17) years and would not be coterminous with the
lease terms for Buildings 1 and 2, that the projected delivery date for such
third building would not bear any necessary relationship to the Phase 1 Rent
Commencement Date or the Phase 2 Rent Commencement Date (since the Phase 2-A
Option could arise a number of years in the future) but would be no more than
(and might be
3
<PAGE>
materially less than) fifteen (15) months after execution of the lease or lease
amendment providing for such third building (subject to provisions comparable to
those set forth in this Lease and in the Workletter attached hereto as Exhibit C
for force majeure, tenant delays and similar factors), that the nature and scope
of tenant improvements and the amount of the tenant improvement allowance would
be comparable to those contemplated in this Lease for Building 2 (but without
necessarily having any contemplated phasing of tenant improvements in such third
building) and that the rental rate for such third building, upon occupancy,
would not be determined with reference to the then applicable rate per square
foot for Buildings 1 and 2 under Section 3.1(a) hereof but would instead be the
then prevailing fair market rental rate for properties in the City of South San
Francisco with shell and office, laboratory and research and development
improvements and site (common area) improvements comparable to those to be
constructed in and around such third building, taking into account for such
determination all tenant improvements to be constructed at Landlord's expense
and paid for by Landlord or by Tenant through additional rent (including, but
not limited to, equipment and laboratory improvements to be installed as part of
the initial tenant improvements in such third building except to the extent, if
any, paid for by Tenant in cash), but excluding from such determination any
tenant improvements to be constructed by Tenant at its sole expense or paid for
by Tenant in cash. If Landlord and Tenant are unable to agree upon such then
prevailing fair market rental or upon any other terms and conditions to be
applied to such third building, the applicable terms and conditions shall be
determined in accordance with the procedure set forth in Section 1.1(c)(v) for
Baseline Terms and Conditions, subject to any restrictions or criteria specially
applicable to such third building in accordance with this Section 1.1(c)(ii)(B).
(C) If Tenant does not exercise the Phase 2-A Option prior to the
expiration of the Phase 2-A Option Period, then the parties' rights and
obligations with respect to the Phase 2-A Property shall terminate and be of no
further force or effect and Landlord shall be free to lease and/or develop the
Phase 2-A Property without further obligation to offer the same to Tenant or to
enter into any further negotiations with Tenant with respect thereto.
(iii) If Landlord Acquires the Phase 2-B Property prior to the
termination of Tenant's rights with respect to the Phase 2-B Property pursuant
to any other applicable provisions of this Lease, then Landlord shall promptly
give Tenant written notice thereof (the "Phase 2-B Acquisition Notice") and
Tenant shall have an option (the "Phase 2-B Option"), during the period
extending from the date Tenant receives the Phase 2-B Acquisition Notice until
the later of (A) five (5) months after the date Tenant receives the Phase 2-B
Acquisition Notice or (B) December 31, 1999 (the "Phase 2-B Option Period"), to
elect to have Building 2 constructed on the Phase 2-B Property. The Phase 2-B
Option shall be conditional upon Landlord's Acquisition of the Phase 2-B
Property, shall not apply during any period in which Tenant is in default,
beyond any applicable cure period, under this Lease and shall be exercisable
only by written notice from Tenant to Landlord prior to 5:00 p.m. local time in
Oakland, California on the last day of the Phase 2-B Option Period. During the
Phase 2-B Option Period, Landlord and Tenant shall negotiate, diligently and in
good faith, regarding the size, location and general layout of the building to
be constructed as Building 2 on the Phase 2-B Property, the proposed timing of
the construction of the building shell and tenant improvements in such Building
2, the terms for construction of the tenant improvements to be constructed in
such Building 2 and the rent and other economic terms to be applicable to such
Building 2. Subject to the outcome of such negotiations, it is generally the
intention of the parties that the terms and conditions applicable to Building 2
on the Phase 2-B Property would be the Baseline Terms and Conditions as defined
above, but with all references in such definition to "the Phase 2-A Property" to
be construed instead as referring to "the Phase 2-B Property." Effective upon
the date Landlord delivers the Phase 2-B Acquisition Notice to Tenant, any
remaining rights and obligations of the parties with respect to the MetaXen
Space under Section 1.3 of this Lease shall terminate and be of no further force
or effect (except to the extent that any rights of Tenant with respect to the
MetaXen Space have previously been exercised by Tenant in a final and binding
manner pursuant to Section 1.3 of this Lease).
(A) If Landlord and Tenant reach mutual agreement during the
Phase 2-B Option Period on all material terms and conditions to be applicable to
Building 2 as contemplated in the preceding paragraph, then Tenant's written
exercise of the Phase 2-B Option prior to the expiration of the Phase 2-B Option
Period shall create an obligation binding on both parties for the construction
and leasing of Building 2 on such agreed terms and conditions, in which event
Landlord and Tenant shall promptly (and in all events within sixty (60) days
after Tenant's exercise of the Phase 2-B Option) enter into a lease amendment
covering such Building
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2 and incorporating such agreed terms and conditions. If Landlord and Tenant
fail to reach mutual agreement during the Phase 2-B Option Period on any
material terms or conditions to be applicable to Building 2 as contemplated in
the preceding paragraph, then Tenant's written exercise of the Phase 2-B Option
prior to the expiration of the Phase 2-B Option Period shall create an
obligation binding on both parties for the construction and leasing of Building
2 on the Baseline Terms and Conditions, applied in accordance with the
provisions of Section 1.1(c)(v) hereof, in which event Landlord and Tenant shall
promptly proceed to determine the applicable Baseline Terms and Conditions in
accordance with Section 1.1(c)(v) and thereafter shall promptly (and in all
events within sixty (60) days after such determination) enter into a lease
amendment covering such Building 2 and incorporating the applicable Baseline
Terms and Conditions as determined under Section 1.1(c)(v).
(B) If, following Tenant's exercise of the Phase 2-B Option but
prior to Landlord's commencement of actual construction of Building 2 on the
Phase 2-B Property pursuant to such exercise, Landlord gives Tenant a Phase 2-A
Acquisition Notice, then Tenant shall have certain rights as set forth in
Section 1.1(c)(ii)(B) above, which rights may include, notwithstanding any
contrary provisions of this Section 1.1(c)(iii), the rescission of Tenant's
exercise of the Phase 2-B Option (and the concurrent rescission of any lease
amendment or other documents to the extent they implement or reflect such
exercise) in accordance with the terms of such Section 1.1(c)(ii)(B).
(C) If Tenant does not exercise the Phase 2-B Option prior to the
expiration of the Phase 2-B Option Period, then the parties' rights and
obligations with respect to the Phase 2-B Property shall terminate and be of no
further force or effect and Landlord shall be free to lease and/or develop the
Phase 2-B Property without further obligation to offer the same to Tenant or to
enter into any further negotiations with Tenant with respect thereto.
(iv) For purposes of this Section 1.1(c), the term "Acquire" and
related forms of that term shall mean or refer to (in a manner appropriate to
the context), with respect to any property, the earliest of (A) the date on
which fee title to such property is conveyed to Landlord, or to the City of
South San Francisco or its Redevelopment Agency subject to a binding agreement
of such entity to retransfer the applicable property to Landlord, or (B) the
date on which either Landlord or the City of South San Francisco or its
Redevelopment Agency has executed a binding purchase and sale agreement with the
owner of such property, providing for the purchase or other acquisition of such
property by Landlord, or by the City of South San Francisco or its Redevelopment
Agency subject to a binding agreement of such entity to retransfer the
applicable property to Landlord, as applicable, or (C) the date on which the
City of South San Francisco and/or its Redevelopment Agency has obtained an
Order for Prejudgment Possession or substantially equivalent relief with respect
to such property pursuant to an eminent domain proceeding initiated against such
property and/or the owner(s) thereof, subject to a binding agreement of the City
of South San Francisco or its Redevelopment Agency to retransfer the applicable
property to Landlord.
(v) If Landlord and Tenant fail to agree upon the terms and conditions
applicable to Tenant's lease of a building on the Phase 2-A Property as
contemplated in Section 1.1(c)(ii)(A) above or to Tenant's lease of a building
on the Phase 2-B Property as contemplated in Section 1.1(c)(iii)(A) above, then
in either such event either Landlord or Tenant may give a written notice to the
other electing to have the Baseline Terms and Conditions applicable to such
lease be determined under this Section 1.1(c)(v) (a "Baseline Terms and
Conditions Determination Notice"). Within seven (7) days after delivery of the
Baseline Terms and Conditions Determination Notice, each party, at its cost and
by giving written notice to the other party, shall appoint a real estate
appraiser with at least five (5) years experience appraising similar commercial
properties in northeastern San Mateo County to determine the applicable Baseline
Terms and Conditions in accordance with the provisions of this Section
1.1(c)(v); provided, however, that if Landlord and Tenant at the time are able
to agree upon a single appraiser to make such determination, then they shall
jointly appoint such appraiser to act as the sole determiner of the applicable
Baseline Terms and Conditions and they shall share equally the costs of such
single appraiser. If either party fails to appoint an appraiser within the
allotted time, the single appraiser appointed by the other party shall be the
sole appraiser. Within twenty-one (21) days after delivery of the Baseline
Terms and Conditions Determination Notice, Landlord shall deliver to each of the
appointed appraiser(s) and to Tenant a written statement specifying Landlord's
position on the correct interpretation and application of each element of the
Baseline Terms and Conditions as applied to the Phase 2-A Property or Phase 2-B
Property, as applicable, together with copies of any supporting documentation
reasonably necessary to support Landlord's position (for example, with respect
to changes in acquisition costs, costs of money based on the Bank of America
prime rate, etc.). Within fourteen (14) days after delivery of Landlord's
position statement and supporting materials, Tenant shall deliver to each of the
appointed appraiser(s) and to Landlord a written statement specifying Tenant's
position on the correct interpretation and application of each element of the
Baseline Terms and Conditions as applied to the Phase 2-A Property or Phase 2-B
Property,
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as applicable, together with copies of any supporting documentation reasonably
necessary to support Tenant's positions where they differ from Landlord's
positions. Within five (5) days after delivery of Tenant's position statement
and supporting materials, Landlord may, if it so chooses, deliver to each of the
appointed appraiser(s) and to Tenant a written rebuttal to Tenant's position
statement. Within fourteen (14) days after their receipt of all such position
statements and Landlord's rebuttal (if applicable), the appointed appraisers
shall issue a joint written decision specifying their joint determination as to
the correct interpretation and application of the Baseline Terms and Conditions
with respect to each element addressed in the position statement of either party
and, if they are unable to agree with respect to any element of such Baseline
Terms and Conditions, specifying their respective separate determinations with
respect to such element. If the appraisers have reached a joint determination as
to all elements of the Baseline Terms and Conditions, then their determination
shall be final and binding on the parties and Landlord and Tenant shall
thereafter promptly (and in all events within sixty (60) days) enter into a
lease amendment incorporating the terms and conditions specified in such
determination. If the appraisers have been unable to agree with respect to any
element of the Baseline Terms and Conditions, then they shall jointly appoint a
third similarly qualified appraiser within five (5) days after issuance of their
determination; if they are unable to agree upon such a third appraiser within
such 5-day period, then either party may, upon not less than three (3) days
notice to the other party, apply to the Presiding Judge of the San Mateo County
Superior Court for the appointment of a third qualified appraiser. Each party
shall bear its own legal fees in connection with the appointment of the third
appraiser and shall bear one-half of any other costs of appointment of the third
appraiser and of such third appraiser?s fee. The third appraiser, however
selected, shall be a person who has not previously acted for either party in any
capacity. Within fourteen (14) days after the appointment of the third
appraiser, the third appraiser shall review the joint determination of the first
two appraisers and, to the extent he or she deems appropriate, all position
statements and supporting materials submitted by either party to the first two
appraisers and shall issue his or her written determination specifying, as to
each element of the Baseline Terms and Conditions on which the first two
appraisers were unable to agree, his or her determination as to the correct
interpretation and application of the Baseline Terms and Conditions with respect
to such element, which determination shall be limited to selecting from one of
the two separate determinations issued with respect to such element by the first
two appraisers. Upon issuance of the third appraiser's determination, the joint
determination of the first two appraisers as to all elements on which they
reached agreement shall be final and binding on the parties, the determination
of the third appraiser as to all elements on which the first two appraisers were
unable to reach agreement shall be final and binding on the parties, and
Landlord and Tenant shall thereafter promptly (and in all events within sixty
(60) days) enter into a lease amendment incorporating the terms and conditions
specified in such binding determinations.
(d) The parties acknowledge that Landlord does not presently own the
property described as Parcel Four of the Phase 1 Property on Exhibit A attached
hereto and designated as the Marble Master Property on Exhibit B attached hereto
(the "Marble Master Property"). Landlord has represented to Tenant, however,
that Landlord presently has a binding contract (subject to customary conditions)
to acquire the Marble Master Property, that Landlord's acquisition of the Marble
Master Property is presently scheduled to close on June 28, 1999, that Landlord
will redesign the footprint of Building 1 and its surrounding grounds to exclude
the Marble Master Property if Landlord for some reason is ultimately
unsuccessful in acquiring the same, but that any such redesign shall not reduce
the size of Building 1 below the approximately 70,000 square feet contemplated
in this Lease.
1.2 Landlord's Reserved Rights. To the extent reasonably necessary to
--------------------------
permit Landlord to exercise any rights of Landlord and discharge any obligations
of Landlord under this Lease, Landlord shall have, in addition to the right of
entry set forth in Section 16.1 hereof, the following rights: (i) to make
changes to the Common Areas, including, without limitation, changes in the
location, size or shape of any portion of the Common Areas, and to relocate
parking spaces on the Property and in the Common Areas (but not materially
decrease the
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number of such parking spaces in areas of the Property generally adjacent to the
Buildings); (ii) to close temporarily any of the Common Areas for maintenance or
other reasonable purposes, provided that reasonable parking and reasonable
access to the Buildings remain available; (iii) to construct, alter or add to
other buildings and Common Area improvements on the Property (including, but not
limited to, construction of site improvements, buildings and Common Area
improvements on portions of the Property and/or on adjacent properties owned by
Landlord from time to time); (iv) to build in areas adjacent to the Property and
to add such areas to the Property or operate such areas, for maintenance,
access, parking and other purposes, on an integrated basis with the Property;
(v) to use the Common Areas while engaged in making additional improvements,
repairs or alterations to the Property or any portion thereof or to any adjacent
properties owned by Landlord from time to time; and (vi) to do and perform such
other acts with respect to the Common Areas and the Property as may be necessary
or appropriate; provided, however, that notwithstanding anything to the contrary
in this Section 1.2, Landlord's exercise of its rights hereunder shall not cause
any material diminution of Tenant's rights, nor any material increase of
Tenant's obligations, under this Lease or with respect to the Improvements.
1.3 MetaXen Building Option. Landlord grants to Tenant the option to
-----------------------
lease space in the building designated as the MetaXen Building on Exhibit B-1
attached hereto (the "MetaXen Space" or the "MetaXen Building"), which building
is located on the real property described as the MetaXen Property on Exhibit A
attached hereto, when and if such space becomes available, subject to the terms
and conditions set forth in this Section 1.3. Landlord has represented to
Tenant that the MetaXen Space is at present fully leased under a long-term lease
to MetaXen, LLC, subject to subleases of a portion of such space to Tenant and
of a portion of such space to Cytokinetics, Inc. If, at any time during the
Phase 2-B Option Period, MetaXen, LLC abandons or surrenders its leasehold
interest or its existing lease of the MetaXen Space is otherwise terminated for
any reason with respect to all or any portion of the MetaXen Space, Landlord
shall give written notice of such fact to Tenant (the "MetaXen Option Notice"),
which notice shall specify how much (all or a specified part) of the MetaXen
Space is thus available (the "Offered Space"), shall identify any existing
occupancies or other leasing arrangements to which the Offered Space is subject
in whole or in part (as contemplated in the final two sentences of this Section
1.3), and shall specify Landlord's position as to the then prevailing fair
market rental rate for comparably improved space in the Britannia Pointe Grand
Business Park. Tenant shall then have an option, exercisable only by written
notice to Landlord within a period of thirty (30) days after the date Tenant
receives the MetaXen Option Notice (the "MetaXen Option Period"), in which to
elect to lease the Offered Space, subject to the existing occupancies and other
leasing arrangements (if any) as specified in the MetaXen Option Notice, in "as
is" condition, at a rental rate equal to the fair market rental rates then
prevailing for comparably improved space in the Britannia Pointe Grand Business
Park and for a term equal to, at Tenant's election (to be specified in Tenant's
notice of exercise of such option), either fifteen (15) years or the then
remaining term applicable to Building 1 under this Lease. During the MetaXen
Option Period, Landlord shall, if Tenant so requests, negotiate diligently and
in good faith with Tenant regarding the fair market rental rates then prevailing
for comparably improved space in the Britannia Pointe Grand Business Park and
regarding any material variations that Tenant wishes to implement from the terms
set forth in the preceding sentence, but in the absence of any contrary written
agreement between Landlord and Tenant with respect to specific terms, a timely
written exercise by Tenant of its option with respect to the Offered Space shall
create an obligation binding on both parties for the leasing of the Offered
Space to Tenant for the permissible term specified in such exercise notice and
on the other terms set forth in the preceding sentence; provided, however, that
if Tenant in its notice of exercise objects to Landlord's position as to the
fair market rental rates then prevailing for comparably improved space in the
Britannia Pointe Grand Business Park and elects to have such fair market rental
rates determined in accordance with the procedure set forth in Section 3.1(b)
hereof, then within ten (10) days after Tenant's exercise of its option to lease
the Offered Space, each party shall appoint a qualified real estate appraiser as
contemplated in Section 3.1(b) hereof, after which the two appraisers (and a
third appraiser, if necessary) shall appraise and set, for purposes of Tenant's
lease of the Offered Space, the fair market rental rates then prevailing for
comparably improved space in the Britannia Pointe Grand Business Park in
accordance with the procedures set forth in Section 3.1(b) hereof and such
determination shall be final and binding on the parties. Meanwhile, within
sixty (60) days after Tenant's exercise of its option to lease the Offered
Space, Landlord and Tenant shall enter into a new written lease, in form and
substance substantially identical to this Lease except to the extent changes are
reasonably necessary to reflect the different locations and sizes of the
buildings and the different terms and conditions
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applicable to the Offered Space, incorporating the terms and conditions which
apply to Tenant's lease of the Offered Space under this Section 1.3. To the
extent the applicable rental has not been determined under Section 3.1(b) hereof
within such 60-day period, the lease shall provide for an initial rental rate
equal to Landlord's good faith estimate of the then prevailing fair market
rental rate for comparably improved space in the Britannia Pointe Grand Business
Park and shall also provide for any necessary adjustment of such rent,
retroactive to the commencement of such lease, to be made upon completion of the
fair market rental determination under Section 3.1(b) hereof. If Tenant fails to
exercise its option with respect to the Offered Space during the MetaXen Option
Period, then Landlord shall thereafter have the right to lease the Offered Space
to a third party at any time and on any terms that Landlord may deem
appropriate, without any further obligation to offer such space to Tenant.
Notwithstanding any other provisions of this Section 1.3, the provisions of this
Section 1.3 shall not apply during any period in which Tenant is in default,
beyond any applicable cure period, under this Lease, nor shall they be construed
to prohibit, invalidate, supersede or take priority over any other occupancies
or leasing arrangements in effect prior to the MetaXen Space becoming available
(including, but not limited to, the presently existing occupancies of MetaXen,
LLC as tenant and of Cytokinetics, Inc. as subtenant), or any leasing
arrangements that Landlord may enter into on a direct basis with Cytokinetics,
Inc., following any termination of Landlord's lease with MetaXen, LLC, to permit
Cytokinetics, Inc. to continue to occupy its then existing space for the balance
of the then existing term of its sublease. Landlord represents to Tenant that
the sublease between MetaXen, LLC and Cytokinetics, Inc. presently provides for
an expiration date of August 31, 2000, although Landlord also understands that
Cytokinetics, Inc. has requested that MetaXen, LLC extend that expiration date
to December 31, 2000, and that in the event of an early termination of the
master lease of MetaXen, LLC for the MetaXen Space, it is Landlord's intention
to honor, on a direct basis with Cytokinetics, Inc., the remaining term (if any)
of the Cytokinetics, Inc. sublease as it then exists; the foregoing information
is provided solely for Tenant's information and benefit, however, and is not
intended to benefit or to create any enforceable rights on the part of
Cytokinetics, Inc. or any other third party.
2. TERM
----
2.1 Term. The term of this Lease shall commence upon mutual execution
----
of this Lease by Landlord and Tenant and shall end on the day (the "Termination
Date") immediately preceding the date seventeen (17) years after after the Phase
I Rent Commencement Date (as hereinafter defined), unless sooner terminated or
extended as hereinafter provided.
(a) Tenant's minimum rental and Operating Expense obligations with
respect to Building 1 and the Phase 1 Property shall commence on the earlier of
(i) the date which is six (6) months after the date Landlord delivers to Tenant
a Structural Completion Certificate for Building 1 pursuant to the Workletter
attached hereto as Exhibit C (subject to any adjustments authorized or required
under the provisions of such Exhibit C), correctly notifying Tenant that
Landlord's construction of the shell of Building 1 pursuant to Article V and
Exhibit C is substantially complete, or (ii) the date Tenant takes occupancy of
and commences operation of its business in Building 1, the earlier of such dates
being herein called the "Phase 1 Rent Commencement Date."
(b) Tenant's minimum rental and Operating Expense obligations with
respect to Building 2 and the Phase 2 Property, if Tenant exercises its option
under Section 1.1(c)(ii) or (iii) to have Building 2 constructed on the Phase 2-
A Property or the Phase 2-B Property, shall commence in accordance with the
terms and conditions determined to be applicable to Building 2 under the
applicable provisions of Section 1.1(c). Subject to such determination, it is
generally the expectation of the parties that such obligations would commence on
the earlier of (i) the date which is six (6) months after the date Landlord
delivers to Tenant a Structural Completion Certificate for Building 2 pursuant
to the Workletter attached hereto as Exhibit C (subject to any adjustments
authorized or required under the provisions of such Exhibit C), correctly
notifying Tenant that Landlord's construction of the shell of Building 2
pursuant to Article V and Exhibit C is substantially complete, or (ii) the date
Tenant takes occupancy of and commences operation of its business in Building 2,
the earlier of such dates being herein called the "Phase 2 Rent Commencement
Date," and would end on the Termination Date, unless sooner terminated or
extended (if applicable) as hereinafter provided. The parties presently
contemplate that the delivery of the Structural Completion Certificate for
Building 2 and the Phase 2 Rent Commencement Date, respectively, will occur
approximately one (1) year after the
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corresponding dates or events with respect to Building 1, subject in all events
to the provisions of Section 1.1(c) and the terms and conditions determined
thereunder for Building 2.
2.2 Early Possession. Tenant shall have the nonexclusive right to occupy
----------------
and take possession of the respective Buildings from and after the date of
Landlord's delivery of the respective Structural Completion Certificates
described in clause (i) of each of Section 2.1(a) and Section 2.1(b), even
though Landlord will be continuing to construct the balance of Landlord's Work
in the applicable Building as contemplated in Exhibit C, for the purpose of
constructing Tenant's Work as contemplated in Exhibit C and for the purpose of
installing fixtures and furniture, laboratory equipment, computer equipment,
telephone equipment, low voltage data wiring and personal property and other
similar work related to the construction of Tenant's Work and/or preparatory to
the commencement of Tenant's business in the applicable Building. Such
occupancy and possession, and any early access under the next sentence of this
Section 2.2, shall be subject to and upon all of the terms and conditions of
this Lease and of the Workletter attached hereto as Exhibit C (including, but
not limited to, conditions relating to the maintenance of required insurance),
except that Tenant shall have no obligation to pay minimum rental or Operating
Expenses for any period prior to the applicable Rent Commencement Date as
determined under Section 2.1; such early possession shall not advance or
otherwise affect the applicable Rent Commencement Date or the Termination Date
determined under Section 2.1. Tenant shall also be entitled to have early
access to the Phase 1 Property or the Phase 2 Property, as applicable, at all
appropriate times prior to Landlord's delivery of the respective Structural
Completion Certificate for the Building to be constructed on such applicable
portion of the Property, subject to the approval of Landlord and its general
contractor (which approval shall not be unreasonably withheld or delayed) and to
all other provisions of this Section 2.2, solely for the purpose of performing
work preparatory to the construction of Tenant's Work or necessary for the
orderly sequencing of such work, and Tenant shall not be required to pay minimum
rental or Operating Expenses by reason of such early access until the applicable
Rent Commencement Date otherwise occurs; without limiting the generality of the
preceding portion of this sentence, Tenant shall be entitled to have early
access to the Phase 1 Property or the Phase 2 Property, as applicable, and the
applicable respective Building as soon as the roof metal decking is in place in
order to begin hanging electrical, mechanical and plumbing services from the
overhead structure, subject to all of the provisions of this Section 2.2.
Tenant shall not interfere with or delay Landlord's contractors by any early
access, occupancy or possession under this Section 2.2, shall coordinate and
cooperate with Landlord and its contractors (who shall similarly coordinate and
cooperate with Tenant and its contractors) to minimize any interference or delay
by either party with respect to the other party's work following Landlord's
delivery of the applicable Structural Completion Certificate, and shall
indemnify, defend and hold harmless Landlord and its agents and employees from
and against any and all claims, demands, liabilities, actions, losses, costs and
expenses, including (but not limited to) reasonable attorneys' fees, arising out
of or in connection with Tenant's early entry upon any portion of the Property
hereunder.
2.3 Delay In Possession. Landlord agrees to use its best reasonable
-------------------
efforts to complete its portion of each respective phase of the work described
in Section 5.1 and Exhibit C promptly, diligently and within the respective time
periods set forth in the Estimated Construction Schedule attached hereto as
Exhibit D and incorporated herein by this reference, as such schedule may be
modified from time to time by mutual written agreement of Landlord and Tenant,
and subject to the effects of any delays caused by or attributable to Tenant or
any other circumstances beyond Landlord's reasonable control (excluding
financial inability); provided, however, that except to the extent caused by a
material default by Landlord of its obligations set forth in this Lease
(including, but not limited to, its obligations set forth in this Section 2.3
and in Section 5.1 and Exhibit C), Landlord shall not be liable for any damages
caused by any delay in the completion of such work, nor shall any such delay
affect the validity of this Lease or the obligations of Tenant hereunder.
Notwithstanding any other provision of this Section 2.3, however, if Landlord
fails to deliver the Structural Completion Certificate for Building 1 and tender
possession of the completed structural portions of the Building Shell (i.e.,
those portions required to be completed as a condition of delivery of the
Structural Completion Certificate) for Building 1 to Tenant by the date which is
twenty-one (21) months after the date of this Lease, then Tenant shall have the
right to terminate this Lease without further liability hereunder by written
notice delivered to Landlord at any time prior to Landlord's delivery of the
Structural Completion Certificate for Building 1 and tender of possession of the
completed structural portions of the Building Shell for Building 1 to Tenant;
provided, however, that the 21-month period set forth in this sentence shall be
extended, day for day, for a period equal to the length of
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any delays in Landlord's design and construction of the Building Shell for
Building 1 that are caused by any material default by Tenant in the performance
of its obligations under this Lease, including (but not limited to) any failure
of Tenant (i) to provide to Landlord, within three (3) months after the date of
this Lease, details of any Building Shell modifications that will be required
for Building 1 in order to accommodate Tenant's needs with respect to HVAC,
plumbing and other building systems, and/or (ii) to make prompt and timely
delivery to Landlord of all other information reasonably necessary for Landlord
to complete the preparation of all drawings, designs and specifications for the
Building Shell for Building 1, and/or (iii) to respond in a prompt and timely
manner to any requests by Landlord or its architect for approval of drawings,
designs, specifications, changes or other matters requiring Tenant's review or
approval under the provisions of Exhibit C as they apply to Building 1.
2.4 Acknowledgement Of Rent Commencement. Promptly following the Phase 1
------------------------------------
Rent Commencement Date, Landlord and Tenant shall execute a written
acknowledgement of the Phase 1 Rent Commencement Date, Termination Date and
related matters, substantially in the form attached hereto as Exhibit E (with
appropriate insertions), which acknowledgement shall be deemed to be
incorporated herein by this reference. Promptly following the Phase 2 Rent
Commencement Date, Landlord and Tenant shall execute a written acknowledgment of
the Phase 2 Rent Commencement Date and related matters, substantially in the
form attached hereto as Exhibit E (with appropriate modifications and
insertions), which acknowledgement shall be deemed to be incorporated herein by
this reference. Notwithstanding the foregoing requirement, the failure of
either party to execute any such written acknowledgement shall not affect the
determination of the applicable Rent Commencement Date, Termination Date and
related matters in accordance with the provisions of this Lease.
2.5 Holding Over. If Tenant holds possession of the Property or any
------------
portion thereof after the term of this Lease with Landlord's written consent,
then except as otherwise specified in such consent, Tenant shall become a tenant
from month to month at one hundred ten percent (110%) of the rental and
otherwise upon the terms herein specified for the period immediately prior to
such holding over and shall continue in such status until the tenancy is
terminated by either party upon not less than thirty (30) days prior written
notice. If Tenant holds possession of the Property or any portion thereof after
the term of this Lease without Landlord's written consent, then Landlord in its
sole discretion may elect (by written notice to Tenant) to have Tenant become a
tenant either from month to month or at will, at one hundred fifty percent
(150%) of the rental (prorated on a daily basis for an at-will tenancy, if
applicable) and otherwise upon the terms herein specified for the period
immediately prior to such holding over, or may elect to pursue any and all legal
remedies available to Landlord under applicable law with respect to such
unconsented holding over by Tenant. Tenant shall indemnify and hold Landlord
harmless from any loss, damage, claim, liability, cost or expense (including
reasonable attorneys' fees) resulting from any delay by Tenant in surrendering
the Property or any portion thereof (except to the extent such delay is with
Landlord's prior written consent), including but not limited to any claims made
by a succeeding tenant by reason of such delay. Acceptance of rent by Landlord
following expiration or termination of this Lease shall not constitute a renewal
of this Lease.
2.6 Option To Extend Term. Tenant shall have the option to extend the
---------------------
term of this Lease, at the minimum rental set forth in Section 3.1(b) and (c)
and otherwise upon all the terms and provisions set forth herein with respect to
the initial term of this Lease, for up to two (2) additional periods of five (5)
years each, the first commencing upon the expiration of the initial term hereof
and the second commencing upon the expiration of the first extended term, if
any. Exercise of such option with respect to the first such extended term shall
be by written notice to Landlord at least twelve (12) months prior to the
expiration of the initial term hereof; exercise of such option with respect to
the second extended term, if the first extension option has been duly exercised,
shall be by like written notice to Landlord at least twelve (12) months prior to
the expiration of the first extended term hereof. If Tenant is in default
hereunder, beyond any applicable notice and cure periods, on the date of such
notice or on the date any extended term is to commence, then the exercise of the
option shall be of no force or effect, the extended term shall not commence and
this Lease shall expire at the end of the then current term hereof (or at such
earlier time as Landlord may elect pursuant to the default provisions of this
Lease). If Tenant properly exercises one or more extension options under this
Section, then all references in this Lease (other than in this Section 2.6) to
the "term" of this Lease shall be construed to include the extension term(s)
thus elected by Tenant. Except as expressly set forth in this
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Section 2.6, Tenant shall have no right to extend the term of this Lease beyond
its prescribed term.
3. RENTAL
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3.1 Minimum Rental.
--------------
(a) Rental Amounts. Tenant shall pay to Landlord as minimum rental for
--------------
the Buildings, in advance, without deduction, offset, notice or demand, on or
before the Phase 1 Rent Commencement Date and on or before the first day of each
subsequent calendar month of the term of this Lease, the following amounts per
month, subject to adjustment in accordance with the terms of this Section 3.1:
Months Monthly Minimum Rental
001 - 012 $168,700 ($2.41/sq ft)
013 - 024 196,000 ($2.80/sq ft)
025 - 036 200,900 ($2.87/sq ft)
037 - 048 205,800 ($2.94/sq ft)
049 - 060 210,700 ($3.01/sq ft)
061 - 072 216,300 ($3.09/sq ft)
073 - 084 221,200 ($3.16/sq ft)
085 - 096 226,800 ($3.24/sq ft)
097 - 108 207,200 ($2.96/sq ft)
109 - 120 212,800 ($3.04/sq ft)
121 - 132 219,800 ($3.14/sq ft)
133 - 144 200,200 ($2.86/sq ft)
145 - 156 207,200 ($2.96/sq ft)
157 - 168 189,700 ($2.71/sq ft)
169 - 180 197,400 ($2.82/sq ft)
181 - 192 205,100 ($2.93/sq ft)
193 - 204 213,500 ($3.05/sq ft)
If the obligation to pay minimum rental hereunder commences on other than
the first day of a calendar month or if the term of this Lease terminates on
other than the last day of a calendar month, the minimum rental for such first
or last month of the term of this Lease, as the case may be, shall be prorated
based on the number of days the term of this Lease is in effect during such
month. If an increase in minimum rental becomes effective on a day other than
the first day of a calendar month, the minimum rental for that month shall be
the sum of the two applicable rates, each prorated for the portion of the month
during which such rate is in effect. The rental amounts set forth in this
Section 3.1(a) are applicable only to Building 1. If Tenant exercises its
option under Section 1.1(c)(ii) or (iii), as applicable, for construction and
leasing of Building 2 on either the Phase 2-A Property or the Phase 2-B
Property, then the rent and other economic terms of such construction and
leasing shall be determined in accordance with the applicable provisions of
Section 1.1(c) and embodied in a written lease amendment as contemplated
therein.
(b) Rental Amounts During First Extended Term. If Tenant properly
-----------------------------------------
exercises its right to extend the term of this Lease pursuant to Section 2.6
hereof, the minimum rental during the first year of the first extended term
shall be equal to ninety percent (90%) of the fair market rental value of the
Buildings (as defined below), determined as of the commencement of such extended
term in accordance with this paragraph, and during each subsequent year of the
first extended term shall be equal to one hundred three percent (103%) of the
minimum rental in effect during the immediately preceding year of such extended
term. Upon Landlord's receipt of a proper notice of Tenant's exercise of its
option to extend the term of this Lease, the parties shall have sixty (60) days
in which to agree on the fair market rental for the Buildings at the
commencement of the first extended term for the uses permitted hereunder. If
the parties agree on such fair market rental, they shall execute an amendment to
this Lease stating the amount of the applicable minimum monthly rental
(including the indexed amounts applicable during subsequent years of the first
extended term as described above). If the parties are unable to agree on such
rental within such sixty (60) day period, then within fifteen (15) days after
the expiration of such period each party, at its cost and by giving notice to
the other party, shall appoint a real estate appraiser with at least five (5)
years experience appraising similar commercial properties in northeastern San
Mateo County to appraise and set the fair market rental for the Buildings at
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the commencement of the first extended term in accordance with the provisions of
this Section 3.1(b). If either party fails to appoint an appraiser within the
allotted time, the single appraiser appointed by the other party shall be the
sole appraiser. If an appraiser is appointed by each party and the two
appraisers so appointed are unable to agree upon a fair market rental within
thirty (30) days after the appointment of the second, the two appraisers shall
appoint a third similarly qualified appraiser within ten (10) days after
expiration of such 30-day period; if they are unable to agree upon a third
appraiser, then either party may, upon not less than five (5) days notice to the
other party, apply to the Presiding Judge of the San Mateo County Superior Court
for the appointment of a third qualified appraiser. Each party shall bear its
own legal fees in connection with appointment of the third appraiser and shall
bear one-half of any other costs of appointment of the third appraiser and of
such third appraiser's fee. The third appraiser, however selected, shall be a
person who has not previously acted for either party in any capacity. Within
thirty (30) days after the appointment of the third appraiser, a majority of the
three appraisers shall set the fair market rental for the first extended term
and shall so notify the parties. If a majority are unable to agree within the
allotted time, the three appraised fair market rentals shall be added together
and divided by three and the resulting quotient shall be the fair market rental
for the first extended term, which determination shall be binding on the parties
and shall be enforceable in any further proceedings relating to this Lease. For
purposes of this Section 3.1(b), the "fair market rental" of the Buildings shall
be determined with reference to the then prevailing market rental rates for
properties in the City of South San Francisco with shell and office, laboratory
and research and development improvements and site (common area) improvements
comparable to those then existing in the Buildings and on the Property, taking
into account for such determination all tenant improvements constructed at
Landlord's expense and paid for by Landlord or by Tenant through additional rent
(including, but not limited to, equipment and laboratory improvements installed
as part of the initial Tenant Improvements pursuant to Section 5.1 and Exhibit C
except to the extent, if any, paid for by Tenant in cash), but excluding from
such determination any Tenant Improvements constructed by Tenant at its sole
expense or paid for by Tenant in cash.
(c) Rental Amounts During Second Extended Term. If Tenant properly
------------------------------------------
exercises its right to a second extended term of this Lease pursuant to Section
2.6 hereof, the minimum rental during such second extended term shall be
determined in the same manner provided in the preceding paragraph for the first
extended term (including the indexation provision for years after the first year
of such second extended term), except that the determination shall be made as of
the commencement of the second extended term.
(d) Rental Adjustment Due to Change in Square Footage. The minimum rental
-------------------------------------------------
amounts specified in this Section 3.1 are based upon an estimated area of 70,000
square feet (the estimated area of Building 1 alone). If the actual area of any
Building (measured from the exterior faces of exterior walls and from the
dripline of any overhangs, except that in the case of any two-story recesses or
overhangs, the area to the dripline of the overhang shall be counted as part of
the area of the first story but not as part of the area of the second story),
when completed, is greater or less than the estimated area used in establishing
rental amounts and schedules for such Building under this Lease (as amended from
time to time), then the minimum rentals otherwise applicable under this Lease
(as amended from time to time) with respect to such Building shall be adjusted
for each rental period in strict proportion to the ratio between the actual area
of such Building (determined on the basis of measurement described above in this
sentence) and the assumed area of such Building reflected in the previously
established rental amounts or schedules. Measurement of building area under
this paragraph shall be made initially by Landlord's architect, subject to
review and approval by Tenant's architect.
(e) Rental Adjustments Due to Tenant Improvement Costs. If Tenant
--------------------------------------------------
exercises its option under Section 1.1(c)(ii) or (iii), as applicable, with
respect to the Phase 2-A Property or the Phase 2-B Property and elects, in
accordance with Section 5.1 and Exhibit C, to have the Tenant Improvements in
Building 2 constructed in two phases, then for purposes of the rent structure
established for Building 2 under Section 1.1(c)(ii) or (iii), as applicable, the
parties intend that during the period from the Phase 2 Rent Commencement Date
until the earlier to occur of (x) the first anniversary of the Phase 2 Rent
Commencement Date or (y) the date construction of the Phase 2B Tenant
Improvements is certified by Landlord's architect as being substantially
complete (i.e., complete subject only to the completion of "punch list" items
which do not, in the aggregate, materially interfere with Tenant's ability to
occupy and use the Phase 2B Tenant Improvements for the uses contemplated
hereunder), Tenant's "fully loaded" minimum monthly rental otherwise established
under Section 1.1(c)(ii) or (iii), as applicable, for
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Building 2 as a whole shall be reduced each month by an amount equal to the
product of the square footage of Building 2 (measured in accordance with Section
3.1(d) hereof) multiplied by whichever of the following factors is applicable,
depending upon the Cost of Improvements for the Phase 2A Tenant Improvements:
(i) if Landlord's share of the Cost of Improvements for the Phase 2A
Tenant Improvements is less than One Hundred Fifteen and No/100 Dollars
($115.00) per square foot times the square footage of Building 2 (measured in
accordance with Section 3.1(d) hereof) but not less than Ninety-Five and No/100
Dollars ($95.00) per square foot times the square footage of Building 2
(measured in accordance with Section 3.1(d) hereof), the applicable factor shall
be $0.0185 per square foot per month for each dollar per square foot (or
fraction thereof) by which Landlord's share of such Cost of Improvements is less
than One Hundred Fifteen and No/100 Dollars ($115.00) per square foot;
(ii) if Landlord's share of the Cost of Improvements for the Phase 2A
Tenant Improvements is less than Ninety-Five and No/100 Dollars ($95.00) per
square foot times the square footage of Building 2 (measured in accordance with
Section 3.1(d) hereof) but not less than Seventy and No/100 Dollars ($70.00) per
square foot times the square footage of Building 2 (measured in accordance with
Section 3.1(d) hereof), the applicable factor shall be the sum of (A) $0.37 per
square foot per month plus (B) $0.0148 per square foot per month for each dollar
per square foot (or fraction thereof) by which Landlord's share of such Cost of
Improvements is less than Ninety-Five and No/100 Dollars ($95.00) per square
foot; and
(iii) if Landlord's share of the Cost of Improvements for the
Phase 2A Tenant Improvements is less than Seventy and No/100 Dollars ($70.00)
per square foot times the square footage of Building 2 (measured in accordance
with Section 3.1(d) hereof), the applicable factor shall be the sum of (A) $0.74
per square foot per month plus (B) $0.014 per square foot per month for each
dollar per square foot (or fraction thereof) by which Landlord's share of such
Cost of Improvements is less than Seventy and No/100 Dollars ($70.00) per square
foot but not less than Forty-Five and No/100 Dollars ($45.00) per square foot.
In all events, upon the earlier to occur of (x) the first anniversary of
the Phase 2 Rent Commencement Date or (y) the date construction of the Phase 2B
Tenant Improvements is certified by Landlord's architect as being substantially
complete (i.e., complete subject only to the completion of ?punch list? items
which do not, in the aggregate, materially interfere with Tenant's ability to
occupy and use the Phase 2B Tenant Improvements for the uses contemplated
hereunder), the foregoing rental adjustment shall expire and Tenant's minimum
monthly rental obligation shall revert to the full amount established under
Section 1.1(c)(ii) or (iii), as applicable, for Building 2, subject only to any
applicable adjustment under Section 3.1(d).
3.2 Late Charge. If Tenant fails to pay when due rental or other amounts
-----------
due Landlord hereunder, such unpaid amounts shall bear interest for the benefit
of Landlord at a rate equal to the lesser of fifteen percent (15%) per annum or
the maximum rate permitted by law, from the date due to the date of payment. In
addition to such interest, Tenant shall pay to Landlord a late charge in an
amount equal to six percent (6%) of any installment of minimum rental and any
other amounts due Landlord if not paid in full on or before the fifth (5th) day
after such rental or other amount is due. Tenant acknowledges that late payment
by Tenant to Landlord of rental or other amounts due hereunder will cause
Landlord to incur costs not contemplated by this Lease, including, without
limitation, processing and accounting charges and late charges which may be
imposed on Landlord by the terms of any loan relating to the Property. Tenant
further acknowledges that it is extremely difficult and impractical to fix the
exact amount of such costs and that the late charge set forth in this Section
3.2 represents a fair and reasonable estimate thereof. Acceptance of any late
charge by Landlord shall not constitute a waiver of Tenant's default with
respect to overdue rental or other amounts, nor shall such acceptance prevent
Landlord from exercising any other rights and remedies available to it.
Acceptance of rent or other payments by Landlord shall not constitute a waiver
of late charges or interest accrued with respect to such rent or other payments
or any prior installments thereof, nor of any other defaults by Tenant, whether
monetary or non-monetary in nature, remaining uncured at the time of such
acceptance of rent or other payments.
4. STOCK WARRANTS
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4.1 Stock Warrants. Within thirty (30) days after the execution of this
--------------
Lease, Tenant shall deliver to Landlord or Landlord's designees (which may be
any partners, shareholders or affiliates of Landlord or any affiliates of any
such partners, shareholders or affiliates of Landlord) warrants registered in
the name of Landlord or Landlord's designees for the acquisition of an aggregate
of one hundred fifty thousand (150,000) shares of Tenant's common stock, which
warrants shall be in form and substance substantially identical to the form of
warrant mutually approved by Landlord and Tenant prior to execution of this
Lease. The warrants shall have an exercise price consistent with the most
recent arm's-length financing consummated by Tenant at the time of execution of
this Lease (which the parties presently estimate to be $3.00 per share) and
shall be exercisable for a period beginning on the date of this Lease and ending
on the fifth (5th) anniversary of the closing of the initial public offering (if
any) of Tenant's common stock.
5. CONSTRUCTION
------------
5.1 Construction of Improvements.
----------------------------
(a) Landlord shall, at Landlord's cost and expense (except as
otherwise provided herein and in Exhibit C), construct Landlord's Work as
defined in and in accordance with the terms and conditions of the Workletter
attached hereto as Exhibit C (the "Workletter"). Landlord shall use its best
reasonable efforts to complete such construction promptly, diligently and within
the applicable time periods set forth in the Estimated Construction Schedule
attached hereto as Exhibit D and incorporated herein by this reference, as such
schedule may be modified from time to time in accordance with the Workletter,
subject to the effects of any delays caused by Tenant or any other circumstances
beyond Landlord's reasonable control (excluding any financial inability), and
subject to the provisions of Section 2.3 above. As described in Exhibit C,
Building 1 and the Tenant Improvements therein shall be constructed in a single
phase, but if Tenant exercises its option under Section 1.1(c)(ii) or (iii) to
have Building 2 constructed on the Phase 2-A Property or the Phase 2-B Property,
then Tenant in its discretion may elect, by written notice to Landlord at any
time prior to Landlord's delivery to Tenant of the Structural Completion
Certificate for the Building Shell for Building 2, to have the Tenant
Improvements in Building 2 completed in two separate phases, a first phase of no
less than 25,000 square feet ("Phase 2A") and a second phase of no more than
20,000 square feet ("Phase 2B"), with the sum of the square footages for such
phases to be equal to the total square footage of Building 2 and the
construction of Phase 2B to be completed no later than twelve (12) months after
the Phase 2 Rent Commencement Date. If Tenant exercises its option for Building
2 and elects such phased completion of the Tenant Improvements in Building 2,
then (i) Landlord shall still construct the entire Building Shell for Building 2
in the same manner and within the same time frame as if all of the Building 2
Improvements were to be constructed in a single phase, (ii) Tenant shall be
entitled to occupy and use all of Building 2 or any lesser portion thereof
(including, at Tenant's election, any portions in which Tenant Improvements have
not yet been completed) from and after the completion of Phase 2A, and (iii)
Tenant shall begin paying rent for all of Building 2 on the Phase 2 Rent
Commencement Date, subject to a rental adjustment under Section 3.1(e) hereof in
accordance with its terms, regardless of how much of Building 2 is actually
occupied by Tenant as of that date.
(b) Tenant shall, at Tenant's cost and expense (except as otherwise
provided herein and in Exhibit C), promptly and diligently construct Tenant's
Work as defined in and in accordance with the terms and conditions of the
Workletter.
5.2 Condition of Property. Landlord shall deliver the Building Shell for
---------------------
each Building and the other Improvements constructed by Landlord in each
Building to Tenant clean and free of debris, promptly upon completion of
construction thereof, and Landlord warrants to Tenant that the Building Shell
for each Building and the other Improvements constructed by Landlord in each
Building (i) shall be free from material structural defects and shall be in good
operating condition on the applicable Rent Commencement Date, and (ii) shall be
constructed in compliance in all material respects with the plans and
specifications developed pursuant to the Workletter and mutually approved (to
the extent required thereunder) by Landlord and Tenant, subject to any changes
implemented in such specifications in accordance with the procedures set forth
in the Workletter. If this warranty is violated in any respect, then it shall
be the obligation of Landlord, after receipt of written notice from Tenant
setting forth with specificity the nature of the violation, to promptly, at
Landlord's sole cost, correct the condition(s) constituting such violation.
Tenant's failure to give such written notice to Landlord within one (1) year
after the
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applicable Rent Commencement Date relating to such Building and Improvements
shall give rise to a conclusive presumption that Landlord has complied with all
Landlord's obligations hereunder, except with respect to latent defects (as to
which such 1-year limitation shall not apply). Without limiting the scope of
Landlord's obligations under the foregoing provisions of this Section 5.2,
Landlord also agrees to either (x) use its best reasonable efforts to enforce
when and as necessary, for the benefit of Tenant and the Improvements, any and
all contractor's and/or manufacturer's warranties extending more than one (1)
year after the applicable Rent Commencement Date with respect to any of
Landlord's Work or, at Tenant's request, (y) assign any or all of such
warranties to Tenant for enforcement purposes (provided, however, that Landlord
may reserve joint enforcement rights under such warranties to the extent of
Landlord's continuing obligations or warranties hereunder). TENANT ACKNOWLEDGES
THAT THE WARRANTY CONTAINED IN THIS SECTION IS IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, WITH RESPECT TO THE PHYSICAL CONDITION OF THE IMPROVEMENTS
TO BE CONSTRUCTED BY LANDLORD AND THAT LANDLORD MAKES NO OTHER WARRANTIES EXCEPT
AS EXPRESSLY SET FORTH IN THIS LEASE.
5.3 Compliance with Law. Landlord warrants to Tenant that the Building
-------------------
Shell for each Building and the other Improvements constructed by Landlord in
each Building (when constructed), as they exist on the applicable Rent
Commencement Date, but without regard to the use for which Tenant will occupy
the respective Buildings, shall not violate any covenants or restrictions of
record or any applicable law, building code, regulation or ordinance in effect
on the applicable Rent Commencement Date. Tenant warrants to Landlord that the
Tenant Improvements and any other improvements constructed by Tenant from time
to time shall not violate any applicable law, building code, regulation or
ordinance in effect on the applicable Rent Commencement Date or at the time such
improvements are placed in service. If it is determined that any of these
warranties has been violated, then it shall be the obligation of the warranting
party, after written notice from the other party, to correct the condition(s)
constituting such violation promptly, at the warranting party's sole cost and
expense. Tenant acknowledges that except as expressly set forth in this Lease,
neither Landlord nor any agent of Landlord has made any representation or
warranty as to the present or future suitability of the Property or Improvements
for the conduct of Tenant's business or proposed business thereon.
6. TAXES
-----
6.1 Personal Property. Tenant shall be responsible for and shall pay
-----------------
prior to delinquency all taxes and assessments levied against or by reason of
(a) any and all alterations, additions and items installed or placed on or in
the Buildings and taxed as personal property rather than as real property,
and/or (b) all personal property, trade fixtures and other property placed by
Tenant on or about the Property. Upon request by Landlord, Tenant shall furnish
Landlord with satisfactory evidence of Tenant's payment thereof. If at any time
during the term of this Lease any of said alterations, additions or personal
property, whether or not belonging to Tenant, shall be taxed or assessed as part
of the Property, then such tax or assessment shall be paid by Tenant to Landlord
within fifteen (15) days after presentation by Landlord of copies of the tax
bills in which such taxes and assessments are included and shall, for the
purposes of this Lease, be deemed to be personal property taxes or assessments
under this Section 6.1.
6.2 Real Property. To the extent any real property taxes and assessments
-------------
on the Property (including, but not limited to, the Improvements or any portion
thereof) are assessed directly to Tenant, Tenant shall be responsible for and
shall pay prior to delinquency all such taxes and assessments levied against the
Property. Upon request by Landlord, Tenant shall furnish Landlord with
satisfactory evidence of Tenant's payment thereof. To the extent the Property
and/or Improvements are taxed or assessed to Landlord following the Phase 1 Rent
Commencement Date, such real property taxes and assessments shall constitute
Operating Expenses (as that term is defined in Section 7.2 of this Lease) and
shall be paid in accordance with the provisions of Article 7 of this Lease.
7. OPERATING EXPENSES
------------------
7.1 Payment of Operating Expenses.
-----------------------------
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(a) Tenant shall pay to Landlord, at the time and in the manner
hereinafter set forth, as additional rental, an amount equal to one hundred
percent (100%) ("Tenant's Operating Cost Share") of the Operating Expenses
defined in Section 7.2.
(b) Tenant's Operating Cost Share as specified in paragraph (a) of this
Section is based upon Tenant being the sole occupant of the Property and upon
the Property being operated and accounted for separately from the balance of the
Britannia Pointe Grand Business Park for operation, maintenance and common area
purposes. Notwithstanding any other provisions of this Lease, during the period
prior to the Phase 2 Rent Commencement Date, no Operating Expenses relating to
the Phase 2 Property or to Building 2 shall be included in the Operating
Expenses chargeable to Tenant under this Lease.
(c) If Landlord at any time elects to operate the Property on an
integrated basis with the balance of the Britannia Pointe Grand Business Park or
with any other adjacent property owned by Landlord for operation, maintenance
and common area purposes, then Tenant's Operating Cost Share shall be adjusted
to be equal to the percentage determined by dividing the gross square footage of
the Buildings as they exist from time to time by the gross square footage of all
buildings located on the Property and on such adjacent property owned by
Landlord as described above. In determining such percentage, a building shall be
taken into account from and after the date on which a tenant first enters into
possession of the building or a portion thereof, and the good faith
determination of the gross square footage of any such building by Landlord's
architects shall be final and binding upon the parties. Without limiting the
generality of the foregoing provisions, if Building 2 is constructed on the
Phase 2-B Property, Landlord in its discretion may elect to treat Building 2 as
part of the Britannia Pointe Grand Business Park for operation, maintenance and
common area purposes and to treat Building 1 as not being part of the Britannia
Pointe Grand Business Park for operation, maintenance and common area purposes,
in which event Tenant's Operating Cost Share and the Operating Expenses to which
such Operating Cost Share applies shall be calculated separately for each of
such two Buildings and references to the "Property" in this Article 7 shall be
construed accordingly.
7.2 Definition Of Operating Expenses.
--------------------------------
(a) Subject to the exclusions and provisions hereinafter contained,
the term "Operating Expenses" shall mean the total costs and expenses incurred
by or allocable to Landlord for management, operation and maintenance of the
Improvements, the Buildings and the Property, including, without limitation,
costs and expenses of (i) insurance (which may include, at Landlord's option,
earthquake insurance as part of or in addition to any casualty or property
insurance policy), property management, landscaping, and the operation, repair
and maintenance of buildings and Common Areas; (ii) all utilities and services;
(iii) real and personal property taxes and assessments or substitutes therefor
levied or assessed against the Property or any part thereof, including (but not
limited to) any possessory interest, use, business, license or other taxes or
fees, any taxes imposed directly on rents or services, any assessments or
charges for police or fire protection, housing, transit, open space, street or
sidewalk construction or maintenance or other similar services from time to time
by any governmental or quasi-governmental entity, and any other new taxes on
landlords in addition to taxes now in effect; (iv) supplies, equipment,
utilities and tools used in management, operation and maintenance of the
Property; (v) capital improvements to the Property, the Improvements or the
Buildings, amortized over a reasonable period, (aa) which reduce or will cause
future reduction of other items of Operating Expenses for which Tenant is
otherwise required to contribute or (bb) which are required by law, ordinance,
regulation or order of any governmental authority or (cc) of which Tenant has
use or which benefit Tenant; and (vi) any other costs (including, but not
limited to, any parking or utilities fees or surcharges) allocable to or paid by
Landlord, as owner of the Property, Buildings or Improvements, pursuant to any
applicable laws, ordinances, regulations or orders of any governmental or quasi-
governmental authority or pursuant to the terms of any declarations of
covenants, conditions and restrictions now or hereafter affecting the Property
or any other property over which Tenant has non-exclusive use rights as
contemplated in Section 1.1(b) hereof. Operating Expenses shall not include any
costs attributable to the work for which Landlord is required to pay under
Article 5 or Exhibit C, nor any costs attributable to the initial construction
of the Buildings or of Common Area improvements on the Property. The distinction
between items of ordinary operating maintenance and repair and items of a
capital nature shall be made in accordance with generally accepted accounting
principles applied on a
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<PAGE>
consistent basis or in accordance with tax accounting principles, as determined
in good faith by Landlord's accountants.
(b) Notwithstanding anything to the contrary contained in this Lease, the
following shall not be included within Operating Expenses:
(i) Costs of maintenance or repair of the roof membrane for any
building, except during periods (if any) in which costs of maintenance or repair
of the roof membranes for the Buildings are likewise included as an Operating
Expense (rather than being incurred directly by Tenant or passed through
directly to Tenant on a building-by-building basis);
(ii) Leasing commissions, attorneys' fees, costs, disbursements, and
other expenses incurred in connection with negotiations or disputes with
tenants, or in connection with leasing, renovating or improving space for
tenants or other occupants or prospective tenants or other occupants of the
Property or of any other property owned by Landlord;
(iii) The cost of any service sold to any tenant (including
Tenant) or other occupant for which Landlord is entitled to be reimbursed as an
additional charge or rental over and above the basic rent and operating expenses
payable under the lease with that tenant;
(iv) Any depreciation on the Buildings or on any other improvements
on the Property or on any other property owned by Landlord;
(v) Expenses in connection with services or other benefits of a type
that are not offered or made available to Tenant but that are provided to
another tenant of the Property or of any other property owned by Landlord;
(vi) Costs incurred due to Landlord's violation of any terms or
conditions of this Lease or of any other lease relating to the Buildings or to
any other portion of the Property or of any other property owned by Landlord;
(vii) Overhead profit increments paid to any subsidiary or
affiliate of Landlord for management or other services on or to the Property or
any portion thereof or any other property owned by Landlord, or for supplies or
other materials to the extent that the cost of the services, supplies or
materials exceeds the cost that would have been paid had the services, supplies
or materials been provided by unaffiliated parties on a competitive basis;
(viii) All interest, loan fees and other carrying costs related to
any mortgage or deed of trust or related to any capital item, and all rental and
other amounts payable under any ground or underlying lease, or under any lease
for any equipment ordinarily considered to be of a capital nature (except (A)
janitorial equipment which is not affixed to the Buildings and/or (B) equipment
the cost of which, if purchased, would be considered an amortizable Operating
Expense under the provisions of this Section 7.2, notwithstanding the capital
nature of such equipment);
(ix) Any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord;
(x) Advertising and promotional expenditures;
(xi) Costs of repairs and other work occasioned by fire, windstorm or
other casualty of an insurable nature, except to the extent of any applicable
deductible amounts under insurance actually carried by Landlord;
(xii) Any costs, fines or penalties incurred due to violations by
Landlord of any governmental rule or authority or of this Lease or any other
lease of any portion of the Property or any other property owned by Landlord, or
due to Landlord's negligence or willful misconduct;
(xiii) Management fees to the extent they exceed, in any given period,
one percent (1%) of gross income (rent and Operating Expenses) received by
Landlord with respect to the Property (and any other property owned by Landlord
and operated on an integrated
17
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basis with the Property for operation, maintenance and common area purposes)
during the applicable period;
(xiv) Costs for sculpture, paintings or other objects of art, and for
any insurance thereon or extraordinary security in connection therewith;
(xv) Wages, salaries or other compensation paid to any executive
employees above the grade of building manager;
(xvi) The cost of correcting any building code or other violations
which were violations prior to the applicable Rent Commencement Date;
(xvii) The cost of containing, removing or otherwise remediating any
contamination of the Property (including the underlying land and groundwater) by
any toxic or hazardous materials (including, without limitation, asbestos and
PCBs); and
(xviii) Premiums for earthquake insurance coverage, but only to the
extent (if any) that such premiums exceed, in any applicable period, a
commercially reasonable rate, taking into account all relevant factors
(including, but not limited to, the nature, size and location of the Property,
the nature and value of the improvements therein that are owned by or insurable
by Landlord, and the general availability and cost of commercial earthquake
insurance in the insurance markets existing from time to time during the term of
this Lease).
7.3 Determination Of Operating Expenses. On or before the Phase 1 Rent
-----------------------------------
Commencement Date and during the last month of each calendar year of the term of
this Lease ("Lease Year"), or as soon thereafter as practical, Landlord shall
provide Tenant notice of Landlord's estimate of the Operating Expenses for the
ensuing Lease Year or applicable portion thereof. On or before the first day of
each month during the ensuing Lease Year or applicable portion thereof,
beginning on the Phase 1 Rent Commencement Date, Tenant shall pay to Landlord
Tenant's Operating Cost Share of the portion of such estimated Operating
Expenses allocable (on a prorata basis) to such month; provided, however, that
if such notice is not given in the last month of a Lease Year, Tenant shall
continue to pay on the basis of the prior year's estimate, if any, until the
month after such notice is given. If at any time or times it appears to
Landlord that the actual Operating Expenses will vary from Landlord's estimate
by more than five percent (5%), Landlord may, by notice to Tenant, revise its
estimate for such year and subsequent payments by Tenant for such year shall be
based upon such revised estimate.
7.4 Final Accounting For Lease Year.
-------------------------------
(a) Within ninety (90) days after the close of each Lease Year, or as
soon after such 90-day period as practicable, Landlord shall deliver to Tenant a
statement of Tenant's Operating Cost Share of the Operating Expenses for such
Lease Year prepared by Landlord from Landlord's books and records, which
statement shall be final and binding on Landlord and Tenant (except as provided
in Section 7.4(b)). If on the basis of such statement Tenant owes an amount that
is more or less than the estimated payments for such Lease Year previously made
by Tenant, Tenant or Landlord, as the case may be, shall pay the deficiency to
the other party within thirty (30) days after delivery of the statement. Failure
or inability of Landlord to deliver the annual statement within such ninety (90)
day period shall not impair or constitute a waiver of Tenant's obligation to pay
Operating Expenses, or cause Landlord to incur any liability for damages.
(b) At any time within three (3) months after receipt of Landlord's
annual statement of Operating Expenses as contemplated in Section 7.4(a), Tenant
shall be entitled, upon reasonable written notice to Landlord and during normal
business hours at Landlord's office or such other places as Landlord shall
designate, to inspect and examine those books and records of Landlord relating
to the determination of Operating Expenses for the immediately preceding Lease
Year covered by such annual statement or, if Tenant so elects by written notice
to Landlord, to request an independent audit of such books and records. The
independent audit of the books and records shall be conducted by a certified
public accountant acceptable to both Landlord and Tenant or, if the parties are
unable to agree, by a certified public accountant appointed by the Presiding
Judge of the San Mateo County Superior Court upon the application of either
Landlord or Tenant (with notice to the other party). In either event, such
certified public accountant shall be one who is not then employed in any
capacity by Landlord or Tenant
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or by any of their respective affiliates. The audit shall be limited to the
determination of the amount of Operating Expenses for the subject Lease Year,
and shall be based on generally accepted accounting principles and tax
accounting principles, consistently applied. If it is determined, by mutual
agreement of Landlord and Tenant or by independent audit, that the amount of
Operating Expenses billed to or paid by Tenant for the applicable Lease Year was
incorrect, then the appropriate party shall pay to the other party the
deficiency or overpayment, as applicable, within thirty (30) days after the
final determination of such deficiency or overpayment. All costs and expenses of
the audit shall be paid by Tenant unless the audit shows that Landlord
overstated Operating Expenses for the subject Lease Year by more than five
percent (5%), in which case Landlord shall pay all costs and expenses of the
audit. Each party agrees to maintain the confidentiality of the findings of any
audit in accordance with the provisions of this Section 7.4.
7.5 Proration. If the Phase 1 Rent Commencement Date falls on a day other
---------
than the first day of a Lease Year or if this Lease terminates on a day other
than the last day of a Lease Year, then the amount of Operating Expenses payable
by Tenant with respect to such first or last partial Lease Year shall be
prorated on the basis which the number of days during such Lease Year in which
this Lease is in effect bears to 365. The termination of this Lease shall not
affect the obligations of Landlord and Tenant pursuant to Section 7.4 to be
performed after such termination.
8. UTILITIES
---------
8.1 Payment. Commencing with the Phase 1 Rent Commencement Date and
-------
thereafter throughout the term of this Lease with respect to Building 1, and
commencing with the Phase 2 Rent Commencement Date and thereafter throughout the
term of this Lease with respect to Building 2, Tenant shall pay, before
delinquency, all charges for water, gas, heat, light, electricity, power, sewer,
telephone, alarm system, janitorial and other services or utilities supplied to
or consumed in or with respect to the respective Buildings (other than any
separately metered costs for water, electricity or other services or utilities
furnished with respect to the Common Areas, which costs shall be paid by
Landlord and shall constitute Operating Expenses under Section 7.2 hereof),
including any taxes on such services and utilities. It is the intention of the
parties that all such services shall be separately metered to the Buildings. In
the event that any of such services supplied to the Buildings are not separately
metered, then the amount thereof shall be an item of Operating Expenses and
shall be paid as provided in Article 7.
8.2 Interruption. There shall be no abatement of rent or other charges
------------
required to be paid hereunder and Landlord shall not be liable in damages or
otherwise for interruption or failure of any service or utility furnished to or
used with respect to the Buildings or Property because of accident, making of
repairs, alterations or improvements, severe weather, difficulty or inability in
obtaining services or supplies, labor difficulties or any other cause.
Notwithstanding the foregoing provisions of this Section 8.2, however, in the
event of any interruption or failure of any service or utility to the Buildings
that (i) is caused in whole or in material part by the active negligence or
willful misconduct of Landlord or its agents or employees and (ii) continues for
more than three (3) business days and (iii) materially impairs Tenant's ability
to use the Buildings for their intended purposes hereunder, then following such
three (3) business day period, Tenant's obligations for payment of rent and
other charges under this Lease shall be abated in proportion to the degree of
impairment of Tenant's use of the Buildings, and such abatement shall continue
until Tenant's use of the Buildings is no longer materially impaired thereby.
9. ALTERATIONS; SIGNS
------------------
9.1 Right To Make Alterations. Tenant shall make no alterations, additions or
-------------------------
improvements to the Buildings or the Property, other than interior non-
structural alterations costing less than Fifty Thousand Dollars ($50,000.00) in
the aggregate during any twelve (12) month period, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. All such alterations, additions and improvements shall be completed
with due diligence in a first-class workmanlike manner, in compliance with plans
and specifications approved in writing by Landlord and in compliance with all
applicable laws, ordinances, rules and regulations, and to the extent Landlord's
consent is not otherwise required hereunder for such alterations, additions or
improvements, Tenant shall give prompt written notice thereof to Landlord.
Tenant shall cause any contractors engaged by Tenant for work in
19
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the Buildings or on the Property to maintain public liability and property
damage insurance, and other customary insurance, with such terms and in such
amounts as Landlord may reasonably require, naming as additional insureds
Landlord and any of its partners, shareholders, property managers and lenders
designated by Landlord for this purpose, and shall furnish Landlord with
certificates of insurance or other evidence that such coverage is in effect.
Notwithstanding any other provisions of this Section 9.1, under no circumstances
shall Tenant make any structural alterations or improvements, or any substantial
changes to the roof or substantial equipment installations on the roof, or any
substantial changes or alterations to the building systems, without Landlord's
prior written consent (which consent shall not be unreasonably withheld or
delayed). If Tenant so requests in seeking Landlord's consent to any
alterations, additions or improvements, Landlord shall specify in granting such
consent whether Landlord intends to require that Tenant remove such alterations,
additions or improvements (or any specified portions thereof) upon expiration or
termination of this Lease. Landlord shall receive no fee for supervision,
profit, overhead or general conditions in connection with any alterations,
additions or improvements constructed or installed by Tenant under this Lease,
whether as part of the initial Tenant's Work under Exhibit C or otherwise.
9.2 Title To Alterations. All alterations, additions and improvements
--------------------
installed in, on or about the Buildings or the Property shall become part of the
Property and shall become the property of Landlord, unless Landlord elects to
require Tenant to remove the same upon the termination of this Lease; provided,
however, that the foregoing shall not apply to Tenant's movable furniture and
equipment and trade fixtures. Tenant shall promptly repair any damage caused by
its removal of any such furniture, equipment or trade fixtures. Notwithstanding
any other provisions of this Article 9, however, (a) under no circumstances
shall Tenant have any right to remove from the Buildings or the Property, at the
expiration or termination of this Lease, any lab benches, fume hoods, cold rooms
or other similar improvements and equipment installed in the Buildings and paid
for by Landlord or Tenant, even if such equipment and improvements were
installed by Tenant as part of Tenant's Work under Exhibit C and paid for by
Tenant in cash or in the form of rent; and (b) if Tenant requests Landlord's
written consent to any alterations, additions or improvements under Section 9.1
hereof and, in requesting such consent, asks that Landlord specify whether
Landlord will require removal of such alterations, additions or improvements
upon termination or expiration of this Lease, then Landlord shall not be
entitled to require such removal unless Landlord specified its intention to do
so at the time of granting of Landlord's consent to the requested alterations,
additions or improvements.
9.3 Tenant Fixtures. Subject to the final sentence of Section 9.2 and to
---------------
Section 9.5, Tenant may install, remove and reinstall trade fixtures without
Landlord's prior written consent, except that installation and removal of any
fixtures which are affixed to the Buildings or the Property or which affect the
exterior or structural portions of the Buildings or the building systems shall
require Landlord's written approval, which approval shall not be unreasonably
withheld or delayed. Subject to the provisions of Section 9.5, the foregoing
shall apply to Tenant's signs, logos and insignia, all of which Tenant shall
have the right to place and remove and replace (a) only with Landlord's prior
written consent as to location, size and composition, which consent shall not be
unreasonably withheld or delayed, and (b) only in compliance with all
restrictions and requirements of applicable law and of any covenants, conditions
and restrictions or other written agreements now or hereafter applicable to the
Property. Tenant shall immediately repair any damage caused by installation and
removal of fixtures under this Section 9.3.
9.4 No Liens. Tenant shall at all times keep the Buildings and the
--------
Property free from all liens and claims of any contractors, subcontractors,
materialmen, suppliers or any other parties employed either directly or
indirectly by Tenant in construction work on the Buildings or the Property.
Tenant may contest any claim of lien, but only if, prior to such contest, Tenant
either (i) posts security in the amount of the claim, plus estimated costs and
interest, or (ii) records a bond of a responsible corporate surety in such
amount as may be required to release the lien from the Buildings and the
Property. Tenant shall indemnify, defend and hold Landlord harmless against any
and all liability, loss, damage, cost and other expenses, including, without
limitation, reasonable attorneys' fees, arising out of claims of any lien for
work performed or materials or supplies furnished at the request of Tenant or
persons claiming under Tenant.
9.5 Signs. Without limiting the generality of the provisions of Section
-----
9.3 hereof, Tenant shall have the right to display its corporate name and logo
on the Buildings and in front of the entrance to the Buildings, subject to
Landlord's prior approval as to location, size, design
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and composition (which approval shall not be unreasonably withheld or delayed),
subject to the established sign criteria for the Britannia Pointe Grand Business
Park and subject to all restrictions and requirements of applicable law and of
any covenants, conditions and restrictions or other written agreements now or
hereafter applicable to the Property. Landlord is hereby deemed to have
approved, as to location, any signage the location of which is expressly
designated on any Approved Plan developed pursuant to the Workletter.
10. MAINTENANCE AND REPAIRS
-----------------------
10.1 Landlord's Work.
---------------
(a) Landlord shall repair and maintain or cause to be repaired and
maintained the Common Areas of the Property and the roof (structural portions
only), exterior walls and other structural portions of the Buildings. The cost
of all work performed by Landlord under this Section 10.1 shall be an Operating
Expense hereunder, except to the extent such work (i) is required due to the
negligence of Landlord, (ii) involves the repair or correction of a condition or
defect that Landlord is required to correct pursuant to Section 5.2 hereof,
(iii) is a capital expense not includible as an Operating Expense under Section
7.2 hereof, or (iv) is required due to the negligence or willful misconduct of
Tenant or its agents, employees or invitees (in which event Tenant shall bear
the full cost of such work pursuant to the indemnification provided in Section
12.6 hereof, subject to the release set forth in Section 12.4 hereof). Tenant
knowingly and voluntarily waives the right to make repairs at Landlord's
expense, except to the extent permitted by Section 10.1(b) below, or to offset
the cost thereof against rent, under any law, statute, regulation or ordinance
now or hereafter in effect.
(b) If Landlord fails to perform any repairs or maintenance
required to be performed by Landlord on the Buildings under Section 10.1(a) and
such failure continues for thirty (30) days or more after Tenant gives Landlord
written notice of such failure (or, if such repairs or maintenance cannot
reasonably be performed within such 30-day period, then if Landlord fails to
commence performance within such 30-day period and thereafter to pursue such
performance diligently to completion), then Tenant shall have the right to
perform such repairs or maintenance and Landlord shall reimburse Tenant for the
reasonable cost thereof within fifteen (15) days after written notice from
Tenant of the completion and cost of such work, accompanied by copies of
invoices or other reasonable supporting documentation. Under no circumstances,
however, shall Tenant have any right to offset the cost of any such work against
rent or other charges falling due from time to time under this Lease.
10.2 Tenant's Obligation For Maintenance.
-----------------------------------
(a) Good Order, Condition And Repair. Except as provided in Section
--------------------------------
10.1 hereof, Tenant at its sole cost and expense shall keep and maintain in good
and sanitary order, condition and repair the Buildings and every part thereof,
wherever located, including but not limited to the roof (non-structural portions
only), signs, interior, ceiling, electrical system, plumbing system, telephone
and communications systems of the Buildings, the HVAC equipment and related
mechanical systems serving the Buildings (for which equipment and systems Tenant
shall enter into a service contract with a person or entity designated or
approved by Landlord), all doors, door checks, windows, plate glass, door
fronts, exposed plumbing and sewage and other utility facilities, fixtures,
lighting, wall surfaces, floor surfaces and ceiling surfaces of the Buildings
and all other interior repairs, foreseen and unforeseen, with respect to the
Buildings, as required.
(b) Landlord's Remedy. If Tenant, after notice from Landlord, fails
-----------------
to make or perform promptly any repairs or maintenance which are the obligation
of Tenant hereunder, Landlord shall have the right, but shall not be required,
to enter the Buildings and make the repairs or perform the maintenance necessary
to restore the Buildings to good and sanitary order, condition and repair.
Immediately on demand from Landlord, the cost of such repairs shall be due and
payable by Tenant to Landlord.
(c) Condition Upon Surrender. At the expiration or sooner
------------------------
termination of this Lease, Tenant shall surrender the Buildings and the
Improvements, including any additions, alterations and improvements thereto,
broom clean, in good and sanitary order, condition and repair, ordinary wear and
tear excepted, first, however, removing all goods and effects of Tenant and all
and fixtures and items required to be removed or specified to be removed at
Landlord's
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election pursuant to this Lease (including, but not limited to, any such removal
required as a result of an election duly made by Landlord to require such
removal as contemplated in Section 9.2), and repairing any damage caused by such
removal. Tenant shall not have the right to remove fixtures or equipment if
Tenant is in default hereunder unless Landlord specifically waives this
provision in writing. Tenant expressly waives any and all interest in any
personal property and trade fixtures not removed from the Property by Tenant at
the expiration or termination of this Lease, agrees that any such personal
property and trade fixtures may, at Landlord's election, be deemed to have been
abandoned by Tenant, and authorizes Landlord (at its election and without
prejudice to any other remedies under this Lease or under applicable law) to
remove and either retain, store or dispose of such property at Tenant's cost and
expense, and Tenant waives all claims against Landlord for any damages resulting
from any such removal, storage, retention or disposal.
11. USE OF PROPERTY
---------------
11.1 Permitted Use. Subject to Sections 11.3, 11.4 and 11.6 hereof,
-------------
Tenant shall use the Buildings solely for a laboratory research and development
facility, including (but not limited to) wet chemistry and biology labs, clean
rooms, pilot scale, clinical scale and GMP scale manufacturing, storage and use
of toxic and radioactive materials (subject to the provisions of Section 11.6
hereof), storage and use of laboratory animals, administrative offices, and
other lawful purposes reasonably related to or incidental to such specified uses
(subject in each case to receipt of all necessary approvals from the City of
South San Francisco and other governmental agencies having jurisdiction over the
Buildings), and for no other purpose.
11.2 [Omitted.]
--------
11.3 No Nuisance. Tenant shall not use the Property for or carry on or
-----------
permit upon the Property or any part thereof any offensive, noisy or dangerous
trade, business, manufacture, occupation, odor or fumes, or any nuisance or
anything against public policy, nor interfere with the rights or business of
Landlord in the Buildings or the Property, nor commit or allow to be committed
any waste in, on or about the Property. Tenant shall not do or permit anything
to be done in or about the Property, nor bring nor keep anything therein, which
will in any way cause the Property to be uninsurable with respect to the
insurance required by this Lease or with respect to standard fire and extended
coverage insurance with vandalism, malicious mischief and riot endorsements.
11.4 Compliance With Laws. Tenant shall not use the Property or permit
--------------------
the Property to be used in whole or in part for any purpose or use that is in
violation of any applicable laws, ordinances, regulations or rules of any
governmental agency or public authority. Tenant shall keep the Buildings and
Improvements equipped with all safety appliances required by law, ordinance or
insurance on the Property, or any order or regulation of any public authority,
because of Tenant's particular use of the Property. Tenant shall procure all
licenses and permits required for use of the Property. Tenant shall use the
Property in strict accordance with all applicable ordinances, rules, laws and
regulations and shall comply with all requirements of all governmental
authorities now in force or which may hereafter be in force pertaining to the
use of the Property by Tenant, including, without limitation, regulations
applicable to noise, water, soil and air pollution, and making such
nonstructural alterations and additions thereto as may be required from time to
time by such laws, ordinances, rules, regulations and requirements of
governmental authorities or insurers of the Property (collectively,
"Requirements") because of Tenant's construction of improvements in or other
particular use of the Property. Any structural alterations or additions required
from time to time by applicable Requirements because of Tenant's construction of
improvements in the Buildings or other particular use of the Property shall, at
Landlord's election, either (i) be made by Tenant, at Tenant's sole cost and
expense, in accordance with the procedures and standards set forth in Section
9.1 for alterations by Tenant, or (ii) be made by Landlord at Tenant's sole cost
and expense, in which event Tenant shall pay to Landlord as additional rent,
within ten (10) days after demand by Landlord, an amount equal to all reasonable
costs incurred by Landlord in connection with such alterations or additions. The
judgment of any court, or the admission by Tenant in any proceeding against
Tenant, that Tenant has violated any law, statute, ordinance or governmental
rule, regulation or requirement shall be conclusive of such violation as between
Landlord and Tenant.
11.5 Liquidation Sales. Tenant shall not conduct or permit to be
-----------------
conducted any auction, bankruptcy sale, liquidation sale, or going out of
business sale, in, upon or about the
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Property, whether said auction or sale be voluntary, involuntary or pursuant to
any assignment for the benefit of creditors, or pursuant to any bankruptcy or
other insolvency proceeding.
11.6 Environmental Matters.
---------------------
(a) For purposes of this Section, "hazardous substance" shall mean
the substances included within the definitions of the term "hazardous substance"
under (i) the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. (S)(S) 9601 et seq., and the regulations
promulgated thereunder, as amended, (ii) the California Carpenter-Presley-Tanner
Hazardous Substance Account Act, California Health & Safety Code (S)(S) 25300 et
seq., and regulations promulgated thereunder, as amended, (iii) the Hazardous
Materials Release Response Plans and Inventory Act, California Heath & Safety
Code (S)(S) 25500 et seq., and regulations promulgated thereunder, as amended,
and (iv) petroleum; "hazardous waste" shall mean (i) any waste listed as or
meeting the identified characteristics of a "hazardous waste" under the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. (S)(S) 6901 et seq., and
regulations promulgated pursuant thereto, as amended (collectively, "RCRA"),
(ii) any waste meeting the identified characteristics of "hazardous waste,"
"extremely hazardous waste" or "restricted hazardous waste" under the California
Hazardous Waste Control Law, California Health & Safety Code (S)(S) 25100 et
seq., and regulations promulgated pursuant thereto, as amended (collectively,
the "CHWCL"), and/or (iii) any waste meeting the identified characteristics of
"medical waste" under California Health & Safety Code (S)(S) 25015-25027.8, and
regulations promulgated thereunder, as amended; and "hazardous waste facility"
shall mean a hazardous waste facility as defined under the CHWCL.
(b) Without limiting the generality of the obligations set forth in
Section 11.4 of this Lease:
(i) Tenant shall not cause or permit any hazardous substance
or hazardous waste to be brought upon, kept, stored or used in or about the
Property without the prior written consent of Landlord, which consent shall not
be unreasonably withheld, except that Tenant, in connection with its permitted
use of the Property as provided in Section 11.1, may keep, store and use
materials that constitute hazardous substances which are customary for such
permitted use, provided such hazardous substances are kept, stored and used in
quantities which are customary for such permitted use and are kept, stored and
used in full compliance with clauses (ii) and (iii) immediately below.
(ii) Tenant shall comply with all applicable laws, rules,
regulations, orders, permits, licenses and operating plans of any governmental
authority with respect to the receipt, use, handling, generation,
transportation, storage, treatment and/or disposal of hazardous substances or
wastes by Tenant or its agents or employees, and Tenant will provide Landlord
with copies of all permits, licenses, registrations and other similar documents
that authorize Tenant to conduct any such activities in connection with its
authorized use of the Property from time to time.
(iii) Tenant shall not (A) operate on or about the Property any
facility required to be permitted or licensed as a hazardous waste facility or
for which interim status as such is required, nor (B) store any hazardous wastes
on or about the Property for ninety (90) days or more, nor (C) conduct any other
activities on or about the Property that could result in the Property being
deemed to be a "hazardous waste facility" (including, but not limited to, any
storage or treatment of hazardous substances or hazardous wastes which could
have such a result).
(iv) Tenant shall comply with all applicable laws, rules,
regulations, orders and permits relating to underground storage tanks installed
by Tenant or its agents or employees or at the request of Tenant (including any
installation, monitoring, maintenance, closure and/or removal of such tanks) as
such tanks are defined in California Health & Safety Code (S) 25281(x),
including, without limitation, complying with California Health & Safety Code
(S)(S) 25280-25299.7 and the regulations promulgated thereunder, as amended.
Tenant shall furnish to Landlord copies of all registrations and permits issued
to or held by Tenant from time to time for any and all underground storage tanks
located on or under the Property.
(v) If applicable, Tenant shall provide Landlord in writing
the following information and/or documentation within fifteen (15) days after
the Phase 1 Rent
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Commencement Date, and shall update such information at least annually, on or
before each anniversary of the Phase 1 Rent Commencement Date, to reflect any
change in or addition to the required information and/or documentation
(provided, however, that in the case of the materials described in subparagraphs
(B), (C) and (E) below, Tenant shall not be required to deliver copies of such
materials to Landlord but shall maintain copies of such materials to such extent
and for such periods as may be required by applicable law and shall permit
Landlord or its representatives to inspect and copy such materials during normal
business hours at any time and from time to time upon reasonable notice to
Tenant):
(A) A list of all hazardous substances and/or wastes that
Tenant receives, uses, handles, generates, transports, stores, treats or
disposes of from time to time in connection with its operations on the Property.
(B) All Material Safety Data Sheets ("MSDS's"), if any,
required to be completed with respect to operations of Tenant at the Property
from time to time in accordance with Title 26, California Code of Regulations
8-5194 or 42 U.S.C. (S) 11021, or any amendments thereto, and any Hazardous
Materials Inventory Sheets that detail the MSDS's.
(C) All hazardous waste manifests (as defined in Title 26,
California Code of Regulations (S) 22-66481), if any, that Tenant is required to
complete from time to time in connection with its operations at the Property.
(D) A copy of any Hazardous Materials Management Plan
required from time to time with respect to Tenant's operations at the Property,
pursuant to California Health & Safety Code (S)(S) 25500 et seq., and any
regulations promulgated thereunder, as amended.
(E) Any Contingency Plans and Emergency Procedures required
of Tenant from time to time due to its operations in accordance with Title 26,
California Code of Regulations (S)(S) 22-67140 et seq., and any amendments
thereto, and any Training Programs and Records required under Title 26,
California Code of Regulations, (S) 22-67105, and any amendments thereto.
(F) Copies of any biennial reports to be furnished to the
California Department of Health Services from time to time relating to hazardous
substances or wastes, pursuant to Title 26, California Code of Regulations,
22-66493, and any amendments thereto.
(G) Copies of all industrial wastewater discharge permits
issued to or held by Tenant from time to time in connection with its operations
on the Property.
(H) Copies of any other lists or inventories of hazardous
substances and/or wastes on or about the Property that Tenant is otherwise
required to prepare and file from time to time with any governmental or
regulatory authority.
(vi) Tenant shall secure Landlord's prior written approval for
any proposed receipt, storage, possession, use, transfer or disposal of
"radioactive materials" or "radiation," as such materials are defined in Title
26, California Code of Regulations (S) 17-30100, and/or any other materials
possessing the characteristics of the materials so defined, which approval
Landlord may withhold in its sole and absolute discretion; provided, that such
approval shall not be required for any radioactive materials for which Tenant
has secured prior written approval of the Nuclear Regulatory Commission and
delivered to Landlord a copy of such approval. Tenant, in connection with any
such authorized receipt, storage, possession, use, transfer or disposal of
radioactive materials or radiation, shall:
(A) Comply with all federal, state and local laws, rules,
regulations, orders, licenses and permits issued to or applicable to Tenant with
respect to its business operations on the Property;
(B) Maintain, to such extent and for such periods as may be
required by applicable law, and permit Landlord and its representatives to
inspect during normal business hours at any time and from time to time upon
reasonable notice to Tenant, a list of all radioactive materials or radiation
received, stored, possessed, used, transferred or disposed of by Tenant or in
connection with the operation of Tenant's business on the Property from time to
24
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time, to the extent not already disclosed through delivery of a copy of a
Nuclear Regulatory Commission approval with respect thereto as contemplated
above; and
(C) Maintain, to such extent and for such periods as may be
required by applicable law, and permit Landlord or its representatives to
inspect during normal business hours at any time and from time to time upon
reasonable notice to Tenant, all licenses, registration materials, inspection
reports, governmental orders and permits in connection with the receipt,
storage, possession, use, transfer or disposal of radioactive materials or
radiation by Tenant or in connection with the operation of Tenant's business on
the Property from time to time.
(vii) Tenant shall comply with any and all applicable laws, rules,
regulations and orders of any governmental authority with respect to the release
into the environment of any hazardous wastes or substances or radiation or
radioactive materials by Tenant or its agents or employees. Tenant shall give
Landlord immediate verbal notice of any unauthorized release of any such
hazardous wastes or substances or radiation or radioactive materials into the
environment, and shall follow such verbal notice with written notice to Landlord
of such release within twenty-four (24) hours of the time at which Tenant became
aware of such release.
(viii) Tenant shall indemnify, defend and hold Landlord harmless
from and against any and all claims, losses (including, but not limited to, loss
of rental income), damages, liabilities, costs, legal fees and expenses of any
sort arising out of or relating to (A) any failure by Tenant to comply with any
provisions of this paragraph 11.6(b), or (B) any receipt, use handling,
generation, transportation, storage, treatment, release and/or disposal of any
hazardous substance or waste or any radioactive material or radiation on or
about the Property as a proximate result of Tenant's use of the Property or as a
result of any intentional or negligent acts or omissions of Tenant or of any
agent, employee or invitee of Tenant.
(ix) Tenant shall cooperate with Landlord in furnishing Landlord
with complete information regarding Tenant's receipt, handling, use, storage,
transportation, generation, treatment and/or disposal of any hazardous
substances or wastes or radiation or radioactive materials. Upon request, Tenant
shall grant Landlord reasonable access at reasonable times to the Property to
inspect Tenant's receipt, handling, use, storage, transportation, generation,
treatment and/or disposal of hazardous substances or wastes or radiation or
radioactive materials, provided that Landlord uses reasonable efforts to avoid
any unreasonable interference with Tenant's business operations in exercising
such access and inspection rights, without thereby being deemed guilty of any
disturbance of Tenant's use or possession and without being liable to Tenant in
any manner.
(x) Notwithstanding Landlord's rights of inspection and review
under this paragraph 11.6(b), Landlord shall have no obligation or duty to so
inspect or review, and no third party shall be entitled to rely on Landlord to
conduct any sort of inspection or review by reason of the provisions of this
paragraph 11.6(b).
(xi) If Tenant receives, handles, uses, stores, transports,
generates, treats and/or disposes of any hazardous substances or wastes or
radiation or radioactive materials on or about the Property at any time during
the term of this Lease, then within thirty (30) days after the termination or
expiration of this Lease, Tenant at its sole cost and expense shall obtain and
deliver to Landlord an environmental study, performed by an expert reasonably
satisfactory to Landlord, evaluating the presence or absence of hazardous
substances and wastes, radiation and radioactive materials on and about the
Property. Such study shall be based on a reasonable and prudent level of tests
and investigations of the Property and surrounding areas (if appropriate), which
tests shall be conducted no earlier than the date of termination or expiration
of this Lease. Liability for any remedial actions required or recommended on the
basis of such study shall be allocated in accordance with Sections 11.4, 11.6,
12.6 and other applicable provisions of this Lease.
(c) Landlord shall indemnify, defend and hold Tenant harmless from and
against any and all claims, losses, damages, liabilities, costs, legal fees and
expenses of any sort arising out of or relating to (i) the presence on the
Property of any hazardous substances or wastes or radiation or radioactive
materials as of the Phase 1 Rent Commencement Date (other than as a result of
any intentional or negligent acts or omissions of Tenant or of any agent,
25
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employee or invitee of Tenant), (ii) any unauthorized release into the
environment (including, but not limited to, the Property) of any hazardous
substances or wastes or radiation or radioactive materials to the extent such
release results from the negligence of or willful misconduct or omission by
Landlord or its agents or employees, and/or (iii) the presence on the Property
of any hazardous substances or wastes or radiation or radioactive materials
arising after the Phase 1 Rent Commencement Date from any cause or source other
than as a result of any intentional or negligent acts or omissions of Tenant or
of any agent, employee or invitee of Tenant.
(d) The provisions of this Section 11.6 shall survive the
termination of this Lease.
12. INSURANCE AND INDEMNITY
-----------------------
12.1 Insurance.
---------
(a) Tenant shall procure and maintain in full force and effect at
all times during the term of this Lease, at Tenant's cost and expense,
commercial general liability insurance to protect against liability to the
public, or to any invitee of Tenant or Landlord, arising out of or related to
the use of or resulting from any accident occurring in, upon or about the
Property, with limits of liability of not less than (i) Two Million Dollars
($2,000,000.00) for injury to or death of one person, (ii) Five Million Dollars
($5,000,000.00) for personal injury or death, per occurrence, and (iii) One
Million Dollars ($1,000,000.00) for property damage, or combined single limit of
liability of not less than Five Million Dollars ($5,000,000.00). Such insurance
shall name Landlord, its general partners, its Managing Agent and any lender
holding a deed of trust on the Property from time to time (as designated in
writing by Landlord to Tenant from time to time) as additional insureds
thereunder. The amount of such insurance shall not be construed to limit any
liability or obligation of Tenant under this Lease. Tenant shall also procure
and maintain in full force and effect at all times during the term of this
Lease, at Tenant's cost and expense, products/completed operations coverage on
terms and in amounts (A) customary in Tenant's industry for companies engaged in
the marketing of products on a scale comparable to that in which Tenant is
engaged from time to time and (B) mutually satisfactory to Landlord and Tenant
in their respective reasonable discretion.
(b) Landlord shall procure and maintain in full force and effect at
all times during the term of this Lease, at Landlord's cost and expense (but
reimbursable as an Operating Expense under Section 7.2 hereof), commercial
general liability insurance to protect against liability arising out of or
related to the use of or resulting from any accident occurring in, upon or about
the Property, with combined single limit of liability of not less than Five
Million Dollars ($5,000,000.00) per occurrence for bodily injury and property
damage.
(c) Landlord shall procure and maintain in full force and effect at
all times during the term of this Lease, at Landlord's cost and expense (but
reimbursable as an Operating Expense under Section 7.2 hereof), policies of
property insurance providing protection against "all risk of direct physical
loss" (as defined by and detailed in the Insurance Service Office's Commercial
Property Program "Cause of Loss--Special Form [CP1030]" or its equivalent) for
the Building Shell (as defined in Exhibit C) of the Buildings and for the
improvements in the Common Areas of the Property, on a full replacement cost
basis (with no co-insurance or, if coverage without co-insurance is not
reasonably available, then on an "agreed amount" basis). Such insurance may
include earthquake coverage to the extent Landlord in its discretion elects to
carry such coverage, and shall have such commercially reasonable deductibles and
other terms as Landlord in its reasonable discretion determines to be
appropriate. Landlord shall have no obligation to carry property damage
insurance for any alterations, additions or improvements installed by Tenant in
the Buildings or on or about the Property.
(d) Tenant shall procure and maintain in full force and effect at
all times during the term of this Lease, at Tenant's cost and expense, policies
of property insurance providing protection against "all risk of direct physical
loss" (as defined by and detailed in the Insurance Service Office's Commercial
Property Program "Cause of Loss-Special Form [CP1030]" or its equivalent) for
the Tenant Improvements constructed by Tenant pursuant to Exhibit C and on all
other alterations, additions and improvements installed by Tenant from time to
time in or about the Buildings, on a full replacement cost basis (with no co-
insurance or, if coverage without co-insurance is not reasonably available, then
on an "agreed amount" basis). Such insurance may have such commercially
reasonable deductibles and other terms as Tenant in
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its discretion determines to be appropriate, and shall name both Tenant and
Landlord as insureds as their interests may appear.
(e) During the course of construction of the improvements being
constructed by Landlord and Tenant under Section 5.1 and Exhibit C, Landlord and
Tenant respectively shall each procure and maintain in full force and effect, at
its respective sole cost and expense, policies of builder's risk insurance on
the improvements respectively being constructed by it, in such amounts and with
such commercially reasonable deductibles and other terms as Landlord in its
reasonable discretion determines to be appropriate with respect to the insurance
to be maintained by Landlord, and in such amounts and with such commercially
reasonable deductibles and other terms as Landlord and Tenant may mutually and
reasonably determine to be appropriate with respect to the insurance to be
maintained by Tenant.
12.2 Quality Of Policies And Certificates. All policies of insurance
------------------------------------
required hereunder shall be issued by responsible insurers and, in the case of
policies carried or required to be carried by Tenant, shall be written as
primary policies not contributing with and not in excess of any coverage that
Landlord may carry. Tenant shall deliver to Landlord copies of policies or
certificates of insurance showing that said policies are in effect. The
coverage provided by such policies shall include the clause or endorsement
referred to in Section 12.4. If Tenant fails to acquire, maintain or renew any
insurance required to be maintained by it under this Article 12 or to pay the
premium therefor, then Landlord, at its option and in addition to its other
remedies, but without obligation so to do, may procure such insurance, and any
sums expended by it to procure any such insurance on behalf of or in place of
Tenant shall be repaid upon demand, with interest as provided in Section 3.2
hereof. Tenant shall obtain written undertakings from each insurer under
policies required to be maintained by it to notify all insureds thereunder at
least thirty (30) days prior to cancellation of coverage.
12.3 Workers' Compensation. Tenant shall maintain in full force and
---------------------
effect during the term of this Lease workers' compensation insurance in at least
the minimum amounts required by law, covering all of Tenant's employees working
on the Property.
12.4 Waiver Of Subrogation. To the extent permitted by law and without
---------------------
affecting the coverage provided by insurance required to be maintained
hereunder, Landlord and Tenant each waive any right to recover against the other
with respect to (i) damage to property, (ii) damage to the Property or any part
thereof, or (iii) claims arising by reason of any of the foregoing, but only to
the extent that any of the foregoing damages and claims under clauses (i)-(iii)
hereof are covered, and only to the extent of such coverage, by casualty
insurance actually carried or required to be carried hereunder by either
Landlord or Tenant. This provision is intended to waive fully, and for the
benefit of each party, any rights and claims which might give rise to a right of
subrogation in any insurance carrier. Each party shall procure a clause or
endorsement on any casualty insurance policy denying to the insurer rights of
subrogation against the other party to the extent rights have been waived by the
insured prior to the occurrence of injury or loss. Coverage provided by
insurance maintained by Tenant shall not be limited, reduced or diminished by
virtue of the subrogation waiver herein contained.
12.5 Increase In Premiums. Tenant shall do all acts and pay all expenses
--------------------
necessary to insure that the Property is not used for purposes prohibited by any
applicable fire insurance, and that Tenant's use of the Property complies with
all requirements necessary to obtain any such insurance. If Tenant uses or
permits the Property to be used in a manner which increases the existing rate of
any insurance carried by Landlord on the Property and such use continues for
longer than a reasonable period specified in any written notice from Landlord to
Tenant identifying the rate increase and the factors causing the same, then
Tenant shall pay the amount of the increase in premium caused thereby, and
Landlord's costs of obtaining other replacement insurance policies, including
any increase in premium, within ten (10) days after demand therefor by Landlord.
12.6 Indemnification.
---------------
(a) Tenant shall indemnify, defend and hold Landlord and its
partners, shareholders, officers, directors, agents and employees harmless from
any and all liability for injury to or death of any person, or loss of or damage
to the property of any person, and all actions, claims, demands, costs
(including, without limitation, reasonable attorneys' fees), damages or expenses
of any kind arising therefrom which may be brought or made against
27
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Landlord or which Landlord may pay or incur by reason of the use, occupancy and
enjoyment of the Property by Tenant or any invitees, sublessees, licensees,
assignees, employees, agents or contractors of Tenant or holding under Tenant
(including, but not limited to, any such matters arising out of or in connection
with any early entry upon the Property by Tenant pursuant to Section 2.2 hereof)
from any cause whatsoever other than negligence or willful misconduct or
omission by Landlord, its agents or employees. Landlord and its partners,
shareholders, officers, directors, agents and employees shall not be liable for,
and Tenant hereby waives all claims against such persons for, damages to goods,
wares and merchandise in or upon the Property, or for injuries to Tenant, its
agents or third persons in or upon the Property, from any cause whatsoever other
than negligence or willful misconduct or omission by Landlord, its agents or
employees. Tenant shall give prompt notice to Landlord of any casualty or
accident in, on or about the Property.
(b) Landlord shall indemnify, defend and hold Tenant and its
partners, shareholders, officers, directors, agents and employees harmless from
any and all liability for injury to or death of any person, or loss of or damage
to the property of any person, and all actions, claims, demands, costs
(including, without limitation, reasonable attorneys' fees), damages or expenses
of any kind arising therefrom which may be brought or made against Tenant or
which Tenant may pay or incur, to the extent such liabilities or other matters
arise in, on or about the Property by reason of any negligence or willful
misconduct or omission by Landlord, its agents or employees.
12.7 Blanket Policy. Any policy required to be maintained hereunder may
--------------
be maintained under a so-called "blanket policy" insuring other parties and
other locations so long as the amount of insurance required to be provided
hereunder is not thereby diminished.
13. SUBLEASE AND ASSIGNMENT
-----------------------
13.1 Assignment And Sublease Of Building. Except in the case of a
-----------------------------------
Permitted Transfer, Tenant shall not have the right or power to assign its
interest in this Lease, or make any sublease of the Buildings or any portion
thereof, nor shall any interest of Tenant under this Lease be assignable
involuntarily or by operation of law, without on each occasion obtaining the
prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed. Any purported sublease or assignment of Tenant's interest
in this Lease requiring but not having received Landlord's consent thereto (to
the extent such consent is required hereunder) shall be void. Without limiting
the generality of the foregoing, Landlord may withhold consent to any proposed
subletting or assignment for which consent is requested solely on the ground, if
applicable, that the use by the proposed subtenant or assignee is reasonably
likely to be incompatible with Landlord's use of any adjacent property owned or
operated by Landlord, unless the proposed use is within the permitted uses
specified in Section 11.1, in which event it shall not be reasonable for
Landlord to object to the proposed use. Except in the case of a Permitted
Transfer, any dissolution, consolidation, merger or other reorganization of
Tenant, or any sale or transfer of substantially all of the stock or assets of
Tenant in a single transaction or series of related transactions, shall be
deemed to be an assignment hereunder and shall be void without the prior written
consent of Landlord as required above. Notwithstanding the foregoing, (i) an
initial public offering of the common stock of Tenant shall not be deemed to be
an assignment hereunder; (ii) any transfer of Tenant's stock during any period
in which Tenant has a class of stock listed on any recognized securities
exchange or traded in the NASDAQ over-the-counter market shall not be deemed to
be an assignment hereunder; (iii) any transfer of Tenant's stock in connection
with a bona fide financing, capitalization or recapitalization of Tenant shall
not be deemed to be an assignment hereunder, provided that such financing,
capitalization or recapitalization does not result in a material reduction in
Tenant's net worth or materially change the nature of Tenant's ongoing business
as a going concern; and (iv) Tenant shall have the right to assign this Lease or
sublet the Buildings, or any portion thereof, without Landlord's consent (but
with prior or concurrent written notice by Tenant to Landlord, except to the
extent Tenant is advised by its counsel that such prior or concurrent notice
would be in violation of applicable law, in which event Tenant shall give such
written notice as soon as reasonably possible after the giving of such notice is
no longer in violation of applicable law), to any Affiliate of Tenant, or to any
entity which results from a merger or consolidation with Tenant, or to any
entity which acquires substantially all of the stock or assets of Tenant as a
going concern (hereinafter each a "Permitted Transfer"). For purposes of the
preceding sentence, an "Affiliate" of Tenant shall mean any entity in which
Tenant owns at least a twenty percent (20%) equity interest, any entity which
owns at least a twenty percent (20%) equity interest in Tenant, and/or any
entity which is
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related to Tenant by a chain of ownership interests involving at least a twenty
percent (20%) equity interest at each level in the chain. Landlord shall have no
right to terminate this Lease in connection with, and shall have no right to any
sums or other economic consideration resulting from, any Permitted Transfer.
Except as expressly set forth in this Section 13.1, however, the provisions of
Section 13.2 shall remain applicable to any Permitted Transfer and the
transferee under such Permitted Transfer shall be and remain subject to all of
the terms and provisions of this Lease.
13.2 Rights Of Landlord.
------------------
(a) Consent by Landlord to one or more assignments of this Lease, or
to one or more sublettings of the Buildings or any portion thereof, or
collection of rent by Landlord from any assignee or sublessee, shall not operate
to exhaust Landlord's rights under this Article 13, nor constitute consent to
any subsequent assignment or subletting. No assignment of Tenant's interest in
this Lease and no sublease shall relieve Tenant of its obligations hereunder,
notwithstanding any waiver or extension of time granted by Landlord to any
assignee or sublessee, or the failure of Landlord to assert its rights against
any assignee or sublessee, and regardless of whether Landlord's consent thereto
is given or required to be given hereunder. In the event of a default by any
assignee, sublessee or other successor of Tenant in the performance of any of
the terms or obligations of Tenant under this Lease, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against any
such assignee, sublessee or other successor. In addition, Tenant immediately and
irrevocably assigns to Landlord, as security for Tenant's obligations under this
Lease, all rent from any subletting of all or a part of the Buildings as
permitted under this Lease, and Landlord, as Tenant's assignee and as attorney-
in-fact for Tenant, or any receiver for Tenant appointed on Landlord's
application, may collect such rent and apply it toward Tenant's obligations
under this Lease; except that, until the occurrence of an act of default by
Tenant, Tenant shall have the right to collect such rent and to retain all
sublease profits (subject to the provisions of Section 13.2(c), below).
(b) Upon any assignment of Tenant's interest in this Lease for which
Landlord's consent is required under Section 13.1 hereof, Tenant shall pay to
Landlord, within ten (10) days after receipt thereof by Tenant from time to
time, one-half (1/2) of all cash sums and other economic considerations received
by Tenant in connection with or as a result of such assignment, after first
deducting therefrom (i) the unamortized cost of any leasehold improvements
previously made in the Buildings and paid for by Tenant, (ii) any costs incurred
by Tenant for leasehold improvements (including, but not limited to, third-party
architectural and space planning costs) in the Buildings in connection with such
assignment, (iii) any real estate commissions and/or attorneys' fees incurred by
Tenant in connection with such assignment, and (iv) any economic consideration
received by Tenant as bona fide, reasonable compensation for services rendered
by Tenant to the assignee and/or personal property sold or leased by Tenant to
the assignee.
(c) Upon any sublease of all or any portion of the Buidlings for which
Landlord's consent is required under Section 13.1 hereof, Tenant shall pay to
Landlord, within ten (10) days after receipt thereof by Tenant from time to
time, one-half (1/2) of all cash sums and other economic considerations received
by Tenant in connection with or as a result of such sublease, after first
deducting therefrom (i) the rental due hereunder for the corresponding period,
prorated (on the basis of the average per-square-foot cost paid by Tenant for
the entire Buildings for the applicable period under this Lease) to reflect the
size of the subleased portion of the Buildings, (ii) any costs incurred by
Tenant for leasehold improvements in the subleased portion of the Buildings
(including, but not limited to, third-party architectural and space planning
costs) for the specific benefit of the sublessee in connection with such
sublease, amortized over the term of the sublease, (iii) any real estate
commissions and/or attorneys' fees incurred by Tenant in connection with such
sublease, amortized over the term of such sublease, (iv) the unamortized cost of
any leasehold improvements previously made and paid for by Tenant with respect
to the subleased portion of the Buildings, and (v) any economic consideration
received by Tenant as bona fide, reasonable compensation for services rendered
by Tenant to the sublessee and/or personal property sold or leased by Tenant to
the sublessee.
14. RIGHT OF ENTRY AND QUIET ENJOYMENT
----------------------------------
14.1 Right Of Entry. Landlord and its authorized representatives shall
--------------
have the right to enter the Buildings at any time during the term of this Lease
during normal business hours and
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upon not less than twenty-four (24) hours prior notice, except in the case of
emergency (in which event no notice shall be required and entry may be made at
any time), for the purpose of inspecting and determining the condition of the
Buildings or for any other proper purpose including, without limitation, to make
repairs, replacements or improvements which Landlord may deem necessary, to show
the Buildings to prospective purchasers, to show the Buildings to prospective
tenants (but only during the final year of the term of this Lease), and to post
notices of nonresponsibility. Landlord shall not be liable for inconvenience,
annoyance, disturbance, loss of business, quiet enjoyment or other damage or
loss to Tenant by reason of making any repairs or performing any work upon the
Buildings or the Property or by reason of erecting or maintaining any protective
barricades in connection with any such work, and the obligations of Tenant under
this Lease shall not thereby be affected in any manner whatsoever, provided,
however, Landlord shall use reasonable efforts to minimize the inconvenience to
Tenant's normal business operations caused thereby.
14.2 Quiet Enjoyment. Landlord covenants that Tenant, upon paying the
---------------
rent and performing its obligations hereunder and subject to all the terms and
conditions of this Lease, shall peacefully and quietly have, hold and enjoy the
Buildings and the Property throughout the term of this Lease, or until this
Lease is terminated as provided by this Lease.
15. CASUALTY AND TAKING
-------------------
15.1 Damage or Destruction.
---------------------
(a) If the Buildings, or the Common Areas of the Property necessary
for Tenant's use and occupancy of the Buildings, are damaged or destroyed in
whole or in part under circumstances in which (i) repair and restoration is
permitted under applicable governmental laws, regulations and building codes
then in effect and (ii) repair and restoration reasonably can be completed
within a period of one (1) year (or, in the case of an occurrence during the
last year of the term of this Lease, within a period of sixty (60) days)
following the date of the occurrence, then Landlord, as to the Common Areas of
the Property and the Building Shells, and Tenant, as to the Tenant Improvements
constructed by Tenant, shall commence and complete, with all due diligence and
as promptly as is reasonably practicable under the conditions then existing, all
such repair and restoration as may be required to return the affected portions
of the Property to a condition comparable to that existing immediately prior to
the occurrence. In the event of damage or destruction the repair of which is not
permitted under applicable governmental laws, regulations and building codes
then in effect, if such damage or destruction (despite being corrected to the
extent then permitted under applicable governmental laws, regulations and
building codes) would still materially impair Tenant's ability to conduct its
business in the Buildings, then either party may terminate this Lease as of the
date of the occurrence by giving written notice to the other within thirty (30)
days after the date of the occurrence; if neither party timely elects such
termination, or if such damage or destruction does not materially impair
Tenant's ability to conduct its business in the Buildings, then this Lease shall
continue in full force and effect, except that there shall be an equitable
adjustment in monthly minimum rental and of Tenant's Operating Cost Share of
Operating Expenses, based upon the extent to which Tenant's ability to conduct
its business in the Buildings is impaired, and Landlord and Tenant respectively
shall restore the Common Areas and Building Shells and the Tenant Improvements
to a complete architectural whole and to a functional condition. In the event of
damage or destruction which cannot reasonably be repaired within one (1) year
(or, in the case of an occurrence during the last year of the term of this
Lease, within a period of sixty (60) days) following the date of the occurrence,
then either Landlord or Tenant, at its election, may terminate this Lease as of
the date of the occurrence by giving written notice to the other within thirty
(30) days after the date of the occurrence; if neither party timely elects such
termination, then this Lease shall continue in full force and effect and
Landlord and Tenant shall each repair and restore applicable portions of the
Property in accordance with the first sentence of this Section 15.1.
(b) The respective obligations of Landlord and Tenant pursuant to
Section 15.1(a) are subject to the following limitations:
(i) If the occurrence results from a peril which is required to
be insured pursuant to Section 12.1(c) and (d) above, the obligations of either
party shall not exceed the amount of insurance proceeds received from insurers
(or, in the case of any failure to maintain required insurance, proceeds that
reasonably would have been available if the required
30
<PAGE>
insurance had been maintained) by reason of such occurrence, plus the amount of
the party's permitted deductible (provided that each party shall be obligated to
use its best efforts to recover any available proceeds from the insurance which
it is required to maintain pursuant to the provisions of Section 12.1(c) or (d),
as applicable), and, if such proceeds (including, in the case of a failure to
maintain required insurance, any proceeds that reasonably would have been
available) are insufficient, either party may terminate the Lease unless the
other party promptly elects and agrees, in writing, to contribute the amount of
the shortfall; and
(ii) If the occurrence results from a peril which is not
required to be insured pursuant to Section 12.1(c) and (d) above and is not
actally insured, Landlord shall be required to repair and restore the Building
Shells and Common Areas to the extent necessary for Tenant's continued use and
occupancy of the Buildings, and Tenant shall be required to repair and restore
the Tenant Improvements to the extent necessary for Tenant's continued use and
occupancy of the Buildings, provided that each party's obligation to repair and
restore shall not exceed an amount equal to five percent (5%) of the replacement
cost of the Building Shells and Common Area improvements, as to Landlord, or
five percent (5%) of the replacement cost of the Tenant Improvements, as to
Tenant; if the replacement cost as to either party exceeds such amount, then the
party whose limit has been exceeded may terminate this Lease unless the other
party promptly elects and agrees, in writing, to contribute the amount of the
shortfall.
(c) If this Lease is terminated pursuant to the foregoing
provisions of this Section 15.1 following an occurrence which is a peril
actually insured or required to be insured against pursuant to Section 12.1(c)
and (d), Landlord and Tenant agree (and any Lender shall be asked to agree) that
such insurance proceeds shall be allocated between Landlord and Tenant in a
manner which fairly and reasonably reflects their respective ownership rights
under this Lease, as of the termination or expiration of the term of this Lease,
with respect to the improvements, fixtures, equipment and other items to which
such insurance proceeds are attributable.
(d) From and after the date of an occurrence resulting in damage to
or destruction of the Buildings or of the Common Areas necessary for Tenant's
use and occupancy of the Buildings, and continuing until repair and restoration
thereof are completed, there shall be an equitable abatement of minimum rental
and of Tenant's Operating Cost Share of Operating Expenses based upon the degree
to which Tenant's ability to conduct its business in the Buildings is impaired.
15.2 Condemnation.
------------
(a) If during the term of this Lease the Property or Improvements,
or any substantial part of either, is taken by eminent domain or by reason of
any public improvement or condemnation proceeding, or in any manner by exercise
of the right of eminent domain (including any transfer in avoidance of an
exercise of the power of eminent domain), or receives irreparable damage by
reason of anything lawfully done under color of public or other authority, then
(i) this Lease shall terminate as to the entire affected Building(s) at
Landlord's election by written notice given to Tenant within sixty (60) days
after the taking has occurred, and (ii) this Lease shall terminate as to the
entire affected Building(s) at Tenant's election, by written notice given to
Landlord within thirty (30) days after the nature and extent of the taking have
been finally determined, if the portion of the Building(s) taken is of such
extent and nature as substantially to handicap, impede or permanently impair
Tenant's use of the balance of the Building(s). If Tenant elects to terminate
this Lease, Tenant shall also notify Landlord of the date of termination, which
date shall not be earlier than thirty (30) days nor later than ninety (90) days
after Tenant has notified Landlord of Tenant's election to terminate, except
that this Lease shall terminate on the date of taking if such date falls on any
date before the date of termination designated by Tenant. If neither party
elects to terminate this Lease as hereinabove provided, this Lease shall
continue in full force and effect (except that there shall be an equitable
abatement of minimum rental and of Tenant's Operating Cost Share of Operating
Expenses based upon the degree to which Tenant's ability to conduct its business
in the Building(s) is impaired), Landlord shall restore the Building Shells and
Common Area improvements to a complete architectural whole and a functional
condition and as nearly as reasonably possible to the condition existing before
the taking, and Tenant shall restore the Tenant Improvements and Tenant's other
alterations, additions and improvements to a complete architectural whole and a
functional condition and as nearly as reasonably possible to the condition
existing before the taking. In connection with any such restoration, each party
shall use its respective best efforts (including, without limitation, any
necessary negotiation or intercession with its respective
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lender, if any) to ensure that any severance damages or other condemnation
awards intended to provide compensation for rebuilding or restoration costs are
promptly collected and made available to Landlord and Tenant in portions
reasonably corresponding to the cost and scope of their respective restoration
obligations, subject only to such payment controls as either party or its lender
may reasonably require in order to ensure the proper application of such
proceeds toward the restoration of the Improvements. Each party waives the
provisions of Code of Civil Procedure Section 1265.130, allowing either party to
petition the Superior Court to terminate this Lease in the event of a partial
condemnation of the Buildings or Property.
(b) The respective obligations of Landlord and Tenant pursuant to
Section 15.2(a) are subject to the following limitations:
(i) Each party's obligation to repair and restore shall not
exceed, net of any condemnation awards or other proceeds available for and
allocable to such restoration as contemplated in Section 15.2(a), an amount
equal to five percent (5%) of the replacement cost of the Building Shells and
Common Area improvements, as to Landlord, or five percent (5%) of the
replacement cost of the Tenant Improvements, as to Tenant; if the replacement
cost as to either party exceeds such amount, then the party whose limit has been
exceeded may terminate this Lease unless the other party promptly elects and
agrees, in writing, to contribute the amount of the shortfall; and
(ii) If this Lease is terminated pursuant to the foregoing
provisions of this Section 15.2, or if this Lease remains in effect but any
condemnation awards or other proceeds become available as compensation for the
loss or destruction of any of the Improvements, then Landlord and Tenant agree
(and any Lender shall be asked to agree) that such proceeds shall be allocated
between Landlord and Tenant, respectively, in the respective proportions in
which Landlord and Tenant would have shared, under Section 15.1(c), the proceeds
of any insurance proceeds following loss or destruction of the applicable
Improvements by an insured casualty.
15.3 Reservation Of Compensation. Landlord reserves, and Tenant waives
---------------------------
and assigns to Landlord, all rights to any award or compensation for damage to
the Improvements, the Property and the leasehold estate created hereby, accruing
by reason of any taking in any public improvement, condemnation or eminent
domain proceeding or in any other manner by exercise of the right of eminent
domain or of anything lawfully done by public authority, except that (a) Tenant
shall be entitled to any and all compensation or damages paid for or on account
of Tenant's moving expenses, trade fixtures and equipment and any leasehold
improvements installed by Tenant in the Buildings at its own sole expense, but
only to the extent Tenant would have been entitled to remove such items at the
expiration of the term of this Lease and then only to the extent of the then
remaining unamortized value of such improvements computed on a straight-line
basis over the term of this Lease, and (b) any condemnation awards or proceeds
described in Section 15.2(b)(ii) shall be allocated and disbursed in accordance
with the provisions of Section 15.2(b)(ii), notwithstanding any contrary
provisions of this Section 15.3.
15.4 Restoration Of Improvements. In connection with any repair or
---------------------------
restoration of Improvements by either party following a casualty or taking as
hereinabove set forth, the party responsible for such repair or restoration
shall, to the extent possible, return such Improvements to a condition
substantially equal to that which existed immediately prior to the casualty or
taking. To the extent such party wishes to make material modifications to such
Improvements, such modifications shall be subject to the prior written approval
of the other party (not to be unreasonably withheld or delayed), except that no
such approval shall be required for modifications that are required by
applicable governmental authorities as a condition of the repair or restoration,
unless such required modifications would impair or impede Tenant's conduct of
its business in the Buildings (in which case any such modifications in
Landlord's work shall require Tenant's consent, not unreasonably withheld or
delayed) or would materially and adversely affect the exterior appearance, the
structural integrity or the mechanical or other operating systems of the
Buildings (in which case any such modifications in Tenant's work shall require
Landlord's consent, not unreasonably withheld or delayed).
16. DEFAULT
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16.1 Events Of Default. The occurrence of any of the following shall
-----------------
constitute an event of default on the part of Tenant:
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(a) [Omitted.}
-------
(b) Nonpayment. Failure to pay, when due, any amount payable to
----------
Landlord hereunder, such failure continuing for a period for five (5) business
days after written notice of such failure; provided, however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 et. seq., as amended from time
to time;
(c) Other Obligations. Failure to perform any obligation,
-----------------
agreement or covenant under this Lease other than those matters specified in
subsection (b) hereof, such failure continuing for thirty (30) days after
written notice of such failure; provided, however, that if such failure is
curable in nature but cannot reasonably be cured within such 30-day period, then
Tenant shall not be default if, and so long as, Tenant promptly (and in all
events within such 30-day period) commences such cure and thereafter diligently
pursues such cure to completion; and provided further, however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 et seq., as amended from time to
time;
(d) General Assignment. A general assignment by Tenant for the
------------------
benefit of creditors;
(e) Bankruptcy. The filing of any voluntary petition in
----------
bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's
creditors, which involuntary petition remains undischarged for a period of
thirty (30) days. In the event that under applicable law the trustee in
bankruptcy or Tenant has the right to affirm this Lease and continue to perform
the obligations of Tenant hereunder, such trustee or Tenant shall, in such time
period as may be permitted by the bankruptcy court having jurisdiction, cure all
defaults of Tenant hereunder outstanding as of the date of the affirmance of
this Lease and provide to Landlord such adequate assurances as may be necessary
to ensure Landlord of the continued performance of Tenant's obligations under
this Lease. Specifically, but without limiting the generality of the foregoing,
such adequate assurances must include assurances that the Buildings continue to
be operated only for the use permitted hereunder. The provisions hereof are to
assure that the basic understandings between Landlord and Tenant with respect to
Tenant's use of the Property and the benefits to Landlord therefrom are
preserved, consistent with the purpose and intent of applicable bankruptcy laws;
(f) Receivership. The employment of a receiver appointed by court
------------
order to take possession of substantially all of Tenant's assets or the
Buildings, if such receivership remains undissolved for a period of thirty (30)
days;
(g) Attachment. The attachment, execution or other judicial
----------
seizure of all or substantially all of Tenant's assets or the Buildings, if such
attachment or other seizure remains undismissed or undischarged for a period of
thirty (30) days after the levy thereof; or
(h) Insolvency. The admission by Tenant in writing of its
----------
inability to pay its debt as they become due, the filing by Tenant of a petition
seeking any reorganization or arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, the filing by Tenant of an answer admitting or failing timely
to contest a material allegation of a petition filed against Tenant in any such
proceeding or, if within thirty (30) days after the commencement of any
proceeding against Tenant seeking any reorganization or arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such proceeding shall not have
been dismissed.
16.2 Remedies Upon Tenant's Default.
------------------------------
(a) Upon the occurrence of any event of default described in
Section 16.1 hereof, Landlord, in addition to and without prejudice to any other
rights or remedies it may have, shall have the immediate right to re-enter the
Buildings or any part thereof and repossess the same, expelling and removing
therefrom all persons and property (which property may be stored in a public
warehouse or elsewhere at the cost and risk of and for the account of Tenant),
using such force as may be necessary to do so (as to which Tenant hereby waives
any claim for loss or damage that may thereby occur). In addition to or in lieu
of such re-entry, and without
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prejudice to any other rights or remedies it may have, Landlord shall have the
right either (i) to terminate this Lease and recover from Tenant all damages
incurred by Landlord as a result of Tenant's default, as hereinafter provided,
or (ii) to continue this Lease in effect and recover rent and other charges and
amounts as they become due.
(b) Even if Tenant has breached this Lease and abandoned the Buildings,
this Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession under subsection (a) hereof and Landlord may
enforce all of its rights and remedies under this Lease, including the right to
recover rent as it becomes due, and Landlord, without terminating this Lease,
may exercise all of the rights and remedies of a lessor under California Civil
Code Section 1951.4 (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), or any successor Code
section. Acts of maintenance, preservation or efforts to relet the Buildings or
the appointment of a receiver upon application of Landlord to protect Landlord's
interests under this Lease shall not constitute a termination of Tenant's right
to possession.
(c) If Landlord terminates this Lease pursuant to this Section 16.2,
Landlord shall have all of the rights and remedies of a landlord provided by
Section 1951.2 of the Civil Code of the State of California, or any successor
Code section, which remedies include Landlord's right to recover from Tenant (i)
the worth at the time of award of the unpaid rent and additional rent which had
been earned at the time of termination, (ii) the worth at the time of award of
the amount by which the unpaid rent and additional rent which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided, (iii) the
worth at the time of award of the amount by which the unpaid rent and additional
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that Tenant proves could be reasonably avoided, and (iv) any
other amount necessary to compensate Landlord for all the detriment proximately
caused by Tenant's failure to perform its obligations under this Lease or which
in the ordinary course of things would be likely to result therefrom, including,
but not limited to, the cost of recovering possession of the Buildings, expenses
of reletting, including necessary repair, renovation and alteration of the
Buildings, reasonable attorneys' fees, and other reasonable costs. The "worth
at the time of award" of the amounts referred to in clauses (i) and (ii) above
shall be computed by allowing interest at ten percent (10%) per annum from the
date such amounts accrued to Landlord. The "worth at the time of award" of the
amounts referred to in clause (iii) above shall be computed by discounting such
amount at one percentage point above the discount rate of the Federal Reserve
Bank of San Francisco at the time of award.
16.3 Remedies Cumulative. All rights, privileges and elections or
-------------------
remedies of Landlord contained in this Article 16 are cumulative and not
alternative to the extent permitted by law and except as otherwise provided
herein.
17. SUBORDINATION, ATTORNMENT AND SALE
----------------------------------
17.1 Subordination To Mortgage. This Lease, and any sublease entered into
-------------------------
by Tenant under the provisions of this Lease, shall be subject and subordinate
to any ground lease, mortgage, deed of trust, sale/leaseback transaction or any
other hypothecation for security now or hereafter placed upon the Buildings, the
Property, or any of them, and the rights of any assignee of Landlord or of any
ground lessor, mortgagee, trustee, beneficiary or leaseback lessor under any of
the foregoing, and to any and all advances made on the security thereof and to
all renewals, modifications, consolidations, replacements and extensions
thereof; provided, however, that such subordination in the case of any future
ground lease, mortgage, deed of trust, sale/leaseback transaction or any other
hypothecation for security placed upon the Buildings, the Property, or any of
them shall be conditioned on Tenant's receipt from the ground lessor, mortgagee,
trustee, beneficiary or leaseback lessor of a Non-Disturbance Agreement in a
form reasonably acceptable to Tenant (i) confirming that so long as Tenant is
not in material default hereunder beyond any applicable cure period (for which
purpose the occurrence of any event of default under Section 16.1 hereof shall
be deemed to be "material"), Tenant's rights hereunder shall not be disturbed by
such person or entity and (ii) agreeing that the benefit of such Non-Disturbance
Agreement shall be transferable to any transferee under a Permitted Transfer and
to any other assignee or subtenant that is acceptable to the ground lessor,
mortgagee, trustee, beneficiary or leaseback lessor at the time of transfer.
Moreover, Tenant's obligations under this Lease shall be conditioned on Tenant's
receipt within thirty (30) days after mutual execution of
34
<PAGE>
this Lease, from (x) Slough Estates USA Inc., the beneficiary under an existing
deed of trust on the Phase I Property, and (y) any other ground lessor,
mortgagee, trustee, beneficiary or leaseback lessor currently owning or holding
a security interest in the Phase I Property, of a Non-Disturbance Agreement in a
form reasonably acceptable to Tenant confirming (i) that so long as Tenant is
not in material default hereunder beyond any applicable cure period (for which
purpose the occurrence of any event of default under Section 16.1 hereof shall
be deemed to be "material"), Tenant's rights hereunder shall not be disturbed by
such person or entity and (ii) agreeing that the benefit of such Non-Disturbance
Agreement shall be transferable to any transferee under a Permitted Transfer and
to any other assignee or subtenant that is acceptable to the ground lessor,
mortgagee, trustee, beneficiary or leaseback lessor at the time of transfer. If
any mortgagee, trustee, beneficiary, ground lessor, sale/leaseback lessor or
assignee elects to have this Lease be an encumbrance upon the Property prior to
the lien of its mortgage, deed of trust, ground lease or leaseback lease or
other security arrangement and gives notice thereof to Tenant, this Lease shall
be deemed prior thereto, whether this Lease is dated prior or subsequent to the
date thereof or the date of recording thereof. Tenant, and any sublessee, shall
execute such documents as may reasonably be requested by any mortgagee, trustee,
beneficiary, ground lessor, sale/leaseback lessor or assignee to evidence the
subordination herein set forth, subject to the conditions set forth above, or to
make this Lease prior to the lien of any mortgage, deed of trust, ground lease,
leaseback lease or other security arrangement, as the case may be. Upon any
default by Landlord in the performance of its obligations under any mortgage,
deed of trust, ground lease, leaseback lease or assignment, Tenant (and any
sublessee) shall, notwithstanding any subordination hereunder, attorn to the
mortgagee, trustee, beneficiary, ground lessor, leaseback lessor or assignee
thereunder upon demand and become the tenant of the successor in interest to
Landlord, at the option of such successor in interest, and shall execute and
deliver any instrument or instruments confirming the attornment herein provided
for.
17.2 Sale Of Landlord's Interest. Upon sale, transfer or assignment of
---------------------------
Landlord's entire interest in the Buildings and the Property, Landlord shall be
relieved of its obligations hereunder with respect to liabilities accruing from
and after the date of such sale, transfer or assignment.
17.3 Estoppel Certificates. Tenant or Landlord (the "responding party"),
---------------------
as applicable, shall at any time and from time to time, within ten (10) days
after written request by the other party (the "requesting party"), execute,
acknowledge and deliver to the requesting party a certificate in writing
stating: (i) that this Lease is unmodified and in full force and effect, or if
there have been any modifications, that this Lease is in full force and effect
as modified and stating the date and the nature of each modification; (ii) the
date to which rental and all other sums payable hereunder have been paid; (iii)
that the requesting party is not in default in the performance of any of its
obligations under this Lease, that the certifying party has given no notice of
default to the requesting party and that no event has occurred which, but for
the expiration of the applicable time period, would constitute an event of
default hereunder, or if the responding party alleges that any such default,
notice or event has occurred, specifying the same in reasonable detail; and (iv)
such other matters as may reasonably be requested by the requesting party or by
any institutional lender, mortgagee, trustee, beneficiary, ground lessor,
sale/leaseback lessor or prospective purchaser of the Property, or prospective
sublessee or assignee of this Lease. Any such certificate provided under this
Section 17.3 may be relied upon by any lender, mortgagee, trustee, beneficiary,
assignee or successor in interest to the requesting party, by any prospective
purchaser, by any purchaser on foreclosure or sale, by any grantee under a deed
in lieu of foreclosure of any mortgage or deed of trust on the Property, by any
subtenant or assignee, or by any other third party. Failure to execute and
return within the required time any estoppel certificate requested hereunder, if
such failure continues for five (5) days after a second written request by the
requesting party for such estoppel certificate, shall be deemed to be an
admission of the truth of the matters set forth in the form of certificate
submitted to the responding party for execution.
17.4 Subordination to CC&R's. This Lease, and any permitted sublease
-----------------------
entered into by Tenant under the provisions of this Lease, and the interests in
real property conveyed hereby and thereby shall be subject and subordinate to
any declarations of covenants, conditions and restrictions affecting the
Property from time to time, provided that the terms of such declarations are
reasonable, do not materially impair Tenant's ability to conduct the uses
permitted hereunder on the Property, and do not discriminate against Tenant
relative to other similarly situated tenants occupying portions of the property
covered by such declaration(s). Moreover, to the extent Tenant at any time
occupies pursuant to this Lease any property which is part of the
35
<PAGE>
Pointe Grand Business Park as defined in the recorded documents described in
this sentence, this Lease, and any permitted sublease entered into by Tenant
under the provisions of this Lease, and the interests in real property conveyed
hereby and thereby shall also be subject and subordinate (a) to the Declaration
of Covenants, Conditions and Restrictions for Pointe Grand Business Park dated
November 4, 1991 and recorded on February 25, 1992 as Instrument No. 92025214,
Official Records of San Mateo County, as amended from time to time (the Master
Declaration), the provisions of which Master Declaration are an integral part
of this Lease to the extent this sentence is applicable, (b) to the Declaration
of Covenants, Conditions and Restrictions dated November 23, 1987 and recorded
on November 24, 1987 as Instrument No. 87177987, Official Records of San Mateo
County, which declaration imposes certain covenants, conditions and restrictions
on the Pointe Grand Business Park, and (c) to the Environmental Restriction and
Covenant (Pointe Grand) dated as of April 16, 1997 and recorded on April 16,
1997 as Instrument No. 97-043682, Official Records of San Mateo County, which
declaration imposes certain covenants, conditions and restrictions on the Pointe
Grand Business Park. Tenant agrees to execute, upon request by Landlord, any
documents reasonably required from time to time to evidence such subordination.
17.5 Mortgagee Protection. If, following a default by Landlord under any
--------------------
mortgage, deed of trust, ground lease, leaseback lease or other security
arrangement covering the Buildings, the Property, or any of them, the Buildings
and/or the Property, as applicable, is acquired by the mortgagee, beneficiary,
master lessor or other secured party, or by any other successor owner, pursuant
to a foreclosure, trustee's sale, sheriff's sale, lease termination or other
similar procedure (or deed in lieu thereof), then any such person or entity so
acquiring the Buildings and/or the Property shall not be:
(a) liable for any act or omission of a prior landlord or owner of the
Property (including, but not limited to, Landlord);
(b) subject to any offsets or defenses that Tenant may have against
any prior landlord or owner of the Property (including, but not limited to,
Landlord);
(c) bound by any rent or additional rent that Tenant may have paid in
advance to any prior landlord or owner of the Property (including, but not
limited to, Landlord) for a period in excess of one month, or by any security
deposit, cleaning deposit or other prepaid charge that Tenant may have paid in
advance to any prior landlord or owner (including, but not limited to,
Landlord), except to the extent such deposit or prepaid amount has been
expressly turned over to or credited to the successor owner thus acquiring the
Property;
(d) liable for any warranties or representations of any nature
whatsoever, whether pursuant to this Lease or otherwise, by any prior landlord
or owner of the Property (including, but not limited to, Landlord) with respect
to the use, construction, zoning, compliance with laws, title, habitability,
fitness for purpose or possession, or physical condition (including, without
limitation, environmental matters) of the Property or the Buildings; or
(e) liable to Tenant in any amount beyond the interest of such
mortgagee, beneficiary, master lessor or other secured party or successor owner
in the Property as it exists from time to time, it being the intent of this
provision that Tenant shall look solely to the interest of any such mortgagee,
beneficiary, master lessor or other secured party or successor owner in the
Property for the payment and discharge of the landlord's obligations under this
Lease and that such mortgagee, beneficiary, master lessor or other secured party
or successor owner shall have no separate personal liability for any such
obligations.
18. SECURITY
--------
1.18.1 Deposit. Within ten (10) days after mutual execution of this Lease,
-------
Tenant shall deposit with Landlord the sum of One Hundred Sixty-Eight Thousand
Seven Hundred and No/100 Dollars ($168,700.00); in addition, if Tenant exercises
its option for Building 2 under Section 1.1(c)(ii) or (iii), then on or before
the Phase 2 Rent Commencement Date, Tenant shall deposit with Landlord an
additional sum equal to (but not as a payment of or substitute for) the amount
of the first full month's minimum monthly rental due with respect to Building 2,
as determined under the applicable provisions of Section 1.1(c). Such sums
(collectively, the "Security Deposit") shall be held by Landlord as security for
the faithful performance of all of the terms, covenants, and conditions of this
Lease to be kept and performed by Tenant during the
36
<PAGE>
term hereof. If Tenant defaults with respect to any provision of this Lease,
including, without limitation, the provisions relating to the payment of rental
and other sums due hereunder, Landlord shall have the right, but shall not be
required, to use, apply or retain all or any part of the Security Deposit for
the payment of rental or any other amount which Landlord may spend or become
obligated to spend by reason of Tenant's default or to compensate Landlord for
any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of the Security Deposit is so used or applied, Tenant
shall, within ten (10) days after written demand therefor, deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to its original
amount and Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep any deposit under this Section separate
from Landlord's general funds, and Tenant shall not be entitled to interest
thereon. If Tenant fully and faithfully performs every provision of this Lease
to be performed by it, the Security Deposit, or any balance thereof, shall be
returned to Tenant or, at Landlord's option, to the last assignee of Tenant's
interest hereunder, at the expiration of the term of this Lease and after Tenant
has vacated the Property. In the event of termination of Landlord's interest in
this Lease, Landlord shall transfer all deposits then held by Landlord under
this Section to Landlord's successor in interest, whereupon Tenant agrees to
release Landlord from all liability for the return of such deposit or the
accounting thereof.
19. MISCELLANEOUS
-------------
19.1 Notices. All notices, consents, waivers and other communications
-------
which this Lease requires or permits either party to give to the other shall be
in writing and shall be deemed given when delivered personally (including
delivery by private courier or express delivery service) or four (4) days after
deposit in the United States mail, registered or certified mail, postage
prepaid, addressed to the parties at their respective addresses as follows:
To Tenant: (until Rent Commencement Date)
Exelixis Pharmaceuticals, Inc.
260 Littlefield Avenue
South San Francisco, CA 94080
Attn: George A. Scangos
(after Rent Commencement Date)
Exelixis Pharmaceuticals, Inc.
________ Harbor Way [the Building 1 address]
South San Francisco, CA 94080
Attn: George A. Scangos
with copy to: Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580
Attn: Anna B. Pope, Esq.
To Landlord: Britannia Pointe Grand Limited Partnership
1939 Harrison Street, Suite 715
Park Plaza Building
Oakland, CA 94612
Attn: T. J. Bristow
with copy to: Folger Levin & Kahn LLP
Embarcadero Center West
275 Battery Street, 23rd Floor
San Francisco, CA 94111
Attn: Donald E. Kelley, Jr.
and copy to: Slough Estates USA Inc.
33 West Monroe Street, Suite 2000
Chicago, IL 60603
Attn: William Rogalla
37
<PAGE>
or to such other address as may be contained in a notice at least fifteen
(15) days prior to the address change from either party to the other given
pursuant to this Section. Rental payments and other sums required by this Lease
to be paid by Tenant shall be delivered to Landlord at Landlord's address
provided in this Section, or to such other address as Landlord may from time to
time specify in writing to Tenant, and shall be deemed to be paid only upon
actual receipt.
19.2 Successors And Assigns. The obligations of this Lease shall run with
----------------------
the land, and this Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
original Landlord named herein and each successive Landlord under this Lease
shall be liable only for obligations accruing during the period of its ownership
of the Property, and any liability for obligations accruing after termination of
such ownership shall terminate as of the date of such termination of ownership
and shall pass to the successor lessor.
19.3 No Waiver. The failure of Landlord to seek redress for violation, or
---------
to insist upon the strict performance, of any covenant or condition of this
Lease shall not be deemed a waiver of such violation, or prevent a subsequent
act which would originally have constituted a violation from having all the
force and effect of an original violation.
19.4 Severability. If any provision of this Lease or the application
------------
thereof is held to be invalid or unenforceable, the remainder of this Lease or
the application of such provision to persons or circumstances other than those
as to which it is invalid or unenforceable shall not be affected thereby, and
each of the provisions of this Lease shall be valid and enforceable, unless
enforcement of this Lease as so invalidated would be unreasonable or grossly
inequitable under all the circumstances or would materially frustrate the
purposes of this Lease.
19.5 Litigation Between Parties. In the event of any litigation or other
--------------------------
dispute resolution proceedings between the parties hereto arising out of or in
connection with this Lease, the prevailing party shall be reimbursed for all
reasonable costs, including, but not limited to, reasonable accountants' fees
and attorneys' fees, incurred in connection with such proceedings (including,
but not limited to, any appellate proceedings relating thereto) or in connection
with the enforcement of any judgment or award rendered in such proceedings.
"Prevailing party" within the meaning of this Section shall include, without
limitation, a party who dismisses an action for recovery hereunder in exchange
for payment of the sums allegedly due, performance of covenants allegedly
breached or consideration substantially equal to the relief sought in the
action.
19.6 Surrender. A voluntary or other surrender of this Lease by Tenant, or
---------
a mutual termination thereof between Landlord and Tenant, shall not result in a
merger but shall, at the option of Landlord, operate either as an assignment to
Landlord of any and all existing subleases and subtenancies, or a termination of
all or any existing subleases and subtenancies. This provision shall be
contained in any and all assignments or subleases made pursuant to this Lease.
19.7 Interpretation. The provisions of this Lease shall be construed as a
--------------
whole, according to their common meaning, and not strictly for or against
Landlord or Tenant. The captions preceding the text of each Section and
subsection hereof are included only for convenience of reference and shall be
disregarded in the construction or interpretation of this Lease.
19.8 Entire Agreement. This written Lease, together with the exhibits
----------------
hereto, contains all the representations and the entire understanding between
the parties hereto with respect to the subject matter hereof. Any prior
correspondence, memoranda or agreements are replaced in total by this Lease and
the exhibits hereto. This Lease may be modified only by an agreement in writing
signed by each of the parties.
19.9 Governing Law. This Lease and all exhibits hereto shall be construed
-------------
and interpreted in accordance with and be governed by all the provisions of the
laws of the State of California.
19.10 No Partnership. The relationship between Landlord and Tenant is
--------------
solely that of a lessor and lessee. Nothing contained in this Lease shall be
construed as creating any type or manner of partnership, joint venture or joint
enterprise with or between Landlord and Tenant.
38
<PAGE>
19.11 Financial Information. From time to time Tenant shall promptly
---------------------
provide directly to prospective lenders and purchasers of the Property
designated by Landlord such financial information pertaining to the financial
status of Tenant as Landlord may reasonably request; provided, Tenant shall be
permitted to provide such financial information in a manner which Tenant deems
reasonably necessary to protect the confidentiality of such information. In
addition, from time to time, Tenant shall provide Landlord with such financial
information pertaining to the financial status of Tenant as Landlord may
reasonably request. Landlord agrees that all financial information supplied to
Landlord by Tenant shall be treated as confidential material, and shall not be
disseminated to any party or entity (including any entity affiliated with
Landlord) without Tenant's prior written consent, except that Landlord shall be
entitled to provide such information, subject to reasonable precautions to
protect the confidential nature thereof, (i) to Landlord's partners and
professional advisors, solely to use in connection with Landlord's execution and
enforcement of this Lease, and (ii) to prospective lenders and/or purchasers of
the Property, solely for use in connection with their bona fide consideration of
a proposed financing or purchase of the Property, provided that such prospective
lenders and/or purchasers are not then engaged in businesses directly
competitive with the business then being conducted by Tenant. For purposes of
this Section, without limiting the generality of the obligations provided
herein, it shall be deemed reasonable for Landlord to request copies of Tenant's
most recent audited annual financial statements, or, if audited statements have
not been prepared, unaudited financial statements for Tenant's most recent
fiscal year, accompanied by a certificate of Tenant's chief financial officer
that such financial statements fairly present Tenant's financial condition as of
the date(s) indicated. Notwithstanding any other provisions of this Section
19.11, during any period in which Tenant has outstanding a class of publicly
traded securities and is filing with the Securities and Exchange Commission, on
a regular basis, Forms 10Q and 10K and any other periodic filings required under
the Securities Exchange Act of 1934, as amended, it shall constitute sufficient
compliance under this Section 19.11 for Tenant to furnish Landlord with copies
of such periodic filings substantially concurrently with the filing thereof with
the Securities and Exchange Commission.
Landlord and Tenant recognize the need of Tenant to maintain the
confidentiality of information regarding its financial status and the need of
Landlord to be informed of, and to provide to prospective lenders and purchasers
of the Property financial information pertaining to, Tenant's financial status.
Landlord and Tenant agree to cooperate with each other in achieving these needs
within the context of the obligations set forth in this Section.
19.12 Costs. If Tenant requests the consent of Landlord under any
-----
provision of this Lease for any act that Tenant proposes to do hereunder,
including, without limitation, assignment or subletting of the Buildings or any
portion thereof, Tenant shall, as a condition to doing any such act and the
receipt of such consent, reimburse Landlord promptly for any and all reasonable
costs and expenses incurred by Landlord in connection therewith, including,
without limitation, reasonable attorneys' fees, up to a maximum of $2,500.00 per
request.
19.13 Time. Time is of the essence of this Lease, and of every term and
----
condition hereof.
19.14 Rules And Regulations. Tenant shall observe, comply with and obey,
---------------------
and shall cause its employees, agents and, to the best of Tenant's ability,
invitees to observe, comply with and obey such rules and regulations as Landlord
may reasonably promulgate from time to time for the safety, care, cleanliness,
order and use of the Improvements, the Buildings and the Property.
19.15 Brokers. Landlord agrees to pay a brokerage commission to Tenant's
-------
broker, Cornish & Carey Commercial, in connection with the consummation of this
Lease in accordance with a separate agreement. Each party represents and
warrants that no other broker participated in the consummation of this Lease and
agrees to indemnify, defend and hold the other party harmless against any
liability, cost or expense, including, without limitation, reasonable attorneys'
fees, arising out of any claims for brokerage commissions or other similar
compensation in connection with any conversations, prior negotiations or other
dealings by the indemnifying party with any other broker.
19.16 Memorandum Of Lease. At any time during the term of this Lease,
-------------------
either party, at its sole expense, shall be entitled to record a memorandum of
this Lease and, if either party so
39
<PAGE>
elects, both parties agree to cooperate in the preparation, execution,
acknowledgement and recordation of such document in reasonable form.
19.17 Corporate Authority. Each of the persons signing this Lease on behalf
-------------------
of Tenant warrants that he or she is fully authorized to do so and, by jointly
so signing, to bind Tenant.
19.18 Execution and Delivery. This Lease may be executed in one or more
----------------------
counterparts and by separate parties on separate counterparts, but each such
counterpart shall constitute an original and all such counterparts together
shall constitute one and the same instrument.
19.19 Survival. Without limiting survival provisions which would otherwise
--------
be implied or construed under applicable law, the provisions of Sections 2.6,
7.4, 9.2, 9.3, 9.4, 11.6, 12.6 and 19.5 hereof shall survive the termination of
this Lease with respect to matters occurring prior to the expiration of this
Lease.
19.20 Parking. Landlord and Tenant agree that the Common Areas, taken as a
-------
whole, shall include parking in amounts sufficient to satisfy the minimum
parking requirements of the City of South San Francisco applicable to the
Property and the Britannia Pointe Grand Business Park from time to time.
Landlord represents to Tenant that under the most current drawings at this date
for the complete build-out of the Property and the Britannia Pointe Grand
Business Park, the overall rate of parking is approximately 3.07 spaces for each
1,000 square feet of space in the various buildings presently existing or
contemplated for construction on the Property and in the remainder of the
Britannia Pointe Grand Business Park.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first set forth above.
<TABLE>
<CAPTION>
<S> <C>
"Landlord" "Tenant"
BRITANNIA POINTE GRAND EXELIXIS PHARMACEUTICALS, INC., a
LIMITED PARTNERSHIP, a Delaware limited Delaware corporation
partnership
By: BRITANNIA POINTE GRAND, LLC, a By: /s/ George Scangos
California limited liability company, -----------------------------------
General Partner George A. Scangos
President and CEO
By: /s/ T. J. Bristow By: /s/ William D. Waddill
---------------------------------- --------------------------------
T. J. Bristow Its: Secretary
Its Manager, President and Chief
Financial Officer
</TABLE>
40
<PAGE>
EXHIBITS
EXHIBIT A Real Property Description
EXHIBIT B Site Plan
EXHIBIT C Workletter
EXHIBIT D Estimated Construction Schedule
EXHIBIT E Acknowledgement of Rent Commencement Date
<PAGE>
EXHIBIT A
---------
REAL PROPERTY DESCRIPTION
-------------------------
All that certain real property in the City of South San Francisco, County of San
Mateo, State of California, more particularly described as follows:
Phase 1 Property
- ----------------
PARCEL ONE:
Beginning at a point which bears South 89 degrees 52' 30" West, along the
southerly line of East Grand Avenue, 476.27 feet and South 0 degrees 06' 30"
West 532.00 feet, from the northeasterly corner of that certain 15.743 acre
tract of land described in the deed from Metal and Thermit Corporation, a
corporation, to Grace F. Guerin, dated June 17, 1947 and recorded July 24, 1947
in Book 1352 of Official Records of San Mateo County at Page 373, said point of
beginning being the southeasterly corner of lands described in the deed from Ed
Rayburn Guerin and Grace F. Guerin, his wife, to Ed Rosemont, dated April 16,
1948, and recorded April 21, 1948 in Book 1454 of Official Records of San Mateo
County at Page 293 (27142-H); thence from said point of beginning, South 0
degrees 06' 30" West 50 feet, to a point; thence South 89 degrees 52' 30" West
200 feet to a point; thence North 0 degrees 04' 32" West 20 feet to a point;
thence South 89 degrees 52' 30" West 232.8 feet, more or less, to a point on the
westerly line of said 15.743 acre tract and the easterly line of the right of
way of the Belt Line Railway; thence along said line, North 0 degrees 04' 32"
West, a distance of 30 feet to the southwesterly corner of lands described in
the deed to Rosemont beforementioned; thence North 89 degrees 52' 30" East,
along the southerly line of said lands, 433 feet to the point of beginning.
Excepting therefrom so much thereof as lies within the lands described in the
deed from Ed Rosemont and wife to Grace F. Guerin, dated March 23, 1956 and
recorded May 2, 1956 in Book 3016 of Official Records of San Mateo County at
Page 207 (50306-N).
PARCEL TWO:
Beginning at a point which bears South 89 degrees 52' 30" West, along the
southerly line of East Grand Avenue, 476.27 feet and South 0 degrees 06' 30"
West 327.34 feet from the northeasterly corner of that certain 15.743 acre tract
of land described in the deed from Metal and Thermit Corporation, a corporation,
to Grace F. Guerin, dated June 17, 1947, and recorded July 24, 1947 in Book 1352
of Official Records of San Mateo County at Page 373 (77876-G); thence from said
point of beginning South 0 degrees 06' 30" West 204.66 feet; thence South 89
degrees 52' 30" West 433 feet to a point in the westerly line of said 15.743
acre tract and the easterly line of the right of way of the Belt Line Railway;
thence along said line, North 0 degrees 04' 32" West 88.17 feet; thence
continuing along said line, on the arc of a curve to the right, with a radius of
349.26 feet, tangent to the preceding course, a distance of 118.89 feet; thence
North 89 degrees 52' 30" East 413.62 feet to the point of beginning.
Excepting therefrom so much thereof as lies within the lands described in the
deed from Ed Rosemont and wife to Grace F. Guerin, dated March 23, 1956 and
recorded May 2, 1956 in Book 3016 of Official Records of San Mateo County at
Page 207 (50306-N).
PARCEL THREE:
Beginning at a point which bears North 89 degrees 52' 30" East 40 feet from the
southwesterly corner of that certain 0.390 acre parcel of land described in the
deed from Ed Reyburn Guerin and Grace F. Guerin, his wife, to Ed Rosemont and
Margaret Rosemont, his wife, dated November 8, 1948 and recorded November 16,
1948 in Book 1593 of Official Records of San Mateo County at Page 284 (61936-H);
thence North 89 degrees 52' 30" East, along the southerly line of said 0.390
acre parcel, 192.8 feet and South 0 degrees 04' 32" East 20 feet to a point;
thence leaving said southerly line, South 89 degrees 52' 30" West 187.179 feet
to a point; thence North 15 degrees 46' 04" West 20.782 feet, more or less, to
the point of beginning.
Assessor's Parcel No. 015-032-020 (Parcels One through Three)
EXHIBIT A Page 1 of 2
--------------
<PAGE>
PARCEL FOUR:
Beginning at a point which bears South 89 degrees 52' 30" West, along the
southerly line of East Grand Avenue, 476.27 feet and South 0 degrees 06' 30"
West 582.00 feet from the northeasterly corner of that certain 15.743 acre tract
of land described in the deed from Metal and Thermit Corporation, a corporation,
to Grace F. Guerin, dated June 17, 1947, and recorded July 24, 1947 in Book 1352
of Official Records of San Mateo County at Page 373 (77876-G), said point of
beginning being the southeasterly corner of lands described in the deed from E.
Rayburn Guerin and Grace F. Guerin, his wife, to Ed Rosemont and wife, dated
November 8, 1948 and recorded November 16, 1948, in Book 1593 of Official
Records of San Mateo County, at Page 284 (61936-H); thence from said point of
beginning South 0 degrees 06' 30" West, 50 feet to a point; thence South 89
degrees 52' 30" West, 150 feet to a point; thence North 0 degrees 06' 30" East,
50 feet to a point; thence North 89 degrees 52' 30" East, 150 feet to the point
of beginning.
Assessor's Parcel No. 015-032-030
Phase 2-A Property
- ------------------
Beginning at a point which bears South 89 degrees 52' 30" West, along the
southerly line of East Grand Avenue, 476.27 feet and South 0 degrees 06' 30"
West 632.00 feet from the northeasterly corner of that certain 15.743 acre tract
of land described in the deed from Metal and Thermit Corporation, a corporation,
to Grace F. Guerin, dated June 17, 1947, and recorded July 24, 1947 in Book 1352
of Official Records of San Mateo County at Page 373 (77876-G), said point of
beginning being the southeasterly corner of a parcel of land described in the
deed from E. Rayburn Guerin and Grace F. Guerin, his wife, to Walter Industries,
Inc., dated December 15, 1949 and recorded December 23, 1949 in Book 1766 of
Official Records of San Mateo County at Page 487; thence from said point of
beginning, South 0 degrees 06' 30" West 177.25 feet, more or less, to the
northerly line of lands described in deed from Grace F. Guerin to John F.
Lutkenhouse, dated November 28, 1955, and recorded December 8, 1955, in Book
2928 of Official Records of San Mateo County at Page 555 (9934-E); thence along
said northerly line South 89 degrees 52' 30" West 363.20 feet, more or less, to
the easterly boundary of the South San Francisco Belt Railways right of way;
thence northwesterly, along said right of way boundary, on the arc of a curve to
the right, having a radius of 349.26 feet and a central angle of 36 degrees 30'
54", an arc length of 222.59 feet; thence North 0 degrees 04' 52" West 108.30
feet and northerly on a curve to the right, tangent to a line which bears North
0 degrees 04' 32" West from the last mentioned point, said curve having a radius
of 349.26 feet, a central angle of 3 degrees 34' 52", an arc distance of 21.83
feet to the most northerly corner of lands described in deed from Ed. Rosemont
and wife to Grace F. Guerin, dated March 23, 1958, and recorded May 2, 1958 in
Book 3016 of Official Records of San Mateo County at Page 207 (50306-H); thence
South 15 degrees 46' 04" East, along the northeasterly line of the last named
lands and its southeasterly prolongation, a distance of 186.147 feet to the
southwesterly corner of lands described in deed from Grace F. Guerin to Ed.
Rosemont and Margaret F. Guerin, dated March 1, 1958, and recorded May 2, 1958,
in Book 3016 of Official Records of San Mateo County at Page 209 (50308-H);
thence along the southerly line of the last mentioned lands, North 89 degrees
52' 30" East 237.178 feet to the westerly line of the lands of Walter
Industries, Inc., above mentioned in Book 1766 of Official Records at Page 487;
thence along the westerly and southerly boundary of said last named lands, South
0 degrees 06' 30" West 50 feet and North 89 degrees 52' 30" East 150 feet to the
point of beginning.
Assessor's Parcel No. 015-032-040
Phase 2-B Property
- ------------------
See parcels designated as Phase 2-B Property (approximate) on Exhibit B-1
attached to the Lease to which this Exhibit A is attached and incorporated
herein by this reference (detailed legal description not available at this
time).
MetaXen Property
- ----------------
Lot 4 as shown on Parcel Map No. 91-284, "Being a resubdivision of the parcels
described in the deeds to Metal and Thermit Corporation, recorded in Book 293,
at Page 394 of Deeds; in Book 49, at Page 490, Official Records; in Book 77, at
Page 415, Official Records; and, except that parcel described in Book 1352, at
Page 373, Official Records," filed on February 25, 1992, in Book 65 of Parcel
Maps, in the Office of the Recorder of the County of San Mateo, California.
EXHIBIT A Page 2 of 2
<PAGE>
EXHIBIT C
---------
WORKLETTER
----------
This Workletter ("Workletter") constitutes part of the Build-to-Suit Lease
----------
dated as of May ___, 1999 (the "Lease") between BRITANNIA POINTE GRAND LIMITED
-----
PARTNERSHIP, a Delaware limited partnership ("Landlord"), and EXELIXIS
--------
PHARMACEUTICALS, INC., a Delaware corporation ("Tenant"). The terms of this
------
Workletter are incorporated in the Lease for all purposes.
1. Defined Terms. As used in this Workletter, the following capitalized terms
-------------
have the following meanings:
(a) Approved Plans: Plans and specifications prepared by the applicable
--------------
Architect for the respective Improvements and approved by both Landlord and
Tenant in accordance with Paragraph 2 of this Workletter (subject to
further modification in accordance with such Paragraph 2).
(b) Architect: Chamorro Design Group, or any other architect selected by
---------
Landlord in its sole discretion, with respect to the Building Shells, the
Site Improvements and any other Improvements which Landlord is to design
pursuant to this Workletter; any architect selected by Tenant with the
written approval of Landlord (which approval shall not be unreasonably
withheld or delayed), with respect to the Tenant Improvements and any other
Improvements which Tenant is to design pursuant to this Workletter.
(c) Building Shells: The shells of Building 1 and, if Tenant exercises
---------------
its option under Section 1.1(c)(ii) or (iii) of the Lease, Building 2, as such
shells are more fully defined in Schedule C-1 attached to this Workletter.
------------
(d) Change Order: See definition in Paragraph 2(e)(ii) hereof.
------------
(e) Cost of Improvement: See definition in Paragraph 2(c) hereof.
-------------------
(f) Final Completion Certificate: See definition in Paragraph 3(b)
----------------------------
hereof.
(g) Final Working Drawings: See definition in Paragraph 2(a) hereof.
----------------------
(h) General Contractor: Concrete Shell Structures, Inc., or any other
-----------------
general contractor selected by Landlord in its sole discretion, with respect to
Landlord's Work. The General Contractor with respect to Tenant's Work shall be
selected by Tenant, subject to Landlord's approval (not to be unreasonably
withheld or delayed), as contemplated in Paragraph 5(a) hereof.
(i) Improvements: The Building Shells, Site Improvements, Tenant
------------
Improvements and other improvements shown on the Approved Plans from time to
time and to be constructed on the Property pursuant to the Lease and this
Workletter.
(j) Landlord Delay: Any of the following types of delay in the completion
--------------
of construction of the Tenant Improvements:
(i) Any delay resulting from Landlord's failure to furnish, in a
timely manner, information requested by Tenant or by the Architect or General
Contractor for Tenant's Work in connection with the design or construction of
Tenant's Work, or from Landlord's failure to approve in a timely manner any
matters requiring approval by Landlord; or
(ii) Any delay of any other kind or nature caused by Landlord (or
Landlord's contractors, agents or employees) or resulting from the performance
of Landlord's Work.
<PAGE>
(k) Landlord's Work: The Building Shells and Site Improvements, and any
---------------
other Improvements which Landlord is to construct or install pursuant to this
Workletter or by mutual agreement of Landlord and Tenant from time to time.
(l) Punch List Work: Minor corrections of construction or decoration
---------------
details, and minor mechanical adjustments, that are required in order to cause
any applicable portion of the Improvements as constructed to conform to the
Approved Plans in all material respects and that do not materially interfere
with Tenant's use or occupancy of the Buildings and the Property.
(m) Site Improvements: The parking areas, driveways, landscaping and
-----------------
other improvements to the Common Areas of the Property that are depicted on
Exhibit B to the Lease (as the same may be modified pursuant to the process
- ---------
of development and approval of the Approved Plans) and more specifically
described in Schedule C-1 attached to this Workletter.
------------
(n) Structural Completion Certificate: See definition in Paragraph 3(a)
---------------------------------
hereof.
(o) Tenant Delay: Any of the following types of delay in the completion
------------
of construction of the Building Shells:
(i) Any delay resulting from Tenant's failure to furnish, in a
timely manner, information requested by Landlord or by the Architect or General
Contractor for Landlord's Work in connection with the design or construction of
the Building Shells, or from Tenant's failure to approve in a timely manner any
matters requiring approval by Tenant;
(ii) Any delay attributable to any request by Tenant to construct
the Building Shells in an "above standard" manner, or to any use of "above
standard" Building Shell components that is necessitated by Tenant's particular
use requirements or by the contemplated Tenant's Work;
(iii) Any delay resulting from Change Orders, including any delay
resulting from the need to revise any drawings or obtain further governmental
approvals as a result of any Change Order; or
(iv) Any delay of any other kind or nature caused by Tenant (or
Tenant's contractors, agents or employees) or resulting from the performance of
Tenant's Work.
(p) Tenant Improvements: The improvements to or within the Buildings,
-------------------
other than improvements constituting part of the Building Shells, shown on the
Approved Plans from time to time and to be constructed by Tenant (except as
otherwise provided herein) pursuant to the Lease and this Workletter, including
(but not limited to) the improvements described on Schedule C-2 attached to
------------
this Workletter (except to the extent any such Schedule C-2 improvements
------------
constitute part of the Building Shells).
(q) Tenant's Work: All of the Improvements other than those constituting
-------------
Landlord's Work, and such other materials and improvements as Tenant deems
necessary or appropriate for Tenant's use and occupancy of the Buildings.
(r) Unavoidable Delays: Delays due to acts of God, acts of public
------------------
agencies, labor disputes, strikes, fires, freight embargoes, rainy or stormy
weather, inability to obtain supplies, materials, fuels or permits, delays of
contractors or subcontractors, or other causes or contingencies beyond the
reasonable control of Landlord or Tenant, as applicable.
(s) Work Deadlines: The target dates for performance by the applicable
--------------
party of the steps listed in the Estimated Construction Schedule attached as
Exhibit D to the Lease.
- ---------
(t) Capitalized terms not otherwise defined in this Workletter shall have
the definitions set forth in the Lease.
<PAGE>
2. Plans, Cost of Improvements and Construction. Landlord and Tenant shall
--------------------------------------------
comply with the procedures set forth in this Paragraph 2 in preparing,
delivering and approving matters relating to the Improvements.
(a) Approved Plans and Working Drawings for Landlord's Work. Landlord
-------------------------------------------------------
shall promptly and diligently (and in all events prior to any applicable Work
Deadlines, subject to Tenant Delays and Unavoidable Delays) cause to be prepared
and delivered to Tenant, for approval, plans and specifications for the
Improvements constituting Landlord's Work. Following mutual approval of such
plans and specifications, Landlord shall then cause to be prepared and delivered
to Tenant, on or before the applicable Work Deadline (assuming timely delivery
by Tenant of all information, decisions and drawings required to be furnished or
made by Tenant in order to permit complete preparation of plans and drawings),
final working drawings and specifications for the Improvements constituting
Landlord's Work, including structural, fire protection, life safety, mechanical
and electrical working drawings and final architectural drawings (collectively,
"Landlord's Final Working Drawings"). Landlord's Final Working Drawings shall
---------------------------------
substantially conform to the Approved Plans. Landlord's obligation to deliver
Landlord's Final Working Drawings to Tenant within the time period set forth
above shall be extended for any delay encountered by Landlord as a result of a
request by Tenant for changes in accordance with the procedure set forth below,
any other Tenant Delays, or any Unavoidable Delays. No later than the applicable
Work Deadline (assuming timely delivery of plans and drawings by Landlord),
Tenant shall either approve Landlord's Final Working Drawings or set forth in
writing with particularity any changes necessary to bring Landlord's Final
Working Drawings into substantial conformity with the Approved Plans or into a
form which will be acceptable to Tenant. In no event, however, shall Tenant have
the right to object to any aspect of the proposed plans and specifications or
proposed Landlord's Final Working Drawings for Landlord's Work (including, but
not limited to, any change from the Approved Plans) that is necessitated by
applicable law, or to any aspect of such proposed plans and specifications or
proposed Landlord's Final Working Drawings that relates to the Building Shells
or Site Improvements, although Landlord agrees to consult with Tenant and to
give reasonable consideration to Tenant's views regarding functional
characteristics of the Building Shells and Site Improvements. Failure of Tenant
to deliver to Landlord written notice of disapproval and specification of
required changes on or before the applicable Work Deadline shall constitute and
be deemed to be approval of Landlord's Final Working Drawings. Upon approval,
actual or deemed, of Landlord's Final Working Drawings by Landlord and Tenant,
Landlord's Final Working Drawings shall be deemed to be incorporated in and
considered part of the Approved Plans, superseding (to the extent of any
inconsistencies) any inconsistent features of the previously existing Approved
Plans.
(b) Approved Plans and Working Drawings for Tenant's Work. Tenant shall
-----------------------------------------------------
promptly and diligently (and in all events prior to any applicable Work
Deadlines, subject to Landlord Delays and Unavoidable Delays) cause to be
prepared and delivered to Landlord, for approval, plans and specifications for
the Improvements constituting Tenant's Work. Following mutual approval of such
plans and specifications, Tenant shall then cause to be prepared and delivered
to Landlord final working drawings and specifications for the Improvements
constituting Tenant's Work, including any applicable life safety, mechanical and
electrical working drawings and final architectural drawings (collectively,
"Tenant's Final Working Drawings"). Tenant's Final Working Drawings shall
-------------------------------
substantially conform to the Approved Plans. Landlord shall either approve
Tenant's Final Working Drawings or set forth in writing with particularity any
changes necessary to bring Tenant's Final Working Drawings into substantial
conformity with the Approved Plans or into a form which will be acceptable to
Landlord. Upon approval of Tenant's Final Working Drawings by Landlord and
Tenant, Tenant's Final Working Drawings shall be deemed to be incorporated in
and considered part of the Approved Plans, superseding (to the extent of any
inconsistencies) any inconsistent features of the previously existing Approved
Plans.
(c) Cost of Improvements. "Cost of Improvement" shall mean, with respect
-------------------- -------------------
to any item or component for which a cost must be determined in order to
allocate such cost, or an increase in such cost, to Landlord and/or Tenant
pursuant to this Workletter or pursuant to the Lease, the sum of the following
(unless otherwise agreed in writing by Landlord and Tenant with respect to any
specific item or component or any category of items or components): (i) all sums
paid to contractors or subcontractors for labor and materials furnished in
connection with
C-3
<PAGE>
construction of such item or component; (ii) all costs, expenses, payments, fees
and charges (other than fines and penalties) paid or incurred to or at the
direction of any city, county or other governmental or quasi-governmental
authority or agency which are required to be paid in order to obtain all
necessary governmental permits, licenses, inspections and approvals relating to
construction of such item or component; (iii) engineering and architectural fees
for services rendered in connection with the design and construction of such
item or component (including, but not limited to, the applicable Architect for
such item or component and an electrical engineer, mechanical engineer and civil
engineer); (iv) sales and use taxes; (v) testing and inspection costs; (vi) the
cost of power, water and other utility facilities and the cost of collection and
removal of debris required in connection with construction of such item or
component; and (vii) all other "hard" costs incurred in the construction of such
item or component in accordance with the Approved Plans and this Workletter.
Cost of Improvement shall not include any project management fee relating to the
construction of such item or component.
(d) Construction of Landlord's Work. Promptly following approval of
-------------------------------
Landlord's Final Working Drawings, Landlord shall apply for and use reasonable
efforts to obtain the necessary permits and approvals to allow construction of
all Improvements constituting Landlord's Work. Upon receipt of such permits and
approvals, Landlord shall, at Landlord's sole expense (except as otherwise
provided in the Lease or in this Workletter), diligently construct and complete
the Improvements constituting Landlord's Work substantially in accordance with
the Approved Plans, subject to Unavoidable Delays and Tenant Delays (if any).
Such construction shall be performed in a neat and workmanlike manner and shall
conform to all applicable governmental codes, laws and regulations in force at
the time such work is completed. Landlord shall have the right, in its sole
discretion, to decide whether and to what extent to use union labor on or in
connection with Landlord's Work and shall use the General Contractor specified
in Paragraph 1(h) to construct all Improvements constituting Landlord's Work.
(e) Changes.
-------
(i) If Landlord determines at any time that changes in Landlord's
Final Working Drawings or in any other aspect of the Approved Plans relating to
any item of Landlord's Work are required as a result of applicable law or
governmental requirements, or at the insistence of any other third party whose
approval may be required with respect to the Improvements, or as a result of
unanticipated conditions encountered in the course of construction, then
Landlord shall promptly (A) advise Tenant of such circumstances and (B) cause
revised Approved Plans and/or Landlord's Final Working Drawings, as applicable,
reflecting such changes to be prepared by Architect and, to the extent such
changes relate to items other than the Building Shells or Site Improvements,
submitted to Tenant for approval in accordance with the procedure contemplated
in Paragraph 2(a) hereof. Upon final approval of revised drawings by Landlord
and Tenant (if applicable), Landlord's Final Working Drawings and/or Approved
Plans shall be deemed to be modified accordingly.
(ii) If Tenant at any time desires any changes, alterations or
additions to the Approved Plans or Landlord's Final Working Drawings with
respect to any of Landlord's Work, Tenant shall submit a detailed written
request to Landlord specifying such changes, alterations or additions (a "Change
------
Order"). Upon receipt of any such request, Landlord shall promptly notify
- -----
Tenant of (A) whether the matters proposed in the Change Order are approved by
Landlord (which approval shall not be unreasonably withheld), (B) Landlord's
estimate of the number of days of delay, if any, which shall be caused by such
Change Order if implemented (including, without limitation, delays due to the
need to obtain any revised plans or drawings and any governmental approvals),
and (C) Landlord's estimate of the increase, if any, which shall occur in the
Cost of Improvement for the items or components affected by such Change Order if
such Change Order is implemented (including, but not limited to, any costs of
compliance with laws or governmental regulations that become applicable because
of the requested Change Order). If Tenant notifies Landlord in writing, within
five (5) business days after receipt of such notice from Landlord, of Tenant's
approval of the Change Order (including the estimated delays and cost increases,
if any, described in Landlord's notice), then Landlord shall cause such Change
Order to be implemented and Tenant shall be responsible for all costs or cost
increases resulting from or attributable to the Change Order, subject to the
provisions of Paragraph 4 hereof. If Tenant fails to notify Landlord in writing
of Tenant's approval of such Change Order within said
<PAGE>
five (5) business day period, then such Change Order shall be deemed to be
withdrawn and shall be of no further effect.
(f) Indemnification. Landlord shall indemnify, defend (with counsel
---------------
satisfactory to Tenant) and hold Tenant harmless from all suits, claims,
actions, losses, costs and expenses (including, but not limited to, claims for
workers' compensation, attorneys' fees and costs) based on personal injury or
property damage or contract claims (including, but not limited to, claims for
breach of warranty) arising from the performance of Landlord's Work; provided,
however, that nothing in this Paragraph 2(f) shall be construed to expand the
scope of any express warranties made by Landlord in the Lease or in this
Workletter, and with respect to any claims for breach of warranty or other
contract claims, Tenant's rights under this Paragraph 2(f) shall be subject to
any express limitations set forth elsewhere in the Lease or in this Workletter
with respect to Landlord's warranties and other contractual obligations.
Landlord shall repair or replace (or, at Tenant's election, reimburse Tenant for
the cost of repairing or replacing) any portion of the Improvements and/or any
of Tenant's personal property or equipment that is damaged, lost or destroyed in
the course of or in connection with the performance of Landlord's Work.
3. Completion.
----------
(a) When Landlord receives written certification from Architect that
construction of the foundation, structural slab on grade, underslab plumbing
work, structural steel framework, decking and concrete on second and third (if
applicable) floors, roof structure and installation of main fire sprinkler lines
in the applicable Building have been completed in accordance with the Approved
Plans, Landlord shall prepare and deliver to Tenant a certificate signed by both
Landlord and Architect (the "Structural Completion Certificate") certifying
---------------------------------
that the construction of such portions of the Building has been substantially
completed in accordance with the Approved Plans in all material respects and
specifying the date of that completion. The delivery of such Structural
Completion Certificate shall commence the running of the 6-month time period
until the applicable Rent Commencement Date under Section 2.1 of the Lease.
(b) When Landlord receives written certification from Architect that
construction of the remaining Improvements constituting Landlord's Work has been
completed in accordance with the Approved Plans (except for Punch List Work),
Landlord shall prepare and deliver to Tenant a certificate signed by both
Landlord and Architect (the "Final Completion Certificate") certifying
----------------------------
that the construction of the remaining Improvements constituting Landlord's Work
has been substantially completed in accordance with the Approved Plans in all
material respects, subject only to completion of Punch List Work, and specifying
the date of that completion. Upon receipt by Tenant of the Final Completion
Certificate, the Improvements constituting Landlord's Work will be deemed
delivered to Tenant for all purposes of the Lease (subject to Landlord's
continuing obligations with respect to the Punch List Work).
(c) Notwithstanding any other provisions of this Workletter or of the
Lease, if Landlord is delayed in substantially completing any of Landlord's Work
necessary for issuance of the Structural Completion Certificate as a result of
any Tenant Delay, then the 6-month period between the delivery of the Structural
Completion Certificate and the applicable Rent Commencement Date pursuant to
Section 2.1 of the Lease shall be reduced, day for day, by the number of days by
which such Tenant Delay delayed completion of the portions of Landlord's Work
necessary for issuance of the Structural Completion Certificate, and Tenant
shall reimburse Landlord in cash, within fifteen (15) days after written demand
by Landlord (accompanied by reasonable documentation of the items claimed), for
any increased construction-related costs and expenses incurred by Landlord as a
result of the Tenant Delay.
(d) At any time within thirty (30) days after delivery of the Structural
Completion Certificate or the Final Completion Certificate, as applicable,
Tenant shall be entitled to submit one or more lists to Landlord specifying
Punch List Work to be performed on the applicable Improvements constituting
Landlord's Work, and upon receipt of such list(s), Landlord shall diligently
complete such Punch List Work at Landlord's sole expense. In the event of any
dispute as to completion of any item or component of Landlord's Work, the
certificate of the applicable Architect shall be conclusive. Promptly after
Landlord provides Tenant with the Final
C-5
<PAGE>
Completion Certificate, Landlord shall cause the recordation of a Notice of
Completion (as defined in Section 3093 of the California Civil Code) with
respect to Landlord's Work.
4. Payment of Costs.
----------------
(a) Landlord's Work. Except as otherwise expressly provided in this
---------------
Workletter (including, but not limited to, the cost allocations set forth in
Schedule C-2 attached hereto) or by mutual written agreement of Landlord
- ------------
and Tenant, the cost of construction of Landlord's Work shall be borne by
Landlord at its sole cost and expense, including any costs or cost increases
incurred as a result of Unavoidable Delays, governmental requirements or
unanticipated conditions; provided, however, that notwithstanding any other
--------
provisions of this Paragraph 4(a), to the extent the Cost of Improvement
relating to the construction of any item or component of Landlord's Work is
increased as a result of any permitted Change Order or any Tenant Delay, or as a
result of any "above standard" Building Shell components requested by Tenant or
otherwise necessitated by Tenant's particular use requirements or by the
contemplated Tenant's Work, or as a result of any other plan changes or
compliance costs attributable to Tenant's particular use requirements or to the
contemplated Tenant's Work, the amount of the increase in the Cost of
Improvement with respect to such item or component shall be reimbursed by Tenant
to Landlord in cash or, by mutual agreement of Landlord and Tenant, may be
deducted from Landlord's maximum obligation under Paragraph 4(b) with respect to
the cost of Tenant's Work.
(b) Tenant's Work. Except as otherwise expressly provided in this
-------------
Workletter (including, but not limited to, the cost allocations set forth in
Schedule C-2 attached hereto) or by mutual written agreement of Landlord and
- ------------
Tenant, the cost of construction of the Tenant Improvements shall be borne
eighty-two percent (82%) by Landlord and eighteen percent (18%) by Tenant, up to
a maximum Landlord's obligation of $115.00 per square foot of space in the
Buildings (measured in accordance with Section 3.1(d) of the Lease), equating to
a total Cost of Improvements for the Tenant Improvements of approximately
$140.24 per square foot. Tenant shall be responsible, at its sole cost and
expense, for payment of eighteen percent (18%) of the first $140.24 per square
foot of the Cost of Improvements of the Tenant Improvements, for the entire Cost
of Improvements of the Tenant Improvements in excess of $140.24 per square foot
(if any such excess occurs) and for the entire cost of any Tenant's Work that is
not part of the Tenant Improvements, including (but not limited to), in each
case, any costs or cost increases incurred as a result of Unavoidable Delays,
governmental requirements or unanticipated conditions. The rental schedule set
forth in Section 3.1(a) of the Lease is not subject to adjustment based on the
---
Cost of Improvements of the Tenant Improvements, regardless of whether the final
Cost of Improvements for the Tenant Improvements uses the entire tenant
improvement allowance of $115.00 per square foot that Landlord has agreed to
make available as set forth above or is less than that amount, except to the
------
extent of the limited, temporary adjustment provided under Section 3.1(e) of the
Lease in the event Tenant elects to have the Tenant Improvements in Building 2
constructed in two phases. The payment or disbursement of Landlord's and
Tenant's respective shares of the cost of the Tenant Improvements (up to the
maximum amount specified above, in the case of Landlord's share) shall be made
on a prorata basis (in the proportions set forth above) as such costs are
actually incurred, subject to such lien releases and other reasonable
requirements as Landlord and Tenant, respectively, may reasonably impose. To the
extent the Cost of Improvement with respect to the Tenant Improvements exceeds
$140.24 per square foot (reduced by 122% of any amounts deducted from Landlord's
maximum payment obligation as a result of the final sentence of Paragraph 4(a)
hereof), whether as a result of Change Orders, Tenant Delays and/or Unavoidable
Delays or otherwise, the amount of such excess shall in all events be Tenant's
sole responsibility and expense.
5. Tenant's Work. On or before the applicable Work Deadline (subject to
-------------
Landlord Delays and Unavoidable Delays, if any), Tenant shall construct and
install in the respective Buildings the Tenant's Work, substantially in
accordance with the Approved Plans or, with respect to Tenant's Work not shown
on the Approved Plans, substantially in accordance with plans and specifications
prepared by Tenant and approved in writing by Landlord (which approval shall not
be unreasonably withheld or delayed). Tenant's Work shall be performed in
accordance with, and shall in all respects be subject to, the terms and
conditions of the Lease (to the extent not inconsistent with this Workletter),
and shall also be subject to the following conditions:
C-6
<PAGE>
(a) Contractor Requirements. The contractor engaged by Tenant for
-----------------------
Tenant's Work, and any subcontractors, shall be duly licensed in California and
shall be subject to Landlord's prior written approval, which approval shall not
be unreasonably withheld or delayed. Tenant shall engage only union contractors
for the construction of Tenant's Work and for the installation of Tenant's
fixtures and equipment in the Buildings, and shall require all such contractors
engaged by Tenant, and all of their subcontractors, to use only union labor on
or in connection with such work, except to the extent Landlord determines, in
its reasonable discretion, that the use of non-union labor would not create a
material risk of labor disputes, picketing or work interruptions at the Site, in
which event Landlord shall, to that extent, waive such union labor requirement.
(b) Costs and Expenses of Tenant's Work. Subject to Landlord's payment or
-----------------------------------
reimbursement obligations under Paragraph 4(b) hereof with respect to Landlord's
share of the Cost of Improvements for the Tenant Improvements, Tenant shall
promptly pay all costs and expenses arising out of the performance of Tenant's
Work (including the costs of permits) and shall furnish Landlord with evidence
of payment on request. Tenant shall provide Landlord with ten (10) days' prior
written notice before commencing any Tenant's Work. On completion of Tenant's
Work, Tenant shall deliver to Landlord a release and waiver of lien executed by
each contractor, subcontractor and materialman involved in the performance of
Tenant's Work.
(c) Indemnification. Tenant shall indemnify, defend (with counsel
---------------
satisfactory to Landlord) and hold Landlord harmless from all suits, claims,
actions, losses, costs and expenses (including, but not limited to, claims for
workers' compensation, attorneys' fees and costs) based on personal injury or
property damage or contract claims (including, but not limited to, claims for
breach of warranty) arising from the performance of Tenant's Work. Tenant shall
repair or replace (or, at Landlord's election, reimburse Landlord for the cost
of repairing or replacing) any portion of the Improvements and/or any of
Landlord's real or personal property or equipment that is damaged, lost or
destroyed in the course of or in connection with the performance of Tenant's
Work.
(d) Insurance. Tenant's contractors shall obtain and provide to Landlord
---------
certificates evidencing workers' compensation, public liability and property
damage insurance in amounts and forms and with companies satisfactory to
Landlord.
(e) Rules and Regulations. Tenant and Tenant's contractors shall comply
---------------------
with any other rules, regulations and requirements that Landlord or General
Contractor may reasonably impose with respect to the performance of Tenant's
Work. Tenant's agreement with Tenant's contractors shall require each contractor
to provide daily cleanup of the construction area to the extent that such
cleanup is necessitated by the performance of Tenant's Work.
(f) Early Entry. Landlord shall permit entry of contractors into the
-----------
Buildings for the purposes of performing Tenant's Work, subject to satisfaction
of the conditions set forth in the Lease. This license to enter is expressly
conditioned on the contractor(s) retained by Tenant working in harmony with, and
not interfering with, the workers, mechanics and contractors of Landlord. If at
any time the entry or work by Tenant's contractor(s) causes any material
interference with the workers, mechanics or contractors of Landlord, permission
to enter may be withdrawn by Landlord immediately on written notice to Tenant.
(g) Risk of Loss. All materials, work, installations and decorations of
------------
any nature brought onto or installed in the Buildings, by or at the direction of
Tenant or in connection with the performance of Tenant's Work, before the
commencement of Tenant's rental payment obligations with respect to the
applicable Building shall be at Tenant's risk, and neither Landlord nor any
party acting on Landlord's behalf shall be responsible for any damage, loss or
destruction thereof, except to the extent caused by Landlord's negligence or
willful misconduct.
(h) Condition of Tenant's Work. All work performed by Tenant shall be
--------------------------
performed in a good and workmanlike manner, shall be free from defects in
design, materials and workmanship, and shall be completed in compliance with the
plans approved by Landlord for such Tenant's Work in all material respects and
in compliance with all applicable governmental laws, ordinances, codes and
regulations in force at the time such work is completed.
C-7
<PAGE>
6. Phasing of Improvements. The Building Shells, Site Improvements on the
-----------------------
respective Properties and Tenant Improvements in the respective Buildings shall
be constructed in either two or three separate phases.
(a) The first such phase shall consist of the Building Shell and other
Landlord's Work (if any) for Building 1, the Site Improvements on the Phase 1
Property and the Tenant Improvements in Building 1 (collectively, the "Building
--------
1 Improvements"), all of which shall in all events be constructed in a single
- ---------------
initial phase under the Lease and this Exhibit C. For purposes of applying
---------
the provisions of the Lease and this Exhibit C to such construction, all
---------
provisions relating to time periods, development of plans, actual construction
and payment of the Cost of Improvements for the Building 1 Improvements shall be
interpreted and applied solely to Building 1, the Phase 1 Property and the
Building 1 Improvements, and the respective obligations of Landlord and Tenant
for payment of such Cost of Improvements shall be based solely on the square
footage of Building 1 as it is designed and built.
(b) The second and third such phases shall become applicable only if
Tenant exercises its option for Building 2 under Section 1.1(c)(ii) or (iii) of
the Lease and, in the case of the third phase, only if Tenant also elects to
have the Tenant Improvements in Building 2 constructed in two phases. To the
extent applicable, the second and third phases shall consist of the Building
Shell and other Landlord's Work (if any) for Building 2, the Site Improvements
on the Phase 2 Property and the Tenant Improvements in Building 2 (collectively,
the "Building 2 Improvements"), all of which shall be constructed in either
-----------------------
one or two separate phases under the Lease and this Exhibit C. The Building
---------
Shell and other Landlord's Work (if any) for Building 2 and the Site
Improvements on the Phase 2 Property shall in all events be constructed as a
single, second phase of improvements under the Lease and this Exhibit C. As
---------
provided in Section 5.1(a) of the Lease,
---------
however, Tenant in its discretion may elect, by written notice to Landlord at
any time prior to Landlord's delivery to Tenant of the Structural Completion
Certificate for the Building Shell for Building 2, to have the Tenant
Improvements in Building 2 completed in two separate phases, a first phase of no
less than 25,000 square feet ("Phase 2A") and a second phase of no more than
--------
20,000 square feet ("Phase 2B"), with the sum of the square footages for such
--------
phases to be equal to the total square footage of Building 2 and the
construction of the Phase 2B Tenant Improvements to be completed no later than
twelve (12) months after the Phase 2 Rent Commencement Date. If Tenant elects
such phased completion of the Tenant Improvements in Building 2, then (i)
Landlord shall still construct the entire Building Shell for Building 2 and the
Site Improvements on the Phase 2 Property in the same manner and within the same
time frame as if all of the Building 2 Improvements were to be constructed in a
single phase, (ii) Tenant shall be entitled to occupy and use all of Building 2
or any lesser portion thereof (including, at Tenant's election, any portions in
which Tenant Improvements have not yet been completed) from and after the
completion of the Phase 2A Tenant Improvements, (iii) Tenant shall begin paying
rent for all of Building 2 on the Phase 2 Rent Commencement Date, subject to a
rental adjustment under Section 3.1(e) of the Lease in accordance with its
terms, regardless of how much of Building 2 is actually occupied by Tenant as of
that date, and (iv) Tenant shall in all events complete the Phase 2B Tenant
Improvements no later than twelve (12) months after the Phase 2 Rent
Commencement Date. For purposes of applying the provisions of the Lease and this
Exhibit C to the construction of the Building 2 Improvements, all provisions
- ---------
relating to time periods, development of plans, actual construction and payment
of the Cost of Improvements for the Building 2 Improvements shall be interpreted
and applied solely to Building 2, the Phase 2 Property and the Building 2
Improvements, and the respective obligations of Landlord and Tenant for payment
of such Cost of Improvements shall be based solely on the square footage of
Building 2 as it is designed and built; moreover, if the Building 2 Tenant
Improvements are constructed in two separate phases, then the Cost of
Improvements for the Phase 2A Tenant Improvements shall be allocated between
Landlord and Tenant based on the aggregate Cost of Improvements for such Phase
2A Tenant Improvements measured against a maximum Landlord's contribution
obligation calculated on the entire square footage of Building 2; a temporary,
interim rental adjustment shall be made under Section 3.1(e) of the Lease (to
the extent applicable); and upon completion of the Phase 2B Tenant Improvements,
the entire Cost of Improvements for the Phase 2A Tenant Improvements and the
Phase 2B Tenant Improvements shall be aggregated, and again measured against a
maximum Landlord's contribution obligation calculated on the entire square
footage of Building 2, for purposes of determining how the final aggregate Cost
of Improvements for the Building 2 Tenant Improvements is to be allocated
between Landlord and Tenant.
C-8
<PAGE>
7. No Agency. Nothing contained in this Workletter shall make or constitute
---------
Tenant as the agent of Landlord.
8. Survival. Without limiting survival provisions which would otherwise be
--------
implied or construed under applicable law, the provisions of Paragraphs 2(f) and
5(c) of this Workletter shall survive the termination of the Lease with respect
to matters occurring prior to expiration of the Lease.
9. Miscellaneous. All references in this Workletter to a number of days shall
-------------
be construed to refer to calendar days, unless otherwise specified herein. In
all instances where Tenant's approval is required, if no written notice of
disapproval is given within the applicable time period, at the end of that
period Tenant shall be deemed to have given approval and the next succeeding
time period shall commence. If any item requiring approval is disapproved by
Tenant in a timely manner, the procedure for preparation of that item and
approval shall be repeated.
IN WITNESS WHEREOF, the parties have executed this Workletter concurrently
with and as of the date of the Lease.
<TABLE>
<CAPTION>
<S> <C>
"Landlord" "Tenant"
BRITANNIA POINTE GRAND LIMITED EXELIXIS PHARMACEUTICALS, INC., a
PARTNERSHIP, a Delaware limited Delaware corporation
partnership
By: BRITANNIA POINTE GRAND, By: /s/ George Scangos
LLC, a California limited liability George A. Scangos
company, General Partner Its President and CEO
By: /s/ T. J. Bristow By: /s/ William D. Waddill
T. J. Bristow Its: Secretary
Its Manager, President and
Chief Financial Officer
</TABLE>
C-9
<PAGE>
Schedule C-1 to Workletter
--------------------------
DEFINITION OF BUILDING SHELL
----------------------------
The "Building Shell" as defined in the Workletter to which this Schedule C-1 is
attached shall consist of the following:
A standard shell for a building to be constructed for a biotech company,
considering the uses set forth in this Lease, including but not limited to the
following elements and improvements:
Building envelope (reinforced grade beam foundation on prestressed concrete
piles; ground floor to be 10" thick reinforced concrete slab supported by
concrete piles; second and third (if applicable) floors to have metal
decking with concrete topping slab; roof structure to be metal deck with
concrete for mass dampening in areas to receive mechanical equipment and
rigid insulation over the balance (at least R-19 to meet Title 24
calculations); roof membrane to be built-up system, four-ply minimum
including mineral fiber cap sheet, with flashing and sealants; building
structural framing to consist of steel beams, girders, columns with a non-
bearing exterior curtain wall; seismic system utilizing steel braced
frames; floor system designed with live load capacity of 100 psf; roof live
load to be 20 psf with 50 psf in center bays to receive mechanical loads;
floor to floor heights of 17 feet)
Elevator pit
Interior stairs
Roof drains and drain lines
One (1) hour fire protection on columns and beams
Exterior transformer pads
Utilities:
site lighting and exterior lighting
electric transformer
underground electrical to building pull-section
gas to exterior meter on building
telephone conduit to building
site storm drain system
main sanitary sewer line under ground floor slab (gut line)
domestic fire and water lines stubbed into building
automatic fire sprinkler system (for shell, but excluding drops to
suspended ceilings)
utility connection and development fees for systems which are part of shell
(but excluding fees based on facilities or elements that are part of
Tenant Improvements)
Landscaping and irrigation
Exterior concrete walkways, parking areas, curbing and exterior ADA-mandated
ramps
<PAGE>
Schedule C-2 to Workletter
--------------------------
DEFINITION OF TENANT IMPROVEMENTS
---------------------------------
The "Tenant Improvements" as defined in the Workletter to which this Schedule C-
2 is attached shall include, but not necessarily be limited to, the following:
Toilet cores
Elevator(s)
Specialty items, such as skylights
Variable air volume HVAC system
Building exhaust system
Service yard enclosures
Equipment pad (except as specifically shown as part of Building Shell)
Roof top mechanical screen
Utilities:
All electrical beyond pull section, including electrical main disconnect
and distribution panels
Gas piping beyond main gas meter
Telephone conduit beyond utility company termination point (inside the
building), and PVC conduit for telephone/data connections (wiring or
fiber optics) to future buildings
Sanitary sewer lines to main "gut" line under ground floor
Laboratory gas piping
Communications wiring
Utility connection fees based on items that are part of Tenant Improvements
Air Compressor with Dryer/Tank
Purified Water System with Storage Tank
Emergency Generator
Vacuum Pump
Casework
Fume Hoods, Laminor Flow Hoods
Mechanical, Electrical, Plumbing Infrastructure not included in Building Shell
and not otherwise described above
Automatic Gas Manifolds
Process Cooling Water Chiller
Animal Rooms, Epoxy Flooring, Animal Racks
Office Areas, Interior Partitioning, Floor Coverings, Lighting, Interior
Finishes
Cold Rooms
Tissue Culture Rooms
Automatic fire sprinkler system drops to suspended ceilings
Roof top greenhouse(s) of approximately 3,000 square feet aggregate area
<PAGE>
EXHIBIT D
---------
ESTIMATED CONSTRUCTION SCHEDULE
-------------------------------
April 1, 1999 Planning Commission Meeting PUD (2 story)
April 2, 1999 Submit revised 3-story plan for design review
April 20, 1999 Design Review Hearing
May 20, 1999 Planning Commission Hearing
May 24, 1999 Submit for Building Permit (requires underslab plumbing plan)
June 3, 1999 Drive indicator piles
June 21, 1999 Drive production piles/start shell construction *
Sept. 30, 1999 Submit for tenant improvement permit
Oct. 21, 1999 Start tenant improvements **
April 21, 1999 Tenant occupancy
* More detailed schedule for shell construction to be developed and
mutually approved by the parties within thirty (30) days after lease execution.
** More detailed schedule for tenant improvement construction to be
developed and mutually approved by the parties as design of tenant improvements
progresses.
<PAGE>
EXHIBIT E
---------
ACKNOWLEDGEMENT OF RENT COMMENCEMENT DATE
-----------------------------------------
This Acknowledgement is executed as of _________________, _____, by
BRITANNIA POINTE GRAND LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord"), and EXELIXIS PHARMACEUTICALS, INC., a Delaware corporation
("Tenant"), pursuant to Section 2.4 of the Build-to-Suit Lease dated May ___,
1999 between Landlord and Tenant (the "Lease") covering premises located at ____
Harbor Way, South San Francisco, CA 94080 (the "Property").
Landlord and Tenant hereby acknowledge and agree as follows:
1. The Phase 1 Rent Commencement Date under the Lease is
__________________, _____.
2. The termination date under the Lease shall be _________________,
____, subject to any applicable provisions of the Lease
for extension or early termination thereof.
3. The square footage of Building 1, as finally designed and built,
measured in accordance with Section 3.1(d) of the Lease, is _________
square feet.
4. Tenant accepts Building 1 and acknowledges the satisfactory completion
of all Improvements therein required to be made by Landlord, subject
only to (a) any applicable "punch list" or similar procedures
specifically provided under the Lease or under the Workletter
governing such work, and (b) Landlord's warranties and representations
set forth in Section 5.2 of the Lease.
EXECUTED as of the date first set forth above.
<TABLE>
<CAPTION>
<S> <C>
"Landlord" "Tenant"
BRITANNIA POINTE GRAND LIMITED EXELIXIS PHARMACEUTICALS, INC., a Delaware
PARTNERSHIP, a Delaware limited corporation
partnership
By: BRITANNIA POINTE GRAND, LLC, a By:__________________________________________
California limited liability company, George A. Scangos
General Partner President and CEO
By:___________________________________ By:__________________________________________
T. J. Bristow Its:_________________________________________
Its Manager, President and Chief
Financial Officer
</TABLE>
<PAGE>
BUILD-TO-SUIT LEASE
-------------------
Landlord: Britannia Pointe Grand Limited Partnership
Tenant: Exelixis Pharmaceuticals, Inc.
Date: May ____, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C> <C>
1. PROPERTY
1.1 Lease of Buildings and Property...................................... 1
1.2 Landlord's Reserved Rights........................................... 6
1.3 MetaXen Building Option.............................................. 7
2. TERM....................................................................... 8
2.1 Term................................................................. 8
2.2 Early Possession..................................................... 9
2.3 Delay In Possession.................................................. 9
2.4 Acknowledgement Of Rent Commencement................................. 10
2.5 Holding Over......................................................... 10
2.6 Option To Extend Term................................................ 10
3. RENTAL..................................................................... 11
3.1 Minimum Rental....................................................... 11
(a) Rental Amounts................................................. 11
(b) Rental Amounts During First Extended Term...................... 11
(c) Rental Amounts During Second Extended Term..................... 12
(d) Rental Adjustment Due to Change in Square Footage.............. 12
(e) Rental Adjustments Due to Tenant Improvement Costs............. 12
3.2 Late Charge.......................................................... 13
4. STOCK WARRANTS............................................................. 13
4.1 Stock Warrants....................................................... 14
5. CONSTRUCTION............................................................... 14
5.1 Construction of Improvements......................................... 14
5.2 Condition of Property................................................ 14
5.3 Compliance with Law.................................................. 15
6. TAXES...................................................................... 15
6.1 Personal Property.................................................... 15
6.2 Real Property........................................................ 15
7. OPERATING EXPENSES......................................................... 15
7.1 Payment of Operating Expenses........................................ 15
7.2 Definition Of Operating Expenses..................................... 16
7.3 Determination Of Operating Expenses.................................. 18
7.4 Final Accounting For Lease Year...................................... 18
7.5 Proration............................................................ 19
8. UTILITIES.................................................................. 19
8.1 Payment.............................................................. 19
8.2 Interruption......................................................... 19
9. ALTERATIONS; SIGNS......................................................... 19
9.1 Right To Make Alterations............................................ 19
9.2 Title To Alterations................................................. 20
9.3 Tenant Fixtures...................................................... 20
9.4 No Liens............................................................. 20
9.5 Signs................................................................ 20
10. MAINTENANCE AND REPAIRS................................................... 21
10.1 Landlord's Work..................................................... 21
10.2 Tenant's Obligation For Maintenance................................. 21
(a) Good Order, Condition And Repair.............................. 21
(b) Landlord's Remedy............................................. 21
(c) Condition Upon Surrender...................................... 21
11. USE OF PROPERTY............................................................ 22
11.1 Permitted Use....................................................... 22
11.2 [Omitted.].......................................................... 22
11.3 No Nuisance......................................................... 22
11.4 Compliance With Laws................................................ 22
11.5 Liquidation Sales................................................... 22
11.6 Environmental Matters............................................... 23
12. INSURANCE AND INDEMNITY.................................................... 26
12.1 Insurance........................................................... 26
12.2 Quality Of Policies And Certificates................................ 27
12.3 Workers' Compensation............................................... 27
12.4 Waiver Of Subrogation............................................... 27
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
12.5 Increase In Premiums................................................ 27
12.6 Indemnification..................................................... 27
12.7 Blanket Policy...................................................... 28
13. SUBLEASE AND ASSIGNMENT.................................................... 28
13.1 Assignment And Sublease Of Building................................. 28
13.2 Rights Of Landlord.................................................. 29
14. RIGHT OF ENTRY AND QUIET ENJOYMENT......................................... 29
14.1 Right Of Entry...................................................... 29
14.2 Quiet Enjoyment..................................................... 30
15. CASUALTY AND TAKING........................................................ 30
15.1 Damage or Destruction............................................... 30
15.2 Condemnation........................................................ 31
15.3 Reservation Of Compensation......................................... 32
15.4 Restoration Of Improvements......................................... 32
16. DEFAULT.................................................................... 32
16.1 Events Of Default................................................... 32
(a) [Omitted.].................................................... 33
(b) Nonpayment.................................................... 33
(c) Other Obligations............................................. 33
(d) General Assignment............................................ 33
(e) Bankruptcy.................................................... 33
(f) Receivership.................................................. 33
(g) Attachment.................................................... 33
(h) Insolvency.................................................... 33
16.2 Remedies Upon Tenant's Default...................................... 33
16.3 Remedies Cumulative................................................. 34
17. SUBORDINATION, ATTORNMENT AND SALE......................................... 34
17.1 Subordination To Mortgage........................................... 34
17.2 Sale Of Landlord's Interest......................................... 35
17.3 Estoppel Certificates............................................... 35
17.4 Subordination to CC&R's............................................. 35
17.5 Mortgagee Protection................................................ 36
18. SECURITY................................................................... 36
18.1 Deposit............................................................. 36
19. MISCELLANEOUS.............................................................. 37
19.1 Notices............................................................. 37
19.2 Successors And Assigns.............................................. 38
19.3 No Waiver........................................................... 38
19.4 Severability........................................................ 38
19.5 Litigation Between Parties.......................................... 38
19.6 Surrender........................................................... 38
19.7 Interpretation...................................................... 38
19.8 Entire Agreement.................................................... 38
19.9 Governing Law....................................................... 38
19.10 No Partnership...................................................... 38
19.11 Financial Information............................................... 39
19.12 Costs............................................................... 39
19.13 Time................................................................ 39
19.14 Rules And Regulations............................................... 39
19.15 Brokers............................................................. 39
19.16 Memorandum Of Lease................................................. 39
19.17 Corporate Authority................................................. 40
19.18 Execution and Delivery.............................................. 40
19.19 Survival............................................................ 40
19.20 Parking............................................................. 40
</TABLE>
An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
ii.
<PAGE>
EXHIBIT 10.12
MASTER SERVICES AGREEMENT
This MASTER SERVICES AGREEMENT (the "Agreement") is made as of November 15,
1999, by and between Exelixis Pharmaceuticals, Inc. ("Exelixis"), a Delaware
corporation, having its principal place of business at 260 Littlefield Avenue,
South San Francisco, CA 94080, and Artemis Pharmaceuticals GmbH ("Artemis"), a
corporation organized under the laws of the Federal Republic of Germany, having
a place of business at Neurather Ring 1, D-51063, Koln Germany (each a "party,"
collectively the "parties").
Recitals
Whereas, Exelixis desires to engage Artemis to perform certain research and
development services on its behalf; and
Whereas Artemis desires to engage Exelixis to perform certain research and
development services on its behalf; and
Whereas, the parties desire to enter into this agreement to set forth
certain of the terms under which such research and development services shall be
performed.
Now, Therefore, in consideration of the mutual promises and covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Confidential Information" shall mean with respect to a party, any and
all information, technical data or know-how of such party related to the R&D
Services or the Work Agreements, or any aspect of such party's business or
technology including, without limitation, project requirements, Work Product,
data, know-how, formulae, designs, drawings, proposals, specifications, the
terms of or the existence of this Agreement or any Work Agreement, computer
software (source code and object code), test results, testing methods, and any
other material beating or incorporating any such information, which is disclosed
to or otherwise received by the other party. Such disclosure may be made either
directly or indirectly, in writing, orally or by drawings, plans or inspection
of products, materials, parts or equipment.
1.2 "Force Majeure Event" shall have the meaning set forth in Paragraph
8.12.
1.3 "R&D Services" shall have the meaning set forth in Paragraph 2.1.
1.4 "Receiving Party" shall have the meaning set forth in Paragraph 4.2.
1.5 "Servant(s)" shall have the meaning set forth in Paragraph 4.1.
1.6 "Work Agreement" shall have the meaning set forth in Paragraph 2.1.
1.
<PAGE>
1.7 "Work Product" shall mean reports, data, test results, materials,
documentation, gene sequence, genes, vectors, organisms, biological reagents,
biological data and other developments, inventions, ideas, discoveries, and
technology mutually agreed upon by the parties. Work Product does not include
any rights preexisting or obtained during the course of performing the R&D
Services owned by the party performing the R&D Services or any third party
embodied in any of the foregoing. Work Product does not include technology or
know-how used to make Work Product unless mutually agreed upon by the parties.
1.8 "Contracting Party" shall mean the party for whom the R&D Services are
performed.
1.9 "Performing Party" shall mean the party performing the R&D services.
ARTICLE 2
SCOPE OF SERVICES
2.1 Engagement. During the term of this Agreement, the parties may, upon
mutual agreement, engage one another from time-to-time to perform research and
development services (the "R&D Services") on its behalf. Upon and subject to
such mutual agreement, in engaging one another to perform particular R&D
Services, the parties may enter into one or more written Work Agreements (the
"Work Agreements"), specifying the terms (e.g., project description, project
fees, costs, expenses, project duration, milestones, deliverables, location of
performance, etc.) pursuant to which such particular R&D Services shall be
performed. The parties agree that any R&D Services commenced during the term of
this Agreement or performed pursuant to a Work Agreement entered into by the
parties during the term of this Agreement shall be governed by the terms and
conditions of this Agreement, subject to any modifications to the terms hereof
with respect to particular R&D Services pursuant to any Work Agreements
governing the performance of such R&D Services.
2.2 Best Efforts. The Performing Party shall use its commercially
reasonable efforts, and in no event less than those efforts of a skilled,
competent, experienced and prudent professional, to perform and complete the R&D
Services in accordance with the requirements of the Contracting Party and/or the
terms of the Work Agreement governing such R&D Services.
2.3 Accounting. To the extent that Performing Party may bill the
Contracting Party for R&D Services on a time and materials basis or for expenses
under the terms of any Work Agreement, the Performing Party shall maintain
accurate records and books of account showing all charges, disbursements, fees
and expenses incurred by the Performing Party. Upon reasonable notice to the
Performing Party, and at the Contracting Party's expense, the Contracting Party
shall have the right to conduct an audit, either itself or through an
independent accounting firm mutually agreed by the parties, of any such charges,
disbursements, fees and expenses at any time up to one (1) year after being
billed therefor, and to examine the records and books of account of the
Performing Party in connection therewith.
2.4 Instruction and Operation. Upon the request of the Contracting Party,
the Performing Party shall provide the Contracting Party with such explanations,
training, and
2.
<PAGE>
instruction as shall be required for the Contracting Party to understand the
operation and architecture of any Work Product. Upon the request of the
Performing Party, the Contracting Party shall provide the Performing Party with
all reasonable explanations, training, and instruction required for it to
perform the R&D Services.
ARTICLE 3
INDEPENDENT CONTRACTOR
3.1 Independent Contractor. The Performing Party agrees that it shall be
acting as an independent contractor in performing the R&D Services and shall not
be considered or deemed to be an agent, employee, joint venturer, or partner of
The Contracting Party. The Performing Party shall have no authority to contract
for or to bind The Contracting Party in any manner and shall not represent
itself as an agent of The Contracting Party or as otherwise authorized to act
for or on behalf of The Contracting Party. The Performing Party shall have no
status as employee or any right to any benefits that The Contracting Party
provides to its employees. The Performing Party shall be responsible for
payment of its own taxes arising out of its activities in connection with this
Agreement and all Work Agreements, including federal and state taxes, social
security taxes, unemployment insurance taxes, and any other taxes or business
license fees that may be required.
3.2 No Exclusivity. Nothing herein shall preclude The Contracting Party
from retaining the services of other persons or entities undertaking the same or
similar services to those of The Performing Party or from independently
developing or acquiring materials or services that are similar to or competitive
with the services provided under this Agreement or any Work Agreements. Without
limiting the obligations of The Performing Party under the ownership,
confidentiality and other provision of this Agreement, nothing herein shall
preclude The Performing Party from performing services for other persons or
entities that are the same or similar to the services performed for The
Contracting Party hereunder.
3.3 The Performing Party agrees that each of its employees, consultants,
agents and subcontractors ("Servants") will enter into a written agreement
granting the Performing Party rights sufficient to support The Performing
Party's performances, obligations, and grants of rights to The Contracting Party
under this Agreement.
ARTICLE 4
NON-DISCLOSURE
4.1 Confidentiality. Each party shall, during the term of this Agreement
and for a period of five (5) years thereafter, maintain in confidence all
Confidential Information of the other party and shall not disclose any such
Confidential Information to any third party or use any such Confidential
Information for any purpose whatsoever except as contemplated by this Agreement
and any Work Agreements. In maintaining the confidentiality of such Confidential
Information, each party shall exercise the same degree of care that it exercises
with its own confidential information, and in no event less than a reasonable
degree of care. Each party shall ensure that each of its employees, consultants,
agents, and subcontractors ("Servants") holds in
3.
<PAGE>
confidence and makes no use of such Confidential Information for any purpose
other than those permitted by this Agreement and any Work Agreements.
4.2 Exceptions. The obligation of confidentiality contained in this
Agreement shall not apply to the extent that (i) a party is required to disclose
information by order or regulation of a governmental agency or a court of
competent jurisdiction, provided, however, that such party shall not make any
such disclosure without first notifying the other party and allowing the other
party a reasonable opportunity to seek injunctive relief from (or a protective
order with respect to) the obligation to make such disclosure, or (ii) the party
receiving Confidential Information of the other party (the "Receiving Party")
can demonstrate that (A) the disclosed information was at the time of disclosure
already in the public domain other than as a result of actions of the Receiving
Party or its Servants in violation hereof; or (B) the disclosed information was
received by the Receiving Party on an unrestricted basis from a source unrelated
to the other party and not under a duty of confidentiality to such source. Each
party agrees that the fact that it had prior knowledge of a particular item of
Confidential Information of the other party prior to the date hereof, or that a
particular item of Confidential Information of the other party is or becomes
generally known to the public, shall not permit the disclosure thereof to others
or use of the same in connection with one or more other items of Confidential
Information of the other party unless the particular combination itself, as well
as its advantages and operability, were known to the Receiving Party or to the
public prior to the date hereof, or became known to the public, generally for
the same specific purposes and uses.
4.3 Unauthorized Disclosure. Each party acknowledges and confirms that the
Confidential Information of the other party constitutes valuable proprietary
information and trade secrets of the other party and that the unauthorized use,
loss or outside disclosure of such Confidential Information shall cause
irreparable injury to the other party. Each party shall notify the other party
immediately upon discovery of any unauthorized use or disclosure of Confidential
Information of the other party, and will cooperate with the other party in every
reasonable way to help regain possession of such Confidential Information and to
prevent its further unauthorized use. Each party acknowledges that monetary
damages may not be a sufficient remedy for unauthorized disclosure of
Confidential Information of the other party and that the other party shall be
entitled, without waiving other rights or remedies, to such injunctive or
equitable relief as may be deemed proper by a court of competent jurisdiction.
Each party shall be entitled to recover reasonable attorneys' fees for any
action arising out of or relating to a disclosure of Confidential Information of
such party by the other party.
4.4 Return of Confidential Information. Each party shall, upon the request
of the other party, return to the other party all Confidential Information of
the other party, including any copies or reproductions thereof, in such party's
possession or control.
ARTICLE 5
WORK PRODUCT
5.1 Ownership. The Performing Party agrees that all Work Product and all
materials furnished by The Contracting Party to The Performing Party in
connection with performing the R&D Services shall be and shall remain the
property of The Contracting Party.
4.
<PAGE>
5.2 Copyrights. The Performing Party agrees that all works of authorship
generated or developed in performing the R&D Services shall be considered works
made for hire to the extent permitted by law, and that such works and any
copyright in them shall, upon creation, be owned exclusively by The Contracting
Party. To the extent that any such works, under applicable law, may not be
considered works made for hire, The Performing Party hereby irrevocably and for
no additional consideration assigns to The Contracting Party all of its right,
title, and interest in and to the copyrights of such works, and any extensions
and renewals thereof.
5.3 Inventions, trade secrets, technology, and know-how. The Performing
Party hereby assigns to The Contracting Party all of its right, title and
interest in and to, any and all Work Product. If and to the extent that The
Performing Party may, under applicable law, be entitled to claim any ownership
interest in any Work Product, The Performing Party hereby transfers, grants,
conveys, assigns and relinquishes exclusively to The Contracting Party all of
The Performing Party's right, title, and interest in and to such Work Product,
under patent, copyright, trade secret, and trademark law, in perpetuity or for
the longest period otherwise permitted by law.
5.4 Further Assurances. The Performing Party shall, at The Contracting
Party's expense, perform any reasonable acts that may be deemed necessary or
desirable by The Contracting Party to evidence or confirm The Contracting
Party's ownership of Work Product under this Agreement, including but not
limited to the making of further written assignments in a form determined by The
Contracting Party.
5.5 Enumeration of Work Product. The Performing Party agrees to provide a
listing to The Contracting Party of any new Work Product, and to assist The
Contracting Party in the perfection of any intellectual property rights in and
to such Work Product. The Contracting Party shall have the sole discretion as
to whether to pursue protection of any intellectual property tight in any Work
Product.
5.6 Pre-existing Rights. To the extent that any preexisting tights owned
by The Performing Party are embodied or reflected in the Work Product, all such
pre-existing tights shall remain the exclusive property of The Performing Party,
subject only to the license tights granted to The Contracting Party under this
Agreement. To the extent that any preexisting rights owned by The Performing
Party or for which The Performing Party has the tight to grant licenses are
embodied or reflected in the Work Product, The Performing Party hereby grants to
The Contracting Party an irrevocable, perpetual, non-exclusive, worldwide,
royalty-free right and license under such preexisting rights including the tight
to grant sublicenses, to the extent necessary to make, have made, use, offer for
sale, and sell the Work Product. To the extent that The Performing Party owns or
has the right to license any intellectual property rights coveting the Work
Product or necessary to use or operate the Work Product, The Performing Party
hereby grants to The Contracting Party an irrevocable, perpetual, non-exclusive,
worldwide, royalty-free right and license under such intellectual property
tights, including the tight to grant sublicenses, to make, have made, use, offer
for sale, and sell the Work Product.
5.7 Modifications to Definition of Work Product. The definition of Work
Product may be amended by mutual agreement of the parties, such agreement to be
attached hereto as an
5.
<PAGE>
addendum to this Agreement. In the event that the parties are unable to reach
agreement on what constitutes Work Product the issue shall be referred to a
neutral third party (the "Neutral Party") selected by the Chief Executive
Officer, or its equivalent, of each party. Each party will provide the Neutral
Party with all information reasonably necessary for the Neutral Party to resolve
the issue and will agree to be bound by the decision of the Neutral Party.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 Mutual Representations. Each party represents and warrants to the
other party as follows:
(a) The execution, delivery and performance of this Agreement by such
party have been duly authorized by all necessary action on the part of such
party.
(b) This Agreement has been duly executed and delivered by such party
and, assuming due authorization, execution and delivery by the other party,
constitutes a legal, valid and binding obligation of such party, enforceable
against such party in accordance with its terms.
(c) Such party's execution, delivery and performance of this
Agreement do not (i) violate, conflict with or result in the breach of any
provision of the charter or by-laws (or similar organizational documents) of the
party, (ii) conflict with or violate any law or governmental order applicable to
the party or any of its respective assets, properties or businesses, or (iii)
conflict with, result in any breach of, constitute a default (or event which
with the giving of notice or lapse of time, or both, would become a default)
under, require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation or cancellation of any note,
bond, mortgage or indenture, contract, agreement, lease, sublease, license,
permit, franchise or other instrument or arrangement to which it is a party.
6.2 The Performing Party Representations. The Performing Party hereby
represents and warrants that (i) it has neither assigned nor otherwise entered
into an agreement by which it purports to assign or transfer any right, title,
or interest to any intellectual property right that would conflict with its
obligations under this Agreement, and (ii)wherever necessary, each of its
Servants has granted or will grant to The Performing Party rights sufficient to
support The Performing Party's performance, obligations, and grant of rights to
The Contracting Party under this Agreement. The Performing Party further
represents and warrants that, to its knowledge: (i) no intellectual property
rights embodied in the Work Product or required to use or operate the Work
Product, infringes upon or conflicts with any intellectual property right of any
third party, and (ii) no confidential, proprietary or trade secret information
of The Performing Party, its employees, agents or contractors that will be used
in performing the R&D Services has been misappropriated from any third party.
6.3 The Contracting Party Indemnification. The Contracting Party shall
indemnify and hold harmless The Performing Party, its affiliates, and their
respective officers, directors, employees and shareholders from and against any
claims, demands, suits, causes of action, losses, damages, judgments, costs and
expenses (including reasonable attorneys' fees) arising out
6.
<PAGE>
of any breach of The Contracting Party's representations and warranties set
forth in Paragraph 6.1 hereof.
6.4 The Performing Party Indemnification. The Performing Party shall
indemnify and hold harmless The Contracting Party, its affiliates, and their
respective officers, directors, employees, and shareholders from and against any
claims, demands, suits, causes of action, losses, damages, judgments, costs and
expenses (including reasonable attorneys' fees) arising out of any breach of The
Performing Party' representations and warranties set forth in Paragraphs 6.1 and
6.2 hereof.
ARTICLE 7
TERM AND TERMINATION
7.1 Term and Termination. This Agreement shall remain in force unless
terminated by either party upon thirty (30) days prior written notice to the
other party, provided, however, that (i) termination of this Agreement by The
Performing Party shall not be effective with respect to any R&D Services ongoing
at the time of termination until the completion of such R&D Services, (ii)
termination of this Agreement by The Performing Party shall not be effective
with respect to any Work Agreement while such Work Agreement remains in force.
7.2 Following Termination. Upon termination of this Agreement, The
Performing Party shall:
(i) deliver all Work Product to The Contracting Party;
(ii) provide The Contracting Party with such explanations as shall be
required for The Contracting Party to understand the operation and architecture
of the Work Product; and
(iii) provide to The Contracting Party a final invoice and supporting
documentation and expense information, as appropriate.
7.3 Survival. The duties and obligations of the parties under Sections 4,
5, 6, 7 and 8 of this Agreement shall survive termination of this Agreement.
ARTICLE 8
MISCELLANEOUS
8.1 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by telecopy, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses:
7.
<PAGE>
(a) if to Exelixis:
Exelixis Pharmaceuticals, Inc.
260 Littlefield Avenue
South San Francisco, CA 94080
Tel: (650) 825-2200 Fax: (650) 825-2202
Attention: George A. Scangos, Ph.D.
(b) if to Artemis:
Artemis Pharmaceuticals GmbH
Neurather Ring 1, D-51063
Koln, Germany
Tel: 011-49-2129-4717
Fax: 011-49-2129-4721
Attention: Peter Stadler, Ph.D.
8.2 Headings. The descriptive headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of the Agreement.
8.3 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.
8.4 Assignment. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Neither
shall assign any of its rights or obligations under this Agreement without the
prior written consent of the other party. No assignment by Exelixis or Artemis
permitted hereunder shall relieve the applicable party of its obligations under
this Agreement. Furthermore, any assignment by The Performing Party of any of
its rights or obligations hereunder shall be pursuant to a written assignment
agreement in which the assignee expressly assumes The Performing Party's rights
and obligations hereunder.
8.5 No Third Party Beneficiaries. Nothing in this Agreement, either
express or implied, is intended to or shall confer upon any third party any
legal or equitable right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
8.6 Amendment. This Agreement may not be amended or modified except by an
instrument in writing signed by Exelixis and Artemis.
8.7 Governing Law and Arbitration. The parties shall use commercially
reasonable efforts to amicably resolve all disputes regarding the performance of
either party under this Agreement or any Work Agreements. In the event of any
disputes relating to this Agreement or any Work Agreements, the following
escalating dispute resolution mechanism shall apply:
8.
<PAGE>
(i) The heads of research for each party shall meet and attempt to
resolve such dispute;
(ii) If the heads of research of the parties are unable to resolve
such dispute, the CEOs of each party shall attempt to resolve such dispute; and
(iii) In the event that the CEOs of each party are unable to resolve
such dispute, either party may file a court action for resolution of such
dispute.
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of California, applicable to contracts executed in and to be
performed entirely within that state. The parties hereto unconditionally and
irrevocably agree and consent to the exclusive jurisdiction of, and service of
process and venue in, the United States District Court for the Northern District
of California, or secondarily, to the courts of the State of California located
in the County of San Mateo, and waive any objection with respect thereto, and
further agree not to commence any such action, suit or proceeding except in such
court.
8.8 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
8.9 No Waiver. The failure of either party to enforce at any time for any
period the provisions of or any rights deriving from this Agreement shall not be
construed to be a waiver of such provisions or rights or the right of such party
thereafter to enforce such provisions.
8.10 Compliance with Laws. Each party agrees to comply with all applicable
federal, state, county, and local laws, ordinances, regulations, and codes in
the performance of its obligations under this Agreement, including laws and
executive orders relating to equal opportunity and nondiscrimination in
employment. Each party (the "Indemnifying Party") further agrees to indemnify
and hold harmless the other party, its affiliates, and their respective
officers, directors, employees, and shareholders from and against any claims,
demands, suits, causes of action, losses, damages, judgments, costs and expenses
(including reasonable attorneys' fees) arising out of failure of the
Indemnifying Party, its employees, agents, or subcontractors to comply with any
laws, ordinances, regulations, and codes.
8.11 Force Majeure. No party shall be responsible for failure or delay in
performance hereunder by reason of fire, flood, riot, strikes, labor disputes,
freight embargoes or transportation delays, acts of God or of the public enemy,
war or civil disturbances, any future laws, rules, regulations or acts of any
government (including any orders, rules or regulations issued by any official or
agency or such government) affecting a party that would delay or prohibit
performance hereunder, or any cause beyond the reasonable control of such party
(a "Force Majeure Event"). Upon the occurrence of a Force Majeure Event, the
party whose performance is so affected shall promptly give notice to the other
party of the occurrence or circumstance upon which it intends to rely to excuse
its performance. Duties and obligations of both parties shall be suspended for
the duration of the Force Majeure Event. During the duration of the Force
Majeure Event, the party so affected shall use its reasonable best efforts to
avoid or
9.
<PAGE>
remove such Force Majeure Event and shall take reasonable steps to resume its
performance under this Agreement with the least possible delay.
In Witness Whereof, Exelixis and Artemis have caused this to Agreement be
executed as of the date first written above by their respective duly authorized
officers.
Exelixis Pharmaceuticals, Inc.
/s/ George Scangos Date
- ---------------------------------- -----------------------------------
By: George Scangos, Ph.D.
-------------------------------
Title: President and Chief Executive
Officer
Artemis Pharmaceuticals GmbH
/s/ Peter Stadler Date December 13, 1999
- ---------------------------------- -----------------------------------
By: Professor Peter Stadler
Title: President and Chief Executive
Officer
10.
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT 10.14
COLLABORATION AGREEMENT
This Collaboration Agreement (the "Agreement") is dated as of February 26,
1999 by and between EXELIXIS PHARMACEUTICALS, INC., a Delaware corporation
having its principal place of business at 260 Littlefield Avenue, South San
Francisco, California, USA 94080 ("Exelixis"), and PHARMACIA & UPJOHN AB, a
corporation organized and existing under the laws of Sweden having a place of
business at Lindhagensgatan 133, S-112 87 Stockholm, Sweden ("P&U"), to become
effective on the date specified in Section 13.1 (the "Effective Date").
Exelixis and P&U are sometimes referred to herein individually as a "Party" and
collectively as the "Parties."
Recitals
A. P&U is a multinational health care company that has expertise and
capability in developing and marketing human pharmaceuticals and has research
and development programs in the areas of, inter alia, metabolic syndrome and
Alzheimer's disease.
B. Exelixis is a biotechnology company that has expertise and proprietary
technology relating to genetic model systems, genomics and computational biology
and is applying such technology to discover and validate targets for drug
discovery in a variety of disease areas, including metabolic syndrome and
Alzheimer's disease.
C. P&U and Exelixis desire to establish a collaboration to apply such
Exelixis technology and expertise to the identification and characterization of
biochemical pathways and targets in specific research areas relevant to
metabolic syndrome and Alzheimer's disease, and to provide for the development
and commercialization of novel prophylactic and therapeutic products based on
such research.
D. P&U is making a concomitant investment in Exelixis pursuant to a Stock
Purchase Agreement (the "Stock Purchase Agreement") and a Note Purchase
Agreement (the "Note Purchase Agreement"), each of which is executed concurrent
with the execution of this Agreement.
NOW, THEREFORE, the Parties agree as follows:
1. DEFINITIONS
The following terms shall have the following meanings as used in this
Agreement:
1.1 "Abandoned Target" means a Target not being pursued for the reasons
set forth in Section 4.4.
<PAGE>
1.2 "Affiliate" means, with respect to a particular Party, a person,
corporation, partnership, or other entity that controls, is controlled by or is
under common control with such Party. For the purposes of the definition in this
Section 1.2, the word "control" (including, with correlative meaning, the terms
"controlled by" or "under the common control with") means the actual power,
either directly or indirectly through one or more intermediaries, to direct or
cause the direction of the management and policies of such entity, whether by
the ownership of at least fifty percent (50%) of the voting stock of such
entity, or by contract or otherwise. The Parties agree that Artemis
Pharmaceuticals GmbH is an Affiliate of Exelixis except for purposes of Section
13.14.
1.3 "Alzheimer's Disease" means senile dementia associated with
characteristic neuropathology including without limitation amyloid plaques,
neurofibrillary tangles, and atrophy.
1.4 "Annual FTE Rate" means the amount to be paid over one year by P&U to
Exelixis to support one FTE. The Annual FTE Rate will be [ * ] per year for
calendar year 1999. For each subsequent calendar year, this rate will be [ * ]
1.5 "Applicable Field" means the Field of the Research Program in which a
particular Selected Target was identified.
1.6 "Candidate Target" [ * ]
1.7 "Central Nervous System Research" means research concerning [ * ].
1.8 "Collaboration" means all the research-related activities performed
by or on behalf of Exelixis or P&U pursuant to the Research Programs under this
Agreement.
1.9 "Collaboration Compound" means any molecule that (a) has a molecular
weight less than or equal to [ * ], (b) has the ability to inhibit, activate or
otherwise modulate the activity of a Selected Target or its encoded protein and
(c) is discovered, identified or synthesized by or on behalf of P&U or its
Affiliate or sublicensee.
1.10 "Controlled" means, with respect to any gene, protein, compound,
material, Information or intellectual property right, that the Party owns or has
a license to such gene, protein, compound, material, Information or intellectual
property right and has the ability to grant to the other Party access, a license
or a sublicense (as applicable) to such gene, protein, compound, material,
Information or intellectual property right as provided for herein without
violating the terms of any agreement or other arrangements with any Third Party
existing at the time such Party would be first required hereunder to grant the
other Party such access, license or sublicense.
1.11 "Diligent Efforts" means the carrying out of obligations or tasks in
a sustained manner consistent with the efforts a Party devotes to a product or a
research, development or marketing project of similar market potential, profit
potential or strategic value resulting from its own research efforts, based on
conditions then prevailing. Diligent Efforts requires that the Party: (i)
promptly assign responsibility for such obligations to specific employee(s) who
are
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
2.
<PAGE>
held accountable for progress and monitor such progress on an on-going basis,
(ii) set and consistently seek to achieve specific and meaningful objectives for
carrying out such obligations, and (iii) consistently make and implement
decisions and allocate resources designed to advance progress with respect to
such objectives.
1.12 "Field" means either (a) the Field of Alzheimer's Disease or (b) the
Field of Metabolic Syndrome.
1.13 "Field of Alzheimer's Disease" means all areas of research based on a
mutually acceptable definition of a clinical indication, biochemical pathway or
biological process [ * ].
1.14 "Field of Metabolic Syndrome" means all areas of research based on a
mutually acceptable definition of a clinical indication, biochemical pathway or
biological process [ * ].
1.15 "FTE" means the equivalent of one researcher working full time for or
on behalf of Exelixis for one 12-month period.
1.16 "Genetic Assay" means an in vivo system of elucidating, for the
purpose of Candidate Target identification, the functions of the Genetic Entry
Point and of other genes or gene products in the same or related pathway, such
analysis involving: (a) comparing [ * ] with [ * ], and (b) using such
comparison to determine whether [ * ].
1.17 "Genetic Entry Point" means the gene or gene product that is the
focus of a Genetic Screen or Genetic Assay.
1.18 "Genetic Screen" means a systematic analysis, for the purpose of
Candidate Target identification, of the functions of the Genetic Entry Point and
of other genes or gene products in the same or related pathway, such analysis
involving: [ * ].
1.19 "Homolog" means a gene or gene product that has [ * ] homology to a
Selected Target.
1.20 "Independent Research" means research that is conducted by Exelixis
outside the scope of this Agreement either independently or pursuant to an
agreement with a Third Party that (i) is not in conflict with Article 6 or (ii)
is permitted by Sections 5.3 and 5.4.
1.21 "Information" means information, results and data of any type
whatsoever, in any tangible or intangible form whatsoever, including without
limitation, databases, inventions, practices, methods, techniques,
specifications, formulations, formulae, knowledge, know-how, skill, experience,
test data including pharmacological, biological, chemical, biochemical,
toxicological and clinical test data, analytical and quality control data,
stability data, studies and procedures, and patent and other legal information
or descriptions.
1.22 "Joint Inventions" means any and all inventions, developments,
results, know-how and other Information, and all intellectual property relating
thereto, made jointly by employees or agents of both Parties pursuant to work
conducted in the Research Program.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
3.
<PAGE>
1.23 "Joint Management Team" or "JMT" means the committee described in
Section 2.2.
1.24 "Joint Patent Committee" or "JPC" means the committee described in
Section 2.4.
1.25 "Joint Scientific Committee" or "JSC" means one of the committees
described in Section 2.3.
1.26 "Major Market" means [ * ].
1.27 "Net Sales" means the amount billed by P&U or its Affiliate or
sublicensee for sales of a Product to a Third Party purchaser, less the
following to the extent actually allowed or incurred with respect to such sales:
(i) discounts, including cash discounts (including quantity discounts), charge-
back payments and rebates granted to managed health care organizations or to
federal, state and local governments (or their respective agencies, purchasers
and reimbursers) or to trade customers, including but not limited to,
wholesalers and chain and pharmacy buying groups (provided that if any such
discounts or reductions are based on sales to the customer of multiple products,
the amount of such discount or reduction that may be allocated to the Products
sold shall be on the basis of a methodology approved by the JMT); (ii) credits
or allowances actually granted upon rejections or returns of Products, including
for recalls or damaged goods; (iii) freight, postage, shipping and insurance
charges actually allowed or paid for delivery of Products, to the extent billed;
and (iv) taxes, duties or other governmental charges levied on, absorbed or
otherwise imposed on sale of Products, including without limitation value-added
taxes, or other governmental charges otherwise measured by the billing amount,
when included in billing, as adjusted for rebates and refunds, and specifically
excluding taxes based on net income of the seller, and all of the foregoing to
the extent calculated in accordance with generally accepted accounting
principles consistently applied throughout the party's organization.
1.28 "Patent" means (i) unexpired letters patent (including inventor's
certificates) which have not been held invalid or unenforceable by a court of
competent jurisdiction from which no appeal can be taken or has been taken
within the required time period, including without limitation any substitution,
extension, registration, confirmation, reissue, re-examination, renewal or any
like filing thereof and (ii) pending applications for letters patent, including
without limitation any continuation, division or continuation-in-part thereof
and any provisional applications.
1.29 "Pre-existing Technologies" means any and all inventions,
developments, results, know-how and other Information, and all intellectual
property relating thereto, made, created or invented by a Party, its employees
or its agents prior to the Effective Date.
1.30 "Product" means any human therapeutic or prophylactic product that
comprises or incorporates a Collaboration Compound, but excluding products where
(i) [ * ] and (ii) [ * ].
1.31 "Regulatory Approval" means any and all approvals (including
supplements, amendments, pre- and post-approvals, pricing and reimbursement
approvals), licenses,
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
4.
<PAGE>
registrations or authorizations of any national, supra-national (e.g., the
European Commission or the Council of the European Union), regional, state or
local regulatory agency, department, bureau, commission, council or other
governmental entity, that are necessary for the manufacture, distribution, use
or sale of a Product in a regulatory jurisdiction.
1.32 "Research Program" means, with respect to a particular Field, all
current or terminated Research Projects relating to such Field.
1.33 "Research Project" means the planning, execution, and analysis of a
research project focused on a particular area of research within a Field based
on a mutually acceptable definition of a clinical indication, biochemical
pathway or biological process or related clinical indications, biochemical
pathways or biological processes. A Research Project will typically be defined
by [ * ] and will be initiated with [ * ].
1.34 "Research Plan" means the plan that sets forth the research work to
be performed by Exelixis and P&U in the course of a particular Research Program.
1.35 "Research Term" means the period during which research activities of
the Parties under the Collaboration shall be conducted, as set forth in Section
3.2.
1.36 "Selected Target" means a Candidate Target that has been selected as
set forth in Section 4.1. As used in this Agreement, rights and obligations of
the Parties with respect to a particular Selected Target shall also apply to
[ * ].
1.37 "Sole Inventions" means any and all inventions, developments,
results, know-how and other Information, and all intellectual property relating
thereto, made, discovered or developed solely by a Party and its employees or
agents pursuant to work performed in the Collaboration under the Agreement.
1.38 "Target" means any gene or gene product that is identified in the
course of a Research Program and that may include, without limitation, a
Candidate Target, Selected Target or Abandoned Target.
1.39 "Third Party" means any entity other than (i) Exelixis, (ii) P&U or
(iii) an Affiliate of either of them.
1.40 "Third Party Contract Research" means research conducted for the
benefit of the Collaboration, approved and managed by the JMT as set forth in
Section 3.9, and funded by P&U as set forth in Section 7.3.
1.41 "Top 20 Pharmaceutical Company" means a Third Party listed in Exhibit
A, which the Parties agree to revise in good faith as needed during the term of
the Agreement.
2. MANAGEMENT OF THE COLLABORATION
2.1 Overall Management Structure. The Parties agree to establish a
multi-level committee structure to manage and direct the Collaboration and the
relationship of the Parties in pursuing the research and development goals of
this Agreement. The committee structure is intended to facilitate decision
making and management of the various Collaboration activities of the Parties,
and each Party agrees to use good faith, cooperative efforts to facilitate and
assist the
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efforts of such committees. The overall management of the Collaboration shall be
vested in the Joint Management Team (the "JMT"), with responsibility, as further
discussed in Section 2.2, for establishing the strategic direction of the
Collaboration and for managing and directing the research efforts of the Parties
under the Collaboration. The day-to-day management and direction of each
Research Program shall be managed by a Joint Scientific Committee (a "JSC")
dedicated to each such Research Program, and the Joint Scientific Committees
shall report to and be managed by the JMT. In addition, the Parties shall
establish a Joint Patent Committee (the "JPC"), reporting to the JMT, which
shall be responsible for managing and directing the securing of appropriate
intellectual property protection for the Sole Inventions and Joint Inventions
arising from the Collaboration. Each JSC shall cease to exist after its second
meeting after the termination of the Research Term, but the JMT and the JPC
shall continue to meet throughout the term of the Agreement.
2.2 Joint Management Team.
(a) Membership. The Joint Management Team (the "JMT") shall be
composed of six members, three members appointed by each Party. Within 30 days
after the Effective Date, each Party shall appoint three representatives from
its senior management team to the JMT; at least one representative from each
Party shall also be the Party's Head of Research or a mutually agreeable
designate. With the exception of the Party's Head of Research, each Party may
replace its JMT representatives at any time upon written notice to the other
Party. P&U will designate one of its representatives as Chairperson of the JMT.
The Chairperson shall be responsible for scheduling meetings, preparing and
circulating an agenda in advance of each meeting, and preparing and issuing
minutes of each meeting within 30 days thereafter.
(b) Responsibilities. During the term of this Agreement, the JMT
shall meet a minimum of two times per year as provided in Section 2.5. The JMT
shall operate by [ * ] and in accordance with the principles set forth in this
Article 2. It shall determine the overall strategy for the Collaboration and
shall be make all major business and strategic decisions. The JMT shall evaluate
the progress of the Research Programs and monitor compliance with the diligence
provisions set forth in Section 4.2, and it will make the final decisions
regarding: (i) significant modification of a Research Program or Research Plan,
(ii) approval of Third Party Contract Research proposed by a JSC; and (iii)
approval of expenditures proposed by the JPC regarding the management of
Collaboration intellectual property portfolio. To the extent necessary to carry
out its responsibilities, the JMT members shall be granted access to the other
Party's relevant confidential information. In particular, it is expected that
members of the JMT, in assessing modifications to a Research Program, shall be
granted access to higher levels of the proprietary or confidential information
of the other Party than is provided to the other committees or to the employees
of such Party working on the Collaboration. The JMT shall discuss in good faith
and agree on the level of such access that is needed to achieve the goals and
intent of the Parties.
2.3 Joint Scientific Committees.
(a) Membership. For each Research Program, the Parties shall
establish a separate Joint Scientific Committee (a "JSC") composed of four
representatives, two members appointed by each of the Parties. One
representative from each Party on a JSC shall be the
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individual at the Party with primary responsibility for the day-to-day
management and execution of the Research Program. Exelixis' other representative
shall be its Head of Research or such person's designee; P&U's other
representative shall be the person who heads research in the therapeutic area of
the Research Program or such person's designee. Each JSC will report directly to
the JMT and shall take its direction from the JMT. Each Party may replace its
appointed JSC representatives at any time upon written notice to the other
Party. Exelixis shall designate one of its representatives as Chairperson of the
JSC, and P&U shall designate one of its representatives as Vice-Chairperson. The
Chairperson shall be responsible for scheduling meetings and preparing and
circulating an agenda in advance of each meeting. The Vice-Chairperson shall be
responsible for preparing and issuing minutes of each meeting within 30 days
thereafter.
(b) Responsibilities. During the Research Term and for two quarters
thereafter, each JSC shall meet on a quarterly basis as provided in Section 2.5.
Each JSC shall operate by consensus and in accordance with the principles set
forth in this Article 2. It shall be responsible for the planning and execution
of the Research Program. At its meetings, the JSC shall review the progress of
current Research Projects and consider adopting new Research Projects and
modifying or canceling current Research Projects. At the next JMT meeting, the
JSC shall summarize for the JMT the progress of the Research Program since the
last JMT meeting, bring to the attention of the JMT any overarching issues or
significant changes in a Research Program, address any issues raised by the JMT
at its previous meeting, and present Third Party Contract Research proposals, if
any. The JSC shall also decide whether to select a Candidate Target as a
Selected Target pursuant to Section 4.1. Leaders of individual Research Projects
will be encouraged to communicate with the JSC as appropriate to facilitate the
successful execution of their respective Research Projects. In addition, each
JSC will represent the initial forum for conflict resolution regarding the
research under the Collaboration as set forth in Section 2.6.
2.4 Joint Patent Committee. The Joint Patent Committee (the "JPC"), in
consultation with the JMT, will devise a strategy for the protection of
intellectual property arising from the Collaboration. This committee will
consist of one member from each Party's senior management team or the Party's
designated alternate. The P&U representative will serve as the Chairperson of
the JPC. The JPC shall report directly to the JMT. During the term of this
Agreement, the JPC will meet at least once per year, as provided in Section 2.5,
and may hold additional meetings at the request of either Party.
2.5 Meetings. The Parties shall endeavor to schedule meetings of the
JMT, JPC, and the JSCs at least one year in advance. Meetings for the JSCs shall
be held on the same day or consecutive days in New Jersey or, with the consent
of P&U, in San Francisco. When possible, the meetings of the JMT and JPC should
occur at the same location as the JSC meetings, with the JMT meeting occurring
after the meetings of the JSCs and the JPC, if applicable. With the consent of
the representatives of each Party serving on a particular committee, other
representatives of each Party may attend meetings of that committee as nonvoting
observers. A meeting of a committee may be held by audio or video teleconference
with the consent of each Party, provided that at least half of the minimum
number of meetings for that committee shall be held in person. Meetings of a
committee shall be effective only if at least one representative of
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each Party is present or participating. Each Party shall be responsible for all
of its own expenses of participating in the committee meetings.
2.6 Research-Related Dispute Resolution. Any dispute regarding the
research under the Collaboration that may arise during the Research Term shall
be brought to the attention of the applicable JSC, and the JSC shall attempt in
good faith to achieve a resolution. If the JSC is unable to resolve the dispute,
it shall present the dispute to the JMT. If the JMT is unable to resolve the
dispute despite the good faith efforts of its members, then [ * ]. This Section
2.6 shall not apply to disputes regarding the allocation of FTEs following P&U's
termination of a Research Program pursuant to Section 3.5.
2.7 Obligations of Parties. Exelixis and P&U shall provide the JSCs, JPC
and JMT and their authorized representatives with reasonable access during
regular business hours to all records, documents, and Information relating to
the Collaboration which any such committee may reasonably require in order to
perform its obligations hereunder, provided that if such documents are under a
bona fide obligation of confidentiality to a Third Party, then Exelixis or P&U,
as the case may be, may withhold access thereto to the extent necessary to
satisfy such obligation.
2.8 Collaboration Guidelines.
(a) General. In all matters related to the Collaboration, the
Parties shall be guided by standards of reasonableness in economic terms and
fairness to each of the Parties, striving to balance as best they can the
legitimate interests and concerns of the Parties, to further the Research
Programs and to realize the economic potential of the Products.
(b) Independence. Subject to the terms of this Agreement, the
activities and resources of each Party shall be managed by such Party, acting
independently and in its individual capacity. The relationship between Exelixis
and P&U is that of independent contractors and neither Party shall have the
power to bind or obligate the other Party in any manner, other than as is
expressly set forth in this Agreement.
3. RESEARCH PROGRAMS
3.1 Overview. The general goals and intent of the Collaboration are to
apply the Exelixis technology to discovering Candidate Targets that may be
useful as tools for the discovery and development of drugs useful in the
prevention, treatment or cure of Metabolic Syndrome or Alzheimer's Disease. The
Collaboration will consist of two Research Programs, one in the Field of
Metabolic Syndrome and the other in the Field of Alzheimer's Disease. Each
Research Program will involve a number of specific Research Projects, each
focused on a [ * ]. Exelixis hereby covenants that it will apply in its
performance of work under the Research Programs: (a) all of its relevant
technology now existing or developed during the Collaboration (including Third
Party technology as to which Exelixis holds a license permitting its use in the
Research Programs) and (b) any data Controlled by Exelixis, including without
limitation [ * ], useful to the Research Programs.
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3.2 Research Term. The Research Term shall commence on the Effective
Date and shall continue until terminated as set forth in this Section 3.2 or
until the Agreement is terminated pursuant to Section 10.2. The FTE funding
commitments of P&U and Exelixis set forth in Section 3.4 and the payment
obligations of P&U set forth in Sections 7.3 and 7.4 shall remain in force until
the termination of the Research Term. If there are no Selected Targets as of the
termination of the Research Term, this Agreement shall then expire pursuant to
Section 10.1.
(a) Each Party shall have the right, exercisable no later than [ * ]
after the Effective Date, to terminate the Research Term by providing written
notification thereof to the other Party. If a Party decides to terminate the
Research Term, such termination shall be effective on the third anniversary of
the Effective Date. If neither Party decides to terminate the Research Term,
such Research Term shall continue at least until the fifth anniversary of the
Effective Date.
(b) If neither Party decides pursuant to Section 3.2(a) to terminate
the Research term, each Party shall have the right, exercisable no later than
[ * ] of the Effective Date, to terminate the Research Term by providing written
notification thereof to the other Party. If a Party decides to terminate the
Research Term, such termination shall be effective on the fifth anniversary of
the Effective Date. If neither Party decides to terminate the Research Term,
such Research Term shall continue at least until the sixth anniversary of the
Effective Date.
(c) Starting with the fifth anniversary of the Effective Date and
continuing on each anniversary for so long as neither Party decided on the
previous anniversary to terminate the Research Term, each Party shall have the
right, exercisable no later than [ * ] of the Effective Date, to terminate the
Research Term by providing written notification thereof to the other Party. If a
Party decides to terminate the Research Term, such termination shall be
effective on the next anniversary of the Effective Date. If neither Party
decides to terminate the Research Term, such Research Term shall continue for at
least [ * ] beyond the anniversary associated with such failure to decide.
(d) If [ * ] ceases to be employed by Exelixis at any time during
the Research Term, Exelixis will use Diligent Efforts to find a replacement
acceptable to P&U. If no replacement acceptable to P&U is identified within [ *
] of the departure of [ * ], then P&U shall have the right to terminate the
Research Term by providing written notification thereof to Exelixis. Such
termination shall be effective [ * ] after such notification is received by
Exelixis.
(e) If Third Party technology rights come to the attention of the
Parties after the Effective Date [ * ], then P&U shall have the right to
terminate the Research Term on [ * ] advance notice to Exelixis. If the Third
Party technology rights in question [ * ], then the Parties shall endeavor to
substitute a new Research Program under Section 3.5 rather than terminate the
Research Term. If the Parties fail to agree upon a new Research Program within [
* ] of the initiation of such discussions, then P&U shall then have the right to
terminate the Research Term on [ * ] advance notice to Exelixis.
3.3 Research Plans. Initial Research Plans for the Research Programs in
the Field of Metabolic Disease and the Field of Alzheimer's Disease have been
approved by the Parties concurrent with the execution of this Agreement. Each
Research Plan may be amended by the
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applicable JSC, during the course of a particular Research Program, based upon
the results achieved in the Research Program. Any such amendments shall be
reviewed and approved by the JMT, and the amended Research Plan shall thereafter
be in effect.
3.4 FTE Commitments.
(a) For the first three years of the Research Term, P&U shall fund
research under this Agreement for the number of Exelixis FTEs set forth in Table
1. The Parties anticipate that, in the first year of the Research Term, [ * ]
[ * ]
(b) From the third anniversary of the Effective Date until the
termination of the Research Term, there shall be no less than [ * ] FTEs in the
Research Program in Alzheimer's Disease and [ * ] FTEs in the Research Program
in Metabolic Syndrome as determined by the JMT. P&U shall fund [ * ] such FTEs.
(c) At any time during the Research Term, P&U may fund, at the
Annual FTE Rate, up to [ * ] additional FTEs (or more with the consent of
Exelixis) for a minimum commitment of one year (but not more than an aggregate
of [ * ] FTEs), such FTEs to be allocated between the Research Programs at the
discretion of the JMT. Exelixis shall have a reasonable time in which to locate
resources to fill such FTE positions.
3.5 Termination of a Research Program. At any time during the Research
Term after [ * ], P&U may terminate a Research Program by providing written
notice thereof to Exelixis, the JMT and the applicable JSC. Termination of the
Research Program shall be effective [ * ] following such notice, and it shall
have no effect on the total number of FTEs funded by P&U. The Parties shall
mutually agree in writing whether to transfer the FTEs allocated for the
terminated Research Program to (i) current or new Research Project(s) in the
remaining Research Program, (ii) a new Research Program within the field of
Central Nervous System Research or the Field of Metabolic Syndrome or (iii) a
new Research Program in another field (such as aspects of [ * ]) upon such terms
as are mutually agreed by the Parties, such agreement not to be unreasonably
withheld. In no case shall a new Research Project(s) or a new Research Program
be based upon or an extension of Independent Research. If the Parties choose
option (i), then the JMT shall amend the applicable Research Plan to include any
additional Research Projects. If the Parties choose option (ii), then they shall
agree to a new Research Plan and they will in good faith amend the applicable
definitions and the other relevant provisions of this Agreement to conform it to
such changes in research. If the JMT does not receive written, mutually agreed-
upon instructions from the Parties prior to the termination effective date, the
JMT will automatically transfer the FTEs allocated for the terminated Research
Program to one or more current Research Projects in the remaining Research
Program.
3.6 Conduct of Research. The Parties shall use Diligent Efforts to
conduct their respective tasks, as assigned under the Research Plans, throughout
the Collaboration and shall conduct the Collaboration in good scientific manner,
and in compliance in all material respects with the requirements of applicable
laws, rules and regulations and all applicable good laboratory practices to
attempt to achieve their objectives efficiently and expeditiously.
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3.7 Records. Each Party shall maintain complete and accurate records of
all work conducted under the Collaboration and all results, data and
developments made pursuant to its efforts under the Collaboration. Such records
shall be complete and accurate and shall fully and properly reflect all work
done and results achieved in the performance of the Collaboration in sufficient
detail and in good scientific manner appropriate for patent and regulatory
purposes. Each Party shall have the right to review and copy such records of the
other Party at reasonable times to the extent necessary for such Party to
conduct its research or other obligations under the Agreement.
3.8 Reports. During the Research Term, each Party shall report to the
JSCs no less than once per quarter and will periodically submit to the other
Party and the relevant JSC a written progress report summarizing the work
performed under each Research Program in relation to the Research Plan and goals
of the Research Program. The Parties agree that the Information to be delivered
by Exelixis to P&U in these reports shall include, without limitation, sequence
information and associated annotations about targets, but shall not include the
Exelixis Flytag(TM) database or other Exelixis databases generated outside of
the Research Programs.
3.9 Third Party Contract Research. At any time during the Research Term,
a JSC may formulate a proposal for Third Party Contract Research that would
further the goals of the Research Plan for the applicable Field. The JSC shall
present such proposal to the JMT at the next meeting of the JMT and the JMT
shall decide whether to approve such Third Party Contract Research. P&U will
fund such Third Party Contract Research as set forth in Section 7.3. All Third
Party Contract Research shall be managed by the JMT and shall occur pursuant to
contractual arrangements that are mutually agreeable to the Parties and that
allocate intellectual property rights in a manner that is consistent with the
allocation of rights provided for under this Agreement with respect to research
performed by Exelixis under this Collaboration.
3.10 Use of In-Licensed Technology. Attached hereto as Exhibit B is an
identification of all Third Party technology which as of the Effective Date
Exelixis expects to use in the course of the Research Programs (excluding
general use research tools licensed by Exelixis on a nonexclusive basis and not
pertaining specifically to any genes of interest in the Research Programs),
together with the identity of the Third Party which to the best knowledge of
Exelixis is the owner of such technology. Exelixis represents and warrants to
P&U that [ * ]. Exelixis shall maintain [ * ] so long as such technology is
required for its performance of the Research Programs. If Exelixis desires to
apply any additional Third Party technology to its performance of the Research
Programs (again excluding general use research tools of the nature described
above), it shall give prior written notice to the JMT and shall satisfy the JMT
that it holds a valid license thereunder prior to the use of such additional
Third Party technology in a Research Program.
4. SELECTION, PURSUIT AND ABANDONMENT OF TARGETS
4.1 Selection of Targets. Exelixis shall present to the applicable JSC
at its quarterly meeting the data concerning each Candidate Target identified in
the course of a particular Research Program during the previous research period.
At its next quarterly meeting, the JSC shall decide whether to select such
Candidate Target as a Selected Target. During the period between the meeting at
which a Candidate Target is presented by Exelixis and the meeting at
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which the JSC decides whether to select such Candidate Target, P&U may search
for mammalian orthologues of such Candidate Target. No other work may be
performed by or on behalf of P&U or its sublicensees on the Candidate Target
unless and until it is selected by the JSC as a Selected Target. Within [ * ] of
the selection of a Selected Target, P&U shall [ * ]. With respect to each
Selected Target, P&U shall have the rights set forth in Sections 5.1 and 5.4(a)
and the obligations set forth in Section 4.2 and Exelixis shall have the rights
and obligations set forth in Sections 5.3 and 5.4(a).
4.2 Pursuit of Selected Targets. P&U must use good faith Diligent
Efforts to validate Selected Targets, develop assays to assess the activity of
Selected Targets, use assays to discover Collaboration Compounds directed at
particular Selected Targets, develop and commercialize [ * ] Product per
Selected Target, and pay the applicable royalties set forth in Section 7.5.
P&U's diligence obligations under this Section 4.2 for the period prior to the
initiation of an active research and development program for a Collaboration
Compound active against a particular Selected Target will be deemed satisfied if
P&U: (i) develops a screening assay for the activity of a Selected Target and
initiates screening for modulators of the activity of the Selected Target within
[ * ] of the date on which the JSC selected such Selected Target, provided that,
upon reasonable request by P&U, the JMT shall grant up to an additional [ * ]
and (ii) initiates a program of lead optimization and/or medicinal chemistry
around lead compounds active in such assay within [ * ] of the date on which P&U
initiates screening for modulators of the activity of such Selected Target.
4.3 Sharing of Biological Data. P&U shall provide Exelixis with copies of
all data generated by or on behalf of P&U or its Affiliate or sublicensee in the
course of validating a Selected Target, characterizing the biological function
of a Selected Target or identifying other genes or proteins that interact with a
Selected Target. Exelixis may use such data for any purpose other than
developing for use in the Applicable Field products comprising or incorporating
small molecule compounds directed at such Selected Target.
4.4 Target Abandonment.
(a) A Selected Target will become an Abandoned Target if any of the
following circumstances arise: (i) such Target is selected by the applicable JSC
as a Selected Target but P&U fails to [ * ]; (ii) P&U designates it for
abandonment pursuant to Section 4.4(b); (iii) P&U uses a Selected Target for any
purpose other than that permitted in Section 5.1; or (iv) P&U fails to fulfill
its obligations set forth in Section 4.2 with respect to such Selected Target.
P&U shall lose all rights set forth in this Agreement with respect to each
Selected Target that becomes an Abandoned Target hereunder, unless such
abandonment is then the subject of an unresolved dispute that is in the process
of being resolved under the dispute resolution procedures set forth in Section
13.2.
(b) If there are more than [ * ] Selected Targets on [ * ], P&U
shall reduce the number of Selected Targets to [ * ] by designating as Abandoned
Targets a number of Selected Targets equal to the number in excess of [ * ]. If
there are more than [ * ] Selected Targets on [ * ], P&U shall reduce the number
of Selected Targets to [ * ] by designating as Abandoned Targets a number of
Selected Targets equal to the number in excess of [ * ].
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4.5 Targets Other Than Selected Targets. Exelixis shall retain all
rights to any Target that (i) does not fulfill the criteria for a Candidate
Target or (ii) is not selected by the applicable JSC as a Selected Target, and
such Targets shall not be subject to any terms of this Agreement other than
those set forth in Section 5.4(b).
4.6 Records. P&U shall maintain complete and accurate records of all
scientific and development work conducted on Selected Targets, Collaboration
Compounds and Products and all results, data and developments made pursuant to
its research and development efforts under this Agreement. Such records shall be
complete and accurate and shall fully and properly reflect all work done and
results achieved in sufficient detail and in good scientific manner appropriate
for patent and regulatory purposes. Prior to the filing of a New Drug
Application for a particular Product, Exelixis shall have the right to review
and copy the records regarding that Product at reasonable times to the extent
necessary for Exelixis to evaluate P&U's compliance with its diligence
obligations set forth in Section 4.2.
4.7 Reports. Every six months during the term of the Agreement, P&U will
submit to Exelixis and the JMT a written progress report summarizing the
research and development work performed on each Selected Target.
5. LICENSES AND RELATED RIGHTS
5.1 License to P&U. Subject to the terms of this Agreement, Exelixis
hereby grants P&U an exclusive, worldwide, royalty-bearing license (with the
right to sublicense) under the Pre-existing Technologies and Sole Inventions
Controlled by Exelixis and under Exelixis' interest in the Joint Inventions (i)
to use each Selected Target to search for Collaboration Compounds directed at
such Selected Target for activity within the Applicable Field, (ii) to develop,
for use in the Applicable Field, Products comprising or incorporating such
Collaboration Compounds, (iii) to develop, following [ * ], such Product for any
human indication, and (iv) to make, have made, use, sell, offer to sell and have
sold such Products.
5.2 License Limitations. P&U hereby covenants that it will not use a
Selected Target, Collaboration Compound or Product for a purpose other than that
permitted in Section 5.1 except the foregoing restriction shall not prevent P&U
from being able to perform independent research on Collaboration Compounds for
activity against targets other than Selected Targets or Homologs, or to develop,
make, have made, use, sell, offer to sell and have sold products comprising or
incorporating a Collaboration Compound where (i) the only intended use of such
product is due primarily to the activity of such Collaboration Compound against
a target discovered by P&U outside the scope of the Agreement and (ii) such
activity is not the modulation of activity of a Homolog and does not otherwise
directly affect a pathway of the Selected Target against which such
Collaboration Compound is also active. For example, but not by way of
limitation, P&U covenants that (i) it will not use a Selected Target to search
for a Collaboration Compound for incorporation in a Product to be used outside
the Applicable Field, and (ii) prior to [ * ], it will not perform preclinical
experiments or conduct clinical trials on that Product for an indication outside
the Applicable Field. Exelixis acknowledges that once [ * ], P&U shall
thereafter have the right to develop such Product for any and all indications
(including without limitation the pursuit of preclinical research for the
purpose of determining potential additional uses).
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5.3 License to Exelixis.
(a) Selected Targets. P&U hereby grants to Exelixis an exclusive,
worldwide, royalty-free license (with the right to sublicense) under the Sole
Inventions of P&U and under P&U's interest in the Joint Inventions to use each
Selected Target to: (i) search for small molecule compounds directed at such
Selected Target solely for use outside the Applicable Field; (ii) develop, for
use outside the Applicable Field, products comprising or incorporating such
small molecule compounds; (iii) make, have made, use, sell, offer to sell, have
sold and import such products; (iv) develop, make, have made, use, sell, offer
to sell, have sold and import products based on the Selected Target for all
agricultural and non-human applications; and (v) develop, make, have made, use,
sell, offer to sell, have sold and import, for use in any field, any other
products not meeting the definition of a Product, including without limitation
therapeutic protein products (including secreted proteins or peptides and
therapeutic antibodies), antisense products, vaccine products, gene therapy
products or diagnostic products based on the Selected Target.
(b) Abandoned Targets. P&U hereby grants to Exelixis an exclusive,
worldwide, royalty-free license (with the right to sublicense) under the Sole
Inventions of P&U and under P&U's interest in the Joint Inventions to use each
Abandoned Target: (i) to search for small molecule compounds directed at such
Abandoned Target and to develop, make, have made, use, sell, offer to sell, have
sold and import products comprising or incorporating such small molecule
compounds; (ii) to develop, make, have made, use, sell, offer to sell, have sold
and import products based on the Abandoned Target for all agricultural and non-
human applications; and (iii) to develop, make, have made, use, sell, offer to
sell, have sold and import, for use in any field, therapeutic protein products
(including secreted proteins or peptides and therapeutic antibodies), antisense
products, vaccine products, gene therapy products or diagnostic products based
on the Abandoned Target. P&U hereby covenants that it will not develop or
commercialize any compounds isolated with respect to an Abandoned Target and
grants to Exelixis the right of first negotiation for a license to such
compounds. P&U also grants to Exelixis a nonexclusive license to all
intellectual property Controlled by P&U related to the use of assays to screen
for modifiers of an Abandoned Target.
5.4 P&U's Rights of First Negotiation.
(a) Selected Targets. Prior to offering any Third Party the
opportunity to acquire a license to develop and commercialize a [ * ] identified
by Exelixis pursuant to its rights under [ * ]or a [ * ], Exelixis shall provide
P&U with the opportunity to consider whether it wishes to acquire such a
license. P&U shall have [ * ] following such offer in which to inform Exelixis
in writing that it is interested in acquiring such a license. Thereafter, the
Parties shall negotiate in good faith for [ * ] to reach agreement on the terms
of a license agreement which shall be set forth in either an executed license
agreement or an executed legally binding heads of agreement. If P&U fails to
notify Exelixis of its interest or the Parties fail to execute a license
agreement within the applicable period, then P&U shall have no rights with
respect to such use of said Selected Target and Exelixis shall have unrestricted
rights to pursue (without compensation to P&U) these applications of the
Selected Target, including, but not limited to, conducting Independent Research
on said Selected Target and developing or commercializing products
incorporating, based upon or identified using said Selected Target. The
foregoing
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rights shall terminate for each Selected Target [ * ] after the date the JSC
selected that Selected Target.
(b) Targets Not Selected. With respect to a Target that is
presented to the JSC as a Candidate Target but is not selected by the JSC as a
Selected Target, prior to [ * ] wherein Exelixis [ * ] would pursue such Target
with the intent of developing, for use in the Applicable Field, products
incorporating small molecules, Exelixis shall provide P&U with the opportunity
to consider whether it wishes to acquire such a license. P&U shall have [ * ]
following such offer in which to inform Exelixis in writing that it is
interested in acquiring such a license. Thereafter, the Parties shall negotiate
in good faith for [ * ] to reach agreement on the terms of a license agreement
which shall be set forth in either an executed license agreement or an executed
legally binding heads of agreement. If P&U fails to notify Exelixis of its
interest or the Parties fail to execute a license agreement or a legally binding
heads of agreement within the applicable period, then P&U shall have no further
rights with respect to said Target and Exelixis shall have unrestricted rights
to pursue (without compensation to P&U) the Target, including, but not limited
to, conducting Independent Research on said Target and developing or
commercializing products incorporating, based upon or identified using said
Target. The foregoing rights shall terminate for each Target [ * ] after the
date the JSC decided not to select it as a Selected Target.
5.5 Exelixis Undertaking To Grant Necessary Sublicenses. The licenses
granted by Exelixis herein do not include sublicenses under technology licensed
to Exelixis by Third Parties. In the event P&U concludes, during the Research
Term or within three years thereafter, that it is necessary or desirable for P&U
to obtain a sublicense under particular Third Party technology then Controlled
by Exelixis in order to search for Collaboration Compounds directed at a
Selected Target or to develop, manufacture or sell Products comprising or
incorporating such Collaboration Compounds, P&U shall so advise Exelixis and
Exelixis shall grant P&U a sublicense under the Third Party technology in
question, subject to negotiation of a mutually agreeable sublicense agreement.
Such sublicense shall specify the particular targets to be pursued by P&U, shall
[ * ], and shall contain other terms and conditions necessary to constitute the
grant of a valid sublicense. The sublicense to P&U shall automatically terminate
if P&U ceases its discovery, development or commercialization program within the
scope of the sublicense.
6. EXCLUSIVITY
6.1 P&U. Except as provided in this Section 6.1, during the Research
Term, P&U will work exclusively with Exelixis for [ * ]. If Exelixis is not
willing to provide such [ * ] or is not capable of initiating such work within
six months of a request by P&U, then P&U may procure such [ * ] from a Third
Party. The exclusivity obligation set forth in this Section 6.1 does not apply
to work performed internally by P&U or pursuant to a pre-existing collaboration
between P&U and a non-profit research or academic institution.
6.2 Exelixis. Except as otherwise provided in Sections 5.3 and 5.4,
during the Research Term Exelixis will not perform Independent Research directed
at [ * ]. Notwithstanding the previous sentence, although Exelixis shall use
Diligent Efforts to maintain exclusivity, in view of the nature of the Exelixis
technology, it is impossible for Exelixis to
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assure exclusivity with respect to the individual elements of data that Exelixis
generates, delivers and licenses to P&U hereunder. Two examples of overlapping
research are presented below to demonstrate the principles by which Exelixis
will resolve such issues:
(a) Exelixis may start Independent Research involving [ * ], and
subsequently discover that the Independent Research involves [ * ]. Under these
circumstances, Exelixis may continue such Independent Research independent of
the Collaboration. If such Independent Research is funded by a Third Party,
separate experiments would be performed for the Collaboration and the
Independent Research, and Exelixis would not share the results of or other
Information concerning the Collaboration with any Third Party involved in the
Independent Research nor would Exelixis share the results of or other
information concerning the Independent Research with P&U or the JMT, JPC or any
of the JSCs. In such case, Exelixis would be free to disclose and license the
results of such Independent Research to such Third Party, provided, however,
that Exelixis would not be entitled to grant any license to a Third Party to use
a target that had been first identified in a Research Program, and had not yet
been designated as an Abandoned Target, to search for small molecules (i.e.,
molecular weight of less than or equal to [ * ]) for use within the Field. Such
Third Party license shall not necessarily restrict such Third Party's
development of a pharmaceutical product once [ * ] (i.e., the Third Party
license may contain provisions comparable to those set forth in Section 5.2 of
this Agreement).
(b) Exelixis may be engaged by a Third Party to identify the target
of a compound under an arrangement whereby the identity of the compound is
unknown to Exelixis. Exelixis will reveal the identity of the target to the
Third Party and the Third Party shall be entitled to use that information for
any purpose. If the target is [ * ], Exelixis will inform the Third Party that,
on account of its exclusivity obligations to another party, Exelixis is unable
to perform further work on this target.
The exclusivity of the license granted to P&U in Section 5.1 shall be subject to
the grant of licenses to Third Parties consistent with paragraphs (a) and (b) of
this Section 6.2. Upon request of the JMT, Exelixis shall consult with the JMT
from time to time regarding its procedures for seeking to avoid overlapping
research activities on behalf of multiple Third Parties.
7. COMPENSATION
7.1 License Fee. P&U shall pay Exelixis a license fee of [ * ] as
follows: [ * ]. Without limiting the rights of P&U under Section 10.2, any
license fee payments made by P&U to Exelixis pursuant to this Section 7.1 shall
be noncreditable and nonrefundable.
7.2 Equity and Note Purchase. Pursuant to the separate Stock Purchase
Agreement and Note Purchase Agreement entered into concurrent with this
Agreement, P&U shall make a $7.5 million equity investment in Exelixis and shall
purchase a $7.5 million promissory note which shall convert into Exelixis equity
securities upon terms specified therein. The terms of such stock and note
purchase shall be governed exclusively by such other agreements and related
documents executed pursuant thereto.
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7.3 Research Support. During the Research Term, P&U will make quarterly
advance payments to Exelixis equal to one-quarter of the Annual FTE Rate
multiplied by the number of P&U-funded FTEs for that quarter as set forth in
Table 1 and Section 3.4. During the Research Term, P&U will also fund, on an as-
needed basis, up to [ * ] per year of Third Party Contract Research approved by
the JMT pursuant to Section 3.9. Without limiting the rights of P&U under
Section 10.2, any research support payments made by P&U to Exelixis hereunder
shall be noncreditable and nonrefundable.
7.4 Milestone Payments. Within [ * ], P&U shall make the applicable
milestone payment to Exelixis as set forth below. Without limiting the rights of
P&U under Section 10.2, any milestone payments made by P&U to Exelixis hereunder
shall be noncreditable and nonrefundable.
(a) For [ * ] of this Agreement (that is, until [ * ], P&U shall
pay [ * ] for [ * ]. No payment shall be required for [ * ].
(b) Starting with [ * ] of the Research Term and continuing until [
* ], P&U's milestone payment obligations shall be as follows:
(i) If [ * ] and [ * ], P&U shall pay [ * ]. Such milestone
payments shall continue until [ * ]. Thereafter, P&U shall pay [ * ].
(ii) If [ * ] or [ * ], P&U shall pay [ * ] for each Selected
Target.
7.5 Royalty Payments. Exelixis shall receive a running royalty on Net
Sales of Products at the royalty rates stated below. Except as set forth in
Section 7.7, these royalty rates shall not be subject to adjustment or reduction
for any reason.
(a) [ * ] Product. For [ * ], P&U will pay royalties to Exelixis at
the following rates [ * ]:
Annual Net Sales of Product Royalty Rate
--------------------------- ------------
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
(b) Other Products. For each Product other than [ * ], P&U will pay
royalties to Exelixis at the following rates:
Annual Net Sales of Product Royalty Rate
--------------------------- ------------
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
(c) Example. By way of example, if in a particular calendar year, P&U
sells two Products, with one Product having [ * ] and the other Product having
[ * ], then P&U shall make royalty payments to Exelixis during that year
totaling [ * ] with respect to the first Product and [ * ] with respect to the
second Product.
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All royalty payments to Exelixis hereunder shall be noncreditable and
nonrefundable. For the purposes of royalty payments, all dosage forms and
formulations containing the same Collaboration Compound shall be deemed a single
Product. The measure of annual sales set forth in this Section 7.5 shall be the
sum of Net Sales of a particular Product in all countries, and the royalty rate
indicated shall apply to all Net Sales for that Product during the calendar
year.
7.6 Quarterly Payments. All royalties due under Section 7.5 shall be
paid quarterly, on a country-by-country basis, within [ * ] of the end of the
relevant quarter. Royalties shall be calculated for each of the first three
calendar quarters of a calendar year on the basis of the royalty rate actually
earned in the previous calendar year. (For the first calendar year of sales
under this Agreement, the royalty rate to be used for purposes of royalty
payments for the first three calendar quarters shall be [ * ].) At the end of
the calendar year, P&U shall calculate the royalties due for the year as a
whole, using the actual royalty rate applicable based on that year's sales, and
shall pay to Exelixis all royalties due for that year, less amounts previously
paid in the first three quarterly payments.
7.7 Term of Royalties. Exelixis' right to receive royalties under
Section 7.5 shall expire on a country-by-country basis upon the later of (i)
[ * ] from the first commercial sale of such Product in such country, or (ii)
expiration of the last to expire Patent in such country [ * ]. If (ii) occurs
prior to (i), then P&U's royalty payments under Section 7.5 shall be [ * ] for
the remainder of such [ * ] period following the expiration of such last to
expire Patent.
7.8 Royalty Payment Reports. All royalty payments under this Agreement
shall be made to Exelixis or its designee quarterly within [ * ] following the
end of each calendar quarter for which royalties are due. Each royalty payment
shall be accompanied by a statement stating the number, description, and
aggregate Net Sales, by country, of each Product sold during the relevant
calendar quarter.
7.9 Payment Method. All payments due under this Agreement to Exelixis
shall be made by bank wire transfer in immediately available funds to an account
designated by Exelixis. All payments hereunder shall be made in U.S. dollars.
7.10 Taxes. Exelixis shall pay any and all taxes levied on account of all
payments it receives under this Agreement. If laws or regulations require that
taxes be withheld, P&U will (i) deduct those taxes from the remittable payment,
(ii) pay the taxes to the proper taxing authority, and (iii) send evidence of
the obligation together with proof of tax payment to Exelixis within 60 days
following that tax payment.
7.11 Blocked Currency. In each country where the local currency is
blocked and cannot be removed from the country, royalties accrued in that
country shall be paid to Exelixis in the country in local currency by deposit in
a local bank designated by Exelixis, unless the Parties otherwise agree.
7.12 Sublicenses. In the event P&U grants licenses or sublicenses to
others to sell Products which are subject to royalties under Section 7.5, such
licenses or sublicenses shall include an obligation for the licensee or
sublicensee to account for and report its sales of Products on the same basis as
if such sales were Net Sales by P&U, and P&U shall pay to
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Exelixis, with respect to such sales, royalties as if such sales of the licensee
or sublicensee were Net Sales of P&U.
7.13 Foreign Exchange. Conversion of sales recorded in local currencies
to U.S. dollars will be performed in a manner consistent with P&U's normal
practices used to prepare its audited financial statements for internal and
external reporting purposes, which uses a widely accepted source of published
exchange rates.
7.14 Records; Inspection. P&U shall keep complete, true and accurate
books of account and records for the purpose of determining the payments to be
made under this Agreement. Such books and records shall be kept for at least
three years following the end of the calendar quarter to which they pertain.
Such records will open for inspection during such three year period by
independent accountants, solely for the purpose of verifying payment statements
hereunder. Such inspections shall be made no more than once each calendar year,
at reasonable time and on reasonable notice. Inspections conducted under this
Section 7.14 shall be at the expense of Exelixis, unless a variation or error
producing an increase exceeding 5% of the royalty amount stated for any period
covered by the inspection is established in the course of such inspection,
whereupon all costs relating to the inspection for such period and any unpaid
amounts (plus interest) that are discovered will be paid promptly by P&U.
8. INTELLECTUAL PROPERTY
8.1 Ownership.
(a) Each Party shall own the entire right, title and interest in and
to any and all of its Pre-existing Technologies, and Patents covering such Pre-
existing Technologies.
(b) Each Party shall own the entire right, title and interest in and
to any and all of its Sole Inventions, and Patents covering such Sole
Inventions. P&U and Exelixis shall each own an undivided one-half interest in
and to any and all Joint Inventions and Patents and other intellectual property
rights claiming or covering or appurtenant to such Joint Inventions (the "Joint
Patents"), with inventorship to be determined under the patent laws of the
United States. P&U and Exelixis as joint owners each shall have the right to
grant licenses under such Joint Patents, but only to the extent as provided for
in this Agreement.
8.2 Disclosure. Each Party shall submit a written report to the JPC
within 60 days of the end of each quarter describing any Sole Invention or Joint
Invention arising during the prior quarter in the course of the Collaboration
which it believes may be patentable. The JPC, in consultation with the JMT,
shall decide whether to file a patent application for a Joint Invention, as
discussed in Section 8.3(b).
8.3 Patent Prosecution and Maintenance; Abandonment.
(a) Pre-existing Technologies. Each Party shall retain control over
and bear all expenses associated with the filing, prosecution and maintenance of
all Patents claiming its Pre-existing Technologies.
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(b) Sole Inventions and Joint Inventions. The JPC shall establish
the patent strategy for all Joint Inventions arising from the Collaboration.
Each Party shall direct the filing, prosecution and maintenance of all Patents
covering its Sole Inventions consistent with such strategy. The JPC shall
supervise and direct the filing, prosecution and maintenance of all Patents
covering Joint Inventions. The JPC shall provide each Party with (i) drafts of
any new patent application that covers a Joint Invention prior to filing that
application, allowing adequate time for review and comment by the Party if
possible; provided, however, the JPC shall not be obligated to delay the filing
of any patent application; and (ii) copies of all correspondence from any and
all patent offices concerning patent applications covering Joint Inventions and
an opportunity to comment on any proposed responses, voluntary amendments and
submissions of any kind to be made to any and all such patent offices. P&U shall
bear the expenses associated with the filing, prosecution (including any
interferences, reissue proceedings and reexaminations) and maintenance of
Patents covering [ * ]. P&U may elect not to pay any such costs and expenses
with respect to a Patent covering [ * ], provided that P&U notifies Exelixis not
less than two months before any relevant deadline. If Exelixis assumes the
expenses associated with the Patent, Exelixis will [ * ].
8.4 Enforcement of Patent Rights.
(a) Except at set forth in this Section 8.4, each Party shall have
the sole right, but not the obligation, to institute, prosecute or control any
action or proceeding with respect to infringement by a Third Party of one or
more issued Patents covering [ * ].
(b) At any time during the Research Term, if either Party becomes
aware of [ * ] that is performed by a Third Party commercial entity [ * ] and
that appears to utilize [ * ], such Party shall inform the other Party in
writing within thirty (30) days after having knowledge of such research.
Following consultation within thirty (30) days of such notice, the following
conditions shall apply:
(i) If the [ * ] is being performed [ * ], neither Party shall
have any obligation to take any action with respect to such research. If either
Party believes it has a basis for a suit against such Third Party arising from
such research, it may proceed on its own accord and at its sole expense.
(ii) [ * ] Exelixis shall retain the right to grant sublicenses
[ * ] under the [ * ] technology owned or Controlled by it under the following
circumstances:
(1) No single sublicensee shall be entitled to have more
than [ * ] persons at any time (measured on an FTE basis) performing [ * ]
within [ * ];
(2) Each such sublicense shall prohibit the sublicensee
from performing [ * ];
(3) Exelixis shall not initiate any new discussions with
any Third Party regarding a sublicense [ * ] until [ * ] after the Effective
Date;
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(4) Exelixis may grant a sublicense [ * ] to the Third
Party with which Exelixis entered negotiations for a sublicense prior to the
Effective Date, provided such sublicensee would not thereby be permitted to
conduct [ * ] until at least [ * ] after the Effective Date; and
(5) Prior to the grant by Exelixis of any sublicense that
fulfills the criteria set forth in Section 8.4(b)(ii)(1)-(4), Exelixis shall
inform the JMT of its intent to grant such a sublicense, provided that Exelixis
shall not be required to identify the intended sublicensee and that the JMT
shall not have any right to interfere with the grant of such a sublicense by
Exelixis.
Following [ * ], Exelixis may freely grant sublicenses for [ * ].
(iii) If the [ * ] in question is being performed [ * ], then
Exelixis, if requested by P&U, shall [ * ] use Diligent Efforts to stop the
conduct of such [ * ] including, if necessary, the commencement and prosecution
of litigation against [ * ] in accordance with the applicable Federal Rules of
Civil Procedure. Litigation commenced under this Section 8.4(b)(iii) shall be [
* ], provided that [ * ]. Any recovery from such litigation shall be applied
first to reimburse each Party for its out-of-pocket costs of the litigation, and
the balance shall be [ * ]. Following consultation with P&U, Exelixis may end
such litigation at any time but Exelixis shall not consent to a settlement of
such dispute in a manner that permits [ * ], without the consent of P&U, except
for the grant of a license permitted under Section 8.4(b)(ii). This Section
8.4(b)(iii) shall expire [ * ], at which point Exelixis shall have exclusive
control over any litigation that previously commenced pursuant to this Section
8.4(b)(iii).
(iv) If the [ * ] in question is being performed [ * ], then
Exelixis, upon written request by P&U, shall [ * ], use Diligent Efforts to stop
the conduct of such commercial research within the Fields and, if necessary and
requested in writing by P&U, shall bring litigation in accordance with the
applicable Federal Rules of Civil Procedure against such Third Party to stop the
[ * ]. Such litigation shall be managed by Exelixis using outside counsel
approved by P&U. Prior to the initiation of a litigation under this Section
8.4(b)(iv), the Parties must agree to a budget for such litigation that the
outside counsel selected as lead counsel deems a reasonable budget. [ * ]
responsible for all expenses incurred during such litigation (including
reimbursement of [ * ] within 30 days after submission of each invoice together
with reasonable supporting documentation) not in excess of such budget. If [ * ]
becomes aware at any time that the litigation expenses are likely to exceed such
budget, it shall notify [ * ] and provide [ * ] with the opportunity to approve
an increased budget. [ * ] shall be responsible for all expenses incurred during
such litigation that are in excess of the increased budget or, if no increased
budget is approved by [ * ], the original budget. Any recovery shall be applied
first to reimburse each Party for its out-of-pocket costs of the litigation, and
the balance shall be [ * ]. If such recovery is [ * ], then such recovery shall
be [ * ]. P&U shall also indemnify and hold harmless Exelixis for any costs or
losses arising from claims brought against it by the Third Party in the course
of litigation commenced under this Section 8.4(b)(iv), except to the extent
Exelixis had been aware of a factual basis for counterclaims from the Third
Party which it had failed to bring to the attention of P&U prior to the
commencement of the suit. Exelixis shall have the right to be represented by
counsel of its choice and to control its defense of such claims. If Exelixis
continues a litigation initiated under this Section 8.4(b)(iv) despite
instructions from P&U to end
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such litigation, then, provided the Third Party in such litigation did not
refuse to sign a mutual release in which no party to the litigation was required
to provide another party with monetary or other compensation, Exelixis shall
indemnify and hold harmless P&U for any costs or losses arising from claims
brought against it by the defendant(s) in the course of such litigation and any
recovery from such litigation shall be for the sole benefit of Exelixis.
(v) As used above, a [ * ] shall mean a [ * ]. This Section
8.4(b) shall have no effect with respect to research being conducted by non-
commercial entities, or being conducted solely [ * ], or being conducted [ * ].
Any litigation to enforce patents Controlled by Exelixis by reason of license
agreements shall be subject to the terms and conditions of such license
agreements, including without limitation rights of the licensor to conduct or to
consent to such litigation.
(c) If any issued Patent covering [ * ] is infringed by Third Party
activity that [ * ], then Exelixis shall have the primary right, but not the
obligation, to institute, prosecute or control any action or proceeding with
respect to such infringement by counsel of its own choice and P&U shall have the
right to participate in such action and to be represented by counsel of its own
choice. If Exelixis fails to bring an action or proceeding within [ * ] after
having knowledge of that infringement, then P&U shall have the right, but not
the obligation, to bring and control any such action by counsel of its own
choice, and Exelixis shall have the right to participate in such action and to
be represented by counsel of its own choice.
(d) If either Party becomes aware of any Third Party activity that
infringes an issued Patent covering [ * ], then that Party shall give prompt
written notice to the other Party within thirty (30) days after having knowledge
of such infringement. P&U shall have the primary right, but not the obligation,
to institute, prosecute or control any action or proceeding with respect to such
infringement by counsel of its own choice and Exelixis shall have the right to
participate in such action and to be represented by counsel of its own choice.
If P&U fails to bring an action or proceeding within a period of [ * ] after
such notice, then Exelixis shall have the right, but not the obligation, to
bring and control any such action by counsel of its own choice, and P&U shall
have the right to participate in such action and to be represented by counsel of
its own choice.
(e) If either Party brings any such action or proceeding hereunder,
the other Party agrees to be joined as a party plaintiff and to give the first
Party reasonable assistance and authority to control, file and prosecute the
suit as necessary. Except [ * ], each Party shall bear its own costs and
expenses for any action or proceeding brought under this Section 8.4. Any
damages or other monetary awards recovered shall be applied first to reimburse
the reasonable costs and expenses of the Parties in connection with such
litigation, and except [ * ], the balance shall be retained by the Party which
controlled the litigation. No settlement or consent judgment or other voluntary
final disposition of a suit under Section 8.4(c) or 8.4(d) may be entered into
without the [ * ].
8.5 Defense of Third Party Claims.
(a) If a claim is brought by a Third Party that any activity related
to the Collaboration or a Product infringes the intellectual property rights of
such Third Party, each
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Party will give prompt written notice to the other Party of such claim. If the
Third Party claim arises from Exelixis' activities under the Collaboration,
Exelixis shall control and bear the expense of its own defense and, except as
set forth in Section 8.5(b), Exelixis shall defend, indemnify and hold harmless
P&U, which shall include costs or judgments whether for money or equitable
relief, and reasonable legal expenses and reasonable attorney's fees. Exelixis
shall not enter into a settlement agreement with such Third Party without the
written consent of P&U, which shall not be unreasonably withheld. If the Third
Party claim arises from P&U's activities under the Agreement or from a Product,
P&U shall control and bear the expense of its own defense and P&U shall defend,
indemnify and hold harmless Exelixis, which shall include costs or judgments
whether for money or equitable relief, and reasonable legal expenses and
reasonable attorney's fees. P&U shall not enter into a settlement agreement with
such Third Party without the written consent of Exelixis, which shall not be
unreasonably withheld.
(b) The indemnity obligation of Exelixis under Section 8.5(a)
shall not apply to alleged infringement of Third Party technology rights by
Exelixis in the course of performing work under this Agreement where (i) prior
to the conduct of such work Exelixis submitted to the JMT a written description
of the Third Party technology in question and the work that Exelixis proposed to
conduct, (ii) the JMT approved Exelixis' conduct of such work, and (iii) the
alleged infringement arose by reason of such work. In such case, each Party
shall be responsible for its own defense of such Third Party claims, at its own
expense and without indemnification by the other Party. In any event, neither
Party shall be required to conduct any work under this Agreement which it
believes may infringe Third Party rights. In the event Third Party rights [ * ],
P&U shall have the right to terminate the Research Term pursuant to Section
3.2(e). In the event the Third Party claim arises from the manufacture, sale or
use of a Product by P&U or its licensee, the indemnity obligations of P&U under
Section 8.5(a) shall apply, and Exelixis shall not have any indemnity obligation
to P&U in respect of such claims.
9. CONFIDENTIALITY
9.1 Nondisclosure of Confidential Information. All Information disclosed
by one Party to the other Party pursuant to this Agreement shall be
"Confidential Information." The Parties agree that during the term of this
Agreement, and for a period of five years after this Agreement expires or
terminates, a Party receiving Confidential Information of the other Party will
(i) maintain in confidence such Confidential Information to the same extent such
Party maintains its own proprietary industrial information of similar kind and
value (but at a minimum each Party shall use commercially reasonable efforts),
(ii) not disclose such Confidential Information to any Third Party without prior
written consent of the other Party, except for disclosures made in confidence to
any Third Party pursuant to Third Party Contract Research or other arrangements
approved by the JMT, and (iii) not use such Confidential Information for any
purpose except those permitted by this Agreement.
9.2 Exceptions. The obligations in Section 9.1 shall not apply with
respect to any portion of the Confidential Information that the receiving Party
can show by competent written proof:
(a) Is publicly disclosed by the disclosing Party, either before or
after it is disclosed to the receiving Party hereunder; or
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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(b) Was known to the receiving Party, without obligation to keep it
confidential, prior to disclosure by the disclosing Party; or
(c) Is subsequently disclosed to the receiving Party by a Third
Party lawfully in possession thereof and without obligation to keep it
confidential; or
(d) Has been published by a Third Party; or
(e) Has been independently developed by the receiving Party without
the aid, application or use of Confidential Information.
9.3 Authorized Disclosure. A Party may disclose the Confidential
Information belonging to the other Party to the extent such disclosure is
reasonably necessary in the following instances:
(a) Filing or prosecuting Patents relating to Sole Inventions, Joint
Inventions or Products;
(b) Regulatory filings;
(c) Prosecuting or defending litigation;
(d) Complying with applicable governmental regulations; and
(e) Disclosure, in connection with the performance of this
Agreement, to Affiliates, sublicensees, research collaborators, employees,
consultants, or agents, each of whom prior to disclosure must be bound by
similar obligations of confidentiality and non-use at least equivalent in scope
to those set forth in this Article 9.
The Parties acknowledge that the terms of this Agreement shall be treated as
Confidential Information of both Parties. Such terms may be disclosed by a
Party to investment bankers, investors, and potential investors, each of whom
prior to disclosure must be bound by similar obligations of confidentiality and
non-use at least equivalent in scope to those set forth in this Article 9. In
addition, a copy of this Agreement may be filed by Exelixis with the Securities
and Exchange Commission in connection with any public offering of Exelixis
securities. In connection with any such filing, Exelixis shall endeavor to
obtain confidential treatment of economic and trade secret information.
In any event, the Parties agree to take all reasonable action to avoid
disclosure of Confidential Information except as permitted hereunder.
9.4 Termination of Prior Agreements. This Agreement supersedes the
Mutual Nondisclosure Agreement between Exelixis and P&U dated October 8, 1997
and the Mutual Nondisclosure Agreement between Exelixis and Pharmacia & Upjohn,
Inc. dated July 15, 1998. All Information exchanged between the Parties under
those earlier Agreements shall be deemed Confidential Information and shall be
subject to the terms of this Article 9 and shall be included within the
definition of Pre-existing Technologies.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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9.5 Publicity. The Parties agree that the public announcement of the
execution of this Agreement shall be substantially in the form of the press
release attached as Exhibit C. Any other publication, news release or other
public announcement relating to this Agreement or to the performance hereunder,
shall first be reviewed and approved by both Parties; provided, however, that
any disclosure which is required by law as advised by the disclosing Party's
counsel may be made without the prior consent of the other Party, although the
other Party shall be given prompt notice of any such legally required disclosure
and to the extent practicable shall provide the other Party an opportunity to
comment on the proposed disclosure.
9.6 Publications. Neither Party shall publish or present the results of
studies carried out under this Agreement without the opportunity for prior
review by the other Party. Subject to Section 9.3, each Party agrees to provide
the other Party the opportunity to review any proposed abstracts, manuscripts or
presentations (including verbal presentations) which relate to any Selected
Target or Product at least 30 days prior to its intended submission for
publication and agrees, upon request, not to submit any such 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. Both Parties understand that a reasonable commercial
strategy may require delay of publication of information or filing of patent
applications. The Parties agree to review and consider delay of publication and
filing of patent applications under certain circumstances. The JPC will review
such requests and recommend subsequent action. Neither Party shall have the
right to publish or present Confidential Information of the other Party which is
subject to Section 9.1. Nothing contained in this Section 9.6 shall prohibit the
inclusion of information necessary for a patent application, except for
Confidential Information of the nonfiling Party, provided the nonfiling Party is
given a reasonable opportunity to review the information to be included prior to
submission of such patent application. Any disputes between the Parties
regarding delaying a publication or presentation to permit the filing of a
patent application shall be referred to the JMT.
10. TERM AND TERMINATION
10.1 Term. This Agreement shall become effective on the Effective Date
and shall remain in effect until the earlier of: (i) the time, not prior to the
expiration of the Research Term, at which there are no Selected Targets and (ii)
the expiration of the last royalty payment obligation with respect to any
Product, as provided in Section 7.7. Termination of the Research Term shall not
constitute termination of this Agreement unless no Selected Targets then exist.
10.2 Termination for Material Breach.
(a) If either Party believes that the other is in material breach
of this Agreement (including without limitation any material breach of a
representation or warranty made in this Agreement), then the non-breaching Party
may deliver notice of such breach to the other Party. In such notice the non-
breaching Party shall identify the actions or conduct that such Party would
consider to be an acceptable cure of such breach. The allegedly breaching Party
shall have [ * ] to either cure such breach or, if cure cannot be reasonably
effected within such [ * ] period, to deliver to the other Party a plan for
curing such breach which is reasonably sufficient to effect a cure. Such a plan
shall set forth a program for achieving cure as rapidly as
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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practicable. Following delivery of such plan, the breaching Party shall use
Diligent Efforts to carry out the plan and cure the breach.
(b) If the Party receiving notice of breach fails to cure such
breach within the [ * ] period, or the Party providing the notice reasonably
determines that the proposed corrective plan or the actions being taken to carry
it out is not commercially practicable, the Party originally delivering the
notice may declare a breach hereunder upon [ * ] advance written notice.
(c) If a Party gives notice of termination under this Section 10.2
and the other Party disputes whether such notice was proper, then the issue of
whether this Agreement has been terminated shall be resolved in accordance with
Section 13.2. If as a result of such dispute resolution process it is determined
that the notice of termination was proper, then such termination shall be deemed
to have been effective [ * ] following the date of the notice of termination. If
as a result of such dispute resolution process it is determined that the notice
of termination was improper, then no termination shall have occurred and this
Agreement shall have remained in effect.
10.3 Effect of Termination; Survival.
(a) In the event of termination of this Agreement for any reason
other than material breach pursuant to Section 10.2, the following provisions of
this Agreement shall survive: Article 1, Article 4 (except Section 4.1), Article
5, Article 8, Article 9, Section 11.3, Article 12 and Article 13.
(b) In the event of termination of this Agreement pursuant to
Section 10.2, the provisions of this Agreement referenced in Section 10.3(a)
shall survive, provided, however, that any licenses granted under this Agreement
in favor of the breaching Party shall terminate. In such case, the non-breaching
Party shall continue to hold the licenses granted hereunder, subject to the
royalties set forth herein.
(c) In any event, termination of this Agreement shall not relieve
the Parties of any liability which accrued hereunder prior to the effective date
of such termination nor preclude either Party from pursuing all rights and
remedies it may have hereunder or at law or in equity with respect to any breach
of this Agreement nor prejudice either Party's right to obtain performance of
any obligation.
11. REPRESENTATIONS AND COVENANTS
11.1 Mutual Authority. Exelixis and P&U each represents and warrants to
the other that (i) it has the authority and right to enter into and perform this
Agreement and (ii) its execution, delivery and performance of this Agreement
will not conflict in any material fashion with the terms of any other agreement
to which it is or becomes a party or by which it is or becomes bound. Exelixis
represents and warrants that [ * ].
11.2 Rights in Technology. As of the Effective Date, each of Exelixis and
P&U has sufficient right in and to its Pre-existing Technologies, free and clear
of any liens or encumbrances, to grant the rights set forth in this Agreement.
During the term of this
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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Agreement, each Party will use Diligent Efforts not to diminish the rights under
its Pre-existing Technologies, Sole Inventions or Joint Inventions granted to
each other herein, including without limitation by not committing or permitting
any acts or omissions which would cause the breach of any agreements between
itself and Third Parties which provide for intellectual property rights
applicable to the development, manufacture, use or sale of Products. Each Party
agrees to provide promptly the other Party with notice of any such alleged
breach. As of the Effective Date, each Party is in compliance in all material
respects with any aforementioned agreements with Third Parties.
11.3 Performance by Affiliates. The Parties recognize that each may
perform some or all of its obligations under this Agreement through Affiliates,
provided, however, that each Party shall remain responsible and be guarantor of
the performance by its Affiliates and shall cause its Affiliates to comply with
the provisions of this Agreement in connection with such performance. In
particular, if any Affiliate of a Party participates in research under this
Agreement or with respect to Collaboration Compounds, (i) the restrictions of
this Agreement which apply to the activities of a Party with respect to Selected
Targets and Collaboration Compounds shall apply equally to the activities of
such Affiliate, and (ii) the Party affiliated with such Affiliate shall assure,
and hereby guarantees, that any intellectual property developed by such
Affiliate shall be governed by the provisions of this Agreement (and subject to
the licenses set forth in Article 5) as if such intellectual property had been
developed by the Party. Notwithstanding the foregoing, [ * ] shall not apply to
Artemis Pharmaceuticals GmbH ("Artemis"). Prior to the performance of any work
under the Collaboration by Artemis, Exelixis shall enter into a license
agreement with Artemis providing for P&U to receive rights under resulting
Artemis discoveries consistent with the terms of this Agreement, which license
agreement shall be in a form reasonably acceptable to P&U.
11.4 [ * ]. Except as disclosed to P&U, Exelixis represents and warrants
that, [ * ].
11.5 [ * ]. Exelixis represents and warrants that, [ * ].
12. INDEMNIFICATION AND LIMITATION OF LIABILITY
12.1 Indemnification.
(a) P&U hereby agrees to defend and hold harmless Exelixis and its
agents and employees from and against any and all suits, claims, actions,
demands, liabilities, expenses and/or loss, including reasonable legal expenses
and reasonable attorneys' fees ("Losses") resulting directly or indirectly from
the manufacture, use, handling, storage, sale or other disposition of chemical
agents, Selected Targets, Collaboration Compounds or Products by P&U or its
Affiliates, agents or sublicensees except to the extent such Losses result from
the negligence or wrongdoing of Exelixis.
(b) In the event that Exelixis is seeking indemnification under
Section 12.1(a), it shall inform P&U of a claim as soon as reasonably
practicable after it receives notice of the claim, shall permit P&U 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
by P&U (at the expense of P&U) in the defense of the claim.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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12.2 Limitation of Liability. EXCEPT AS SPECIFICALLY PROVIDED IN SECTION
12.1, IN NO EVENT SHALL EITHER PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS
OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL,
SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A CLAIM OR
ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR
OTHERWISE, ARISING OUT OF THIS AGREEMENT. For clarification, the foregoing
sentence shall not be interpreted to limit or to expand the express rights
specifically granted in the sections of this Agreement.
13. MISCELLANEOUS
13.1 Effective Date. This Agreement shall become effective upon the
closing of the purchase by P&U of (i) 2,500,000 shares of Exelixis Series D
Preferred Stock pursuant to the Stock Purchase Agreement and (ii) a $7.5 million
promissory note pursuant to the Note Purchase Agreement. The date on which this
Agreement becomes effective under this Section 13.1 shall be the "Effective
Date." If for any reason such closings do not occur on or before March 1, 1999,
then this Agreement shall become automatically null and void, and shall have no
further force or effect, without any further action by either Party.
13.2 Dispute Resolution. In the event of any controversy or claim arising
out of, relating to or in connection with any provision of this Agreement, other
than a dispute addressed in Section 2.6 or Section 13.4, the Parties shall try
to settle their differences amicably between themselves first, by referring the
disputed matter to the respective heads of research of each Party and, if not
resolved by the research heads, by referring the disputed matter to the
respective Chief Executive Officers of each Party. Either Party may initiate
such informal dispute resolution by sending written notice of the dispute to the
other Party, and, within 20 days after such notice, such representatives of the
Parties shall meet for attempted resolution by good faith negotiations. If such
personnel are unable to resolve such dispute within 30 days of their first
meeting of such negotiations, either Party may seek to have such dispute
resolved in any United States federal court of competent jurisdiction and
appropriate venue. The Parties hereby consent to jurisdiction in the United
States federal courts. If, notwithstanding such consent, United States federal
courts would not have proper jurisdiction over a dispute, then such dispute may
be submitted to any state court in the United States with proper jurisdiction
and venue. The Parties agree that, except as provided in Section 13.4, any
dispute under this Agreement shall be submitted exclusively to a state or
federal court in the United States.
13.3 Governing Law. Resolution of all disputes arising out of or related
to this Agreement or the performance, enforcement, breach or termination of this
Agreement and any remedies relating thereto, shall be governed by and construed
under the substantive laws of the State of Delaware, as applied to agreements
executed and performed entirely in the State of Delaware by residents of the
State of Delaware, without regard to conflicts of law rules.
13.4 Patents and Trademarks. Any dispute, controversy or claim relating
to the scope, validity, enforceability or infringement of any Patent rights
covering the manufacture, use or sale of any Product or of any trademark rights
related to any Product shall be submitted to a court of competent jurisdiction
in the territory in which such Patent or trademark rights were granted or arose.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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13.5 Entire Agreement; Amendment. This Agreement sets forth the complete,
final and exclusive agreement and all the covenants, promises, agreements,
warranties, representations, conditions and understandings between the Parties
hereto and supersedes and terminates all prior agreements and understandings
between the Parties. There are no covenants, promises, agreements, warranties,
representations, conditions or understandings, either oral or written, between
the Parties other than as are set forth herein and therein. No subsequent
alteration, amendment, change or addition to this Agreement shall be binding
upon the Parties unless reduced to writing and signed by an authorized officer
of each Party.
13.6 Export Control. This Agreement is made subject to any restrictions
concerning the export of products or technical information from the United
States of America or other countries which may be imposed upon or related to
Exelixis or P&U from time to time. Each Party agrees that it will not export,
directly or indirectly, any technical information acquired from the other Party
under this Agreement or any products using such technical information to a
location or in a manner that at the time of export requires an export license or
other governmental approval, without first obtaining the written consent to do
so from the appropriate agency or other governmental entity.
13.7 Bankruptcy.
(a) All rights and licenses granted under or pursuant to this
Agreement, including amendments hereto, by each Party to the other Party are,
for all purposes of Section 365(n) of Title 11 of the U.S. Code ("Title 11"),
licenses of rights to intellectual property as defined in Title 11. Each Party
agrees during the term of this Agreement to create and maintain current copies
or, if not amenable to copying, detailed descriptions or other appropriate
embodiments, to the extent feasible, of all such intellectual property. If a
case is commenced by or against either Party (the "Bankrupt Party") under Title
11, then, unless and until this Agreement is rejected as provided in Title 11,
the Bankrupt Party (in any capacity, including debtor-in-possession) and its
successors and assigns (including, without limitation, a Title 11 Trustee)
shall, at the election of the Bankrupt Party made within 60 days after the
commencement of the case (or, if no such election is made, immediately upon the
request of the non-Bankrupt Party) either (i) perform all of the obligations
provided in this Agreement to be performed by the Bankrupt Party including,
where applicable and without limitation, providing to the non-Bankrupt Party
portions of such intellectual property (including embodiments thereof) held by
the Bankrupt Party and such successors and assigns or otherwise available to
them or (ii) provide to the non-Bankrupt Party all such intellectual property
(including all embodiments thereof) held by the Bankrupt Party and such
successors and assigns or otherwise available to them.
(b) If a Title 11 case is commenced by or against the Bankrupt Party
and this Agreement is rejected as provided in Title 11 and the non-Bankrupt
Party elects to retain its rights hereunder as provided in Title 11, then the
Bankrupt Party (in any capacity, including debtor-in-possession) and its
successors and assigns (including, without limitations, a Title 11 Trustee)
shall provide to the non-Bankrupt Party all such intellectual property
(including all embodiments thereof) held by the Bankrupt Party and such
successors and assigns or otherwise available to them immediately upon the non-
Bankrupt Party's written request therefor. Whenever the Bankrupt Party or any of
its successors or assigns provides to the non-Bankrupt
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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Party any of the intellectual property licensed hereunder (or any embodiment
thereof) pursuant to this Section 13.7, the non-Bankrupt Party shall have the
right to perform the obligations of the Bankrupt Party hereunder with respect to
such intellectual property, but neither such provision nor such performance by
the non-Bankrupt Party shall release the Bankrupt Party from any such obligation
or liability for failing to perform it.
(c) All rights, powers and remedies of the non-Bankrupt Party
provided herein are in addition to and not in substitution for any and all other
rights, powers and remedies now or hereafter existing at law or in equity
(including, without limitation, Title 11) in the event of the commencement of a
Title 11 case by or against the Bankrupt Party. The non-Bankrupt Party, in
addition to the rights, power and remedies expressly provided herein, shall be
entitled to exercise all other such rights and powers and resort to all other
such remedies as may now or hereafter exist at law or in equity (including,
without limitation, under Title 11) in such event. The Parties agree that they
intend the foregoing non-Bankrupt Party rights to extend to the maximum extent
permitted by law and any provisions of applicable contracts with Third Parties,
including without limitation for purposes of Title 11, (i) the right of access
to any intellectual property (including all embodiments thereof) of the Bankrupt
Party or any Third Party with whom the Bankrupt Party contracts to perform an
obligation of the Bankrupt Party under this Agreement, and, in the case of the
Third Party, which is necessary for the development, registration and
manufacture of licensed products and (ii) the right to contract directly with
any Third Party described in (i) in this sentence to complete the contracted
work. Any intellectual property provided pursuant to the provisions of this
Section 13.7 shall be subject to the licenses set forth elsewhere in this
Agreement and the payment obligations of this Agreement, which shall be deemed
to be royalties for purposes of Title 11.
13.8 Force Majeure. Both Parties shall be excused from the performance of
their obligations under this Agreement to the extent that 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, labor strike or lock-out, epidemic, failure or default of public
utilities or common carriers, destruction of production facilities or materials
by fire, earthquake, storm or like catastrophe; provided, however, the payment
of invoices due and owing hereunder shall not be delayed by the payer because of
a force majeure affecting the payer.
13.9 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing, shall specifically refer to this Agreement and
shall be deemed to have been sufficiently given for all purposes if mailed by
first class certified or registered mail, postage prepaid, express delivery
service or personally delivered. Unless otherwise specified in writing, the
mailing addresses of the Parties shall be as described below.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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For Exelixis: Exelixis Pharmaceuticals, Inc.
260 Littlefield Avenue
South San Francisco, CA 94080
Attention: Chief Executive Officer
With a copy to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Robert L. Jones, Esq.
For P&U: Pharmacia & Upjohn
95 Corporate Drive
Bridgewater, NJ 08807
Attention: General Counsel
With a copy to: Pharmacia & Upjohn AB
Lindhagensgatan 133, S-112 87
Stockholm, Sweden
Attention: Associate General Counsel
13.10 Consents Not Unreasonably Withheld or Delayed. 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 or delayed,
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.
13.11 Maintenance of Records. Each Party shall keep and maintain all
records required by law or regulation with respect to Products and shall make
copies of such records available to the other Party upon request.
13.12 United States Dollars. References in this Agreement to "Dollars" or
"$" shall mean the legal tender of the United States of America.
13.13 No Strict Construction. This Agreement has been prepared jointly
and shall not be strictly construed against either Party.
13.14 Assignment. Neither Party may assign or transfer this Agreement or
any rights or obligations hereunder without the prior written consent of the
other, except a Party may make such an assignment without the other Party's
consent to an Affiliate or to a successor to substantially all of the business
of such Party, whether in a merger, sale of stock, sale of assets or other
transaction. Any permitted successor or assignee of rights and/or obligations
hereunder shall, in a writing to the other Party, expressly assume performance
of such rights and/or obligations. Any permitted assignment shall be binding on
the successors of the assigning Party. Any assignment or attempted assignment by
either Party in violation of the terms of this Section 13.14 shall be null and
void and of no legal effect.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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13.15 Hardship. If, during the term of the Agreement, performance of the
Agreement should lead to unreasonable hardship for one or other Party taking the
interests of both Parties into account both Parties shall endeavor to agree in
good faith to amend the Agreement in the light of the change in circumstances.
13.16 Electronic Data Interchange. If both Parties elect to facilitate
business activities hereunder by electronically sending and receiving data in
agreed formats (also referred to as Electronic Data Interchange or "EDI") in
substitution for conventional paper-based documents, the terms and conditions of
this Agreement shall apply to such EDI activities.
13.17 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.18 Further Actions. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
13.19 Severability. If any one or more of the provisions of this
Agreement is held to be invalid or unenforceable by any court of competent
jurisdiction from which no appeal can be or is taken, the provision shall be
considered severed from this Agreement and shall not serve to invalidate any
remaining provisions hereof. The Parties shall make a good faith effort to
replace any invalid or unenforceable provision with a valid and enforceable one
such that the objectives contemplated by the Parties when entering this
Agreement may be realized.
13.20 Ambiguities. Ambiguities, if any, in this Agreement shall not be
construed against any Party, irrespective of which Party may be deemed to have
authored the ambiguous provision.
13.21 Headings. The headings for each article and section in this
Agreement have been inserted for convenience of reference only and are not
intended to limit or expand on the meaning of the language contained in the
particular article or section.
13.22 No Waiver. Any delay in enforcing a Party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such Party's rights to the future enforcement of its
rights under this Agreement, excepting only as to an express written and signed
waiver as to a particular matter for a particular period of time.
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
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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.
PHARMACIA & UPJOHN AB EXELIXIS PHARMACEUTICALS, INC.
By: /s/ Goran A. Ando By: /s/ George A. Scangos, Ph.D.
------------------------------------- -----------------------------
Title: [*] [Executive Vice President, Title: President & CEO
Pharmacia & Upjohn, Inc.] -------------------------
-----------------------------
Date: Feb. 23, 1999 Date: Feb. 18, 1999
----------------------------------- --------------------------------
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED
33.
<PAGE>
EXHIBIT A
TOP 20 PHARMACEUTICAL COMPANIES
Merck & Co., Inc.
Johnson & Johnson
Novartis Group
Bristol-Myers Squibb Co.
American Home Products Corp./Monsanto Co.
Glaxo Wellcome Plc.
SmithKline Beecham Plc.
Pfizer, Inc.
Abbott Laboratories
Roche Holding Ltd.
Hoechst Group
Eli Lilly and Co.
Bayer Group
Schering-Plough Corp.
Pharmacia & Upjohn, Inc.
Warner-Lambert Co.
BASF Group
Baxter International, Inc.
Astra AB
Rhone-Poulenc S.A.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
EXHIBIT B
THIRD PARTY TECHNOLOGY
<TABLE>
<CAPTION>
TECHNOLOGY/1/ LICENSOR AGREEMENT TITLE AGREEMENT DATE
<S> <C> <C> <C>
[ * ] [ * ] Letter Agreement [ * ]
[ * ] [ * ] License Agreement [ * ]
Amendment to License [ * ]
Agreement
[ * ] [ * ] License Agreement [ * ]
Amendment to License [ * ]
Agreement
[ * ] [ * ] Non-Exclusive License [ * ]
Agreement for Internal
Research Use Only
[ * ] [ * ] License Agreement [ * ]
[ * ] [ * ] License Agreement [ * ]
[ * ] [ * ] License Agreement [ * ]
[ * ] [ * ] License Agreement [ * ]
</TABLE>
- --------------------------------
/1/ A general description of the technology licensed by Exelixis. Please see
cited license agreement(s) for more detailed information regarding the scope of
Exelixis' rights with respect to such technology.
/2/ [ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED
<PAGE>
EXHIBIT C
PRESS RELEASE
DRAFT- 2/23/99
EXELIXIS PHARMACEUTICALS AND PHARMACIA & UPJOHN FORM RESEARCH COLLABORATION
- -------------------------------------------------------------------------------
Collaborative Research Agreement to Focus on the Identification of Novel Targets
in the Areas of Alzheimer's Disease and Metabolic Syndrome.
South San Francisco, CA and Bridgewater, NJ, February 24, 1999 - Exelixis
Pharmaceuticals, Inc. and Pharmacia & Upjohn, Inc. announced today the signing
of a five-year research collaboration focused on the identification of novel
targets for small molecule therapeutics in the areas of Alzheimer's disease and
Metabolic Syndrome, including diabetes and obesity.
Exelixis will utilize its proprietary PathFinder(TM) Technology coupled with
genomic and computational biology technologies to identify and validate novel
targets for drug discovery. It is anticipated that Exelixis' affiliate, Artemis
Pharmaceuticals GmbH, will also participate in the collaboration.
"This collaboration with P&U is our first in what we anticipate will be a series
of relationships with major pharmaceutical companies," said George Scangos,
Ph.D. President and Chief Executive Officer of Exelixis. "Pharmacia & Upjohn's
investment in the broad-based technology platform and intellectual capital
provided by Exelixis is an endorsement of our ability to focus the power of
genetics and genomics towards the acceleration of drug discovery."
Added Geoffrey Duyk, M.D., Ph.D. Chief Scientific Officer at Exelixis: :"Genetic
tools offer the most definitive biological test of the therapeutic potential of
modulating the activity of a candidate target. Targets selected on this basis
will increase the likelihood that compounds directed against the target will
result in an effective new therapeutic agent."
"The ability to efficiently and accurately identify controlling genes in disease
and physiologic pathways is a critical success factor in drug discovery," said
Goran Ando, M.D., Executive Vice President and President of Research and
Development at Pharmacia & Upjohn "Exelixis is well qualified to complement
Pharmacia & Upjohn drug discovery expertise in this regard."
Under the terms of the agreement, Exelixis will receive substantial committed
funding in the form of research support, upfront payment and equity during the
initial five-year term. Exelixis also will potentially receive milestone
payments, as well as royalties based on the future sales of products arising
from the collaboration. A portion of Pharmacia & Upjohn's equity investment in
Exelixis will be made after Exelixis' Initial Public Offering. Financial details
of the agreement were not disclosed.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
Within the collaboration, and subject to certain rights of P&U, Exelixis has
retained the rights to develop small molecule therapeutics outside the field of
the sponsored research as well as in the field(s) of research for targets not
selected by Pharmacia & Upjohn. In addition, Exelixis retains all rights with
respect to agriculture, animal health, and, subject to certain rights of P&U,
rights for the development of potential biotherapeutic products arising from the
collaboration.
Exelixis Pharmaceuticals, Inc., together with its affiliate, Artemis
Pharmaceuticals GmbH, represent the premiere model system genetics
biopharmaceutical organization focused on the identification and validation of
novel screening targets and proteins for the pharmaceutical, diagnostic,
agricultural, and animal health industries. Their PathFinder(TM) Technology
utilizes a systematic genetics approach in model organisms including Drosophila,
C. elegans, zebrafish and mice to identify critical genes in disease and
physiological pathways, determine functional relationships and select optimal
targets for intervention. Exelixis' drug discovery programs include the areas of
CNS, inflammation, metabolic disease, and oncology. Information about Exelixis
including news releases are available on the Company's website at:
http//www.exelixis.com.
Pharmacia & Upjohn is a global innovation driven pharmaceutical and health care
company. Pharmacia & Upjohn's products, services and employees demonstrate its
commitment to improve wellness and quality of life for people around the world.
2.
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT 10.15
FIRST AMENDMENT TO COLLABORATION AGREEMENT
This First Amendment to the Collaboration Agreement (this "Amendment") is
entered into as of October __, 1999 by and between EXELIXIS PHARMACEUTICALS,
Inc., a Delaware corporation having its principal place of business at 260
Littlefield Avenue, South San Francisco, California, USA 94080 ("Exelixis"), and
PHARMACIA & UPJOHN AB, a corporation organized and existing under the laws of
Sweden having a place of business at Lindhagensgatan 133, S-112 87 Stockholm,
Sweden ("P&U").
Recitals
A. Exelixis and P&U have previously entered into the Collaboration
Agreement dated February 26, 1999 (the "Agreement"). All capitalized terms used
but not otherwise defined herein shall have the meanings given such terms in the
Agreement.
B. In accordance with Section 13.5 of the Agreement, Exelixis and P&U
desire to amend the Agreement to expand the Collaboration to include mode of
action projects in the Fields and to cover certain investigational materials
provided by P&U to Exelixis for use in the Collaboration.
NOW, THEREFORE, Exelixis and P&U agree that the Agreement shall be amended
as provided below:
1. The following defined terms shall replace the corresponding, current
defined terms in Article 1 of the Agreement (DEFINITIONS) or, as the case
may be, be inserted as new defined terms in such Article 1:
"Candidate Target" [ * ]
""Collaboration Compound" means any molecule, other than a P&U Compound,
that (a) has a molecular weight less than or equal to [ * ], (b) has the
ability to inhibit, activate or otherwise modulate the activity of a
Mammalian Target or its encoded protein and (c) is discovered, identified
or synthesized by or on behalf of P&U or its Affiliate or sublicensee.
"Exclusive Selected Target" means any Candidate Target, other than a
Restricted Target, that has been selected as set forth in Section 4.1 of
the Agreement.
"Invertebrate Target" is any Target from an invertebrate organism.
1.
<PAGE>
"Investigational Materials" means (i) tangible samples of drugs, chemicals,
biologicals and the like ("Basic Materials"), (ii) any P&U Compound, (iii)
unmodified descendants from Basic Materials, such as virus from virus, cell
from cell, or organism from organism ("Progeny"), (iv) substances isolated
from Basic Materials or Progeny which constitute an unmodified functional
subunit thereof, (v) products expressed by Basic Materials or Progeny
(e.g., proteins expressed by DNA/RNA, monoclonal antibodies secreted by a
hybridoma cell line, antibiotic substances elicited from organisms, and the
like), (vi) substances created by Exelixis which contain/incorporate Basic
Materials or Progeny or functional subunits thereof or (vii)
substances/chemical entities created by altering any of the foregoing.
"Known Target" means a Mammalian Target which is, at the time P&U provides
the applicable P&U Compound to Exelixis, known to be or believed, based on
reasonable scientific evidence, to be the target for activity of such P&U
Compound.
"Mammalian Target" [ * ]
"Mode of Action Project(s)" has the meaning assigned to it in Section 3.11.
"Non-Exclusive Selected Target" means any Restricted Target that has been
selected as set forth in Section 4.1 of the Agreement.
"Novel Target" means any Mammalian Target that is not a Known Target.
"P&U Compound" means a molecule that P&U reasonably believes has
therapeutic potential in the Field of Metabolic Syndrome or in the Field of
Alzheimer's Disease and that is provided by P&U to Exelixis for a Mode of
Action Project in such Field.
"Product" means any human therapeutic or prophylactic product that
comprises or incorporates a Collaboration Compound that inhibits, activates
or otherwise modulates the activity of a Novel Target, but excluding
products where (i) [ * ] and (ii) [ * ].
"Research Project" means the planning, execution, and analysis of a
research project, including without limitation, Mode of Action Projects,
focused on a particular area of research within a Field based on a mutually
acceptable definition of a clinical indication, biochemical pathway or
biological process or related clinical indications, biochemical pathways or
biological processes. A Research Project will typically be defined by (a)
[ * ] and will be initiated with [ * ], or (b) in the case of a Mode of
Action Project, a P&U Compound.
"Research Results" means the data and other results generated by Exelixis
in the course of a Mode of Action Project.
[ * ]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
2.
<PAGE>
"Restricted Target" means any Candidate Target for which, on account of
Exelixis' obligations to a Third Party with respect to such Target: (a)
Exelixis cannot grant an exclusive license to P&U for such Target and/or
(b) Exelixis cannot perform any further work within the Collaboration on
such Target once the identity of such Target becomes known to Exelixis.
"Royalty-Free Product" means any human therapeutic or prophylactic product
that (a) comprises or incorporates a Collaboration Compound that inhibits,
activates or otherwise modulates the activity of a Known Target and (b)
does not comprise or incorporate a Collaboration Compound that inhibits,
activates or otherwise modulates the activity of a Novel Target.
"Selected Target" means an Exclusive Selected Target or a Non-Exclusive
Selected Target.
"Target" is any gene or gene product identified in the course of the
Collaboration or using results generated during the Collaboration,
including without limitation, an Invertebrate Target, Candidate Target,
Selected Target, Abandoned Target, Mammalian Target, Novel Target or Known
Target."
2. The third sentence in Section 3.1 of the Agreement shall be replaced with
the following:
"Each Research Program will involve a number of specific Research Projects,
each focused on either (a) [ * ] or (b) in the case of a Mode of Action
Project, a particular P&U Compound for conducting experiments to identify
genes, proteins and controlling factors involved in a model organism's
response to such P&U Compound."
3. A new Section 3.11 shall be inserted in to the Agreement as follows:
"3.11 Mode of Action Projects.
(a) The Parties intend to undertake certain "mode of action"
projects ("Mode of Action Projects") to identify Targets related to the
action of P&U Compounds for use in discovery and development of small
molecule drugs to treat humans. Each JSC shall recommend to the JMT and the
JMT shall determine the number of FTEs to be allocated, [ * ], to the
performance of Mode of Action Projects in such Research Program. The total
number of FTEs allocated to the performance of Mode of Action Projects
under the Collaboration shall not exceed [ * ] without the approval of the
Parties.
(b) For each Mode of Action Project, P&U shall provide to Exelixis a
P&U Compound in a coded, "blind" format without any structural information.
P&U shall make known to Exelixis the Applicable Field for each P&U Compound
at the time of delivery of such P&U Compound.
[ * ]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
3.
<PAGE>
(c) P&U shall inform Exelixis prior to the start of any Mode of
Action Project if the P&U Compound investigated in such Mode of Action
Project has a Mammalian Target that is a Known Target, and P&U shall
concurrently file documents in escrow with its Legal Department that set
forth the identity of such Known Target. During the Research Term, Exelixis
shall not be obliged to work on more than [ * ] which have Mammalian
Targets that are Known Targets.
(d) Exelixis shall initially evaluate the feasibility of identifying
Invertebrate Target(s) for each P&U Compound that it receives. Such initial
research shall include optimization of the delivery of such P&U Compound to
a model system organism and analysis of any phenotype arising in said model
system organism as a result of P&U Compound delivery. Exelixis shall report
the data arising from such initial research to the JSC.
(e) The JSC shall review the initial data for each P&U Compound,
decide whether Exelixis should perform further research on such P&U
Compound, and prioritize any such further research relative to the other
work to be performed by Exelixis under the Research Program. Exelixis shall
proceed in an orderly fashion, based on such prioritization and the number
of FTEs then committed to the Mode of Action Projects, to perform research
to identify Invertebrate Target(s) of each such P&U Compound selected by
the JSC for further work. Such research may include: (i) experiments in
which [ * ]; (ii) experiments in which [ * ]; and (iii) performance of
[ *]. Exelixis shall report to the JSC the data arising from such further
research and the identity of any Invertebrate Target then known by Exelixis
to be a Restricted Target.
(f) The JSC shall review all additional data for each P&U Compound,
select no more than [ * ] Invertebrate Targets (other than Restricted
Targets) per P&U Compound for molecular analysis by Exelixis, and
prioritize any such molecular research relative to the other work to be
performed by Exelixis under the Research Program. Exelixis shall proceed in
an orderly fashion, based on the JSC's prioritization and the number of
FTEs then committed to the Mode of Action Projects, to: (i) identify the
nucleic acid sequence encoding each such Invertebrate Target selected by
the JSC (unless such sequence is already publicly available); and (ii)
undertake a good faith search of publicly available databases for the
mammalian orthologue(s) of such Invertebrate Targets.
(g) Except as set forth in this Section 3.11(g), the Parties' rights
and obligations regarding any Target arising from a Mode of Action Project
shall be identical to that for any Target arising from a Research Project
other than a Mode of Action Project. In the event that Exelixis discovers
that a Target identified in a Mode of Action Project is a Restricted
Target, Exelixis shall immediately cease all work on such Restricted
Target. Any Restricted Target selected pursuant to Section 4.1 shall be
deemed a Non-Exclusive Selected Target, and P&U shall have the rights set
forth in Sections 5.1(b) and 5.1(c) with respect to such Non-Exclusive
Selected Target. Any Target other than a Restricted Target that is selected
pursuant to Section 4.1 shall be deemed an Exclusive Selected Target,
[ * ]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
4.
<PAGE>
and P&U shall have the rights set forth in Sections 5.1(a) and 5.1(b) with
respect to such Exclusive Selected Target. The milestone and royalty
obligations set forth in Sections 7.4 and 7.5 shall apply equally to
Exclusive Selected Targets and Non-Exclusive Selected Targets and all
Products arising therefrom."
4. Section 4.2 of the Agreement shall be replaced with the following:
"4.2 Pursuit of Selected Targets. P&U must use good faith Diligent
Efforts to validate Exclusive Selected Targets or their Mammalian Targets,
develop assays to assess the activity of Exclusive Selected Targets or
their Mammalian Targets, use assays to discover Collaboration Compounds
directed at particular Exclusive Selected Targets or their Mammalian
Targets, develop and commercialize [ * ] Product per Exclusive Selected
Target, and pay the applicable royalties set forth in Section 7.5. P&U's
diligence obligations under this Section 4.2 for the period prior to the
initiation of an active research and development program for a
Collaboration Compound active against a particular Exclusive Selected
Target or one of its Mammalian Targets will be deemed satisfied if P&U: (i)
develops a screening assay for the activity of an Exclusive Selected Target
or one of its Mammalian Targets and initiates screening for modulators of
the activity of the Exclusive Selected Target or one of its Mammalian
Targets within [ * ] of the date on which the JSC selected such Exclusive
Selected Target, provided that, upon reasonable request by P&U, the JMT
shall grant up to an additional [ * ] and (ii) initiates a program of lead
optimization and/or medicinal chemistry around lead compounds active in
such assay within [ * ] of the date on which P&U initiates screening for
modulators of the activity of such Exclusive Selected Target or one of its
Mammalian Targets."
5. Section 4.3 of the Agreement shall be replaced with the following:
"4.3 Sharing of Biological Data. P&U shall provide Exelixis with copies
of all data generated by or on behalf of P&U or its Affiliate or
sublicensee in the course of validating a Selected Target or a Mammalian
Target, characterizing the biological function of a Selected Target or a
Mammalian Target or identifying other genes or proteins that interact with
a Selected Target or a Mammalian Target. Exelixis may use such data for
any purpose other than developing for use in the Applicable Field products
comprising or incorporating small molecule compounds directed at such
Selected Target or such Mammalian Target."
6. Section 4.4(a) of the Agreement shall be replaced with the following:
"4.4 Target Abandonment.
(a) [ * ]"
7. Section 4.5 of the Agreement shall be replaced with the following:
[ * ]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
5.
<PAGE>
"4.5 Targets Other Than Selected Targets. Exelixis shall retain all
rights to any Target that (i) does not fulfill the criteria for a Candidate
Target, (ii) is not selected by the applicable JSC as a Selected Target,
and such Targets shall not be subject to any terms of this Agreement other
than those set forth in Section 5.4(b), or (iii) is not a Mammalian
Target."
8. Section 4.6 of the Agreement shall be amended by inserting "Mammalian
Targets," in the first sentence between "Selected Targets," and
"Collaboration Compounds".
9. Section 4.7 of the Agreement shall be amended by inserting "Mammalian
Target" after "Selected Target".
10. A new Section 4.8 shall be inserted in to the Agreement as follows:
"4.8 Investigational Materials.
(a) The transfer of Investigational Materials from P&U to Exelixis is
essential to the success of the Collaboration. The Investigational
Materials are and at all times will remain the property of P&U. Nothing in
this Agreement or the transfer of the Investigational Materials hereunder
shall be construed to grant an express or implied license to the
Investigational Materials to Exelixis. Exelixis' rights hereunder shall be
limited to the right to use the Investigational Materials solely for the
purposes of this Agreement. P&U warrants that [ * ].
(b) Exelixis agrees, upon the written request by P&U, to accept those
Investigational Materials that are P&U Compounds without knowledge of their
identity or structures, and not to undertake to determine the identity or
structure of any such Investigational Materials.
(c) Exelixis agrees that the Investigational Materials are a part of
P&U's Confidential Information and as such are subject to the obligations
of confidentiality provided in Article 9 of this Agreement. Exelixis will
at all times retain control of the Investigational Materials and will
provide the Investigational Materials only to Exelixis employees who are
directly involved in providing services under this Agreement. Exelixis
shall not transfer or disclose to any Third Party any Investigational
Materials without the prior written consent of P&U.
(d) P&U shall provide Exelixis with information in P&U's possession
regarding the safe handling of the Investigational Materials and laws and
regulations that apply to the use and/or disposal of the Investigational
Materials, including without limitation those regarding biological
materials such as NIH or equivalent guidelines for work with recombinant
DNA.
(e) THE INVESTIGATIONAL MATERIALS ARE EXPERIMENTAL IN NATURE AND ARE
PROVIDED WITHOUT ANY WARRANTY AS TO THEIR SAFETY OR FITNESS FOR ANY
PARTICULAR PURPOSE OR USE.
[ * ]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
6.
<PAGE>
(f) Without limiting the warranty provided by P&U in subsection (a)
above, acceptance of the Investigational Materials will constitute
Exelixis' acceptance of all liability for any damages or injuries resulting
from Exelixis' possession or use of the Investigational Materials in a
manner that (i) does not comply with the safe handling information provided
by P&U or (ii) is negligent or wrongful.
(g) Exelixis agrees to return or destroy any unused Investigational
Materials in accordance with written instructions from P&U."
11. Section 5.1 of the Agreement shall be replaced with the following:
"5.1 License to P&U.
(a) Subject to the terms of this Agreement, Exelixis hereby grants
P&U an exclusive, worldwide, royalty-bearing license (with the right to
sublicense) under the Pre-existing Technologies and Sole Inventions
Controlled by Exelixis and under Exelixis' interest in the Joint Inventions
(i) to use each Exclusive Selected Target and its Mammalian Target(s) to
search for Collaboration Compounds directed at such Mammalian Target(s) for
activity within the Applicable Field, (ii) to develop, for use in the
Applicable Field, Products and Royalty-Free Products comprising or
incorporating such Collaboration Compounds, (iii) to develop, following [ *
], such Product or Royalty-Free Product for any human indication, and (iv)
to make, have made, use, sell, offer to sell and have sold such Products
and Royalty-Free Products.
(b) Subject to the terms of this Agreement, Exelixis hereby grants
P&U an exclusive, worldwide, royalty-bearing license (with the right to
sublicense) to use the Research Results pertaining to Selected Targets in
the Applicable Field.
(c) Subject to the terms of this Agreement, Exelixis hereby grants
P&U a nonexclusive, worldwide, royalty-bearing license (with the right to
sublicense) under the Pre-existing Technologies and Sole Inventions, in
each case to the extent Controlled, at the time of Target selection, by
Exelixis, and under Exelixis' interest in the Joint Inventions (i) to use
each Non-Exclusive Selected Target and its Mammalian Target(s) to search
for Collaboration Compounds directed at such Mammalian Target(s) for
activity within the Applicable Field, (ii) to develop, for use in the
Applicable Field, Products and Royalty-Free Products comprising or
incorporating such Collaboration Compounds, (iii) to develop, following [ *
], such Product or Royalty-Free Product for any human indication, and (iv)
to make, have made, use, sell, offer to sell and have sold such Products
and Royalty-Free Products."
12. Section 5.2 of the Agreement shall be amended by (i) inserting "Mammalian
Target," after the first occurrence of "Selected Target," in the first
sentence, (ii) inserting ", Mammalian Targets" after "Selected Targets" in
the first sentence, (iii) replacing the
[ * ]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
7.
<PAGE>
second occurrence of "Selected
Target" in the first sentence with "Mammalian Target", and (iv) inserting
"or Mammalian Target" after "Selected Target in the second sentence.
13. Section 5.3(a) of the Agreement shall be amended by inserting "and/or its
Mammalian Target(s)" after each occurrence of "Selected Target".
14. Section 5.4(a) of the Agreement shall be amended by inserting "or Mammalian
Target" after each occurrence of "Selected Target" in every sentence but
the final sentence. In the final sentence, "and its Mammalian Target(s)"
shall be inserted after the first occurrence of "Selected Target".
15. The second sentence of Section 5.5 of the Agreement shall be amended by
replacing "Selected Target" by "Mammalian Target".
16. The last paragraph of Section 6.2 of the Agreement shall be replaced with
the following:
"The exclusivity of the licenses granted to P&U in Sections 5.1(a) and
5.1(b) shall be subject to the grant of licenses to Third Parties
consistent with paragraphs (a) and (b) of this Section 6.2. Upon request
of the JMT, Exelixis shall consult with the JMT from time to time regarding
its procedures for seeking to avoid overlapping research activities on
behalf of multiple Third Parties. The Parties acknowledge and agree that
the restrictions set forth in this Section 6.2 shall not apply to any Mode
of Action Project."
17. Section 7.4 of the Agreement shall be amended by inserting "[ * ]" in the
first sentence after "Selected Target,".
18. Section 7.5 of the Agreement shall be amended by inserting the following
after the last sentence of the last paragraph thereof:
"The royalty payments set forth in this Section 7.5 shall apply to every
Product, regardless of whether it arose from an Exclusive Selected Target
or a Non-Exclusive Selected Target. The Parties agree that P&U shall not
be obliged to make royalty payments to Exelixis for Royalty-Free Products."
19. The second sentence of Section 9.6 of the Agreement shall be amended by
inserting ", Mammalian Target" between "Selected Target" and "or Product".
20. The second sentence of Section 11.3 of the Agreement shall be amended by
inserting ", Mammalian Targets" between "Selected Targets" and "and
Collaboration Compounds".
21. Section 12.1(a) of the Agreement shall be replaced with the following:
"12.1 Indemnification.
(a) P&U hereby agrees to defend and hold harmless Exelixis and its
agents and employees from and against any and all suits, claims, actions,
[ * ]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
8.
<PAGE>
demands, liabilities, expenses and/or loss, including reasonable legal
expenses and reasonable attorneys' fees ("Losses") resulting directly or
indirectly from (i) the manufacture, use, handling, storage, sale or other
disposition of chemical agents, Selected Targets, Mammalian Targets,
Collaboration Compounds or Products by P&U or its Affiliates, agents or
sublicensees except to the extent such Losses result from the negligence or
wrongdoing of Exelixis, (ii) Exelixis' infringement of an intellectual
property right of a Third Party through Exelixis' use of the
Investigational Materials, or (iii) Exelixis' possession, use or disposal
of the Investigational Materials in compliance with the safe handling
information provided by P&U, except to the extent such Losses result from
the negligence or wrongdoing of Exelixis."
The parties agree that this Amendment shall take effect retroactively as of the
Effective Date of the Agreement (as defined in Section 13.1 of the Agreement).
Except as amended hereby, the Agreement shall remain in full force and effect.
EXELIXIS PHARMACEUTICALS, INC. PHARMACIA & UPJOHN AB
By: /s/ George A. Scangos, Ph.D. By: /s/ Goran A. Ando
------------------------------ ---------------------------
Name: George A. Scangos, Ph.D. Name: Goran A. Ando
Title: President & CEO Title: [*] [Executive Vice President,
Pharmacia & Upjohn, Inc.]
[ * ]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
9.
<PAGE>
EXHIBIT 10.16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
among:
Exelixis Pharmaceuticals, Inc.
a Delaware corporation;
MetaXen LLC
a Delaware limited liability company;
And
Xenova Group plc
a corporation organized under the laws of England.
-----------------
Dated as of July 11, 1999
-----------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. Purchase and Sale of Assets; Assumption of Liabilities; Related Agreements............................................... 1
1.1 Assets to be Transferred............................................................................................ 1
1.2 MetaXen Employees................................................................................................... 2
1.3 Know-How License Grant.............................................................................................. 3
1.4 Right of Negotiation................................................................................................ 3
1.5 Lilly Contract...................................................................................................... 3
1.6 Assignment and Assumption Agreement and Consent between and among
Purchaser, Seller; Refund of Deposits Under Subleases............................................................... 4
1.7 Liabilities to be Assumed........................................................................................... 4
1.8 Liabilities Not to be Assumed....................................................................................... 4
1.9 Cash Payments and Adjustments at Closing............................................................................ 4
1.10 Further Action...................................................................................................... 5
1.11 Closing............................................................................................................. 5
2. Representations and Warranties of Seller and Xenova...................................................................... 5
2.1 Due Organization.................................................................................................... 5
2.2 Title to Assets..................................................................................................... 6
2.3 Contracts........................................................................................................... 6
2.4 Proceedings; Orders................................................................................................. 7
2.5 Authority; Binding Nature of Agreements............................................................................. 7
2.6 Non-Contravention; Consents......................................................................................... 7
2.7 Brokers............................................................................................................. 8
2.8 Creditors........................................................................................................... 8
2.9 Tax Returns and Payments............................................................................................ 8
2.10 Ability............................................................................................................. 8
2.11 Full Disclosure..................................................................................................... 9
2.12 Environmental Waste................................................................................................. 9
2.13 Discrimination Claims............................................................................................... 9
2.14 Labor Relations..................................................................................................... 9
3. Representations and Warranties of Xenova................................................................................. 9
</TABLE>
i.
<PAGE>
Table Of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
3.1 Authority of Xenova; Binding Nature of Agreements.................................................................... 9
3.2 Non-Contravention; Consents......................................................................................... 10
3.3 Ability............................................................................................................. 10
4. Representations and Warranties of Purchaser.............................................................................. 11
4.1 Due Organization.................................................................................................... 11
4.2 Authority; Binding Nature of Agreement.............................................................................. 11
4.3 Non-Contravention; Consents......................................................................................... 11
5. Additional Covenants of the Parties...................................................................................... 12
5.1 Further Assurances.................................................................................................. 12
6. Pre-Closing Covenants of the Seller...................................................................................... 12
6.1 Access And Investigation............................................................................................ 12
6.2 Operation Of Business............................................................................................... 13
6.3 Filings and Consents................................................................................................ 14
6.4 Compliance with Environmental Laws.................................................................................. 14
6.5 Notification; Updates to Disclosure Schedule........................................................................ 14
6.6 No Negotiation...................................................................................................... 15
6.7 Best Efforts........................................................................................................ 15
6.8 Confidentiality..................................................................................................... 15
7.1 Best Efforts........................................................................................................ 15
7.2 Employment Offers................................................................................................... 15
7.3 Interference With Seller's Business................................................................................. 15
7.4 Confidentiality..................................................................................................... 16
7.5 Filings and Consents................................................................................................ 16
8. Conditions Precedent to the Purchaser's Obligation to Close.............................................................. 16
8.1 Accuracy Of Representations......................................................................................... 16
8.2 Performance Of Obligations.......................................................................................... 16
8.3 Consents............................................................................................................ 17
8.4 No Material Adverse Change.......................................................................................... 17
8.5 Additional Documents................................................................................................ 17
8.6 No Proceedings...................................................................................................... 17
</TABLE>
ii.
<PAGE>
Table Of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
8.7 No Prohibition...................................................................................................... 17
9. Conditions Precedent to the Seller's Obligation to Close................................................................. 17
9.1 Accuracy Of Representations......................................................................................... 18
9.2 Purchaser's Performance............................................................................................. 18
10. Indemnification, Etc..................................................................................................... 18
10.1 Survival of Representations and Covenants.......................................................................... 18
10.2 Indemnification by Xenova.......................................................................................... 19
(b) Nonexclusivity of Indemnification Remedies.................................................................. 20
10.3 Indemnification Procedures; Defense of Third Party Claims.......................................................... 20
10.4 Exercise of Remedies by Indemnitees Other Than Purchaser........................................................... 21
10.5 Indemnification by Purchaser....................................................................................... 21
(b) Nonexclusivity of Indemnification Remedies.................................................................. 21
10.6 Indemnification Procedures; Defense of Third Party Claims.......................................................... 22
11. Miscellaneous Provisions................................................................................................. 23
11.1 Further Assurances................................................................................................. 23
11.2 Payment of all Federal and State Taxes due on Sale of Assets by Seller............................................. 23
11.3 Fees and Expenses.................................................................................................. 23
11.4 Attorneys' Fees.................................................................................................... 23
11.5 Notices............................................................................................................ 23
11.6 Publicity.......................................................................................................... 25
11.7 Time of the Essence................................................................................................ 25
11.8 Headings........................................................................................................... 25
11.9 Counterparts....................................................................................................... 26
11.10 Governing Law; Dispute Resolution.................................................................................. 26
11.11 Successors and Assigns; Assignment................................................................................. 26
11.12 Waiver............................................................................................................. 27
</TABLE>
iii.
<PAGE>
Table Of contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
11.13 Amendments............................................................................................................ 27
11.14 Severability.......................................................................................................... 27
11.15 Parties in Interest................................................................................................... 27
11.16 Entire Agreement...................................................................................................... 27
11.17 Construction.......................................................................................................... 27
</TABLE>
iv.
<PAGE>
EXHIBITS
Exhibit A: Employees
Exhibit B: Certain Definitions
Exhibit C: Assignment and Assumption Agreement and Consent
Exhibit D: Form of Opinion (Seller's Counsel)
Exhibit E: Form of Opinion (Xenova's Counsel)
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is entered into as of July 11, 1999 (the
"Effective Date"), by and between Exelixis Pharmaceuticals, Inc., a Delaware
corporation ("Purchaser"), Xenova Group plc, a corporation organized under the
laws of England ("Xenova") and MetaXen LLC, a Delaware limited liability company
and majority-owned subsidiary of Xenova ("Seller"). Certain capitalized terms
used in this Agreement are defined in Exhibit B.
Recitals
A. Seller is engaged and has been engaged in the business of
providing customized scientific research services in connection
with the design and synthesis of pharmaceuticals (Seller's
activities and operations being herein referred to as the
"Business").
B. Seller, together with its parent company, Xenova, have been
engaged in performing collaborative research pursuant to an
agreement with Eli Lilly & Co. (the "Lilly Contract" as
hereinafter defined).
C. Seller and Xenova desire to sell and assign to Purchaser certain
of the assets used in Seller's business, to have Purchaser assume
certain of Seller's liabilities from such business, and to have
Purchaser perform certain services on Seller's behalf under the
Lilly Contract.
D. Purchaser desires to purchase such assets and assume such from
Seller, and perform certain responsibilities on a subcontractor
basis for Seller under Seller's agreement with Lilly, on the
terms set forth herein.
Agreement
Purchaser, Seller and Xenova, intending to be legally bound, agree as
follows:
1. Purchase and Sale of Assets; Assumption of Liabilities; Related
Agreements
1.1 Assets to be Transferred. Upon the terms and subject to the
conditions of this Agreement, on the Closing Date (as hereinafter defined),
Seller shall, and Xenova shall cause Seller to, sell, transfer, convey, assign,
grant and deliver to Purchaser, and Purchaser shall purchase, acquire and
receive, the following properties, rights, claims and assets used in the
Business:
(a) Equipment. All equipment and other assets subject to (i) the
Loan and Security Agreement between MMC/GATX Partnership No.1 and Seller dated
July 31, 1997 (the "MMC Agreement"), which equipment and other assets are
identified in Part 1.1(a)(i) of the Disclosure Schedule, (ii) the Master Lease
Agreement between Comdisco and Seller dated July 24, 1997 (the "Comdisco
Agreement"), which equipment and other assets are identified in Part 1.1(a)(ii)
of the Disclosure Schedule (the "Equipment") and such additional equipment and
other assets owned by Seller as are identified on Part 1.1(a)(iii) of the
Disclosure Schedule.
<PAGE>
(b) Contracts. All of Seller's rights under the Seller Contracts
listed in Part 1.1(b) of the Disclosure Schedule (the "Assumed Contracts").
(c) Inventory. All research supplies and such other assets used
in the conduct of Seller's research and development activities (other than the
Equipment) as are listed on Part 1.1(c) of the Disclosure Schedule (the
"Inventory").
(d) Prepaid Expenses. All of Seller's rights under purchase
orders or contracts for the prepaid items and services listed on Part 1.1(d) of
the Disclosure Schedule (the "Prepaid Expenses").
All of the foregoing assets are hereinafter collectively referred to as the
"Purchased Assets."
All other assets of Seller including, without limitation, proprietary rights of
Seller, Xenova and any third party; accounts receivable; equipment; and other
tangible and intangible personal property, remain the property of Seller and are
not subject to this Agreement. The parties agree that the removal of such of
assets from the premises described in Section 1.6, including without limitation,
proprietary software, data, databases, and other proprietary or otherwise
confidential information, shall be the responsibility of Seller. Without
limiting the foregoing, certain files, records, data or other assets which are
required for Purchaser to perform its obligations under any subcontract it may
enter into with respect to the Lilly Contract as provided in Section 1.5
("Lilly-Related Materials") shall not be removed from Purchaser's premises until
the end of Purchaser's transitional responsibilities, if any, under any such
subcontract. During Purchaser's transitional responsibilities under any such
subcontract, Purchaser shall cooperate with Seller to use commercially
reasonable efforts to segregate or otherwise limit access to any Lilly-Related
Materials as necessary to meet any confidentiality and nondisclosure obligations
that Seller may have under or relating to the Lilly Contract.
1.2 MetaXen Employees. On or promptly following the Effective Date,
in connection with Purchaser's acquisition of the Purchased Assets pursuant to
this Agreement, Purchaser shall extend employment offers to all Seller employees
set forth on Exhibit A (the "Employees"). Such offers shall be for employment
"at-will" on terms and conditions to be negotiated between Purchaser and such
employees, including without limitation appropriate equity and cash compensation
and benefits packages that when taken as a whole are no less favorable to such
employees than those provided by Seller to such employees. Xenova and Seller
shall use their Best Efforts to avoid the loss of any employees during the
PreClosing Period. If the Closing is delayed until after July 30, 1999 pursuant
to Section 1.11 then Xenova and Seller will use Best Efforts to transfer
Employees not involved in the performance of research and development activities
pursuant to the Lilly Contract to Purchaser during the Pre-Closing Period, and
shall take all actions necessary to enable the transfer of any such Employees
that are performing research and development activities under the Lilly Contract
to Purchaser promptly after the first to occur of (i) the execution of a
subcontract agreement between Seller and Purchaser as set forth in Section 1.5
and the concurrence therein by Lilly, and (ii) the completion of each such
Employee's research and development obligations under the Lilly Contract (with
the transfer of all Employees accepting Purchaser's offer of employment to occur
2
<PAGE>
no later than September 30, 1999). The parties shall cooperate to achieve a
smooth transition for such employees to Purchaser after the Closing Date.
1.3 Know-How License Grant. The parties acknowledge that in the
course of conducting lead discovery work for Seller, the Employees learned
certain skills that may be covered by Seller's intellectual property rights and
that such Employees are likely to retain such skills. Seller hereby grants to
Purchaser a perpetual, nonexclusive, royalty-free, sublicensable license under
Seller's know-how to continue to practice methods of utilizing equipment,
running tests or performing assays. Subject to Sections 1.4 and 1.5, such
license shall specifically exclude (i) any rights to practice any patents or to
use any software owned by Seller and (ii) any rights to Seller's proprietary
software, data, databases, or Seller's proprietary equipment, tests or assays
related to ADME, plasminogen activator inhibitor, multidrug resistance, the
performance of the Lilly Contract or other of Seller's and Xenova's proprietary
assays, and (iii) any of Seller's and Xenova's proprietary predictive modeling
technologies. ("Retained IP") However, Purchaser may obtain rights under
Retained IP relating to (i) software, (ii) proprietary equipment, tests or
assays related to ADME, and (iii) predictive modeling technologies ("Licensable
IP") by exercising its right of negotiation provided in Section 1.4 and, to the
extent the parties satisfactorily negotiate same, entering into a separate
agreement with Seller governing such a license.
1.4 Right of Negotiation. If at any time within one hundred eighty
(180) days after the Closing, Purchaser desires to obtain a nonexclusive license
under Seller's Licensable IP, then it shall so notify Seller in writing. The
parties shall during the sixty (60) day period following Seller's receipt of
such notice from Purchaser discuss in good faith the terms and conditions under
which Seller shall grant such a license to Purchaser, which terms and conditions
shall be no less favorable than the terms and conditions granted by Seller to
any other third party licensee.
1.5 Lilly Contract. As additional consideration for the Purchased
Assets and the proposed employment of the Employees, Purchaser agrees to enter
into an agreement with Seller and Xenova whereunder Purchaser shall agree act as
a subcontractor to Seller to perform Seller's obligations under the research
program being conducted pursuant to the Research and License Agreement between
Seller, Xenova and Eli Lilly and Company ("Lilly") dated February 16, 1998 (the
"Lilly Contract") until October 1, 1999, or such earlier date as the parties and
Lilly may agree. Such agreement shall provide for Purchaser to use all
commercially reasonable efforts to perform Seller's obligations under the Lilly
Contract, including, without limitation, the application of all assets,
equipment and employees of Seller which have previously been applied to such
tasks. Such agreement shall also provide for (i) Seller to grant to Purchaser
any intellectual property licenses necessary to perform such activities under
the Lilly Contract solely for the purpose of conducting such activities for
Lilly, (ii) Seller to pay to Purchaser a portion of all research support
payments due to Seller pursuant to Section 1.2 from Lilly for Purchaser's
performance of research and development work under the Lilly Contract on a
subcontract basis (with Seller reimbursing Purchaser on an FTE basis for such
work), (iii) Xenova to guarantee Seller's obligations to Purchaser under the
agreement, and (iv) Seller and Xenova to indemnify and hold harmless Purchaser
from and against any claims, liabilities, damages, or suits arising out of or
relating to Purchaser's performance of research and development thereunder,
except to
3
<PAGE>
the extent arising out of Purchaser's gross negligence, recklessness or willful
misconduct. Any delegation of duties and pass through of research support
payments by Seller to Purchaser under the Lilly Contract shall be subject to
Lilly's consent. In the event Lilly's consent thereto cannot be obtained despite
the good faith efforts of the parties, then the parties shall delay the Closing
until Seller completes its obligations to Lilly under the Lilly Contract, which
shall in no event occur after September 30, 1999. Seller and Xenova shall use
Best Efforts to obtain Lilly's consent to the foregoing agreement between Seller
and Purchaser, and if despite using such efforts Lilly does not agree to such
subcontracting arrangement, Seller and Xenova shall use their Best Efforts to
wind down Seller's research and development obligations under the Lilly Contract
as rapidly as practicable in accordance with Seller's obligations under the
Lilly Contract. If Seller, Xenova and Purchaser enter into an agreement as
described in this Section 1.5, Xenova shall retain all rights under the Lilly
Contract, including those with respect to the receipt of milestone payments,
research and development payments for activities performed by Xenova employees
thereunder, and royalties, without any obligation to share such payments or
rights with Purchaser.
1.6 Assignment and Assumption Agreement and Consent between and among
Purchaser, Seller; Refund of Deposits Under Subleases. At the Closing,
Purchaser, Seller and Xenova shall enter into the Assignment and Assumption
Agreement and Consent in substantially the form attached hereto as Exhibit C
relating to the Build to Suit Lease with Britannia Pointe Grand Limited
Partnership ("Britannia") dated May 27, 1997, as amended (the "Britannia
Agreement"). Purchaser shall assume the Britannia Agreement subject to the
Sublease Agreement between Seller, Britannia and Cytokinetics, Inc. dated May 1,
1998, as amended (the "Cytokinetics Sublease"). Additionally, at the closing,
Seller shall transfer to Purchaser, or credit against amounts due by Purchaser
to Seller pursuant to Section 1.9, the $104,500 security deposit paid by
Cytokinetics, Inc. to Seller pursuant to Section 4(b) of the Cytokinetics
Sublease, and in connection with the foregoing Assignment and Assumption
Agreement and Consent and the Sublease Agreement between Seller, Purchaser and
Britannia dated March 1, 1999, at the Closing Seller shall refund to Purchaser
or credit against amounts due to Seller hereunder the $50,944 security deposit
paid by Purchaser to Seller pursuant to Section 5 of such agreement.
1.7 Liabilities to be Assumed. Upon the terms and subject to the
conditions of this Agreement, as supplemented by the terms and conditions of the
Assignment and Assumption Agreement and Consent to be entered into pursuant to
Section 1.6, on the Closing Date, Purchaser shall assume and agree to perform
and discharge Seller's Liability arising on and after the Closing Date (i) with
respect to the Purchased Assets and (ii) under and pursuant to the Assumed
Contracts (together, the "Assumed Liabilities").
1.8 Liabilities Not to be Assumed. Except as, and to the extent
specifically set forth in Section 1.7 with respect to the Assumed Liabilities,
Purchaser is not assuming any other Seller Liabilities (the "Excluded
Liabilities") or Contracts of Seller and all such Excluded Liabilities and
Contracts shall be and remain the responsibility of Seller.
1.9 Cash Payments and Adjustments at Closing. At the Closing (as
defined in Section 1.11), Purchaser will pay Seller (by check or wire transfer)
an amount equal to the book value of the Equipment, the Inventory and Prepaid
Expenses included in the Purchased
4
<PAGE>
Assets as of the Closing Date, plus any amounts to be reimbursed or credited to
Seller pursuant to Section 1.6 or this Section 1.9, less any amounts to be
reimbursed or credited to Purchaser pursuant to Section 1.6. As of June 30,
1999, the parties have determined that the book value of the Equipment is
$553,570, the book value of the Inventory is $70,000, and the book value of the
Prepaid Expenses is $76,802. In determining amounts due to Seller pursuant to
this Section 1.9, on and as of the Closing Date, the Purchaser and the Seller
shall pro rate all payments made by Seller under the Assumed Contracts in
advance of the Closing Date with respect to payments applicable to the month in
which the Closing Date occurs. In addition, the deposit made by Seller under the
Britannia Agreement shall be remitted to Seller, or in lieu of such remittance,
the amount of such deposits shall be added to the Purchase Price and paid to the
Seller by the Purchaser. On the Closing Date, or as soon as practicable
thereafter, the Seller and Purchaser shall develop in good faith a statement of
adjustments setting forth the various allocations described in this Section 1.9.
Any party owing funds to the other party shall remit such amounts as soon as
practicable, but in any event within 30 days after demand therefor.
1.10 Further Action. If, at any time after the Closing, any further
action shall be necessary on the part of any party hereto to effect the
intentions of the parties as expressed in this Agreement, each such party shall
take all such further action as may reasonably be necessary to effectuate such
intentions.
1.11 Closing. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Cooley Godward
LLP, 3000 El Camino Real, Palo Alto, California on July 30, 1999 (or at such
other place as Purchaser and Seller shall designate), at 9:00 a.m. (California
time). In the event the Closing is delayed pursuant to Section 1.5, then the
Closing shall occur within five (5) business days following (a) notice from
Seller that it desires to proceed with the Closing or (b) completion of Seller's
research and development obligations under the Lilly Contract; but in any case
not later than September 30, 1999. For purposes of this Agreement, "Closing
Date" shall mean to the time and date as of which the Closing actually takes
place. Each party shall receive such other documents as it may reasonably
request for the purpose of evidencing or effecting the transactions contemplated
by this Agreement, each of which shall be in full force and effect.
2. Representations and Warranties of Seller and Xenova
Seller and Xenova jointly and severally represent and warrant as follows:
2.1 Due Organization.
(a) Seller is a limited liability company duly organized under
the laws of the State of Delaware, and has all necessary power and authority:
(i) to conduct its business in the manner in which the
Business is currently being conducted; and
(ii) to own and use its assets in the manner in which its
assets are currently owned and used.
5
<PAGE>
(b) Neither Seller nor Xenova has ever approved, or commenced
any proceeding or made any election contemplating, the winding up or cessation
of Seller's business or affairs.
2.2 Title to Assets. Except as set forth in Part 2.2 of the
Disclosure Schedule, Seller owns, and has good, valid and marketable title to,
all Purchased Assets (it being understood that title to all assets acquired
under the Assumed Contracts which are "leased assets" thereunder shall be
subject only to the terms of such Assumed Contracts. Except as set forth in Part
2.2 of the Disclosure Schedule, all of the Purchased Assets are owned by Seller
free and clear of any Encumbrance.
2.3 Contracts.
(a) Part 1.1(b) of the Disclosure Schedule identifies the
Assumed Contracts. Seller has made available to Purchaser an accurate and
complete copy of the Assumed Contracts identified in Part 1.1(b) of the
Disclosure Schedule, including all amendments thereto, and has disclosed to
Purchaser the amounts owed thereunder.
(b) The Assumed Contracts are valid and in full force and
effect, and each is enforceable by the Seller in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.3(c) of the Disclosure
Schedule:
(i) Seller has not, and to the best of the Knowledge of
Seller, no other Person has, violated or otherwise Breached, or declared or
committed any default under, or termination of, any Assumed Contract;
(ii) To the best of the Knowledge of Seller and Xenova, no
event has occurred, and no circumstance or condition exists, that might (with or
without notice or lapse of time) (A) result in a violation or other Breach of
any of the provisions of the Assumed Contracts, (B) give any Person the right to
declare a default or exercise any remedy under the Assumed Contracts, (C) give
any Person the right to accelerate the maturity or performance of the Assumed
Contracts or (D) give any Person the right to cancel, terminate or modify the
Assumed Contracts;
(iii) Seller has not received any notice or other
communication (in writing or otherwise) regarding any actual, alleged, possible
or potential violation or Breach of, or default under, any of the Assumed
Contracts; and
(iv) Seller has not waived any of its rights under any of
the Assumed Contracts.
(d) The performance of the Assumed Contracts will not result in
any violation of or failure to comply with any Legal Requirement.
6
<PAGE>
2.4 Proceedings; Orders.
(a) Except as set forth in Part 2.4(a) of the Disclosure
Schedule, there is no pending Proceeding, and to the best of the Knowledge of
Seller and Xenova, no Person has threatened to commence any Proceeding:
(i) that involves Seller or that otherwise relates to or
might affect the Purchased Assets, the Transactional Agreements or the ability
of Seller or Xenova to perform the Transactions; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
Transactions.
Except as set forth in Part 2.4(a) of the Disclosure Schedule, to the best of
the Knowledge of Seller and Xenova, no event has occurred, and no claim, dispute
or other condition or circumstance exists, that might directly or indirectly
give rise to or serve as a basis for the commencement of any such Proceeding.
Seller has delivered to Purchaser accurate and complete copies of all pleadings,
correspondence and other written materials to which Seller has access that
relate to the Proceedings identified in Part 2.4(a) of the Disclosure Schedule.
(b) There is no Order to which Seller, or any of the assets
owned or used by Seller, is subject; and Xenova is not subject to any Order that
relates to the Business or to any of the assets owned or used by Seller.
2.5 Authority; Binding Nature of Agreements.
(a) Seller has the right, power and authority to enter into and
to perform its obligations under this Agreement.
(b) The execution, delivery and performance by Seller of this
Agreement have been duly authorized by all necessary action on the part of
Seller and its members.
(c) This Agreement constitutes the legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
2.6 Non-Contravention; Consents. Except as set forth in Part 2.6 of
the Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of Seller's operating agreement or (ii) any resolution
adopted by Seller's members;
7
<PAGE>
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Seller, or any of the assets owned or used by
Seller, is subject;
(c) contravene, conflict with or result in a violation or Breach
of, or result in a default under, any provision of any Assumed Contract;
(d) give any Person the right to (i) declare a default or
exercise any remedy under any Seller Contract, (ii) accelerate the maturity or
performance of any Seller Contract or (iii) cancel, terminate or modify any
Assumed Contract; or
(e) result in the imposition or creation of any Encumbrance upon
or with respect to the Purchased Assets.
Except as set forth in Part 2.6 of the Disclosure Schedule, Seller was not, is
not or will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with the execution and
delivery of any of the Transactional Agreements or the consummation or
performance of any of the Transactions.
2.7 Brokers. Neither Seller nor Xenova has agreed or become
obligated to pay, or has taken any action that might result in any Person
claiming to be entitled to receive, any brokerage commission, finder's fee or
similar commission or fee in connection with any of the Transactions.
2.8 Creditors. Part 2.8 of the Disclosure Schedule provides an
accurate and complete list of all creditors of Seller to which Seller owes
$5,000 or more (whether or not such amounts have accrued). Seller is not in
default of any of its obligations to its creditors.
2.9 Tax Returns and Payments. Seller has filed all Tax returns and
reports as required by law. Seller has paid all Taxes and other assessments due
and has made adequate provision for Taxes due or accrued as of the date hereof.
Seller has not been advised of any Tax deficiency proposed or assessed against
it and has not executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge. Seller has not been
advised that any of its federal income tax returns or state income or franchise
tax or sales or use tax returns have been audited by governmental authorities.
Seller has withheld or collected from each payment made to each of its employees
the amount of all Taxes required to be withheld or collected therefrom, and has
paid the same to the proper tax receiving officers or authorized depositaries.
2.10 Ability. Seller has not, at any time, (A) made a general
assignment for the benefit of creditors, (B) filed or had filed against it any
bankruptcy petition or similar filing, (C) suffered the attachment or other
judicial seizure of all or a substantial portion of Seller's assets, (D)
admitted in writing Seller's inability to pay Seller's debts as they become due,
(E) been convicted of, or pleaded guilty to, any felony or (F) taken or been the
subject of any action that
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may have an adverse effect on Seller's ability to comply with or perform any of
its covenants or obligations under any of the Transactional Agreements.
2.11 Full Disclosure.
(a) This Agreement does not (i) contain any representation,
warranty or information of or with respect to Seller or Xenova that is false or
misleading with respect to any material fact, or (ii) omit to state any material
fact necessary in order to make the representations, warranties and information
of or with respect to Seller or Xenova contained and to be contained herein and
therein (in the light of circumstances under which such representations,
warranties and information were or will be made or provided) not false or
misleading.
(b) All of the information set forth in the Disclosure Schedule
is accurate and complete in all respects.
2.12 Environmental Waste. Seller is in compliance in all material
respects with applicable Environmental Laws, including without limitation those
relating to maintenance, use or disposal of hazardous materials. There is no
Proceeding, notice of violation, or demand letter pending or threatened against
the Seller relating in any way to the Environmental Laws.
2.13 Discrimination Claims. There are no discrimination charges
relating to sex, sexual harassment, age, race, national origin, mental or
physical disability, or other protected category, pending, or to the best of
Seller's knowledge, threatened against Seller, or involving Seller or its
employees, before any federal, state, county or local court, agency, board,
commission, authority or other subdivision thereof.
2.14 Labor Relations. There is no unfair labor practice complaint, or
any Proceeding under the National Labor Relations Board, pending against the
Seller, or to the best of Seller's knowledge, threatened against the Seller.
There is no labor strike or similar dispute pending or to the best of Seller's
knowledge threatened against or involving Seller. Seller is not a party to or
bound by any collective bargaining agreement with any employees of Seller, and
no collective bargaining agreement is currently being negotiated by Seller with
respect to its employees.
3. Representations and Warranties of Xenova
Xenova represents and warrants as follows:
3.1 Authority of Xenova; Binding Nature of Agreements. Xenova has
the right, power and capacity to enter into and to perform Xenova's obligations
under each of the Transactional Agreements to which Xenova is or may become a
party. This Agreement constitutes the legal, valid and binding obligation of
Xenova, enforceable against Xenova in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief of
debtor, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies. Upon the execution of each of the other
Transactional Agreements at the Closing, each of such other Transactional
Agreements to which
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Xenova becomes a party will constitute the legal, valid and binding obligation
of Xenova, and will be enforceable against Xenova in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtor, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
3.2 Non-Contravention; Consents. Except as set forth in Part 3.2 of
the Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Xenova is subject; or
(b) contravene, conflict with or result in a violation or Breach
of or a default under any provision of, or give any Person the right to declare
a default under, any Contract to which Xenova is a party or by which Xenova is
bound.
3.3 Ability.
(a) Xenova:
(i) has not, at any time, (A) made a general assignment
for the benefit of creditors, (B) filed, or had filed against Xenova, any
bankruptcy petition or similar filing, (C) suffered the attachment or other
judicial seizure of all or a substantial portion of Xenova's assets, (D)
admitted in writing Xenova's inability to pay Xenova's debts as they become due,
(E) been convicted of, or pleaded guilty to, any felony, or (F) taken or been
the subject of any action that may have an adverse effect on Xenova's ability to
comply with or perform any of Xenova's covenants or obligations under any of the
Transactional Agreements; and
(ii) is not subject to any Order that may have an adverse
effect on Xenova's ability to comply with or perform any of Xenova's covenants
or obligations under any of the Transactional Agreements.
(b) There is no Proceeding pending, and, to Xenova's Knowledge,
no Person has threatened to commence any Proceeding, that may have an adverse
effect on the ability of Xenova to comply with or perform any of Xenova's
covenants or obligations under any of the Transactional Agreements. To Xenova's
knowledge, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that might directly or indirectly give rise to or serve as
a basis for the commencement of any such Proceeding.
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4. Representations and Warranties of Purchaser
Purchaser represents and warrants as follows:
4.1 Due Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
4.2 Authority; Binding Nature of Agreement.
(a) Purchaser has the right, power and authority to enter into
and perform its obligations under this Agreement.
(b) The execution, delivery and performance of this Agreement by
Purchaser have been duly authorized by all necessary action on the part of
Purchaser and its Board of Directors.
(c) This Agreement constitutes the legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtor, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
4.3 Non-Contravention; Consents. Neither the execution and delivery of
any of the Transactional Agreements, nor the consummation or performance of any
of the Transactions, will directly or indirectly (with or without notice or
lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of Purchaser's Certificate of Incorporation or bylaws or (ii)
any resolution adopted by Purchaser's stockholders or Purchaser's Board of
Directors; or
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Purchaser or any of the assets owned or used
by Purchaser is subject.
(c) contravene, conflict with or result in a violation of, or give
any third party the right to challenge any of the Transactions or to exercise
any remedy under any material agreement of Purchaser.
(d) Purchaser was not, is not and will not be required to make any
filing with or give any notice to, or to obtain any Consent from, any Person in
connection with the execution and delivery of any of the Transactional
Agreements or the consummation or performance of any of the Transactions.
(e) Purchaser has the financial wherewithall to assume and perform
the Assumed Liabilities.
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5. Additional Covenants of the Parties
5.1 Further Assurances.
(a) If, at any time after Closing, any further action is
determined by any party to this Agreement to be reasonably necessary or
desirable to carry out the purposes of this Agreement, Purchaser, Seller and
Xenova each agree to take such action.
(b) To the extent that the Assumed Contracts (other than the MMC
Agreement, the Comdisco Agreement and the Britannia Agreement, the assumption of
which shall be a condition to Closing) for which assignment to Purchaser is
provided pursuant to Section 1.1(a) are not assignable without the Consent of
another Person, this Agreement shall not constitute an assignment or an
attempted assignment thereof if such assignment or attempted assignment would
constitute a breach thereof. Xenova, Seller and Purchaser agree to use
commercially reasonable Best Efforts (without any requirement on the part of
Purchaser to pay any money or agree to any change in the terms of such Contract)
to obtain the Consent of such other Person to the assignment of such Assumed
Contracts to Purchaser in all cases in which such Consent is or may be required
for such assignment. If any such Consent shall not be obtained, Xenova and
Seller agree to cooperate with Purchaser in any reasonable arrangement mutually
satisfactory to all parties designed to provide for Purchaser the benefits
intended to be assigned to Purchaser under the Assumed Contracts, including
enforcement at the cost of Seller and for the account of Purchaser of any and
all rights of Seller against the other party thereto arising out of the breach
or cancellation thereof by such other party or otherwise. If, and to the extent
that, such arrangement cannot be made, Purchaser, upon notice to Seller, shall
have no obligation pursuant to this Agreement with respect to such Assumed
Contracts (other than the MMC Agreement, the Comdisco Agreement and the
Britannia Agreement, the assumption of which shall be a condition to Closing)
and such Assumed Contracts shall not be deemed to be a Purchased Asset. In such
event, the parties shall negotiate in good faith an adjustment to the
consideration paid by Purchaser for the Purchased Assets to reflect the Assumed
Contracts not transferred to Purchaser and the fees, costs and expenses
(including reasonable attorneys' fees) incurred by Purchaser in connection with
the parties' efforts to assign the Assumed Contracts to Purchaser.
6. Pre-Closing Covenants of the Seller.
6.1 Access And Investigation. Xenova and the Seller shall ensure that,
at all times during the Pre-Closing Period: (a) the Seller and its
Representatives provide the Purchaser and its Representatives with such
reasonable access to the Seller's Representatives, personnel and assets and to
all existing books, records, Tax Returns, work papers and other documents and
information relating to the Purchased Assets and the Transactions as necessary
to permit Purchaser to complete its reasonable due diligence obligations with
respect thereto; (b) the Seller and its Representatives provide the Purchaser
and its Representatives with such copies of existing books, records, Tax
Returns, work papers and other documents and information relating to the
Purchased Assets and Assumed Liabilities as the Purchaser may reasonably request
in good faith; and (c) the Seller and its Representatives compile and provide
the Purchaser and its
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Representatives with such additional financial, operating and other data and
information relating to the Purchased Assets and Assumed Liabilities as the
Purchaser may request in good faith.
6.2 Operation Of Business. Xenova and the Seller shall ensure that,
during the Pre-Closing Period:
(a) the Seller conducts its operations relating to the Purchased
Assets or otherwise to the Transactions exclusively in the Ordinary Course of
Business and in the same manner as such operations have been conducted prior to
the date of this Agreement;
(b) the Seller, to the extent related to the Purchased Assets and
the Transactions, uses commercially reasonable Best Efforts to (i) preserve
intact its current business organization, (ii) keep available the services of
its current officers and employees, (iii) maintain its relations and good will
with all landlords, creditors, licensors, licensees, employees, independent
contractors and other Persons having business relationships with the Seller and
(iv) promptly repair, restore or replace any Purchased Assets that are destroyed
or damaged;
(c) the officers of the Seller confer regularly with the Purchaser
concerning operational matters and otherwise report regularly to the Purchaser
concerning the status of the Seller's assets, liabilities, and operations to the
extent related to the Purchased Assets and the Transactions;
(d) the Seller does not take any actions that may increase the
amounts due by Seller under the MMC Agreement or the Comdisco Agreement;
(e) the Seller does not effect or become a party to any
Acquisition Transaction;
(f) the Seller does not enter into or permit any of the Purchased
Assets to become bound by any Contract (except the Lilly Contract or as
expressly provided for in Section 1);
(g) the Seller does not commence or settle any Proceeding relating
to the Purchased Assets or the Transactions;
(h) the Seller does not enter into any transaction or take any
other action outside the Ordinary Course of Business with respect to the
Purchased Assets or the Transactions;
(i) the Seller does not enter into any transaction or take any
other action that might cause or constitute a Breach of any representation or
warranty made by Xenova or the Seller in this Agreement;
(j) Seller will not discourage Employees from accepting
Purchaser's offer of employment or take any action that would interfere with the
Employees' ability or willingness to accept Purchaser's offer of employment; and
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(k) the Seller does not agree, commit or offer (in writing or
otherwise) to take any of the actions described in clauses "(d)" through "(j)"
of this Section 6.2.
6.3 Filings and Consents. Xenova and Seller shall ensure that: (a) all
filings, notices and Consents required to be made, given and obtained in order
to consummate the Transactions are made, given and obtained on a timely basis;
and (b) during the Pre-Closing Period, Xenova and Seller shall each cooperate
with the other and with each others' Representatives, and prepare and make
available such documents and take such other actions as the others may request
in good faith, in connection with any filing, notice or Consent that such party
is required or elects to make, give or obtain.
6.4 Compliance with Environmental Laws. Seller shall operate its
Business during the Pre-Closing Period in compliance in all material respects
with all limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables provided in the
Environmental Laws, including without limitation those relating to maintenance
or disposal of hazardous materials and shall provide Purchaser with
documentation regarding same. Without limitation, during the Pre-Closing Period,
Seller shall dispose of all hazardous material waste that is located on the
premises to be leased to Purchaser pursuant to the Britannia Agreement and the
Assignment and Assumption and Consent Agreement to be entered into pursuant to
Section 1.6 in accordance with applicable Environmental Laws, at Seller's sole
expense.
6.5 Notification; Updates to Disclosure Schedule. During the Pre-
Closing Period, Xenova and the Seller shall promptly notify the Purchaser in
writing of: (a) the discovery by Xenova or the Seller of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a Breach of any representation or
warranty made by Xenova or the Seller in this Agreement; (b) any event,
condition, fact or circumstance that occurs, arises or exists after the date of
this Agreement and that would cause or constitute a Breach of any representation
or warranty made by Xenova or the Seller in this Agreement if (i) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (ii)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement; (c) any Breach of any covenant or
obligation of Xenova or the Seller; and (d) any event, condition, fact or
circumstance that may make the timely satisfaction of any of the conditions set
forth in Section 8 impossible or unlikely. If any event, condition, fact or
circumstance that is required to be disclosed pursuant to this Section 6.5
requires any change in the Disclosure Schedule, or if any such event, condition,
fact or circumstance would require such a change assuming the Disclosure
Schedule were dated as of the date of the occurrence, existence or discovery of
such event, condition, fact or circumstance, then Xenova and the Seller shall
promptly deliver to the Purchaser an update to the Disclosure Schedule
specifying such change. No such update shall be deemed to supplement or amend
the Disclosure Schedule for the purpose of determining whether any of the
conditions set forth in Section 8 has been satisfied. In the event any such
change in the Disclosure Schedule results in a material change in the Seller's
ability to make the representations and warranties made herein, then Purchaser
shall be entitled not to conduct the Closing in view of such update or may
request that Xenova and Seller agree in writing to negotiate with Purchaser in
good faith an appropriate modification to
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the Purchase Price to take into account any such supplemental information, which
request shall not be unreasonably denied.
6.6 No Negotiation. Xenova and the Seller shall ensure that, during
the Pre-Closing Period, neither Xenova nor the Seller, nor any Representatives
of Xenova or Seller, directly or indirectly: (a) solicits or encourages the
initiation of any inquiry, proposal or offer from any Person (other than the
Purchaser) relating to any Acquisition Transaction; (b) participates in any
discussions or negotiations with, or provides any non-public information to, any
Person (other than the Purchaser) relating to any proposed Acquisition
Transaction; or (c) considers the merits of any unsolicited inquiry, proposal or
offer from any Person (other than the Purchaser) relating to any Acquisition
Transaction.
6.7 Best Efforts. During the Pre-Closing Period, Xenova and Seller
shall use their commercially reasonable Best Efforts to cause the conditions set
forth in Section 8 to be satisfied on a timely basis.
6.8 Confidentiality. Except as provided in Section 11.6, Xenova and
Seller shall ensure that, during the Pre-Closing Period, neither Seller nor
Xenova, nor any of their Representatives, issues or disseminates any press
release or other publicity or otherwise makes any disclosure of any nature to
any other Person regarding any of the Transactions or the existence or terms of
this Agreement, except to the extent that Xenova or Seller is required by law to
make any such disclosure. Xenova or Seller shall provide to Purchaser a draft of
any disclosure to be made pursuant to this Section 6.8 for review and comment by
Purchaser at least one (1) business day in advance of the date upon which such
release shall be made.
7. Pre-Closing Covenants of the Purchaser.
7.1 Best Efforts. During the Pre-Closing Period, the Purchaser shall
use its commercially reasonable Best Efforts to cause the conditions set forth
in Section 9 to be satisfied.
7.2 Employment Offers. Purchaser shall extend offers of employment to
the individuals listed on Exhibit A on the terms and conditions set forth in
Section 1.2 hereof, such employment to become effective as of the Closing.
7.3 Interference With Seller's Business. Purchaser shall not take any
action between signing and closing to interfere with Seller's conduct of its
business in the ordinary course. Without limiting the foregoing, during the Pre-
Closing Period Purchaser shall not extend offers of employment to any
individuals listed on Exhibit A other than on the terms and conditions set forth
in Section 1.2 hereof and only in connection with the occurrence of the Closing
hereunder. Should such Closing not occur due to the material breach of this
Agreement by Purchaser, then Purchaser shall withdraw any such employment offers
and shall not further pursue the employment of any Seller employee except as
consented in writing by Seller. Should such Closing not occur for any other
reason (other than material breach by Seller or Xenova), then Purchaser shall
not extend any employment offers to or take any other action to employ the
individuals listed on Exhibit A then employed by Seller and involved in research
and
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development under the Lilly Contract for employment by Purchaser to commence
prior to the earlier to occur of (i) Seller's completion of its research and
development obligations under the Lilly Contract, and (ii) September 30, 1999.
7.4 Confidentiality. Except as provided in Section 11.6, Purchaser
shall ensure that, during the Pre-Closing Period: neither it, nor any of its
Representatives, issues or disseminates any press release or other publicity or
otherwise makes any disclosure of any nature to any other Person regarding any
of the Transactions or the existence or terms of this Agreement, except to the
extent that Purchaser is required by law to make any such disclosure. Purchaser
shall provide to the other parties a draft of any disclosure to be made pursuant
to this Section 7.4 for review and comment by the other parties at least one (1)
business day in advance of the date upon which such release shall be made.
7.5 Filings and Consents. Purchaser shall ensure that: (a) all
filings, notices and Consents required to be made, given and obtained in order
to consummate the Transactions are made, given and obtained on a timely basis;
and (b) during the Pre-Closing Period, Purchaser shall cooperate with the other
and with its Representatives, and prepare and make available such documents and
take such other actions as the others may request in good faith, in connection
with any filing, notice or Consent that Purchaser is required or elects to make,
give or obtain.
8. Conditions Precedent to the Purchaser's Obligation to Close.
The Purchaser's obligation to purchase the Assets and to take the other
actions required to be taken by the Purchaser at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Purchaser, in whole or in part, in writing):
8.1 Accuracy Of Representations. All of the representations and
warranties made by Xenova and the Seller in this Agreement (considered
collectively), and each of said representations and warranties (considered
individually), shall have been accurate in all material respects as of the date
of this Agreement, and shall be accurate in all material respects as of the
Closing Date as if made at the Closing Date, without giving effect to any update
to the Disclosure Schedule.
8.2 Performance Of Obligations.
(a) The Assignment and Assumption Agreement and Consent described
in Section 1.6 relating to the Britannia Agreement shall have been executed by
each of the parties thereto and delivered to the Purchaser.
(b) Assignment and Assumption Agreements with respect to the
MMC/GATX Loan and Security Agreement and the Comdisco Master Lease Agreement,
each as described in Section 1.1(a), shall have been executed by the Purchaser
and the respective lenders.
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(c) All of the covenants and obligations that Xenova and the
Seller are required to comply with or to perform at or prior to the Closing
(considered collectively), and each of said covenants and obligations
(considered individually), shall have been duly complied with and performed in
all material respects.
8.3 Consents. Each of the Consents identified in Part 8.3 of the
Disclosure Schedule shall have been obtained and shall be in full force and
effect.
8.4 No Material Adverse Change. There shall have been no material
adverse change in the business, condition, assets, liabilities, operations,
financial performance, net income or prospects of the Seller relating to the
Purchased Assets or the Transactions since the date of this Agreement, and no
event shall have occurred and no condition or circumstance shall exist that
could be expected to give rise to any such material adverse change.
8.5 Additional Documents. Purchaser shall have received the following
documents:
(a) an opinion letter from Wilson, Sonsini, Goodrich & Rosati,
counsel to the Seller, dated the Closing Date, in the form of Exhibit D, and an
opinion letter from Xenova's counsel, dated the Closing Date, in the form of
Exhibit E; and
(b) such other documents as the Purchaser may request in good
faith for the purpose of (i) evidencing the accuracy of any representation or
warranty made by Xenova or the Seller, (ii) evidencing the compliance by Xenova
or the Seller with, or the performance by Xenova or the Seller of, any covenant
or obligation set forth in this Agreement, (iii) evidencing the satisfaction of
any condition set forth in this Article 8 or (iv) otherwise facilitating the
consummation or performance of any of the Transactions.
8.6 No Proceedings. Since the date of this Agreement, there shall not
have been commenced or threatened against the Purchaser, or against any Person
affiliated with the Purchaser, any Proceeding (a) involving any material
challenge to, or seeking material damages or other material relief in connection
with, any of the Transactions, or (b) that may have the effect of preventing,
delaying, making illegal or otherwise interfering with any of the Transactions.
8.7 No Prohibition. Neither the consummation nor the performance of
any the Transactions will, directly or indirectly (with or without notice or
lapse of time), contravene or conflict with or result in a violation of, or
cause the Purchaser or any Person affiliated with the Purchaser to suffer any
adverse consequence under, any applicable Legal Requirement or Order.
9. Conditions Precedent to the Seller's Obligation to Close.
The Seller's obligation to sell the Purchased Assets and to take the other
actions required to be taken by the Seller and Xenova at the Closing is subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Xenova's Representative, in whole or
in part, in writing):
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9.1 Accuracy Of Representations. All of the representations and
warranties made by the Purchaser in this Agreement (considered collectively),
and each of said representations and warranties (considered individually), shall
have been accurate in all material respects as of the date of this Agreement and
shall be accurate in all material respects as of the Closing Date as if made at
the Closing Date.
9.2 Purchaser's Performance.
(a) The Purchaser shall have executed and delivered (i) the
assignment and Assumption Agreement and Consent described in Section 1.6; (ii)
the Assignment and Assumption Agreement with Comdisco; (iii) the Assignment and
Assumption Agreement with MMC/GATX; and (iv) the employment offer letters on the
terms and conditions set forth in Section 1.2 to the Employees; and shall have
made the payment and assume the obligations contemplated by Section 1.9.
(b) All of the other covenants and obligations that the Purchaser
is required to comply with or to perform pursuant to this Agreement at or prior
to the Closing (considered collectively), and each of said covenants and
obligations (considered individually), shall have been complied with and
performed in all material respects.
10. Indemnification, Etc.
10.1 Survival of Representations and Covenants.
(a) The representations and warranties made by Seller and Xenova
in this Agreement (including without limitation the representations and
warranties set forth in Sections 2 and 3), shall survive the Closing and shall
expire either one (1) year after the Closing Date, for the representations in
Sections 2 and 3 other than those contained in Sections 2.9 and 2.12 through
2.14, or three (3) years after the Closing Date for the representations
contained in Sections 2.9 and 2.12 through 2.14 (the "Expiration Date");
provided, however, that if, at any time prior to the Expiration Date for a
specific representation, any Indemnitee (acting in good faith) delivers to
Seller a written notice alleging the existence of an inaccuracy in or other
Breach of any of such representation and warranty and asserting a claim for
recovery under Section 10.2 based on such alleged inaccuracy or other Breach,
then the claim asserted in such notice shall survive the Expiration Date for
such representation until such time as such claim is fully and finally resolved.
All representations and warranties made by Purchaser shall terminate and expire
as of the Closing, and any liability of Purchaser with respect to such
representations and warranties shall thereupon cease.
(b) The representations, warranties, covenants and obligations of
Seller and Xenova, and the rights and remedies that may be exercised by the
Indemnitees, shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or Knowledge of, any of
the Indemnitees or any of their Representatives.
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(c) For purposes of this Agreement, each statement or other item
of information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
Seller and Xenova in this Agreement.
10.2 Indemnification by Xenova.
(a) Subject to Section 10.3, from and after the Closing Date,
Xenova shall hold harmless and indemnify each of the Indemnitees from and
against, and shall compensate and reimburse each of the Indemnitees for, any
Damages which are directly or indirectly suffered or incurred by any of the
Indemnitees or to which any of the Indemnitees may otherwise become subject at
any time (regardless of whether or not such Damages relate to any third-party
claim) and which arise directly or indirectly from or as a direct or indirect
result of, or are directly or indirectly connected with:
(i) any material inaccuracy in or other Breach of any
representation or warranty made by Seller or Xenova in this Agreement;
(ii) any material inaccuracy in or Breach of any
representation, warranty, statement, information or provision contained in the
Disclosure Schedule or any supplement to the Disclosure Schedule;
(iii) the failure of any conveyance instrument or document
delivered by Seller or Xenova in connection with the Closing of the Transactions
to effect its intended conveyance;
(iv) Seller's use of the Purchased Assets;
(v) Purchaser's performance of research under the Lilly
Contract pursuant to any agreement that may be entered into between Seller,
Xenova and Purchaser relating to the delegation of duties and payment of
research funding to Purchaser (other than arising out of Purchaser's negligence,
recklessness or willful misconduct), as described in Section 1.5;
(vi) Seller's employment of the Employees prior to the Closing
Date, and Seller's employment of employees other than Employees who become
employed by Purchaser on the Closing Date;
(vii) Seller's Breach of its obligations under Section 6.4;
(viii) any Seller Liabilities other than those which are Assumed
Liabilities or which arise out of Purchased Assets or Assumed Contracts after
the Closing which arise out of or directly relate to events occurring prior to
the Closing Date; or
(ix) any Proceeding relating to any Breach, alleged Breach,
Liability or event described in clauses (i) to (viii) above (including any
Proceeding commenced by any Indemnitee for the purpose of enforcing any of its
rights under this Section 10.2).
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(b) Nonexclusivity of Indemnification Remedies. The
indemnification remedies and other remedies provided in this Section 10.2 shall
not be deemed to be exclusive. Accordingly, the exercise by any Person of any of
its rights under this Section 10.2 shall not be deemed to be an election of
remedies and shall not be deemed to prejudice, or to constitute or operate as a
waiver of, any other right or remedy that such Person may be entitled to
exercise (whether under this Agreement, under any other Contract, under any
statute, rule or other Legal Requirement, at common law, in equity or
otherwise).
10.3 Indemnification Procedures; Defense of Third Party Claims. In the
event of the assertion or commencement by any Person of any claim or Proceeding
(whether against Purchaser, against any other Indemnitee or against any other
Person) with respect to which Xenova may become obligated to indemnify, hold
harmless, compensate or reimburse any Indemnitee pursuant to Section 10.2,
Purchaser shall have the right, at its election, to designate Xenova to assume
the defense of such claim or Proceeding at the sole expense of Xenova. If
Purchaser so elects to designate Xenova to assume the defense of any such claim
or Proceeding:
(a) Xenova shall proceed to defend such claim or Proceeding in a
diligent manner with counsel reasonably satisfactory to Purchaser;
(b) Purchaser shall make available to Xenova any non-privileged
documents and materials in the possession of Purchaser that may be necessary to
the defense of such claim or Proceeding;
(c) Xenova shall keep Purchaser informed of all material
developments and events relating to such claim or Proceeding;
(d) Purchaser shall have the right to participate in the defense
of such claim or Proceeding at Purchaser's expense;
(e) Xenova shall not settle, adjust or compromise such claim or
Proceeding without the prior written consent of Purchaser, which consent shall
not be unreasonably withheld; and
(f) Purchaser may at any time (notwithstanding the prior
designation of Seller to assume the defense of such claim or Proceeding) assume
the defense of such claim or Proceeding.
If Purchaser does not elect to designate Xenova to assume the defense of
any such claim or Proceeding (or if, after initially designating Xenova to
assume such defense, Purchaser elects to assume such defense), Purchaser may
proceed with the defense of such claim or Proceeding on its own. If Purchaser so
proceeds with the defense of any such claim or Proceeding on its own:
(i) all reasonable expenses relating to the defense of such
claim or Proceeding (whether or not incurred by Purchaser) shall be borne and
paid exclusively by Xenova;
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(ii) Xenova shall make available to Purchaser any documents and
materials in the possession or control of Xenova that may be necessary to the
defense of such claim or Proceeding; and
(iii) Purchaser shall have the right to settle, adjust or
compromise such claim or Proceeding with the consent of Xenova; provided,
however, that Xenova shall not unreasonably withhold such consent.
10.4 Exercise of Remedies by Indemnitees Other Than Purchaser. No
Indemnitee (other than Purchaser or any successor thereto or assign thereof)
shall be permitted to assert any indemnification claim or exercise any other
remedy under this Agreement unless Purchaser (or any successor thereto or assign
thereof) shall have consented to the assertion of such indemnification claim or
the exercise of such other remedy.
10.5 Indemnification by Purchaser.
(a) Subject to Section 10.6, from and after the Closing Date,
Purchaser shall hold harmless and indemnify each of the Xenova and Seller
Indemnitees from and against, and shall compensate and reimburse each of the
Xenova and Seller Indemnitees for, any Damages which are directly or indirectly
suffered or incurred by any of Xenova and Seller Indemnitees or to which any of
Xenova and Seller Indemnitees may otherwise become subject at any time
(regardless of whether or not such Damages relate to any third-party claim) and
which arise directly or indirectly from or as a direct or indirect result of, or
are directly or indirectly connected with:
(i) any material inaccuracy in or other Breach of any
representation or warranty made by Purchaser in this Agreement;
(ii) Purchaser's use of the Purchased Assets and employment of
the individuals set forth on Exhibit A after the Closing Date;
(iii) any Assumed Liabilities; or
(iv) any Proceeding relating to any Breach, alleged Breach,
Liability or event described in clauses (i) to (iii) above (including any
Proceeding commenced by any Indemnitee for the purpose of enforcing any of its
rights under this Section 10.2).
Purchaser's obligations to indemnify and hold Seller and Xenova harmless from
Liabilities arising from the Britannia Agreement are set forth in the Assignment
and Assumption Agreement and Consent to be executed by the Parties and Britannia
pursuant to Section 1.6.
(b) Nonexclusivity of Indemnification Remedies. The indemnification
remedies and other remedies provided in this Section 10.5 shall not be deemed to
be exclusive. Accordingly, the exercise by any Person of any of its rights under
this Section 10.5 shall not be deemed to be an election of remedies and shall
not be deemed to prejudice, or to constitute or operate as a waiver of, any
other right or remedy that such Person may be entitled
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to exercise (whether under this Agreement, under any other Contract, under any
statute, rule or other Legal Requirement, at common law, in equity or
otherwise).
10.6 Indemnification Procedures; Defense of Third Party Claims. In the
event of the assertion or commencement by any Person of any claim or Proceeding
(whether against Xenova and Seller, against any other Indemnitee or against any
other Person) with respect to which Purchaser may become obligated to indemnify,
hold harmless, compensate or reimburse any Xenova or Seller Indemnitee pursuant
to Section 10.6, Purchaser shall have the right, at its election, to assume the
defense of such claim or Proceeding at the sole expense of Purchaser. If
Purchaser so elects to assume the defense of any such claim or Proceeding:
(a) Purchaser shall proceed to defend such claim or Proceeding in
a diligent manner with counsel reasonably satisfactory to Xenova and Seller;
(b) Xenova and Seller shall make available to Purchaser a any non-
privileged documents and materials in the possession of Xenova and Seller that
may be necessary to the defense of such claim or Proceeding;
(c) Purchaser shall keep Xenova and Seller informed of all
material developments and events relating to such claim or Proceeding;
(d) Xenova and Seller shall have the right to participate in the
defense of such claim or Proceeding at their own expense; and
(e) Purchaser shall not settle, adjust or compromise such claim or
Proceeding without the prior written consent of Xenova and Seller, which consent
shall not be unreasonably withheld.
If Purchaser does not elect to assume the defense of any such claim or
Proceeding, Xenova and Seller may proceed with the defense of such claim or
Proceeding on their own. If Xenova and Seller so proceeds with the defense of
any such claim or Proceeding on their own:
(i) all reasonable expenses relating to the defense of such
claim or Proceeding (whether or not incurred by Xenova and Seller) shall be
borne and paid exclusively by Purchaser;
(ii) Purchaser shall make available to Xenova and Seller any
documents and materials in the possession or control of Purchaser that may be
necessary to the defense of such claim or Proceeding; and
(iii) Xenova and Seller shall have the right to settle, adjust
or compromise such claim or Proceeding with the consent of Purchaser; provided,
however, that Purchaser shall not unreasonably withhold such consent.
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11. Miscellaneous Provisions
11.1 Further Assurances. Each party hereto shall execute and/or cause
to be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the Transactions.
11.2 Payment of all Federal and State Taxes due on Sale of Assets by
Seller. Seller shall pay in a timely manner all Taxes resulting from the sale of
the Purchased Assets pursuant to this Agreement. Seller shall not make a
distribution of any of the proceeds of the sale to its members until Seller
shall have determined its tax liability resulting from the sale and shall have
either paid or provided adequate reserve for payment of such Tax.
Notwithstanding, Purchaser shall within thirty (30) days after receiving and
invoice therefor from Seller reimburse to Seller one-half (1/2) of sales taxes
due on the sale of Purchased Assets pursuant to this Agreement.
11.3 Fees and Expenses. Subject to Section 6, each party to this
Agreement shall bear and pay all fees, costs and expenses (including legal fees
and accounting fees) that have been incurred or that are incurred in the future
by such party in connection with the transactions contemplated by this
Agreement, including all fees, costs and expenses incurred by such party in
connection with or by virtue of:
(a) the negotiation, preparation and review of this Agreement
(including the Disclosure Schedule), the other Transactional Agreements and all
certificates, opinions and other instruments and documents delivered or to be
delivered in connection with the Transactions; and
(b) the consummation and performance of the Transactions.
11.4 Attorneys' Fees. If any legal action or other legal proceeding
relating to any of the Transactional Agreements or the enforcement of any
provision of any of the Transactional Agreements is brought against any party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (in addition to any other relief to which the
prevailing party may be entitled).
11.5 Notices. Any notice or other communication required or
permitted to be delivered to any party under this Agreement shall be in writing
and shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by
telecopier) to the address or telecopier number set forth beneath the name of
such party below (or to such other address or telecopier number as such party
shall have specified in a written notice given to the other parties hereto):
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if to Seller:
MetaXen LLC
280 East Grand Avenue
South San Francisco, CA 94080
Attention: Michael Ross, Ph.D.
Facsimile: (650) 553-8101
with a copy to:
---------------
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94306
Attention: Michael J. O'Donnell, Esq.
Facsimile: (650) 493-6811
if to Purchaser:
Exelixis Pharmaceuticals, Inc.
260 Littlefield Avenue
South San Francisco, CA 94080
Attention: George Scangos
Facsimile: (650) 825-2205
with a copy to:
--------------
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Deborah A Marshall, Esq.
Facsimile: (650) 857-0663
if to Xenova:
Xenova Group plc
240 Bath Road
Slough
Berkshire SL1 4EF
England
Attention: Daniel Abrams
Facsimile: 44 1753 706638
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with a copy to:
--------------
Brobeck, Phleger and Harrison, LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Stephan Dolezalek, Esq.
Facsimile: (650) 496-2885
11.6 Publicity.
(a) Purchaser acknowledges that Xenova intends to issue a press
release relating to the Transactions promptly after the Effective Date to comply
with its reporting obligations as a publicly held company, and Xenova agrees
that Purchaser may also issue a press release relating to the Transactions
concurrently with or promptly following any such press release by Xenova. Any
such press release may describe the general nature of the Transactions but shall
not specify in detail the terms of this Agreement. Additionally, Purchaser may
release publicly a statement regarding its actual or intended acquisition of the
Purchased Assets and its employment of the Employees in connection with any
statements Purchaser publicly discloses relating to corporate partnerships
involving combinatorial chemistry technology.
(b) On and at all times after the Closing Date, except as
otherwise provided in this Section 11.6, no press release or other publicity
concerning any of the Transactions shall be issued or otherwise disseminated by
or on behalf of Xenova and Seller or any of Seller's members, and Xenova and
Seller shall continue to keep the existence and terms of this Agreement and the
other Transactional Agreements strictly confidential; and Seller and Xenova
shall keep strictly confidential, and shall not use or disclose to any other
Person, any non-public document or other information in Seller's or Xenova's
possession that relates directly or indirectly to the Transactions, Purchaser or
any affiliate of Purchaser.
(c) Xenova and Purchaser shall provide to each other a draft of
any press release permitted to be made pursuant to this Section 11.6 for review
and comment by the other party at least one (1) business day in advance of the
date upon which such release shall be made.
11.7 Time of the Essence. Time is of the essence of this Agreement.
11.8 Headings. The headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
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11.9 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
11.10 Governing Law; Dispute Resolution.
(a) This Agreement shall be construed in accordance with, and governed
in all respects by, the internal laws of the State of California (without giving
effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement may be brought
or otherwise commenced in any state or federal court located in the County of
San Mateo, California. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of San
Mateo, California (and each appellate court located in the State of
California) in connection with any such legal proceeding;
(ii) agrees that each state and federal court located in the
County of San Mateo, California shall be deemed to be a convenient forum;
and
(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal
court located in the County of San Mateo, California, any claim that such
party is not subject personally to the jurisdiction of such court, that
such legal proceeding has been brought in an inconvenient forum, that the
venue of such proceeding is improper or that this Agreement or the subject
matter of this Agreement may not be enforced in or by such court.
(c) Xenova and the Seller agree that, if any Proceeding is commenced
against any Indemnitee by any Person in or before any court or other tribunal
anywhere in the world, then such Indemnitee may proceed against Xenova and the
Seller in or before such court or other tribunal with respect to any
indemnification claim or other claim arising directly or indirectly from or
relating directly or indirectly to such Proceeding or any of the matters alleged
therein or any of the circumstances giving rise thereto.
(d) Xenova irrevocably constitutes and appoints Brobeck, Phleger &
Harrison, LLP (attn: J. Stephan Dolezalek) as ("Xenova's Representative") as
its agent to receive service of process in connection with any legal proceeding
relating to this Agreement or the enforcement of any provision of this
Agreement.
11.11 Successors and Assigns; Assignment. This Agreement shall be
binding upon: Seller and Purchaser and their respective successors and permitted
assigns (if any) and Xenova and their respective personal representatives,
executors, administrators, estates, heirs, successors and permitted assigns (if
any). This Agreement shall inure to the benefit of: Seller; Xenova and their
respective personal representatives, executors, administrators, estates and
heirs;
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Purchaser; the other Indemnitees and the respective successors and permitted
assigns (if any) of the foregoing. Purchaser may freely assign any or all of its
rights under this Agreement (including its indemnification rights under Section
10), in whole or in part, to any other Person.
11.12 Waiver.
(a) No failure on the part of any Person to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
11.13 Amendments. This Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of Purchaser and the Agent.
11.14 Severability. In the event that any provision of this
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
11.15 Parties in Interest. Except for the provisions of Section 10
hereof, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
11.16 Entire Agreement. The Transactional Agreements (including all
schedules and exhibits attached thereto) set forth the entire understanding of
the parties relating to the subject matter thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof.
11.17 Construction.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
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(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
The parties hereto have caused this Agreement to be executed and delivered
as of July 11, 1999.
"Purchaser": Exelixis Pharmaceuticals, Inc.
By: /s/ George Scangos
________________________________________
Name: George Scangos
Title: Chief Executive Officer
"Seller": MetaXen LLC
By: /s/ David Oxlade
________________________________________
Name: David Oxlade
Title: Interim President
"Xenova": Xenova Group plc
/s/ Daniel Abrams
-------------------------------
Name: Daniel Abrams
Title: Chief Financial Officer
28
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Exhibit A
Employees
Aftab, Dana
Brown, S. David
Brzezinski, Linda
Buckley, Douglas
Canne, Lynne
Chan, Jocelyn
Epshteyn, Sergey
Ewing, Todd
Galan, Adam
Graham, Hugh
Hammonds, R. Glenn
Hanel, Art
Kearney, Patrick
Leahy, James
Matthews, David
Phife, David
Prisbylla, Michael
Ricafort, Lourdes
Sage, Carleton
Singh, Rahul
Stout, Thomas
Tesfai, Zerom
Trainor, Michael
Wu, Pengguang
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Exhibit B
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit B):
Affiliate. "Affiliate" shall mean and include:
(a) any member of Seller;
(b) any record or beneficial holder of outstanding
securities of Xenova or Seller;
(c) any sibling, uncle, aunt, niece or nephew of any Person
described in clause (a) or (b);
(d) any ancestor or lineal descendant of any person
described in clauses (a), (b) or (c);
(e) any current or former spouse of any person described in
clauses, (a), (b), (c) or (d) or any person who is a member of the same
household of the person described in clauses (a), (b), (c) or (d) or who has
resided with such person for more than 10 days in any calendar year;
(f) any ancestor or lineal descendant of any person
described in clauses (a), (b), (c), (d) or (e); or
(g) any Person in which any of the foregoing have a direct
or indirect interest.
Agreement. "Agreement" shall mean the Asset Purchase Agreement to which
this Exhibit B is attached (including without limitation the Disclosure Schedule
and any other exhibits, schedules or attachments thereto), as it may be amended
from time to time.
Assumed Contract. "Assumed Contract" shall have the meaning set forth in
Section 1.1(b) to the Agreement.
Assumed Liability. "Assumed Liability" shall have the meaning set forth in
Section 1.7 to the Agreement.
Best Efforts. "Best Efforts" shall mean the efforts that a prudent Person
desiring to achieve a particular result would use in order to ensure that such
result is achieved as expeditiously as possible.
Breach. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been (a)
any inaccuracy in or Breach of, or any
A-1
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failure to comply with or perform, such representation, warranty, covenant,
obligation or other provision, or (b) any claim (by any Person) or other
circumstance that is inconsistent with such representation, warranty, covenant,
obligation or other provision; and the term "Breach" shall be deemed to refer to
any such inaccuracy, Breach, failure, claim or circumstance.
Business. "Business" shall have the meaning specified in Section A of the
Recitals to the Agreement.
Claims. "Claims" shall mean and include all past, present and future
disputes, claims, controversies, demands, rights, obligations, liabilities,
actions and causes of action of every kind and nature, including: (i) any
unknown, unsuspected or undisclosed claim; (ii) any claim or right that may be
asserted or exercised by a member in such member's capacity as a member or
employee of Seller or in any other capacity; and (iii) any claim, right or claim
of action based upon any breach of any express, implied, oral or written
contract or agreement.
Closing. "Closing" shall have the meaning specified in Section 1.11 of the
Agreement.
Closing Date. "Closing Date" shall have the meaning specified in Section
1.11 of the Agreement.
Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral, implied or other
agreement, contract, understanding, arrangement, instrument, note, guaranty,
indemnity, representation, warranty, deed, assignment, power of attorney,
certificate, purchase order, sales order, work order, insurance policy, benefit
plan, commitment, covenant, assurance or undertaking of any nature.
Damages. "Damages" shall include any loss, damage, injury, lost
opportunity, Liability, claim, demand, settlement, judgment, award, fine,
penalty, Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature.
Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to Purchaser on behalf of Seller and
Xenova, a copy of which is attached to the Agreement and incorporated in the
Agreement by reference.
Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, equity, trust, equitable
interest, claim, preference, right of possession, lease, tenancy, license,
encroachment, covenant, infringement, interference, Order, proxy, option, right
of first refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
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Entity. "Entity" means any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
Environmental Laws. "Environmental Laws" means all applicable federal,
state and local laws relating to pollution, storage, releases or threatened
releases of pollutants, contaminants, radioactive substances, chemicals or
industrial, toxic, hazardous or petroleum-based substances or wastes ("Waste")
into the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Waste including, without limitation, the Clean Water
Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Toxic
Substances Control Act and the Comprehensive Environmental Response Compensation
Liability Act ("CERCLA"), as amended, and their state and local counterparts.
Expiration Date. "Expiration Date" shall have the meaning set forth in
Section 10.1(a) to the Agreement.
Governmental Authorization. "Governmental Authorization" shall mean any:
(h) permit, license, certificate, franchise, concession, approval,
consent, ratification, permission, clearance, confirmation, endorsement, waiver,
certification, designation, rating, registration, qualification or authorization
that is, has been or may in the future be issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or
(i) right under any Contract with any Governmental Body.
Governmental Body. "Governmental Body" shall mean any:
(j) nation, principality, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature;
(k) federal, state, local, municipal, foreign or other government;
(l) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency, bureau,
branch, office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal);
(m) multi-national organization or body; or
(n) individual, Entity or body exercising, or entitled to exercise,
any executive, legislative, judicial, administrative, regulatory, police,
military or taxing authority or power of any nature.
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Indemnitees. "Indemnitees" shall mean the following Persons:
(o) Purchaser;
(p) Purchaser's current and future affiliates;
(q) The respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and
(r) The respective successors and assigns of the Persons referred
to in clauses "(a)", "(b)" and "(c)" above.
Knowledge. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if:
(s) Such individual is actually aware of such fact or other matter;
or
(t) A prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a diligent
and comprehensive investigation concerning the truth or existence of such fact
or other matter.
An Entity shall be deemed to have "Knowledge" of a particular fact or other
matter if any officer, employee or other Representative of such Entity has
Knowledge of such fact or other matter.
Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, legislation, constitution,
principle of common law, resolution, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, ruling, directive,
pronouncement, requirement, specification, determination, decision, opinion or
interpretation that is, has been or may in the future be issued, enacted,
adopted, passed, approved, promulgated, made, implemented or otherwise put into
effect by or under the authority of any Governmental Body.
Liability. "Liability" shall mean any debt, obligation, duty or liability
of any nature (including any unknown, undisclosed, unmatured, unaccrued,
unasserted, contingent, indirect, conditional, implied, vicarious, derivative,
joint, several or secondary liability), regardless of whether such debt,
obligation, duty or liability would be required to be disclosed on a balance
sheet prepared in accordance with GAAP and regardless of whether such debt,
obligation, duty or liability is immediately due and payable.
Order. "Order" shall mean any:
(u) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence, subpoena,
writ or award that is, has been or may in the future be issued, made, entered,
rendered or otherwise put into effect by or under the
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authority of any court, administrative agency or other Governmental Body or any
arbitrator or arbitration panel; or
(v) Contract with any Governmental Body that is, has been or may in
the future be entered into in connection with any Proceeding.
Ordinary Course of Business. An action taken by or on behalf of an Entity
shall not be deemed to have been taken in the "Ordinary Course of Business"
unless:
(w) such action is recurring in nature, is consistent with an
Entity's past practices and is taken in the ordinary course of such Entity's
normal day-to-day operations;
(x) such action is taken in accordance with sound and prudent
business practices; and
(y) such action is not required by applicable law or governing
documents to be authorized by an Entity's stockholders, members, board of
directors or similar body, or committee of such Entity's board of directors or
similar body and does not require any other separate or special authorization of
any nature.
Person. "Person" shall mean any individual, Entity or Governmental Body.
Pre-Closing Period. shall mean the period from the date of the Agreement
through the Closing Date.
Proceeding. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding and any informal proceeding), prosecution,
contest, hearing, inquiry, inquest, audit, examination or investigation that is,
has been or may in the future be commenced, brought, conducted or heard by or
before, or that otherwise has involved or may involve, any Governmental Body or
any arbitrator or arbitration panel.
Proprietary Asset. "Proprietary Asset" shall mean any (a) patent, patent
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service mark (whether registered or unregistered), service mark
application, trade secret, know-how, franchise, system, computer software,
invention, design, blueprint, proprietary product, technology, proprietary right
or other intellectual property right or intangible asset; or (b) right to use or
exploit any of the foregoing.
Purchased Asset. "Purchased Asset" shall have the meaning set forth in
Section 1.1 to the Agreement.
Purchaser. "Purchaser" shall have the meaning set forth in the
introductory paragraph to the Agreement.
Representatives. "Representatives" shall mean officers, directors,
employees, agents,
A-5
<PAGE>
attorneys, accountants, advisors and representatives. Xenova and all other
Related Parties shall be deemed to be "Representatives" of Seller.
Seller. "Seller" shall have the meaning specified in the introductory
paragraph of the Agreement.
Seller Contract. "Seller Contract" shall mean any Contract:
(z) to which Seller is a party;
(aa) by which Seller or any of its assets are or may become
bound or under which Seller has, or may become subject to, any obligation; or
(bb) under which Seller has or is likely to acquire any right or
interest.
Xenova. "Xenova" shall have the meaning specified in the introductory
paragraph of the Agreement.
Tax. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, estimated tax, gross receipts tax, value-added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, occupation tax, inventory tax, occupancy tax,
withholding tax or payroll tax), levy, assessment, tariff, impost, imposition,
toll, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), that is, has been or
may in the future be (a) imposed, assessed or collected by or under the
authority of any Governmental Body, or (b) payable pursuant to any tax-sharing
agreement or similar Contract.
Tax Return. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information that
is, has been or may in the future be filed with or submitted to, or required to
be filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.
Transactional Agreements. "Transactional Agreements" shall mean the
Agreement and all other documents or agreements contemplated by Section 1.
Transactions. "Transactions" shall mean (a) the execution and delivery of
the respective Transactional Agreements and (b) all of the transactions
contemplated by the respective Transactional Agreements.
A-6
<PAGE>
EXHIBIT 10.17
Exelixis Pharmaceuticals, Inc.
One Kendall Square, Building 600
Cambridge, Massachusetts 02139
September 13, 1996
George Scangos, Ph.D.
1015 Whitwell Road
Hillsborough, CA 94010
Dear Dr. Scangos:
This letter is to confirm our understanding with respect to your employment
by Exelixis Pharmaceuticals, Inc. (the "Company") (the terms and conditions
agreed to in this letter shall hereinafter be referred to as the "Agreement").
In consideration of the mutual promises and covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, we have agreed as
follows:
1. Employment
(a) Position. The Company will employ you, and you agree to be
employed by the Company, to serve as its President and Chief Executive Officer
and to perform such services and discharge such duties and responsibilities as
may be prescribed by the Board of Directors (the "Board") of the Company from
time to time. In addition, the Company will recommend to the shareholders of the
Company that you be elected as a Director of the Company during the term of this
Agreement. You shall devote your full time and best efforts to the performance
of the foregoing services.
(b) Relocation of the Company. At your initiative, the Company agrees
that it will relocate to the San Francisco Bay Area as soon as is reasonably
practicable, and in any case not later than six (6) months after the
Commencement Date. Prior to the relocation, you will render services at the
Company's office in Cambridge, Massachusetts, and the Company will pay for
weekly, round-trip coach class air fare between Boston and San Francisco, and
will reimburse you for reasonable living expenses while in Boston. It is agreed
that substantial travel may be involved in your activities for the Company.
2. Term of Employment.
(a) Term; Termination. Your employment hereunder shall commence no
later than November, 1996 ("Commencement Date") and shall continue until October
31, 1998 (the "Initial Term"). The term of your employment shall renew
automatically for any number of renewal terms of one year's duration each,
unless either party to this Agreement provides written notice of its intention
not to renew the Agreement at least sixty (60) days prior to the then effective
expiration date. Notwithstanding the foregoing, your employment hereunder shall
be terminated upon the first to occur of the following:
(i) immediately upon your death; or
1.
<PAGE>
(ii) by the Company:
(A) upon notice following your failure, due to illness,
accident or any other physical or mental incapacity, to perform the services
provided for hereunder for an aggregate of ninety (90) business days within any
twelve-month period during the term hereof;
(B) upon notice for Cause, as defined herein, and as set
forth below;
(C) subject to Section 3 hereof, without Cause, upon thirty
(30) days' prior written notice to you of its intent to terminate your
employment.
The right of the Company to terminate your employment hereunder without
Cause, to which you hereby agree, shall be exercisable by written notice sent to
you by the Company.
(b) Definition of "Cause". The Company may, immediately and unilaterally,
terminate your employment hereunder for Cause at any time upon ten (10) days'
advance written notice to you. Termination of your employment by the Company
shall constitute a termination for Cause if such termination is for one or more
of the following reasons: (i) your continuing failure to render services to the
Company in accordance with your assigned duties consistent with Section 1 of
this Agreement and such failure of performance continues for a period of more
than sixty (60) days after notice thereof has been provided to you by the Board
of Directors; (ii) your willful misconduct or gross negligence; (iii) you are
convicted of a felony, either in connection with the performance of your
obligations to the Company or which conviction materially adversely affects your
ability to perform such obligations or materially adversely affects the business
activities, reputation, goodwill or image of the Company; and, (iv) willful
disloyalty, deliberate dishonesty, material breach of fiduciary duty or material
breach of the terms of this Agreement.
In making any determination under this Section, the Board shall act fairly
and in utmost good faith and shall give you an opportunity to appear and be
heard at a meeting of the Board or any committee thereof and present evidence on
your behalf. For purposes of this Section, no act, or failure to act, on your
part shall be considered "willful" unless done, or admitted to be done, by you
in bad faith and without reasonable belief that such action or omission was in
the best interest of the Company.
In the event you are terminated for Cause, you shall be entitled to no
severance or other termination benefits, or any other benefits (except for any
health insurance benefits required by applicable law).
3. Compensation.
(a) Salary. The Company shall pay you as your base compensation for
your services and agreements hereunder during the Initial Term a base salary at
the rate of Three Hundred and Twenty-Five Thousand Dollars ($325,000) per year
(the "Base Salary"), payable at such intervals as may be agreed upon by the
Company and you, less any amounts required to be withheld under applicable law.
Such compensation will be reduced by any disability payments which you receive,
after taking into account the tax benefits (if any) of such payments.
2.
<PAGE>
(b) Bonus. In addition to your Base Salary, you will be entitled to
bonuses as follows:
(i) You will receive a bonus of $100,000 on the Commencement
Date. You agree to have completed all transition work for Bayer by December 15,
1996
(ii) A bonus of at least $50,000 at each six-month anniversary
of the Commencement Date if you remain employed by the Company on that date.
(iii) An additional bonus of at least $75,000 at the twelve-month
anniversary of the Commencement Date and a bonus of at least $100,000 at each
twelve- month anniversary thereafter, in each case, if you remain employed by
the Company on that date and you and the Company achieve specified milestones
agreed upon in writing. Milestones for the first year will be agreed upon within
thirty days after the Commencement Date and for subsequent years within thirty
days after each twelve-month anniversary.
(c) Stock Options. The Company will grant to you incentive stock
options as follows:
(i) Options to purchase up to One Million Five Hundred Thousand
(1,500,000) shares of the Company's Common Stock, at an exercise price of $.10
per share (which the Board of Directors has determined to be the fair market
value of the Company's Common Stock at the Commencement Date), such options to
vest quarterly over four (4) years at a rate of 93,750 shares per quarter.
(ii) Options to purchase at least Five Hundred Thousand
(500,000) shares of the Company's Common Stock, to be granted from time to time
upon achievement of mutually agreed upon milestones, exercisable at a purchase
price equal to the fair market value of the Company's Common Stock at the date
of grant, such options to vest quarterly over four years from the grant date.
Milestones will be determined on an annual basis, within sixty days after the
beginning of the Company's new fiscal year.
(iii) The options granted pursuant to this Section 3(c) will be
evidenced by option agreements in the customary form under the Company's stock
option plan; provided, however, that each such option agreement will contain a
provision requiring automatic acceleration of the vesting of any unvested
portion of the option upon the occurrence of a merger or sale of greater than
50% of the assets of the Company.
(d) Termination without Cause. In the event your employment shall be
terminated by the Company without Cause during the term of this Agreement, the
Company shall continue to pay you your Base Salary and bonus and provide you the
benefits described in Section 4(b) for a period equal to the lesser of: (i) six
(6) months subsequent to such termination or (ii) the period ending on the date
of commencement of employment with another employer, provided, however, that if
your annual salary with your new employer is less than your Base Salary under
this Agreement, the Company shall pay you the difference between your Base
Salary and the annual salary from your new employer for the balance of the six-
month period following the date of your termination by the Company. All payments
made under this Section 3(d) shall be made at the times and at the rate
specified in Section 3(a) hereof. Notwithstanding
3.
<PAGE>
any termination of your employment, you shall continue to be bound by the
provisions of this Agreement (other than Section 1 hereof).
(e) Other Terminations. In the event your employment shall be
terminated by the Company with Cause, no further compensation or benefits of any
kind shall be payable to you hereunder; provided, however, that you shall
continue to be bound by the terms and conditions of this Agreement (other than
Section 1 hereof).
4. Benefits and Reimbursement of Expenses.
(a) Vacation and Holidays. You shall be entitled to four weeks of
vacation leave and holidays in each year at a time or times (either
consecutively or not consecutively) mutually agreeable to the Company and you,
in accordance with the Company's vacation and holiday policy in effect from time
to time.
(b) Employee Benefit Plans. You shall also be entitled to
participate in any employee benefit plans which the Company provides or may
establish for the benefit of its executive employees generally (including,
without limitation, group life, medical, dental and other insurance, retirement,
pension, profit-sharing and similar plans), but only if and to the extent
provided in such employee benefit plans.
(c) Reimbursement of Expenses. You shall be entitled to
reimbursement for all ordinary and reasonable out-of-pocket business expenses
which are reasonably incurred by you in furtherance of the Company's business in
accordance with reasonable policies adopted from time to time by the Company.
(d) Key Man Life Insurance. The Company shall have the right to
maintain a "key man" life insurance policy on your life naming the Company as
beneficiary in the amount of Three Million Dollars ($3,000,000), for as long as
you are employed by the Company pursuant to this Agreement.
5. Prohibited Competition.
(a) Certain Acknowledgements and Agreements.
(i) We have discussed, and you recognize and acknowledge the
confidential and proprietary aspects of the business of the Company.
(ii) You further acknowledge and agree that, during the course of
your performing services for the Company, the Company will furnish, disclose or
make available to you confidential and proprietary information related to the
Company's business and that the Company may provide you with unique and
specialized training. You also acknowledge that such confidential information
and such training have been developed and will be developed by the Company
through the expenditure by the Company of substantial time, effort and money and
that all such confidential information and training could be used by you to
compete with the Company.
4.
<PAGE>
(b) Anti-Solicitation and Raiding Covenants. During the period in
which you perform services for or at the request of the Company (the "Term") and
for a period of twelve (12) months following the expiration or termination of
the Term, whether such termination is voluntary or involuntary, you shall not,
without the prior written consent of the Company:
(i) either individually or on behalf of or through any third
party, interfere with, damage, impair or disrupt the Company's business or its
contractual relationships by soliciting, diverting or appropriating, or
attempting to solicit, divert or appropriate, any actual or prospective joint
venture or collaborative research partners, customers or patrons of the Company
(or of any present or future parent, subsidiary or affiliate of the Company); or
(ii) either individually or on behalf of or through any third
party, interfere with, damage, impair or disrupt the Company's business or its
relationships with its employees or consultants, by directly or indirectly
soliciting, enticing or persuading, or attempting to solicit, entice or
persuade, any other employees of or consultants to the Company (or any present
or future parent, subsidiary or affiliate of the Company) to leave the services
of the Company (or any such parent, subsidiary or affiliate) for any reason.
(c) Reasonableness of Restrictions. You further recognize and
acknowledge that the types of restrictions to which you have agreed pursuant to
this Section 5 are narrow, reasonable legitimate and fair in light of the
Company's need to enter into joint ventures and collaborations, maintain a
stable work force and avoid unfair interferences with its contractual
relationships.
(d) Survival of Acknowledgements and Agreements. Your
acknowledgements and agreements set forth in this Section 5 shall survive the
expiration or termination of this Agreement and the termination of your
employment with the Company for any reason.
6. Protected Information. Upon execution of this Agreement, you shall
execute and deliver a Confidentiality Agreement in the form attached hereto as
Annex A (the "Confidentiality Agreement").
7. Disclosure to Future Employers. You agree that you will provide, and
that the Company may similarly provide in its discretion, a copy of the
covenants contained in Section 5 of this Agreement and the covenants contained
in the Confidentiality Agreement to any business or enterprise which you may
directly, or indirectly, own, manage, operate, finance, join, control or in
which you participate in the ownership, management, operation, financing, or
control, or with which you may be connected as an officer, director, employee,
partner, principal, agent, representative, consultant or otherwise.
8. Records. Upon termination of your relationship with the Company,
you shall deliver to the Company any property of the Company which may be in
your possession including products, materials, memoranda, notes, records,
reports, or other documents or photocopies of the same.
5.
<PAGE>
9. No Conflicting Agreements. You hereby represent and warrant that you
have no commitments or obligations inconsistent with this Agreement and you
hereby agree to indemnify and hold the Company harmless against loss, damage,
liability or expense arising from any claim based upon circumstances alleged to
be inconsistent with such representation and warranty.
10. General.
(a) Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) made by telex, telecopy or facsimile transmission, (iii) sent by overnight
courier, or (iv) sent by registered mail, return receipt requested, postage
prepaid.
If to the Company: Exelixis Pharmaceuticals, Inc.
One Kendall Square, Building 600
Cambridge, MA 02139
Attention: Chief Operating Officer
With a copy to: Jeffrey M. Wiesen, Esquire
Mintz, Levin, Cohn, Ferris Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
If to you: George Scangos, Ph.D.
1015 Whitwell Road
Hillsborough, CA 94010
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
mail, on the fifth business day following the day such mailing is made.
(b) Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement of any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
(c) Modifications and Amendments. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by the
parties hereto.
6.
<PAGE>
(d) Waivers and Consents. The terms and provisions of this Agreement
may be waived, or consent for the departure therefrom granted, only by written
document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.
(e) Assignment. The Company may assign its rights and obligations
hereunder to any person or entity who succeeds to all or substantially all of
the Company's business or that aspect of the Company's business in which you are
principally involved. Your rights and obligations under this Agreement may not
be assigned by you without the prior written consent of the Company.
(f) Benefit. All statements, representations, warranties,
covenants and agreements in this Agreement shall be binding on the parties
hereto and shall inure to the benefit of the respective successors and permitted
assigns of each party hereto. Nothing in this Agreement shall be construed to
create any rights or obligations except among the parties hereto, and no person
or entity shall be regarded as a third-party beneficiary of this Agreement.
(g) Governing Law. This Agreement and the rights and obligations
of the parties hereunder shall be construed in accordance with and governed by
the law of the State of California without giving effect to the conflict of law
principles thereof, notwithstanding any relocation of the Company to another
jurisdiction.
(h) Jurisdiction and Service of Process. Any legal action or
proceeding with respect to this Agreement shall be brought in the courts of the
State of California or in the United States District Court located closest to
the headquarters of the Company in the State of California, unless otherwise
consented to by the non-initiating party to such legal action, which consent
shall not be unreasonably withheld. By execution and delivery of this Agreement,
each of the parties hereto accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. Each of
the parties hereto irrevocably consents to the service of process of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by certified mail, postage prepaid, to the party at its address set
forth in Section 10(a) hereof.
(i) Severability. The parties intend this Agreement to be enforced
as written. However, (i) if any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a duly authorized court
having jurisdiction, then the remainder of this Agreement, or the application of
such portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law; and (ii) if any provision, or part thereof, is
held to be unenforceable because of the duration of such provision or the
geographic area covered thereby, the Company and you agree that the court making
such determination shall have the power to reduce the duration and/or geographic
area of such provision, and/or to delete specific words and phrases ("blue-
pencilling"), and in its reduced or blue-pencilled form such provision shall
then be enforceable and shall be enforced.
7.
<PAGE>
(j) Headings and Captions. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and shall
in no way modify, or affect the meaning or construction of any of the terms or
provisions hereof.
(k) Injunctive Relief. You hereby expressly acknowledge that any
breach or threatened breach of any of the terms and/or conditions set forth in
Section 5 of this Agreement may result in substantial, continuing and
irreparable injury to the Company. Therefore, you hereby agree that, in addition
to any other remedy that may be available to the Company, the Company may be
entitled to injunctive or other equitable relief by a court of appropriate
jurisdiction in the event of any breach or threatened breach of the terms of
Section 5 of this Agreement.
(l) No Waiver of Rights, Powers and Remedies. No failure or delay by
a party hereto in exercising any right, power or remedy under this Agreement,
and no course of dealing between the parties hereto, shall operate as a waiver
of any such right, power or remedy of the party. No single or partial exercise
of any right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
(m) Expenses. Should any party breach this Agreement, in addition to
all other remedies available at law or in equity, such party shall pay all of
any other party's costs and expenses resulting therefrom and/or incurred in
enforcing this Agreement, including legal fees and expenses.
(n) Counterparts. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If the foregoing accurately sets forth our agreement, please so indicate by
signing and returning to us the enclosed copy of this letter.
Very truly yours,
Exelixis Pharmaceuticals, Inc.
By: /s/ Jean-Francois Formela/KB
-------------------------------------
Accepted and Approved:
/s/ George Scangos
- ----------------------------------
George Scangos, Ph.D.
8.
<PAGE>
EXHIBIT 10.18
Exelixis Pharmaceuticals, Inc.
One Kendall Square, Building 600
Cambridge, Massachusetts 02139
April 14, 1997
Geoffrey Duyk, M.D., Ph.D.
354 Woodland Road
Chestnut Hill, MA 02167
Dear Geoff:
This letter is to confirm our understanding with respect to your employment by
Exelixis Pharmaceuticals, Inc. (the "Company") (the terms and conditions agreed
to in this letter shall hereinafter be referred to as the "Agreement"). In
consideration of the mutual promises and covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, we have agreed as follows:
1. Employment. The Company will employ you, and you agree to be employed
by the Company, to serve as the Chief Scientific Officer and Senior Vice
President of Research and Development, reporting to the Company's President and
Chief Executive Officer, and to perform such services and discharge such duties
and responsibilities as may be prescribed by the Board of Directors (the
"Board") of the company from time to time. The primary location at which you
shall perform such services shall be the Company's facility located in Oakland,
California. You shall devote your full time and best efforts in the performance
of the foregoing services. You will be entitled to attend meetings of the Board
as a non-voting observer. If the Company forms a management committee or similar
committee charged with overseeing the operations of the company, you will serve
on that committee.
2. Term of Employment.
(a) Term: Termination. Your employment hereunder shall commence on
April 14, 1997 and shall continue until April 14, 1999 (the "Initial Term"). The
term of your employment shall renew automatically for any number of renewal
terms of one year's duration each, unless either party to this Agreement
provides written notice of its intention not to renew the Agreement at least
sixty (60) days prior to the then effective expiration date. The giving of a
notice of non-renewal by the Company as of the end of the Initial Term or any
subsequent renewal term will be treated as a termination by the Company without
Cause (as defined in Section 2(b) of this Agreement). Notwithstanding the
foregoing, your employment hereunder shall be terminated upon the first to occur
of the following:
(i) Immediately upon your death; or
(ii) By the Company:
(A) Upon notice following your failure, due to illness,
accident or any other physical or mental incapacity, to perform the services
provided for hereunder for
<PAGE>
ninety (90) consecutive business days or an aggregate of one hundred fifty (150)
business days within any one year period during the term hereof ("Disability");
(B) Upon notice for Cause, as defined herein, and as set
forth below;
(C) Without Cause, upon thirty (30) days' prior written
notice to you of its intent to terminate your employment; or
(iii) By you, upon notice to the Company, provided, that if you
do not give at least thirty (30) days' prior written notice of your intention to
terminate your employment hereunder, you will forfeit all prepaid benefits, any
accrued but unpaid incentive compensation and any stock options which have not
yet vested as of the date such notice is given.
The right of the company to terminate your employment hereunder without
Cause, to which you hereby agree, shall be exercisable by written notice sent to
you by the Company.
(b) Definition of "Cause." The company may, immediately and
unilaterally, terminate your employment hereunder for Cause at any time upon ten
(10) days' advance written notice to you. Termination of your employment by the
Company shall constitute a termination for Cause if such termination is for one
or more of (i) your continuing material failure to perform your assigned duties
consistent with Section 1 of this Agreement, which failure of performance
continues for a period of more than sixty (60) days after notice thereof has
been provided to you by the Board of Directors, such notice to set forth in
reasonable detail the nature of such failure, (ii) your willful misconduct or
gross negligence, (iii) you are convicted of a felony, either in connection with
the performance of your obligations to the Company or which conviction
materially adversely affects the business activities, reputation, goodwill or
image of the Company, or (iv) willful disloyalty, deliberate dishonesty,
material uncured breach of fiduciary duty or material uncured breach of the
terms of this Agreement or the Confidentiality Agreement (as defined in Section
6 of this Agreement).
In making any determination under this Section, the Board shall act fairly
and in utmost good faith and shall give you an opportunity to appear and be
heard at a meeting of the Board or any committee thereof and present evidence on
your behalf. For purposes of this Section, no act, or failure to act, on your
part shall be considered "willful" unless done, or admitted to be done, by you
in bad faith and without reasonable belief that such action or omission was in
the best interest of the Company.
3. Compensation.
(a) Salary. The Company shall pay you as the base compensation for
your services and agreements hereunder during the Initial Term a base salary at
the rate of Two Hundred and Fifty Thousand Dollars ($250,000) per year (the
"Base Salary"), payable at such intervals as may be agreed upon by the Company
and you, less any amounts required to be withheld under applicable law. Such
compensation will be reduced by any disability payments which you receive, after
taking into account the tax benefits (if any) of such payments. Your Base Salary
will be reviewed annually by the Company's Board of Directors.
<PAGE>
(b) Bonus. In addition to your Base Salary, you may be entitled to
bonuses (including a cash component of up to 35% of your Base Salary as in
effect from time to time) as are determined from time to time by the Board in
its discretion, taking into account, among other factors, your performance and
the Company's performance.
(c) Stock Options.
(i) Contemporaneously with the execution of this Agreement,
subject to the approval of the Board, the Company will grant you a stock option
to purchase up to 900,000 shares of the common stock, par value $.001 per share,
of the Company (the "Option") pursuant to the Company's 1994 Employee, Director
and Consultant Stock Plan (the "Plan"). The exercise price for the shares
covered by the Option will be $0.10 per share. For so long as you remain
employed by the Company, the shares covered by the Option will vest as to 56,250
shares on the date that it is three months after the date of execution of this
Agreement and as to additional 56,250 shares at the end of each period of three
months thereafter until fully vested, provided that in the event of a Change of
Control of the Company (as hereinafter defined) while you remain employed by the
Company, all shares covered by the Option which have not previously vested will
become fully vested. For the purposes of this Agreement, a "Change of Control"
shall mean a consolidation or merger of the Company where the shareholders of
the Company immediately prior to such consolidation or merger would not,
immediately after such consolidation or merger, beneficially own, directly or
indirectly, shares representing in the aggregate more than 50% of the combined
voting power of all outstanding securities of the corporation issuing cash or
securities in the consolidation or merger (or of its ultimate parent
corporation, if any).
(ii) You may be eligible to receive additional stock options to
the Plan in such amounts and pursuant to vesting schedules as may be determined
from time to time by the Board in its discretion, taking into account, among
other factors, your performance and the Company's performance.
(d) Termination.
(i) In the event of the termination of your employment by the
Company without Cause (including by reason of the Company giving a notice of
non-renewal pursuant to Subsection 2(a)), the Company will continue to pay you
your Base Salary for a period after the date of such termination equal to the
lesser of (1) six (6) months and (2) the period until you obtain alternative
employment, payable as provided in Subsection 3(a). In addition, you will be
entitled to receive the amount of any declared but unpaid bonus as at the date
of such termination and the Company shall continue to make available to you such
fringe benefits as are required by law.
(ii) In the event of the termination of your employment by you
for any reason (including by reason of your giving a notice of non-renewal
pursuant to Subsection 2(a)), by the Company for Cause or as a result of your
death or Disability, you shall be entitled to no severance, termination
benefits, or other benefits, except that the Company shall continue to make
available to you such fringe benefits as are required by law, and shall pay to
you the pro rata amount of your Base Salary earned up to the date of said
termination, said payment to be
<PAGE>
made on the same date as said salary payment would have been made had there been
no termination.
Notwithstanding any termination of your employment, you shall continue to
be bound by the provisions of this Agreement (other than Section 1 hereof).
(e) Loans.
(i) The Company agrees that upon the execution of this
Agreement, it will advance you the sum of $50,000 (the "Loan"). The Loan will be
evidenced by a Note and will bear interest at the lowest applicable federal
rate. Provided that you are employed by the Company on such anniversary dates,
one-third of the principal balance of the Loan will be forgiven by the Company
on each of the first, second and third anniversaries of the date of this
Agreement. In the event that you leave the employment of the Company prior to
the third anniversary of the date of this Agreement, any outstanding principal
and interest will be due on the date of such termination of employment.
(ii) If reasonably necessary to assist you in purchasing a
primary residence in the San Francisco area, upon written request by you, the
Company agrees to loan you an amount of up to one million three hundred thousand
dollars ($1,300,000) for a period of up to ninety (90) days for such purpose
(the "Home Loan"). The Home Loan will bear interest at the lowest applicable
federal rate and will be secured by a pledge by you to the Company of registered
and freely tradable shares of the common stock of Millennium Pharmaceuticals,
Inc. ("Millennium") beneficially owned by you, provided that such a pledge does
not violate applicable securities law or any agreement between you and the
Millennium which would prevent or restrict such pledge or limit the Company's
ability to exercise its rights under such pledge.
4. Benefits and Reimbursement of Expenses.
(a) Vacation and Holidays. You shall be entitled to three weeks of
paid vacation plus paid holidays in each year at a time or times (either
consecutively or not consecutively) mutually agreeable to the company and you,
in accordance with the Company's vacation and holiday policy in effect from time
to time.
(b) Employee Benefit Plans. You shall also be entitled to
participate in the same manner as other executive employees of the Company in
any employee benefit plans which the Company provides or may establish for the
benefit of its executive employees generally (including, without limitation,
group life, medical, dental and other insurance, retirement, pension, 401k,
profit-sharing and similar plans). If available at normal commercially
reasonable cost, the Company will provide you (as part of a group policy or
otherwise) with disability insurance covering sixty percent (60%) of your Base
Salary.
(c) Reimbursement of Expenses. You shall be entitled to
reimbursement for all ordinary and reasonable out-of-pocket business expenses
which are reasonably incurred by you in furtherance of the Company's business in
accordance with reasonable policies adopted from time to time by the Company.
<PAGE>
(d) Relocation Expenses. The Company shall pay or reimburse you for
the following out-of-pocket costs relating to your relocation from Boston,
Massachusetts to the San Francisco area upon your reasonable substantiation of
an itemized account for such expenses paid or incurred by you: (i) temporary
living expenses for you in an amount not to exceed Three Hundred Dollars ($300)
per day for a reasonable length of time; (ii) household goods insurance when in
transit or storage, if required; (iii) packing and unpacking costs; (iv)
transportation of household goods; (v) storage and delivery of household goods
out of storage; (vi) an amount equal to one month of your initial Base Salary
for incidental expenses in connection with such relocation; (vii) your current
monthly mortgage payments (including any amounts for escrow of property taxes,
insurance, etc.) in respect of your current residence in Chestnut Hill,
Massachusetts for the period from July 1, 1997 to September 30, 1997 unless such
residence is sold prior to September 30, 1997; and (vii) reasonable closing
costs in connection with the sale of such residence.
5. Prohibited Solicitation.
(a) During the period in which you are employed by the Company and
for a period of one (1) year following the expiration or termination of your
employment, whether such termination is voluntary or involuntary, you agree that
you shall not, without the prior written consent of the Company either
individually or on behalf of or through any third party, directly or indirectly,
solicit, entice or persuade or attempt to solicit, entice or persuade any other
employees of or consultants to the Company or any present or future parent,
subsidiary or affiliate of the Company to leave the services of the Company or
any such parent, subsidiary or affiliate for any reason.
(b) Survival of Agreement. Your agreement set forth in this Section 5
shall survive the expiration or termination of this Agreement and the
termination of your employment with the Company for any reason.
6. Protected Information. Upon execution of this Agreement, you agree to
execute and deliver a Confidentiality Agreement in the form attached hereto as
Exhibit 6 (the "Confidentiality Agreement").
_________
7. Disclosure to Future Employers. You agree that you will provide, and
that the Company may similarly provide in its discretion, a copy of the
covenants contained in Section 5 of this Agreement and the covenants contained
in the Confidentiality Agreement to any business or enterprise which you may
directly, or indirectly, own, manage, operate, finance, join, control or in
which you participate in the ownership, management, operation, financing, or
control, or with which you may be connected as an officer, director, employee,
partner, principal, agent, representative, consultant or otherwise. Except as
set forth in the preceding sentence, and except for disclosure to lenders or
prospective investors at their request, and except as required by law or
judicial process, the Company will keep the terms of this Agreement
confidential.
8. Records. Upon termination of your relationship with the Company, you
agree to deliver to the Company any property of the Company which may be in your
possession including products, materials, memoranda, notes, records, reports, or
other documents or photocopies of the same.
<PAGE>
9. Prior Agreements. You have previously provided to the Company copies
of all documents related to your past employment, including any such documents
relating to your confidentiality, non-competition or non-disclosure obligations
(the "Documents"). In the event that either (i) your ability to perform the
services for the Company contemplated by this Agreement is materially restricted
as a result of the enforcement by any court of competent jurisdiction or
arbitrator of any provision of the Documents, or (ii) the Company, in its sole
discretion, determines that your ability to perform the services for the Company
contemplated by this Agreement is materially restricted by the Documents, during
the period while your performance of services hereunder is so restricted, the
Company will be obligated only to pay you your Base Salary as set forth in
Subsection 3(a) and to provide you with the Employee Benefit Plans as set forth
in Subsection 4(b), provided that any options which you have been granted
pursuant to Subsection 3(c) shall continue to vest as set forth in the
respective option agreements.
10. General.
(a) Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder and shall be either (i) delivered by hand,
(ii) made by telex, telecopy or facsimile transmission, (iii) sent by overnight
courier, or (iv) sent by registered mail, return receipt requested, postage
prepaid.
If to the Company: Exelixis Pharmaceuticals, Inc.
One Kendall Square, Building 600
Cambridge, MA 02139
Attention: President
With a copy to: Jeffrey M. Wiesen, Esquire
Mintz, Levin, Cohn, Ferris
Glovsky and Popeo, PC
One Financial Center
Boston, MA 02111
If to you: Geoffrey Duyk, M.D., Ph.D.
354 Woodland Road
Chestnut Hill, MA 02167
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
mail, on the fifth business day following the day such mailing is made.
(b) Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes
<PAGE>
all prior oral or written agreements and understandings relating to the subject
matter hereof. No statement, representation, warranty, covenant or agreement of
any kind not expressly set forth in this Agreement shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
(c) Modifications and Amendments. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by the
parties hereto.
(d) Waivers and Consents. The terms and provisions of this Agreement
may be waived, or consent for the departure therefrom granted, only by written
document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.
(e) Assignment. The Company may assign its rights and obligations
hereunder to any person or entity who succeeds to all or substantially all of
the Company's business. Your rights and obligations under this Agreement may not
be assigned by you without the prior written consent of the Company.
(f) Benefit. All statements, representations, warranties, covenants
and agreements in this Agreement shall be binding on the parties hereto and
shall inure to the benefit of the respective successors and permitted assigns of
each party hereto. Nothing in this Agreement shall be construed to create any
rights or obligations except among the parties hereto, and no person or entity
shall be regarded as a third-party beneficiary of this Agreement.
(g) Governing Law. This Agreement and the rights and obligations of
the parties hereunder shall be construed in accordance with and governed by the
law of the State of California, without giving effect to the conflict of law
principles thereof.
(h) Arbitration. Except with respect to the provisions of Section 5
hereof, any controversy, dispute or claim arising out of or in connection with
this Agreement, or the breach, termination or validity hereof, shall be settled
by final and binding arbitration to be conducted by an arbitration tribunal
pursuant to the rules of the American Arbitration Association. The arbitration
tribunal shall consist of three arbitrators. The party initiating arbitration
shall nominate one arbitrator in the request for arbitration and the other party
shall nominate a second in the answer thereto within thirty (30) days of receipt
of the request. The two arbitrators so named will then jointly appoint the third
arbitrator. If the answering party fails to nominate its arbitrator within the
thirty (30) day period, or if the arbitrators named by the parties fail to agree
on the third arbitrator within sixty (60) days, the American Arbitration
Association shall make the necessary appointments of such arbitrator(s). The
decision or award of the arbitration tribunal (by a majority determination, or
if there is no majority, then by the determination of the third arbitrator, if
any) shall be final, and judgment upon such decision or award may be entered in
any competent court or application may be made to any competent court for
judicial acceptance of such decision or award and an order of enforcement.
<PAGE>
(i) Severability. The parties intend this Agreement to be enforced as
written. However, (i) if any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a duly authorized court having
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law and (ii) if any provision, or part thereof, is
held to be unenforceable because of the duration of such provision or the
geographic area covered thereby, the Company and you agree that the court making
such determination shall have the power to reduce the duration and/or geographic
area of such provision, and/or to delete specific words and phrases ("blue-
pencilling"), and in its reduced or blue-pencilled form such provision shall
then be enforceable and shall be enforced.
(j) Headings and Captions. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and shall
in no way modify, or affect the meaning or construction of any of the terms or
provisions hereof.
(k) Injunctive Relief. You hereby expressly acknowledge that any
breach or threatened breach of any of the terms and/or conditions set forth in
Section 5 of this Agreement will result in substantial, continuing and
irreparable injury to the Company. Therefore, you hereby agree that, in addition
to an other remedy that may be available to the Company, the Company shall be
entitled to injunctive relief by a court of appropriate jurisdiction in the
event of any breach or threatened breach of the terms of Section 5 of this
Agreement.
(l) No Waiver of Rights, Powers and Remedies. NO failure or delay by
a party hereto in exercising any right, power or remedy under this Agreement,
and no course of dealing between the parties hereto, shall operate as a waiver
of any such right, power or remedy of the party. No single or partial exercise
of any right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
(m) Expenses. Should any party breach this Agreement, in addition to
all other remedies available at law or in equity, such party shall pay all of
any other party's costs and expenses resulting therefrom and/or incurred in
enforcing this Agreement, including legal fees and expenses.
(n) Counterparts. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
If the foregoing accurately sets forth our agreement, please so indicate by
signing and returning to us the enclosed copy of this letter.
Very truly yours,
Exelixis Pharmaceuticals, Inc.
By: /s/ George Scangos
-------------------------------------
George Scangos, Ph.D.
President and Chief Executive Officer
Accepted and Approved:
/s/ Geoffrey Duyk
- ------------------------------
Geoffrey Duyk
<PAGE>
EXHIBIT 10.19
October 19, 1999
Mr. Glen Sato
1470 Kings Lane
Palo Alto, CA 94303
Dear Glen:
Exelixis Pharmaceuticals, Inc. is pleased to offer you the position of Chief
Financial Officer and Vice President of Legal Affairs on the terms described
below.
As Chief Financial Officer and VP of Legal Affairs you will work in South San
Francisco, California and report to the President and Chief Executive Officer of
Exelixis. You will perform the duties customarily associated with the position
of CFO and will have additional responsibility for legal affairs. You will also
have responsibility for administration, including facilities and Human
Resources, and such other duties as may be assigned to you by the Company's
President and Chief Executive Officer. Provided you have no objection, your
start date will be November 3, 1999.
Your initial base salary will be $210,000 per year less standard deductions and
withholdings, paid semi-monthly. In addition, you will be eligible for a target
bonus of 30% of base salary, at the discretion of the Board of Directors, based
on annualized objectives to be established by the CEO and Board for your
position. As with all executives, receipt of this year-end bonus will be
subject to the achievement of our annual financial plan and individual
management objectives.
Upon approval by the Board on or about the date your employment commences with
Exelixis, you will receive an incentive stock option grant, under the terms of
the Company's Equity Incentive Plan, in the total amount of 325,000 shares of
Exelixis common stock at an exercise price of $0.30 per share. This grant will
vest over four years in equal shares on the last day of each calendar quarter in
accordance with the Company's standard vesting policy. Other terms of the
option will be consistent with the Company's Equity Incentive Plan and with the
terms set forth in the Company's standard form of stock option grant. From time
to time, the Board reviews the outstanding option grants for senior Company
executives and may issue additional options in the future, at its discretion.
In addition to your salary and incentive compensation, you will be eligible for
the following Company benefits consistent with Company policy: three weeks of
vacation per year, annual physical examination, life insurance, and medical and
dental coverage. Dependent medical and dental coverage is also available, paid
in part by the Company and in part by you, in accordance with Exelixis policy.
If necessary, Exelixis will reimburse you for your medical and dental insurance
under the COBRA plan of your previous employer until you are eligible for our
coverage (90 days from your date of hire). Details about these benefits are
provided in the Employee Manual Summary Plan Descriptions. The Company reserves
the right to modify your compensation and benefits from time to time, as it
deems necessary.
The Company will reimburse you for reasonable documented business expenses
pursuant to Company policy. Of course, you will be expected to abide by all of
the Company's policies and procedures. As a further condition of your
employment, you agree to refrain from any
1.
<PAGE>
unauthorized use or disclosure of the Company's proprietary or confidential
information or materials. You also agree to sign and comply with the Company's
Confidentiality Agreement (attached). By accepting this offer, you are
representing that you are not a party to any agreement with any third party or
prior employer that would conflict with or inhibit your performance of your
duties with Exelixis.
You may terminate your employment with Exelixis at any time and for any reason
whatsoever simply by notifying the Company. Likewise, Exelixis may terminate
your employment at any time and for any reason whatsoever, with or without cause
or advance notice. If you are terminated without cause, you will be entitled to
receive salary and benefits for a period of 6 months from the date of the
termination. This at-will employment relationship cannot be changed except in
writing signed by a Company officer.
This letter, together with the Confidentiality Agreement, constitutes the
complete, final and exclusive embodiment of the entire agreement between you and
Exelixis with respect to the terms and conditions of your employment. In
entering into this agreement, neither party is relying upon any promise or
representation, written or oral, other than those expressly contained herein,
and this agreement supersedes any other such promises, representations or
agreements. It may not be amended or modified except in a written agreement
signed by you and a duly authorized Company officer. As required by law, this
offer of employment is subject to proof of your right to work in the United
States.
To ensure rapid and economical resolution of any disputes that may arise under
this agreement, you and the Company agree that any and all disputes or
controversies of any nature whatsoever, regarding the interpretation,
performance, enforcement or breach of this Agreement will be resolved by
confidential, final and binding arbitration (rather than trial by jury or court
or resolution in some other forum) under the then-existing rules of Judicial
Arbitration and Mediation Services ("JAMS").
Sincerely,
/s/ George Scangos
- ------------------------------
George Scangos
2.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated January 31, 2000, relating to the consolidated financial
statements of Exelixis, Inc., which appears in such Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 4, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated February 10, 1999, relating to the financial statements of
MetaXen LLC, which appears in the Exelixis, Inc. Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 4, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,400
<SECURITIES> 1,504
<RECEIVABLES> 185
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 943
<PP&E> 14,293
<DEPRECIATION> 4,795
<TOTAL-ASSETS> 18,901
<CURRENT-LIABILITIES> 7,479
<BONDS> 0
46,780
0
<COMMON> 8
<OTHER-SE> (46,498)
<TOTAL-LIABILITY-AND-EQUITY> 18,901
<SALES> 12,514
<TOTAL-REVENUES> 12,514
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 29,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 525
<INCOME-PRETAX> (16,717)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,717)
<DISCONTINUED> (16,717)
<EXTRAORDINARY> (16,717)
<CHANGES> 0
<NET-INCOME> (16,717)
<EPS-BASIC> (2.91)
<EPS-DILUTED> (0.47)
</TABLE>
