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Exhibit 99.3
Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
STOCKHOLDERS' RIGHTS AGREEMENT
This Stockholders' Rights Agreement (the "Agreement") dated as of December
23, 1996, is entered into by and among Cambridge NeuroScience Partners, Inc., a
Delaware corporation (the "Company"), Cambridge NeuroScience, Inc., a Delaware
corporation ("CNSI"), The J. David Gladstone Institutes, a charitable trust
("Gladstone"), and The Regents of the University of California, a California
corporation ("The Regents").
WITNESSETH
WHEREAS, the Company, CNSI and The Regents have entered into an Option
Agreement of even date herewith (the "Option Agreement"); and
WHEREAS, the Company and Gladstone have entered into a Sponsored Research
and Collaboration Agreement of even date herewith (the "Sponsored Research and
Collaboration Agreement"); and
WHEREAS, concurrently with the execution of this Agreement, CNSI,
Gladstone and The Regents are purchasing Shares; and
WHEREAS, each of the parties hereto desires to set forth in a single
agreement certain rights with respect to the securities of the Company.
NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth and other good and valuable consideration, the
parties hereto agree as follows:
1. Certain Definitions.
--------------------
As used in this Agreement, the following terms shall have the following
respective meanings:
"Affiliate" means any individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof (a "Person") which directly or indirectly controls, is controlled by, or
is under common control with, the indicated Person.
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
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Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
"MAJOR FINANCING" shall mean a sale of shares newly issued New Securities
to investors other than CNSI or an Affiliate of CNSI with aggregate net proceeds
to the Company of not less than *********************** (excluding the
conversion of debt by CNSI pursuant to Section 3.2 hereof) after deduction of
commissions, legal, accounting and all other expenses of sale.
"NEW SECURITIES" shall mean any capital stock of the Company whether now
authorized or not, and rights, options or warrants to purchase capital stock and
securities of any type whatsoever which are, or may become, convertible into
capital stock of the Company; provided, however, that the term "New Securities"
does not include (i) the Shares; (ii) securities offered to the public pursuant
to a Registration Statement; (iii) securities issued for the acquisition of
another corporation by the Company by merger, purchase of substantially all the
assets of such corporation or other reorganization resulting in the ownership by
the Company of not less than a majority of the voting power of such corporation;
(iv) securities issued as a result of a stock split, stock dividend or
reclassification of common stock, distributable on a pro rata basis to all
holders of common stock; (v) securities issued in connection with equipment
lease transactions between the Company and unaffiliated third parties; or (vi)
"Employee Shares" which, for purposes of this Agreement, shall consist of shares
of common stock issued or issuable to employees, officers and directors of, or
consultants to, the Company pursuant to agreements, plans or programs, or
pursuant to rights, options or warrants granted under stock option plans,
employee stock purchase plans, restricted stock plans or other employee stock
plans or agreements, in each case approved by the Board of Directors of the
Company.
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar Federal statue and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"SECURITYHOLDERS" means Gladstone and The Regents, and any persons or
entities to whom the rights granted under this Agreement are transferred by
either Securityholder, their successors or assigns pursuant to Section 3.3
hereof.
"SHARES" means common stock of the Company, having a par value of $.0001
per share, purchased by the Securityholders and CNSI contemporaneously with the
execution of this Agreement and representing one hundred percent (100%) of the
initial capitalization of the Company.
2. Initial Equity Provisions.
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2.1 INCORPORATION AND CAPITALIZATION. CNSI and the Company represent that,
prior to the execution of the Option Agreement, The Company was incorporated in
the State of Delaware and, as of the Effective Date of the Option Agreement, has
paid in capital of at least One Million Two Hundred and Fifty Thousand Dollars
($1,250,000). Furthermore, unless the Company raises the required funds, by
selling stock to investors other than CNSI or an Affiliate, to fund the second
and third year research support payments as set forth in the Research Agreement,
CNSI must lend the Company all amounts which the Company may require to fund
such payments. All such loans shall be interest free loans.
2.2 ADDITIONAL CONSIDERATION FOR THE OPTION AGREEMENT. As additional
consideration for the Option Agreement, on or prior to the Effective Date of
this Agreement, CNSI shall have contributed at least One Million Two Hundred and
Fifty Thousand Dollars ($1,250,000) paid in capital to the Company and Company
shall issue to the Securityholders a number of Shares of the Company sufficient
to result in an equity position of five percent (5%) to The Regents, fifteen
percent (15%) to Gladstone, and eighty percent (80%) to CNSI as shown in Table 1
below.
TABLE 1
CAPITAL STRUCTURE* OF CAMBRIDGE NEUROSCIENCE PARTNERS, INC. (THE "COMPANY")
FIRST ROUND: PRICE PER SHARE = $0.00064
# OF COMMON SHARES** TOTAL
CNSI: 468,750 $300.00
GLADSTONE 234,375 $150.00
THE REGENTS 78,125 $ 50.00
=============================================
SECOND ROUND: PRICE PER SHARE = $1.60
# OF COMMON SHARES** TOTAL
CNSI: 781,250 $1,250,000.00
=============================================
FIRST AND SECOND ROUND:
TOTAL NO. OF SHARES TOTAL DOLLAR AMOUNT
1,562,500 $1,250,500
- ------------
<FN>
* Capital structure at an initial capitalization of One Million Two Hundred
Fifty Thousand Dollars ($1,250,000)
** Fully Diluted
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3. Right of First Refusal.
-----------------------
3.1 New Securities Rights
---------------------
(a) The Regents and Gladstone shall each have the right, but not the
obligation, to maintain their pro rata portions of five percent (5%) and fifteen
percent (15%), respectively, as provided for in Section 2.2 above (or such other
percentages as they may respectively own as a result of (i) the failure of The
Regents and/or Gladstone, respectively, to exercise its rights under this
Section 3.1 or Section 3.2 with respect to a previous issuance of the capital
stock of the Company or (ii) the purchase of one of them or the others pro rata
portions of the capital stock of the Company pursuant to Section 3.1 (b) or
Section 3.2(c) by purchasing their pro rata portion of any New Securities which
the Company may, from time to time, sell at the same price per share paid
therefore by other purchasers, including CNSI, subject to the terms and
conditions set forth below in Section 3.1 (b) and 3.1 (c). A Securityholders'
pro rata portion of the New Securities shall be determined by the ratio of the
number of shares of common stock (which, for this purpose shall include shares
of common stock issuable upon conversion of any then outstanding shares of
preferred stock) of the Company owned by such Securityholder, bears to the total
number of shares of the Company's common stock (which, for this purpose shall
include shares of common stock issuable upon conversion of any then outstanding
shares of preferred stock) outstanding immediately prior to the offering of the
New Securities, including shares issued to CNSI upon conversion of debt of the
Company pursuant to Section 3.2 below.
(b) In the event the Company intends to sell New Securities, it
shall deliver written notice of such intention to each Securityholder,
describing the type of New Securities to be sold, the price thereof and the
general terms upon which the Company proposes to effect such sale. Each
Securityholder shall have ten (10) days from the date of any such notice to
agree to purchase all or part of its pro rata portion of such New Securities for
the price and upon the general terms and conditions specified in the Company's
notice by giving written notice to the Company stating the quantity of New
Securities to be so purchased. Each Securityholder shall have a right of
overallotment such that if either Securityholder fails to exercise its right
hereunder to purchase its total pro rata portion of New Securities, the other
Securityholder may purchase such unpurchased portion by giving written notice to
the Company with five (5) days from the date that the Company provides written
notice to such Securityholder of the amount of New Securities with respect to
which such non-purchasing Securityholder has failed to exercise its right
hereunder.
(c) In the event either Securityholder fails to exercise its rights
in Sections 3.1 and 3.2 within such 10-day period (or the additional 5-day
period provided for overallotments), the Company may within one hundred twenty
(120) days thereafter sell any or all of such nonpurchased New Securities at a
price and upon general terms no more favorable to the purchasers thereof than
those specified in the notice given to each Securityholder pursuant to paragraph
(b) above. In the event the Company has not sold such New Securities within such
120-day period, the Company shall not thereafter sell such New Securities
without first offering such New Securities to the Securityholders in the manner
provided above.
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Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote such omissions.
(d) Unless otherwise approved by the Securityholders, any issuance
and sale of New Securities by the Company following the date hereof must be on
the basis of the Company being deemed to have a pre-money valuation of not less
than ***********************************************************.
3.2 Shares Issued Upon Conversion of Debt.
--------------------------------------
(a) CNSI shall have the right, but not the obligation, to convert
all or any part of debt incurred by the Company to CNSI, into New Securities of
the Company, provided that such conversion is coincident with a Major Financing.
The conversion price shall be the average price per share which the investors
will pay for their shares in said Major Financing.
(b) In the event of any such conversion of debt by CNSI pursuant to
subsection (a) above, The Regents and Gladstone shall have the right to purchase
from CNSI five percent (5%) and fifteen percent (15%), respectively, of the
shares of New Securities issued to CNSI upon such conversion at the same price
per share paid by CNSI with debt of the Company. Promptly after any such
conversion, CNSI shall deliver written notice to the Securityholders of the date
of conversion, the number of shares issued to CNSI upon such conversion and the
price per share paid by CNSI with debt of the Company. The Securityholders shall
have up to two (2) years from the date of conversion to exercise their right
under this Section 3.2(b).
(c) If either Securityholder shall fail to purchase its total pro
rata portion of such shares of common stock pursuant to subsection (b) above,
CNSI shall promptly notify the Company and the other Securityholder. Each
Securityholder shall have a right of overallotment such that if either
Securityholder fails to exercise its right hereunder to purchase its total pro
rata portion of the shares of common stock from CNSI pursuant to subsection (b)
above, the other Securityholder may purchase such portion on a pro rata basis by
giving written notice to CNSI and the Company within five (5) days from the date
that CNSI provides written notice pursuant to this subsection (c) above.
(d) Unless otherwise approved by the Securityholders, any New
Securities issued to CNSI pursuant to this Section 3.2 shall have a purchase or
conversion price determined on the basis of the Company being deemed to have a
pre-money valuation of not less than ******************************************
*************************************************.
3.3 Transfers of Certain Rights.
----------------------------
(a) The rights granted to a Security holder under this Article 3 may
be transferred by such Securityholder only to another Securityholder, to any
Affiliate of the Company or to any person or entity that is acquiring all of
such Securityholder's Shares provided that the Company is given written notice
by the transferee at the time of such
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transfer stating the name and address of the transferee and identifying the
securities with respect to which such rights are being assigned.
(b) Any transferee (other than a Securityholder) to whom rights
under this Article 3 are transferred pursuant to this Section 3.3 shall, as a
condition to such transfer, deliver to the Company a written instrument by which
such transferee agrees to be bound by the obligations imposed upon
Securityholders under this Agreement to the same extent as if such transferee
were a Securityholder hereunder.
(c) A transferee to whom rights under this Article 3 are transferred
pursuant to this Section 3.3 may not again transfer such rights to any other
person or entity, other than as provided in paragraphs (a) or (b) above.
(d) Notwithstanding anything to the contrary contained in this
Agreement, either Securityholder may transfer rights granted to such
Securityholder under this Article 3 to any inventor and up to three (3)
transferees to whom Shares are transferred and who delivers to the Company a
written instrument in accordance with subsection (b) above and containing the
representation that the transfer is exempt from registration under the
Securities Act. In the event of such transfer, such transferee shall be deemed a
Securityholder for purposes of this Section 3.3 and may again transfer such
rights to any other person or entity which acquires Securities from such
transferee in accordance with, and subject to, the provisions of subsections
(a), (b) and (c) above.
4. MERGERS AND CONSOLIDATIONS. The Company has the right to (a) issue equity
for consideration other than money, and (b) merge into or consolidate with
another corporation other than CNSI without the approval of The Regents or
Gladstone, provided that the Company shall deliver written notice to The Regents
and Gladstone at least thirty (30) days prior to the consummation of such merger
or consolidation. If the Company merges into CNSI, the terms of the merger,
including but not limited to the number of shares to be issued by CNSI in
exchange for shares of the capital stock of the Company as established by the
underwriters, must be approved by an independent and qualified investment
banking firm, such firm having been selected by the Securityholders. The fees of
any such investment banking firm will be paid by the Securityholders on a pro
rata basis.
5. TERMINATION OF RIGHTS. The covenants contained in Articles 3 and 4 of this
Agreement shall terminate, and be of no further force and effect, with respect
to each Securityholder upon the Closing of a public offering of the Company's
common stock, pursuant to a Registration Statement.
6. Sale or Transfer of Shares: Legend.
-----------------------------------
6.1 RESTRICTIONS ON TRANSFER. The Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the Securities Act
or (ii) the Company first shall have been furnished with an opinion of legal
counsel (which may be counsel to the Company), reasonable satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act, and, in the case of a sale of
transfer to a party other than an Affiliate of The Regents or Gladstone, as the
case may be,
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the Company has consented to such sale or transfer.
6.2 "STAND-OFF" AGREEMENT. Each Securityholder, if requested by the
Company and an underwriter of common stock or other securities of the Company,
shall agree not to sell or otherwise transfer or dispose of any Shares or other
securities of the Company held by such Securityholder for a specified period of
time (not to exceed one hundred eighty (180) days) following the effective date
of a Registration Statement relating to any public offering of the Company's
common stock; provided, that all officers and directors of the Company and all
holders of more than one percent (1%) of the outstanding shares of common stock
of the Company enter into agreements at least as restrictive as this Agreement.
6.3 LEGEND. Each certificate or other instrument representing the Shares
shall bear a legend substantially in the following form:
"This security has not been registered under the Securities Act of
1933, as amended, and may not be offered, sold or otherwise
transferred, pledged or hypothecated unless and until it has been
registered under such Act or an opinion of counsel satisfactory to
the Company is obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates
representing any Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
7. REPRESENTATIONS OF PURCHASERS. Each of CNSI, Gladstone and The Regents (each
hereinafter referred to as a "Purchaser") hereby represents to the Company in
connection with the Purchaser of their respective Shares contemporaneously the
execution of this Agreement that:
7.1 INVESTMENT. Such Purchaser is acquiring the Shares for its own account
for investment and not with a view to, or for sale in connection with, any
immediate distribution thereof, nor with any present intention of immediately
distributing or selling the same; and, except as contemplated by this Agreement,
such Purchaser has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment providing for the
disposition thereof except The Regents' obligation to inventors to share Shares
in accordance with The Regents' Patent Policy.
7.2 EXPERIENCE. Such Purchaser has adequate net worth and means of
providing for its current needs and personal contingencies to sustain a complete
loss of its investment in the Company; such Purchaser's overall commitment to
investments which are not readily marketable is not disproportionate to its net
worth and such Purchaser's investment in the Shares will not cause such overall
commitment to become excessive; and such Purchaser has sufficient knowledge and
experience to evaluate the risk of its investment in the Company.
7.3 ACCREDITED INVESTOR. Such Purchaser is an "accredited investor" within
the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933, as
amended.
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8. Piggy-Back Registration Rights.
-------------------------------
8.1 REGISTRATION RIGHTS. The Securityholders shall have the right to
request inclusion of Shares including shares of common stock issuable to them
upon conversion of New Securities (if applicable) in any registration under the
Securities Act proposed by the Company, other than a registration relating
solely to employee benefit plans, a registration relating solely to a Rule 145
transaction or a registration pursuant to any registration form that does not
permit secondary sales. Any required reduction in the number of shares to be
included in such registered offering shall be effected pro-rata among the
holders having registration rights of all shares of capital stock of the
Company. If the registration described herein involves an underwriting, then the
Securityholders participating in such underwritten offering shall enter into an
underwriting agreement with the representative of the underwriter or
underwriters selected by the Company, which underwriting agreement shall contain
customary terms and conditions, including provisions relating to indemnification
by and among the Company, the Securityholders and the underwriters. The Company
shall bear all cost and expenses of such registration, other than fees and
expenses, if any, of counsel or other advisors to the Securityholders.
8.2 INDEMNIFICATION. The Company shall indemnify, defend and hold the
Securityholders harmless against all claims, losses and damages arising out of
the registration statement prepared by or on behalf of the Company and for the
violation of any rule or regulation promulgated under the Securities Act or
state "blue sky" law.
9. Miscellaneous.
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9.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions of this Agreement shall be binding upon, and inure to the benefit of,
the respective successors and assigns of the parties hereto.
9.2 AMENDMENTS. Except as otherwise expressly set forth in this Agreement,
any term of this Agreement may be amended or modified only with the written
consent of each of the parties hereto. No waivers of or exceptions to any term,
condition or provision of this Agreement in any one or more instances shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
9.3 REMEDIES. In case any one or more of the covenants or agreements set
forth in this Agreement shall have been breached by any party hereto, the other
party or parties may proceed to protect and enforce its or their rights either
by suit in equity or by action at law, including an action for damages as a
result of any such breach or an action for specific performance of any such
covenant or agreement contained in this Agreement. In the event that any action
shall be instituted in any court by a party hereto for breach of this Agreement,
the prevailing party shall be entitled to recover court costs and reasonable
attorney's fees in such amount or amounts as the court shall determine.
9.4 NOTICES. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be delivered by hand or
mailed by first-class, certified or registered mail, return receipt requested,
postage prepaid:
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If to CAMBRIDGE NEUROSCIENCE
PARTNERS, INC. or CNSI: Cambridge NeuroScience, Inc.
One Kendall Square, Building 700
Cambridge, MA 02139
Attention: Harry W. Wilcox
with a copy to: Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
Attention: William T. Whelan, Esq.
If to GLADSTONE: The J. David Gladstone Institutes
Purchaser O. Box 419100
San Francisco, CA 94141-9100
Attention: Dr. Robert W. Mahley
Executive Director
with a copy to: Richard Hille
J. David Gladstone Institutes
43 Corporate Park, Suite 102
Irvine, CA 92714
If to The Regents: The Regents of the University of California
Office of Technology Transfer
1320 Harbor Bay Parkway, Suite 150
Alameda, CA 94502
Attention: Terence A. Feuerborn
Executive Director
Research Administration and
Technology Transfer
UC Case No. 96-223
9.5 ENTIRE AGREEMENT. With respect to the subject matter hereof, this
Agreement together with the Option Agreement and the Sponsored Research and
Collaboration Agreement, embodies the entire agreement and understanding between
the Securityholders and the Company and supersedes in their entirety all prior
agreements and understandings relating to such subject matter; provided,
however, that in the event of any conflict between the provisions of this
Agreement and the provisions of the Option Agreement and/or the Sponsored
Research and Collaboration Agreement, the provision of this Agreement shall
prevail.
9.6 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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9.7 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision, provided, that no such severability shall be effective
if the result of such action materially changes the economic benefit of this
Agreement to Gladstone or The Regents.
9.8 HEADINGS. The headings of the Articles, Sections and subsections of
this Agreement have been added for convenience only and shall not be deemed to
be a part of this Agreement.
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IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the day and year first above written.
CAMBRIDGE NEUROSCIENCE CAMBRIDGE NEUROSCIENCE, INC.
PARTNERS, INC.
By: /s/ R. N. McBurney By: /s/ Elkan Gamzu
------------------------- --------------------------------
Name: R. N. McBurney Name: Elkan Gamzu
------------------------- -------------------------------
Title: President Title: President and CEO
------------------------ ------------------------------
Date: Date:
------------------------ -------------------------------
THE J. DAVID GLADSTONE THE REGENTS OF THE UNIVERSITY
INSTITUTES OF CALIFORNIA
By: /s/ Richard Brawerman By: /s/ Terence A. Feuerborn 12-19-96
------------------------- ------------------------------------
Richard Brawerman, Trustee Terence A. Feuerborn
Executive Director
Research Administration
and Technology Transfer
By: /s/ Albert A. Dorman
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Albert A. Dorman, Trustee
Approved as to legal form: /s/ Edwin H. Baker 12/19/96
-----------------------------
Edwin H. Baker, Associate Resident Counsel Date
Office of Technology Transfer
University of California
By: /s/ Richard D. Jones
-----------------------------
Richard D. Jones, Trustee
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