EXHIBIT 10.23
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SERIES B PREFERRED STOCK IS REDEEMABLE UNDER CERTAIN
CIRCUMSTANCES AND MAY BE CONVERTED AT ANY TIME AT THE ELECTION OF THE
HOLDER INTO FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK AND
SHALL BE AUTOMATICALLY CONVERTED INTO SHARES OF COMMON STOCK UPON THE
OCCURRENCE OF CERTAIN SPECIFIED EVENTS DESCRIBED IN THE AMENDED AND
RESTATED ARTICLES OF INCORPORATION.
-------------------
WARRANT TO PURCHASE SHARES OF PREFERRED STOCK
May 13, 1994
------
THIS CERTIFIES THAT, for value received, Lease Management Services, Inc.,
("Holder") is entitled to subscribe for and purchase Eighty Four Thousand
Dollars ($84,000.00) of the fully paid and nonassessable Preferred Stock ("the
Shares") of MEGABIOS Corp., a California corporation (the "Company"), at the
Warrant Price (as hereinafter defined), subject to the provisions and upon the
terms and conditions hereinafter set forth. As used herein, the term "Preferred
Stock" shall mean the Company's Series B Preferred Stock, and the Warrant Price
shall initially be the per share price of the upcoming Series C financing,
subject to adjustment as provided in Section 7 below. In the event the Series C
Preferred Stock financing (defined as the Company's receipt of at least $3
million new equity raised predominately from institutional venture investors)
does not close prior to December 31, 1994, then Holder will be entitled to
subscribe for and purchase Eighty Four Thousand Dollars ($84,000) of the
Company's fully paid and nonassessable Series B Preferred Stock at the Series B
share price (ie. $84,000/$1.2945 = 64,890 shares), subject to adjustment as
provided in Section 7 below.
1. Warrant Price. The Warrant Price shall be as defined above.
-------------
2. Conditions to Exercise. The purchase right represented by this Warrant may
----------------------
be exercised at any time, or from time to time, in whole or in part during the
term commencing on the date hereof and ending on the earlier of:
(a) 5:00 P.M. California time on the sixth annual anniversary of this
Warrant Agreement; or
(b) 5:00 P.M. California time on the day prior to the effectiveness of a
registration statement filed in a bona fide firm commitment underwriting
under the Securities Act of 1933, as amended, covering any of the Company's
securities (as that term is defined under the Securities Act of 1933, as
then in effect) with aggregate gross proceeds to the
LMSI/ MEGABIOS Corp. Warrant
Page 2 of 8
Company, at the public offering price, of at least $7,500,000; provided
that the Company shall notify the registered Holder of this Warrant of the
proposed registration of its securities on or prior to the date that the
registration statement is filed, but in any event at least 30 days prior to
the effectiveness of such registration, such notice to set forth the
proposed date of effectiveness of the subject registration statement; or
(c) the effective date of the merger of the Company with or into, the
consolidation of the Company with, or the sale by the Company of all or
substantially all of its assets to another corporation or other entity
(other than such a transaction wherein the shareholders of the Company
retain or obtain a majority of the voting capital stock of the surviving,
resulting, or purchasing corporation); provided that subject to any
applicable securities laws or confidentiality requirements, the Company
shall notify the registered Holder of this Warrant of the proposed
effective date of the merger, consolidation, or sale at least 30 days prior
to the effectiveness thereof.
In the event that, although the Company shall have given notice of a
transaction pursuant to subparagraph (b) or (c) hereof, the transaction
does not close within 30 days of the day specified by the Company, unless
otherwise elected by the Holder any exercise of the Warrant subsequent to
the giving of such notice shall be rescinded and the Warrant shall again be
exercisable until terminated in accordance with this Section 2.
3. Method of Exercise; Payment; Issuance of Shares; Issuance of New Warrant.
------------------------------------------------------------------------
(a) Cash Exercise. Subject to Section 2 hereof, the purchase right represented
-------------
by this Warrant may be exercised by the Holder hereof, in whole or in part, by
the surrender of this Warrant (with a duly executed Notice of Exercise in the
form attached hereto) at the principal office of the Company (as set forth in
Section 18 below) and by payment to the Company, by check, of an amount equal to
the then applicable Warrant Price per share multiplied by the number of shares
then being purchased. In the event of any exercise of the rights represented by
this Warrant, certificates for the shares of stock so purchased shall be in the
name of, and delivered to, the Holder hereof, or as such Holder may direct
(subject to the terms of transfer contained herein and upon payment by such
Holder hereof of any applicable transfer taxes). Such delivery shall be made
within 10 days after exercise of the Warrant and at the Company's expense and,
unless this Warrant has been fully exercised or expired, a new Warrant having
terms and conditions substantially identical to this Warrant and representing
the portion of the Shares, if any, with respect to which this Warrant shall not
have been exercised, shall also be issued to the Holder hereof within 10 days
after exercise of the Warrant.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section
------------------
3(a), Holder may elect to receive shares equal to the value of this Warrant
(or of any portion thereof remaining unexercised) by surrender of this
Warrant at the principal office of the Company together with notice of such
election, in which event the Company shall issue to Holder the number of
shares of the Company's Preferred Stock computed using the following
formula:
X = Y (A-B)
------
A
Where X = the number of shares of Preferred Stock to be issued to Holder.
Y = the number of shares of Preferred Stock purchasable under this Warrant
(at the date of such calculation).
2
LMSI/ MEGABIOS Corp. Warrant
Page 3 of 8
A = the fair market value of one share of the COMPANY'S Preferred Stock
(at the date of such calculation).
B = Warrant exercise price (as adjusted to the date of such calculation).
(c) Fair Market Value. For purposes of this Section 3, Fair Market Value of one
-----------------
share of the Company's Preferred Stock shall mean:
(i) In the event of an Initial Public Offering pursuant to Section 2(b),
the per share Fair Market Value for the Preferred Stock shall be the
Offering Price at which the underwriters sell Common Stock to the public
multiplied by the number of shares of Common Stock into which each share of
Series B Preferred Stock is then convertible; or
(ii) If the Common Stock is traded on NASDAQ or Over-The-Counter or on an
exchange, the per share Fair Market Value for the Preferred Stock will be
the average of the closing bid and asked prices of the Common Stock quoted
in the Over-The Counter Market Summary or the closing price quoted on any
exchange on which the Common Stock is listed, whichever is applicable, as
published in the Western Edition of The Wall Street Journal for the ten
-----------------------
(10) trading days prior to the date of determination of Fair Market Value
multiplied by the number of shares of Common Stock into which each share of
Series B Preferred Stock is then convertible; or
(iii) If the Company shall be subject to a merger, acquisition or other
consolidation in which the Company is not the surviving entity, pursuant to
Section 2(c), the per share Fair Market Value for the Preferred Stock shall
be the value received per share of Preferred Stock by all holders of the
Preferred Stock as determined by the Board of Directors of the Company; or
(iv) In any other instance, the per share Fair Market Value for the
Preferred Stock shall be as determined by the Board of Directors of the
Company in its reasonable business judgment.
In the event of 3(c)(iii) or 3(c)(iv), above, the Company's Board of
Directors shall prepare a certificate, to be signed by an authorized
Officer of the Company, setting forth in reasonable detail the basis for
and method of determination of the per share Fair Market Value of the
Series B Preferred Stock. The Board will also certify to the Holder that
this per share Fair Market Value will be applicable to all holders of the
Company's Series B Preferred Stock. Such certification must be made to
Holder at least twenty (20) business days prior to the proposed effective
date of the merger, consolidation, sale, or other triggering event as
defined in 3(c)(iii) and 3(c)(iv).
4. Representations and Warranties of Holder and Restrictions on Transfer
---------------------------------------------------------------------
Imposed by the Securities Act of 1933.
- -------------------------------------
(a) Representations and Warranties by Holder. The Holder represents and
warrants to the Company with respect to this purchase as follows:
(i) The Holder has substantial experience in evaluating and investing in
private placement transactions of securities of companies similar to the
Company so that the Holder is capable of evaluating the merits and risks of
its investment in the Company and has the capacity to protect its
interests.
3
LMSI/ MEGABIOS Corp. Warrant
PAGE 4 of 8
(ii) The Holder is acquiring the Warrant and the Shares of Preferred Stock
issuable upon exercise of the Warrant and any Common Stock issued upon
conversion thereof (collectively the "Securities") for investment for
its own account and not with a view to, or for resale in connection
with, any distribution thereof. The Holder understands that the Securities
have not been registered under the Act by reason of a specific exemption
from the registration provisions of the Act which depends upon, among other
things, the bona fide nature of the investment intent as expressed herein.
In this connection, the Holder understands that, in the view of the
Securities and Exchange Commission (the "SEC"), the statutory basis for
such exemption may be unavailable if this representation was predicated
solely upon a present intention to hold the Securities for the minimum
capital gains period specified under tax statutes, for a deferred sale, for
or until an increase or decrease in the market price of the Securities or
for a period of one year or any other fixed period in the future.
(iii) The Holder acknowledges that the Securities must be held indefinitely
unless subsequently registered under the Act or an exemption from such
registration is available. The Holder is aware of the provisions of Rule
144 promulgated under the Act ("Rule 144") which permits limited resale of
securities purchased in a private placement subject to the satisfaction of
certain conditions, including, in case the securities have been held for
less than three years, the existence of a public market for the shares, the
availability of certain public information about the Company, the resale
occurring not less than two years after a party has purchased and paid for
the security to be sold, the sale being through a "broker's transaction" or
in a transaction directly with a "market maker" (as provided by Rule
144(f)) and the number of shares or other securities being sold during any
three-month period not exceeding specified limitations.
(iv) The Holder further understands that at the time the Holder wishes to
sell the Securities there may be no public market upon which such a sale
may be effected, and that even if such a public market exists, the Company
may not be satisfying the current public information requirements of Rule
144, and that in such event, tile Holder may be precluded from selling the
Securities under Rule 144 unless a) a three-year minimum holding period has
been satisfied and b) the Holder was not at the time of the sale nor at any
time during the three-month period prior to such sale an affiliate of the
Company .
(v) The Holder has had an opportunity to discuss the Company's business,
management and financial affairs with its management and an opportunity to
review the Company's facilities . The Holder understands that such
discussions , as well as the written information issued by the Company,
were intended to describe the aspects of the Company's business and
prospects which it believes to be material but were not necessarily a
thorough or exhaustive description.
(b) Legends. Each certificate representing the Securities shall be endorsed
-------
with the following legend and such legends as the Company deems appropriate:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
4
LMSI/ MEGABIOS Corp. Warrant
Page 5 of 8
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SERIES B PREFERRED STOCK IS REDEEMABLE UNDER CERTAIN
CIRCUMSTANCES AND MAY BE CONVERTED AT ANY TIME AT THE
ELECTION OF THE HOLDER INTO FULLY PAID AND NON-
ASSESSABLE SHARES OF COMMON STOCK AND SHALL BE
AUTOMATICALLY CONVERTED INTO SHARES OF COMMON STOCK
UPON THE OCCURRENCE OF CERTAIN SPECIFIED EVENTS
DESCRIBED IN THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION.
The Company need not register a transfer of Securities unless the conditions
specified in the foregoing legends are satisfied. The Company may also instruct
its transfer agent not to register the transfer of any of the Shares unless the
conditions specified in the foregoing legends are satisfied.
(c) Removal of Legend and Transfer Restrictions. The legend relating to the Act
-------------------------------------------
endorsed on a certificate pursuant to Section 4(b) of this Warrant and the stop
transfer instructions with respect to the Securities represented by such
certificate shall be removed and the Company shall issue a certificate without
such legend to the Holder of the Securities if (i) the Securities are registered
under the Act and a prospectus meeting the requirements of Section 10 of the Act
is available or (ii) the Holder provides to the Company an opinion of counsel
for the Holder reasonably satisfactory to the Company, or a no-action letter or
interpretive opinion of the staff of the SEC reasonably satisfactory to the
Company, to the effect that public sale, transfer or assignment of the
Securities may be without registration and without compliance with any
restriction such as Rule 144.
5. Condition of Transfer or Exercise of Warrant. Subject to Section 10, it
--------------------------------------------
shall be a condition to any transfer or exercise of this Warrant that at the
time of such transfer or exercise, the Holder shall provide the Company with a
representation in writing that the Holder or transferee is acquiring this
Warrant and the shares of Preferred Stock to be issued upon exercise and any
Common Stock issued upon conversion thereof for investment purposes only and not
with a view to any sale or distribution, or a statement of pertinent facts
covering any proposed distribution. As a further condition to any transfer of
this Warrant or any or all of the shares of Preferred Stock issuable upon
exercise of this Warrant or any Common Stock issued upon conversion thereof,
other than a transfer registered under the Act, the Company must have received a
legal opinion, in form and substance satisfactory to the Company and its
counsel, reciting the pertinent circumstances surrounding the proposed transfer
and stating that such transfer is exempt from the registration and prospectus
delivery requirements of the Act. Each certificate evidencing the shares issued
upon exercise of the Warrant or upon any transfer of the shares (other than a
transfer registered under the Act or any subsequent transfer of shares so
registered) shall, at the Company's option, contain legends in form and
substance satisfactory to the Company and its counsel, restricting the transfer
of the shares to sales or other dispositions exempt from the requirements of the
Act.
As further condition to each transfer, the transferee shall receive and
accept a Warrant, of like tenor and date, executed by the Company.
6. Stock Fully Paid: Reservation of Shares. All Shares which may be issued upon
---------------------------------------
the exercise of the rights represented by this Warrant will, upon issuance, be
fully paid and nonassessable, and free from all taxes, liens, and charges with
respect to the issue thereof. Subject to completion of the Company's upcoming
Series C Preferred Stock financing and
5
LMSI/ MEGABIOS Corp. Warrant
Page 6 of 8
determination of the Series C pricing during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for issuance upon exercise of the purchase
rights evidenced by this Warrant, a sufficient number of shares of its
Preferred Stock to provide for the exercise of the rights represented by this
Warrant.
7. Adjustment for Certain Events. Subject to Section 8, in the event of
-----------------------------
changes in the outstanding Preferred Stock by reason of stock dividends, split-
ups, reclassifications, mergers, consolidations, combinations or exchanges of
shares, separations, reorganizations, liquidations, or the like, the number
and class of shares available under the Warrant in the aggregate and the Warrant
Price shall be correspondingly adjusted, as appropriate, by the Board of
Directors of the Company. The adjustment shall be such as will give the Holder
of this Warrant upon exercise for the same aggregate Warrant Price the total
number, class and kind of shares as he would have owned had the Warrant been
exercised prior to the event and had he continued to hold such shares until
after the event requiring adjustment. Nothing herein shall be construed as
providing Holder with antidilution rights greater than the antidilution rights,
if any, of the holders of the Series B Preferred Stock generally, as set forth
in the Company's Amended and Restated Articles of Incorporation, as amended. No
adjustment in the Warrant Price and/or the number of Shares need be made if such
adjustment would result in a change in the Warrant Price of less than one cent
($0.01) or a change in the number of Shares of less than one-hundredth (1/100th)
of a share. Any adjustment less than these amounts which is not made shall be
carried forward and shall be made at the time and together with any subsequent
adjustment which, on a cumulative basis, amounts to an adjustment of at least
these amounts.
8. Notice of Adjustments. Whenever any Warrant Price shall be adjusted
---------------------
pursuant to Section 7 hereof, the Company shall prepare a certificate signed by
an officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Warrant Price and number of shares issuable
upon exercise of the Warrant after giving effect to such adjustment, and shall
cause copies of such certificate to be mailed (by certified or registered mail,
return receipt required, postage prepaid) within thirty (30) days of such
adjustment to the Holder of this Warrant as set forth in Section 18 hereof.
9. "Market Stand-Off" Agreement. Holder hereby agrees that for a period of 180
----------------------------
days following the effective date of the first registration statement of the
Company covering Common Stock (or other securities) to be sold on its behalf in
an underwritten public offering, it will not, to the extent requested by the
Company and any underwriter, sell or otherwise transfer or dispose of (other
than to donees or transferees who agree to be similarly bound) any of the Shares
at any time during such period except Common Stock included in such
registration; provided, however, that all officers and directors of the Company
who hold securities of the Company or options to acquire securities of the
Company and all other persons with registration rights enter into similar
agreements.
10. Transferability of Warrant. This Warrant is transferable one time only, in
--------------------------
whole and not in part, on the books of the Company at its principal office by
the original registered Holder hereof upon surrender of this Warrant properly
endorsed, subject to compliance with applicable federal and state securities
laws (including the delivery of investment representation letters and legal
opinions reasonably satisfactory to the Company, if such are requested by the
Company); provided, however, that notwithstanding the foregoing, this Warrant
may be transferred to Holder's parent company or to an affiliate company as part
of a merger or consolidation and such transfer shall not count as the one
permitted transfer referred to above. After such one-time transfer, this Warrant
shall be non-transferable. The Company shall issue and deliver to the transferee
a new Warrant representing the Warrant so transferred. No
6
LMSI/ MEGABIOS Corp. Warrant
Page 7 of 8
partial transfer of the Warrant shall be allowed. Holder shall not have any
right to transfer any portion of this Warrant to any direct competitor of the
Company.
11. No Fractional Shares. No fractional share of Preferred Stock will be
--------------------
issued in connection with any exercise hereunder, but in lieu of such fractional
share the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
12. Charges Taxes and Expenses. Issuance of certificates for shares of
--------------------------
Preferred Stock upon the exercise of this Warrant shall be made without charge
to the Holder for any United States or state of the United States documentary
stamp tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and reasonable expenses shall be paid by the
Company, and such certificates shall be issued in the name of the Holder.
13. No Shareholder Rights Until Exercise. This Warrant does not entitle the
------------------------------------
Holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof.
14. Registry of Warrant. The Company shall maintain a registry showing the name
-------------------
and address of the registered Holder of this Warrant. This Warrant may be
surrendered for exchange or exercise, in accordance with its terms, at such
office or agency of the Company, and the Company and Holder shall be entitled to
rely in all respects, prior to written notice to the contrary, upon such
registry.
15. Loss Theft. Destruction or Mutilation of Warrant. Upon receipt by the
------------------------------------------------
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft, or
destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant, having terms and conditions substantially identical to this
Warrant, in lieu hereof.
16. Miscellaneous.
-------------
(a) Issue Date. The provisions of this Warrant shall be construed and
----------
shall be given effect in all respect as if it had been issued and delivered
by the Company on the date hereof.
(b) Successors. This Warrant shall be binding upon any successors or
----------
assigns of the Company.
(c) Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California.
(d) Headings. The headings used in this Warrant are used for convenience
--------
only and are not to be considered in construing or interpreting this
Warrant.
(e) Saturdays Sundays Holidays. If the last or appointed day for the taking
--------------------------
of any action or the expiration of any right required or granted herein
shall be a Saturday or a Sunday or shall be a legal holiday in the State of
California, then such action may be taken or such right may be exercised on
the next succeeding day not a legal holiday.
17. No Impairment. The Company will not, by amendment of its Articles of
-------------
Incorporation or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder hereof against impairment.
7
LMSI/ MEGABIOS Corp. WARRANT
Page 8 of 8
18. Addresses. Any notice required or permitted hereunder shall be in writing
---------
and shall be mailed by overnight courier, registered or certified mail, return
receipt required, and postage pre-paid, or otherwise delivered by hand or by
messenger, addressed as set forth below, or at such other address as the Company
or the Holder hereof shall have furnished to the other party.
If to the Company: MEGABIOS Corp.
871 Industrial Road, Suite J & K
San Carlos, CA 94070
Attn: Kathleen Z. Layendecker
If to the Holder: Lease Management Services, Inc.
2500 Sand Hill Road, Ste. 101
Menlo Park, CA 94025
Attn: Barbara B. Kaiser, Sr. VP/GM
IN WITNESS WHEREOF, MEGABIOS Corp. has caused this Warrant to be executed by
-------------
its Director of Corporate Development and thereunto duly authorized.
Dated as of May 13, 1994.
------------
----------------------------------
BY: Kathleen Z. Layendecker
----------------------------------
Director of Corporate Development
SIGNATURE: /s/ Kathleen Z. Layendecker
----------------------------
8