Exhibit 10.2
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated
this 5th day of May, 1997, is entered into by and between NOVALON
PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Corporation"), and
CUBIST PHARMACEUTICALS, INC. (the "Investor").
WHEREAS, the Corporation desires to issue and sell to the Investor,
and the Investor desires to purchase from the Corporation, shares of the
Series B Convertible Preferred Stock, $.001 par value per share, of the
Corporation, upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto, intending to be legally
bound, hereby agree as follows.
SECTION 1. DEFINITIONS. The following terms as used herein shall
have the meanings set forth below in this Section 1 or shall have the
meanings ascribed thereto elsewhere in this Agreement as referred to below in
this Section 1:
"Acquisition" shall have the meaning ascribed to such term in
the Acquisition Option Agreement.
"Acquisition Option Agreement" shall mean that certain
Acquisition Option Agreement, in substantially the form of Exhibit A
hereto, among the Corporation, the Novalon Stockholders (as defined
therein) and the Investor.
"Acquisition Option" shall have the meaning ascribed to such
term in the Acquisition Option Agreement.
"Acquisition Option Period" shall have the meaning ascribed to
such term in the Acquisition Option Agreement.
"Affiliate" shall mean, with regard to any Person, any other
Person or entity that directly or indirectly controls, or is controlled
by, or is under common control with, such Person.
"Agreement" and "this Agreement" shall mean this Series B
Convertible Preferred Stock Purchase Agreement, dated May 5, 1997, by
and among the Corporation and the Investor, as amended from time to
time.
"Benefit Plan" shall mean any plan, fund, program, policy,
arrangement or contract, whether formal or informal, which is in the
nature of (i) an employee pension benefit plan (as defined in Section
3(2) of ERISA) or (ii) an employee welfare benefit plan (as defined in
Section 3(l) of ERISA).
"Closing" shall have the meaning provided therefor in Section
3 hereof.
"Closing Date" shall have the meaning provided therefor in
Section 3 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean the Common Stock, $.001 par value
per share, of the Corporation.
"Environmental Laws" shall mean any Federal, state or local
law or ordinance or regulation pertaining to the protection of human
health, safety or the environment, including, without limitation, the
Occupational Safety and Health Act, 29 U.S.C. Sections 651 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. Sections 9601, et seq., the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Sections 11001, et seq., and the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"Hazardous Substances" shall include medical waste, biological
waste, oil and petroleum products, asbestos, polychlorinated biphenyls,
urea formaldehyde and any other materials classified as pollutants or
contaminants or as hazardous or toxic or as a biohazard under any
Environmental Laws.
"Investors' Rights Agreement" shall mean that certain
Investors' Rights Agreement, in substantially the form of Exhibit B
hereto, among the Corporation and the Investors (as defined therein).
"Management Stock Restriction Agreement" shall mean that
certain Stock Restriction Agreement, in substantially the form of
Exhibit C hereto, among the Corporation, the Management
2
Stockholders (as defined therein), the Management Stockholder
Transferees (as defined therein) and the Investors (as defined
therein).
"Person" shall mean an individual, partnership, corporation,
association, limited liability company, trust, joint venture,
unincorporated organization, and any government, governmental
department or agency or political subdivision thereof.
"Registration Rights Agreement" shall mean that certain
Registration Rights Agreement, in substantially the form of Exhibit D
hereto, among the Corporation and the Investors (as defined therein).
"Related Documents" shall mean, collectively, this Agreement,
the Investors' Rights Agreement, the Management Stock Restriction
Agreement, the Registration Rights Agreement, the Restated Certificate
of Incorporation and the Acquisition Option Agreement.
"Restated Certificate of Incorporation" shall mean the
Restated Certificate of Incorporation filed with the Secretary of State
of Delaware on May 2, 1997, a copy of which is attached hereto as of
Exhibit E, as amended and in effect from time to time.
"Returns" shall mean, collectively, all returns, declarations,
reports, statements and other documents required to be filed in respect
of Taxes.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Series A Preferred Stock" shall mean the Series A Convertible
Preferred Stock, $.001 par value per share, of the Corporation.
"Series B Preferred Stock" shall mean the Series B Convertible
Preferred Stock, $.001 par value per share, of the Corporation.
"Subsidiaries" shall mean, collectively, all corporations,
partnerships, limited liability companies or other Persons with respect
to which the Corporation shall own, directly or indirectly, more that
fifty percent (50%) of the issued and outstanding equity interests of
such corporations, partnerships, limited liability companies or other
Persons.
3
"Taxes" shall mean all federal, state, local, foreign and
other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs duties, or other taxes,
fees, assessments or other charges of any kind whatever, together with
any interest and any penalties, additions to tax or additional amounts
with respect thereto.
SECTION 2. THE SERIES B CONVERTIBLE PREFERRED STOCK.
2.1. Series B Convertible Preferred Stock. Prior to the Closing
Date, the Corporation will have duly authorized the issuance and sale to the
Investor, at the Closing, of an aggregate of 333,333 shares (the "Series B
Shares") of the Series B Preferred Stock, at a purchase price per share of
$3.00. The Series B Shares shall have the powers, preferences, rights and
other terms and conditions applicable to shares of Series B Preferred Stock,
as set forth in Article IV of the Restated Certificate of Incorporation.
2.2. Conversion Shares. Prior to the Closing Date, the Corporation
will have duly authorized and reserved, and covenants to continue to reserve,
free of preemptive rights and other preferential rights, a sufficient number
of its authorized but unissued shares of Common Stock to satisfy the
obligation of the Corporation to issue shares of Common Stock upon conversion
of all Series B Shares. For purposes of this Agreement, any shares of Common
Stock issuable upon conversion of the Series B Shares, and such shares when
issued, are sometimes herein referred to as the "Conversion Shares".
SECTION 3. SALE AND PURCHASE OF STOCK. The Corporation shall issue
and sell to the Investor, and, subject to compliance with all of the terms
and conditions hereof and in reliance on the representations, warranties and
covenants set forth or referred to herein, the Investor shall purchase from
the Corporation, the Series B Shares for the aggregate purchase price of
$999,999. (the "Series B Purchase Price"). The closing of the sale and
purchase of the Series B Shares (the "Closing") will occur on May 5, 1997 and
will take place by facsimile transmission of executed copies of the documents
contemplated hereby to the offices of Bingham, Dana & Gould LLP, 150 Federal
Street, Boston, Massachusetts, at 10:00 a.m., local time, or at such other
time as may be mutually agreed upon by the Investor and the Corporation. The
date of the Closing is herein called the "Closing Date". At the Closing, the
Corporation shall, unless otherwise requested, deliver to the Investor a
single certificate evidencing the Series B Shares, against payment of the
aggregate purchase price therefor by bank or certified check or wire transfer
of immediately available funds to such account or accounts as the Corporation
shall designate in writing.
4
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The
Corporation represents and warrants to the Investor that, except as set forth
in the Disclosure Schedule attached hereto as Schedule 4 (which Disclosure
Schedule makes explicit reference to the particular representation or
warranty as to which exception is taken, which in each case shall constitute
the sole representation and warranty as to which such exception shall apply):
4.1. Organization, Qualifications and Corporate Power.
(a) The Corporation is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and is duly licensed or qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which the nature
of the business transacted by it or the character of the properties owned or
leased by it requires such licensing or qualification. The Corporation has
the corporate power and authority to own and hold its properties and to carry
on its business as now conducted and as proposed to be conducted, to execute,
deliver and perform this Agreement and each of the other Related Documents,
to issue, sell and deliver the Series B Shares, and to issue and deliver the
Conversion Shares upon conversion of the Series B Shares.
(b) The attached Schedule 4.1(b) contains a list of all
Subsidiaries of the Corporation. The Corporation does not (i) own of record
or beneficially, directly or indirectly, (A) any shares of capital stock or
securities convertible into capital stock of any other corporation or (B) any
participating interest in any partnership, joint venture or other
non-corporate business enterprise or (ii) control, directly or indirectly,
any other entity.
4.2. Authorization of Agreements, Etc.
(a) The execution and delivery by the Corporation of this
Agreement and each of the other Related Documents, the performance by the
Corporation of its obligations hereunder and thereunder, the issuance, sale
and delivery of the Series B Shares and the issuance and delivery of the
Conversion Shares have been duly authorized by all requisite corporate action
and will not violate any provision of law, any order of any court or other
agency of government, the Restated Certificate of Incorporation or the
By-laws of the Corporation, as amended, or any provision of any indenture,
agreement or other instrument to which the Corporation or any of its
properties or assets is bound, or 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, restriction, claim or encumbrance of any
nature whatsoever upon any of the properties or assets of the Corporation.
5
(b) The Series B Shares have been duly authorized and, when
issued in accordance with this Agreement, will be validly issued, fully paid
and nonassessable shares of Series B Preferred Stock with no personal
liability attaching to the ownership thereof and will be free and clear of
all liens, charges, restrictions, claims and encumbrances imposed by or
through the Corporation except as set forth in any of the other Related
Documents. The Conversion Shares have been duly reserved for issuance upon
conversion of the Series B Shares and, when so issued, will be duly
authorized, validly issued, fully paid and nonassessable shares of Common
Stock with no personal liability attaching to the ownership thereof and will
be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Corporation except as set forth in any
of the other Related Documents. None of the issuance, sale or delivery of the
Series B Shares or the issuance or delivery of the Conversion Shares is
subject to any preemptive right of stockholders of the Corporation or to any
right of first refusal or other right in favor of any Person.
4.3. Validity. This Agreement has been duly executed and delivered
by the Corporation and constitutes the legal, valid and binding obligation of
the Corporation, enforceable in accordance with its terms. Each of the other
Related Documents, when executed and delivered or filed, as the case may be,
in accordance with this Agreement, will constitute the legal, valid and
binding obligations of the Corporation, enforceable in accordance with their
respective terms.
4.4. Authorized Capital Stock. The authorized capital stock of the
Corporation consists of (i) 700,000 shares of Preferred Stock, $.001 par
value (the "Preferred Stock"), of which 200,000 have been designated as
shares of Series A Preferred Stock and 500,000 have been designated as shares
of Series B Preferred Stock, and (ii) 11,000,000 shares of Common Stock.
Immediately prior to the Closing, 200,000 shares of Series A Preferred Stock
and 2,140,000 shares of Common Stock will be validly issued and outstanding,
fully paid and nonassessable with no personal liability attaching to the
ownership thereof. The stockholders of record and holders of subscriptions,
warrants, options, convertible securities, and other rights (contingent or
other) to purchase or otherwise acquire equity securities of the Corporation,
and the number of shares of Series A Preferred Stock or of Common Stock and
the number of such subscriptions, warrants, options, convertible securities,
and other such rights held by each, are as set forth in the attached Schedule
4.4. The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series of
authorized capital stock of the Corporation are as set forth in the
6
Restated Certificate of Incorporation, and all such designations, powers,
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable and in accordance with all applicable laws. As of the
date hereof, each outstanding share of Series A Preferred Stock is
convertible into one share of Common Stock. Except as provided for in the
Restated Certificate of Incorporation or as set forth in the attached
Schedule 4.4, (i) no Person owns of record or is known to the Corporation to
own beneficially any share of capital stock of the Corporation, (ii) no
subscription, warrant, option, convertible security, or other right
(contingent or other) to purchase or otherwise acquire equity securities of
the Corporation is authorized or outstanding and (iii) there is no commitment
by the Corporation to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to holders of
any of its equity securities any evidence of indebtedness or asset. Except as
provided for in the Restated Certificate of Incorporation or as set forth in
the attached Schedule 4.4, the Corporation has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any of its equity securities
or any interest therein or to pay any dividend or make any other distribution
in respect thereof. Except as set forth in any of the Related Documents, to
the best of the Corporation's knowledge, there are no voting trusts or
agreements, stockholders' agreements, pledge agreements, buy-sell agreements,
rights of first refusal, preemptive rights or proxies relating to any
securities of the Corporation (whether or not the Corporation is a party
thereto). All of the outstanding securities of the Corporation were issued in
compliance with all applicable Federal and state securities laws.
4.5. Financial Statements, Etc. The Corporation has furnished to the
Investor the audited balance sheet of the Corporation as of December 31, 1996
and the related audited statements of income, stockholders equity and cash
flows of the Corporation for the year ended December 31, 1996, and the
unaudited balance sheet of the Corporation as of March 31, 1997 (the "Balance
Sheet") and the related unaudited statements of income, stockholders' equity
and cash flows of the Corporation for the three months ended March 31, 1997.
All such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied (except that such
unaudited financial statements do not contain all of the required footnotes)
and fairly present the financial position of the Corporation as of December
31, 1996 and March 31, 1997, respectively, and the results of their
operations and cash flows for the year ended December 31, 1996 and the three
months ended March 31, 1997, respectively. Since the date of the Balance
Sheet, (i) there has been no change in the assets, liabilities or financial
condition of the Corporation from that reflected in the Balance Sheet except
for changes in the ordinary course of business which in the aggregate have
not been materially adverse and (ii) none of the business, prospects,
financial condition, operations, property or affairs of the Corporation has
been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
4.6. Events Subsequent to the Date of the Balance Sheet. Since the
date of the Balance Sheet, the Corporation has not (i) issued any stock, bond
or other corporate security except as otherwise contemplated hereby, (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or
7
contingent), except current liabilities incurred and liabilities under
contracts entered into in the ordinary course of business, (iii) discharged
or satisfied any lien or encumbrance or incurred or paid any obligation or
liability (absolute, accrued or contingent) other than current liabilities
shown on the Balance Sheet and current liabilities incurred since the date of
the Balance Sheet in the ordinary course of business, (iv) declared or made
any payment or distribution to stockholders or purchased or redeemed any
share of its capital stock or other security, (v) mortgaged, pledged,
encumbered or subjected to lien any of its assets, tangible or intangible,
other than liens of current real property taxes not yet due and payable, (vi)
sold, assigned or transferred any of its tangible assets except in the
ordinary course of business, or canceled any debt or claim, (vii) sold,
assigned, transferred or granted any exclusive license with respect to any
patent, trademark, trade name, service mark, copyright, trade secret or other
intangible asset, (viii) suffered any loss of property or waived any right of
substantial value whether or not in the ordinary course of business, (ix)
made any change in officer compensation except in the ordinary course of
business and consistent with past practice, (x) made any material change in
the manner of business or operations of the Corporation, (xi) entered into
any transaction except in the ordinary course of business or as otherwise
contemplated hereby or (xii) entered into any commitment (contingent or
otherwise) to do any of the foregoing.
4.7. Litigation; Compliance with Law. There is no (i) action, suit,
claim, proceeding or investigation pending or, to the best of the
Corporation's knowledge, threatened against or affecting the Corporation, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding relating to
the Corporation pending under collective bargaining agreements or otherwise
or (iii) governmental inquiry pending or, to the best of the Corporation's
knowledge, threatened against or affecting the Corporation (including,
without limitation, any inquiry as to the qualification of the Corporation to
hold or receive any license, permit, or other authorization), and there is no
basis for any of the foregoing. The Corporation has not received any opinion
or memorandum or legal advice from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability or disadvantage which may
be material to its business, prospects, financial condition, operations,
property or affairs. The Corporation is not in default with respect to any
order, writ, injunction or decree known to or served upon the Corporation of
any court or of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. There is no action or suit by the Corporation pending or threatened
against others. The Corporation has complied with all laws, rules,
regulations and orders applicable to its business, operations, properties,
assets, products and services, the Corporation has all necessary permits,
licenses and other authorizations required to conduct its business as
conducted and as proposed to be conducted, and the Corporation has been
operating its business
8
pursuant to and in compliance with the terms of all such permits, licenses
and other authorizations. There is no existing law, rule, regulation or
order, and the Corporation after due inquiry is not aware of any proposed
law, rule, regulation or order, whether Federal, state, county or local,
which would prohibit or restrict the Corporation from, or otherwise
materially adversely affect the Corporation in, conducting its business in
any jurisdiction in which it is now conducting business or in which it
proposes to conduct business.
4.8. Proprietary Information of Third Parties. To the best of the
Corporation's knowledge, no third party has claimed or has reason to claim
that any Person employed by or affiliated with the Corporation has (a)
violated or may be violating any of the terms or conditions of his
employment, non-competition or nondisclosure agreement with such third party,
(b) disclosed or may be disclosing or utilized or may be utilizing any trade
secret or proprietary information or documentation of such third party or (c)
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. No third party has
requested information from the Corporation which suggests that such a claim
might be contemplated. To the best of the Corporation's knowledge, no Person
employed by or affiliated with the Corporation has employed or proposes to
employ any trade secret or any information or documentation proprietary to
any former employer, and to the best of the Corporation's knowledge, no
Person employed by or affiliated with the Corporation has violated any
confidential relationship which such Person may have had with any third
party, in connection with the development, manufacture or sale of any product
or proposed product or the development or sale of any service or proposed
service of the Corporation, and the Corporation has no reason to believe
there will be any such employment or violation. To the best of the
Corporation's knowledge, none of the execution or delivery of this Agreement
or any of the other Related Documents by any officer, director or key
employee of the Corporation, or the carrying on of the business of the
Corporation as officers, employees or agents by such officer, director or key
employee of the Corporation, will conflict with or result in a breach of the
terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument under which any such officer, director or
key employee is obligated.
4.9. Patents, Trademarks Etc. Set forth in Schedule 4.9 attached
hereto is a list and brief description of all domestic and foreign patents,
patent rights, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names and copyrights, and all
applications for such which are in the process of being prepared, owned by or
registered in the name of the Corporation, or of which the Corporation is a
licensor or licensee or in which the Corporation has any right, and in each
case a brief description of the nature of such right. The Corporation owns or
possesses adequate licenses or other rights to use all patents, patent
applications, trademarks, trademark applications, service
9
marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know how
(collectively, "Intellectual Property") necessary to the conduct of its
business as conducted and as proposed to be conducted, and no claim is
pending or, to the best of the Corporation's knowledge, threatened to the
effect that the operations of the Corporation infringe upon or conflict with
the asserted rights of any other Person under any Intellectual Property, and
there is no basis for any such claim (whether or not pending or threatened).
No claim is pending or threatened to the effect that any such Intellectual
Property owned or licensed by the Corporation, or which the Corporation
otherwise has the right to use, is invalid or unenforceable by the
Corporation, and there is no basis for any such claim (whether or not pending
or threatened). To the best of the Corporation's knowledge, all technical
information developed by and belonging to the Corporation which has not been
patented has been kept confidential. The Corporation has not granted or
assigned to any other Person or entity any right to manufacture, have
manufactured, assemble or sell the products or proposed products or to
provide the services or proposed services of the Corporation.
4.10. Title to Properties. The Corporation has good, clear and
marketable title to all of its properties and assets, including, without
limitation, those reflected on the Balance Sheet or acquired by it since the
date of the Balance Sheet (other than properties and assets disposed of in
the ordinary course of business since the date of the Balance Sheet), and all
of the Corporation's properties and assets are free and clear of mortgages,
pledges, security interests, liens, charges, claims, restrictions and other
encumbrances (including, without limitation, easements and licenses), except
for liens for or current taxes not yet due and payable and minor
imperfections of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed operations of the
Corporation, including without limitation, the ability of the Corporation to
secure financing using such properties and assets as collateral. To the best
of the Corporation's knowledge after due inquiry, there are no condemnation,
environmental, zoning or other land use regulation proceedings, either
instituted or planned to be instituted, which would adversely affect the use
or operation of the Corporation's properties and assets for their respective
intended uses and purposes, or the value of such properties, and the
Corporation has not received notice of any special assessment proceedings
which would affect such properties and assets.
4.11. Leasehold Interests. Each lease or agreement to which the
Corporation is a party under which it is a lessee of any property, real or
personal, is a valid and subsisting agreement, duly authorized and entered
into, without any default of the Corporation thereunder and, to the best of
the Corporation's knowledge, without any default thereunder of any other
party thereto. No event has occurred and is continuing which, with due notice
or lapse of time or both,
10
would constitute a default or event of default by the Corporation under any
such lease or agreement or, to the best of the Corporation's knowledge, by
any other party thereto. The Corporation's possession of such property has
not been disturbed and, to the best of the Corporation's knowledge after due
inquiry, no claim has been asserted against the Corporation adverse to its
rights in such leasehold interests.
4.12. Insurance. Schedule 4.12 hereto lists all policies of fire,
liability, workmen's compensation, life, property and casualty and other
insurance owned or held by the Corporation. Such policies of insurance are
maintained with financially sound and reputable insurance companies, funds or
underwriters and are of the kinds and cover such risks and are in such
amounts and with such deductibles and exclusions as are consistent with
prudent business practice. All such policies (a) are in full force and
effect, (b) are sufficient for compliance by the Corporation with all
requirements of law and all agreements to which the Corporation is a party
and (c) provide that they will remain in full force and effect through the
respective dates set forth in such Schedule. The Corporation is not in
default with respect to its obligations under any of such insurance policies
and has not received any notification of cancellation of any such insurance
policies.
4.13. Taxes. The Corporation has filed all Returns required to be
filed by it and has paid all Taxes shown to be due by such Returns, as well
as all other Taxes, assessments and governmental charges which have become
due or payable, including without limitation, all Taxes which it is obligated
to withhold for amounts owing to employees, creditors and third parties. All
Taxes with respect to which the Corporation has become obligated pursuant to
elections made by it in accordance with generally accepted practice have been
paid and adequate reserves have been established for all Taxes accrued but
not yet payable. No issues have been raised (and are currently pending) by
any taxing authority in connection with any of the Returns. No waivers of
statutes of limitation with respect to any of the Returns have been given by
or requested from the Corporation. All deficiencies asserted or assessments
made as a result of any examinations have been fully paid, or are fully
reflected as a liability in the financial statements of the Corporation, or
are being contested and an adequate reserve therefor has been established and
is fully reflected in the financial statements of the Corporation. There are
no liens for Taxes (other than for current Taxes not yet due and payable)
upon the assets of the Corporation. All material elections with respect to
Taxes affecting the Corporation, as of the date hereof, are set forth in the
financial statements of the Corporation, or are annexed hereto in a
disclosure schedule. The Corporation has not agreed to make, nor is it
required to make, any adjustment under Section 481(a) of the Code by reason
of a change in accounting method or otherwise. The Corporation is not a party
to any agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 28OG of the Code. The
Corporation does not have and has not had a permanent establishment in any
foreign country, as
11
defined in any applicable tax treaty or convention between the United States
of America and such foreign country. Notwithstanding anything to the contrary
contained in this Agreement, the provisions of this Section 4.13 shall
survive until the applicable statutes of limitations with respect to any
Taxes contemplated hereby shall have expired.
4.14. Other Agreements. Except as set forth in the attached Schedule
4.14(a), the Corporation is not a party to or otherwise bound by any written
or oral agreement, instrument, commitment or restriction which individually
or in the aggregate could materially adversely affect the business,
prospects, financial condition, operations, property or affairs of the
Corporation. Except as set forth in the attached Schedule 4.14(b), the
Corporation is not a party to or otherwise bound by any written or oral:
(a) distributor, dealer, manufacturer's representative or
sales agency agreement which is not terminable on less than ninety (90) days,
notice without cost or other liability to the Corporation (except for
agreements which, in the aggregate, are not material to the business of the
Corporation);
(b) sales or service agreement which entitles any customer
to a rebate or right of set-off, to return any product to the Corporation
after acceptance thereof or to delay the acceptance thereof, or which varies
in any material respect from the Corporation's standard form agreements;
(c) agreement with any labor union (and, to the best of the
Corporation's knowledge, no organizational effort is being made with respect
to any of its employees);
(d) agreement with any supplier containing any provision
permitting any party other than the Corporation to renegotiate the price or
other terms, or containing any payback or other similar provision, upon the
occurrence of a failure by the Corporation to meet its obligations under the
agreement when due or the occurrence of any other event;
(e) agreement for the future purchase of fixed assets or
for the future purchase of materials, supplies or equipment in excess of its
normal operating requirements;
(f) agreement for the employment of any officer, employee
or other individual (whether of a legally binding nature or in the nature of
informal understandings) on a full-time or consulting basis which is not
terminable on notice without cost or other liability to the Corporation,
except normal severance arrangements and accrued vacation pay;
12
(g) bonus, pension, profit-sharing, retirement,
hospitalization, insurance, stock purchase, stock option or other plan,
agreement or understanding pursuant to which benefits are provided to any
employee of the Corporation (other than group insurance plans applicable to
employees generally);
(h) agreement relating to the borrowing of money or to the
mortgaging or pledging of, or otherwise placing a lien or security interest
on, any asset of the Corporation;
(i) guaranty of any obligation for borrowed money or
otherwise;
(j) voting trust or agreement, stockholders' agreement,
pledge agreement, buy-sell agreement or first refusal or preemptive rights
agreement relating to any securities of the Corporation;
(k) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Corporation has
advanced or agreed to advance money or has agreed to lease any property as
lessee or lessor;
(l) agreement or obligation (contingent or otherwise) to
issue, sell or otherwise distribute or to repurchase or otherwise acquire or
retire any share of its capital stock or any of its other equity securities;
(m) assignment, license or other agreement with respect to
any form of intangible property;
(n) agreement under which it has granted any Person any
registration rights, other than the Registration Rights Agreement;
(o) agreement under which it has limited or restricted its
right to compete with any Person in any respect;
(p) other agreement or group of related agreements with the
same party involving more than $10,000 or continuing over a period of more
than six months from the date or dates thereof (including renewals or
extensions optional with another party), which agreement or group of
agreements is not terminable by the Corporation without penalty upon notice
of thirty (30) days or less, but excluding any agreement or group of
agreements with a customer of the Corporation for the sale, lease or rental
of the Corporation's products or services if such agreement or group of
agreements was entered into by the Corporation in the ordinary course of
business; or
(q) other agreement, instrument, commitment, plan or
arrangement, a copy of which would be required to be filed with the
Securities and
13
Exchange Commission (the "Commission") as an exhibit to a registration
statement on Form S-1 if the Corporation were registering securities under
the Securities Act.
The Corporation and, to the best of the Corporation's knowledge
after due inquiry, each other party thereto have in all material respects
performed all the obligations required to be performed by them to date (or
each non-performing party has received a valid, enforceable and irrevocable
written waiver with respect to its non-performance), have received no notice
of default and are not in default (with due notice or lapse of time or both)
under any agreement, instrument, commitment, plan or arrangement to which the
Corporation is a party or by which it or its property may be bound. The
Corporation has no present expectation or intention of not fully performing
all its obligations under each such agreement, instrument, commitment, plan
or arrangement, and the Corporation has no knowledge of any breach or
anticipated breach by the other party to any agreement, instrument,
commitment, plan or arrangement to which the Corporation is a party. The
Corporation is in full compliance with all of the terms and provisions of its
Restated Certificate of Incorporation and By-laws, as amended.
4.15. Loans and Advances. The Corporation does not have any
outstanding loans or advances to any Person and is not obligated to make any
such loans or advances, except, in each case, for advances to employees of
the Corporation in respect of reimbursable business expenses anticipated to
be incurred by them in connection with their performance of services for the
Corporation.
4.16. Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. The Corporation has not assumed, guaranteed, endorsed or otherwise
become directly or contingently liable on any indebtedness of any other
Person (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in the debtor, or otherwise to assure the
creditor against loss), except for guaranties by endorsement of negotiable
instruments for deposit or collection in the ordinary course of business.
4.17. Significant Customers and Suppliers. No customer or supplier
which was significant to the Corporation during the period covered by the
financial statements referred to in Section 4.5 hereof or which has been
significant to the Corporation thereafter, has terminated, materially reduced
or threatened to terminate or materially reduce its purchases from or
provision of products or services to the Corporation, as the case may be.
4.18. Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Investor set forth in Section 5 of this
Agreement, no registration or filing with, or consent or approval of or other
action by, any Federal, state or other governmental agency or instrumentality
is or will be necessary for the valid execution, delivery and performance by
the Corporation of
14
this Agreement or any of the other Related Documents, the issuance, sale and
delivery of the Series B Shares or, upon conversion thereof, the issuance and
delivery of the Conversion Shares, other than (i) filings pursuant to state
securities laws (all of which filings have been made by the Corporation,
other than those which are required to be made after the Closing and which
will be duly made on a timely basis) in connection with the sale of the
Series B Shares and (ii) with respect to the Registration Rights Agreement,
the registration of the shares covered thereby with the Commission and
filings pursuant to state securities laws.
4.19. Issuance Taxes. There are no transfer, issuance or similar
taxes imposed by law in connection with the issuance, sale or delivery of the
Series B Shares or the Conversion Shares to the Investor.
4.20. Offering of the Series B Shares. Neither the Corporation nor
any Person acting on behalf of the Corporation has offered the Series B
Shares or any security of the Corporation similar to the Series B Shares for
sale to, or solicited any offer to buy the Series B Shares or any such
similar security from, or otherwise approached or negotiated with respect
thereto with, any Person or Persons, and neither the Corporation nor any
Person acting on its behalf has taken or will take any other action
(including, without limitation, any offer, issuance or sale of any security
of the Corporation under circumstances which might require the integration of
such security with the Series B Shares under the Securities Act or the rules
and regulations of the Commission thereunder or under any applicable State
securities laws), in either case so as to subject the offering, issuance or
sale of the Series B Shares to the registration provisions of the Securities
Act.
4.21. Brokers. The Corporation has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
4.22. Officers. Set forth in Schedule 4.22 attached hereto is a list
of the names of the officers of the Corporation, together with the title or
job classification of each such individual and the total compensation
anticipated to be paid to each such individual by the Corporation in 1997.
None of such individuals has an employment agreement or understanding,
whether oral or written, with the Corporation, which is not terminable on
notice by the Corporation without cost or other liability to the Corporation.
4.23. Transactions With Affiliates. Except as set forth in Schedule
4.23, no director, officer, employee or stockholder of the Corporation, or
member of the family of any such Person, or any corporation, partnership,
trust or other entity in which any such Person, or any member of the family
of any such Person, has a substantial interest or is an officer, director,
trustee, partner or holder of more than 5% of the outstanding capital stock
thereof, is a party to any transaction with the
15
Corporation, including any contract, agreement or other arrangement providing
for the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such Person or firm.
4.24. Employees. Each of the officers of the Corporation, each key
employee or consultant and each other employee or consultant now employed by,
or consulting for, the Corporation who has access to confidential information
of the Corporation has executed a written confidentiality and nondisclosure
agreement, and all of such agreements are in full force and effect. The
Corporation has provided the Investor with copies of all of such written
confidentiality and nondisclosure agreements. No officer or key employee or
consultant of the Corporation has advised the Corporation (orally or in
writing) that he intends to terminate his or her employment or consultancy,
as the case may be, with the Corporation. The Corporation has complied in all
material respects with all applicable laws relating to the employment of
labor, including provisions relating to wages, hours, equal opportunity,
collective bargaining and the payment of Social Security and other taxes, and
with ERISA.
4.25. U.S. Real Property Holding Corporation. The Corporation is not
now and has never been a "United States real property holding corporation",
as defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service, and the Corporation
has filed with the Internal Revenue Service all statements, if any, with its
United States income tax returns which are required under Section 1.897-2(h)
of such Regulations.
4.26. Environmental Protection. The Corporation has not caused or
allowed, or contracted with any party for, the generation, use,
transportation, treatment, storage or disposal of any Hazardous Substances in
connection with the operation of its business or otherwise. The Corporation,
the operation of its business, and any real property that the Corporation
owns, leases or otherwise occupies or uses (the "Premises") are in compliance
with all applicable Environmental Laws and orders or directives of any
governmental authorities having jurisdiction under such Environmental Laws,
including, without limitation, any Environmental Laws or orders or directives
with respect to any cleanup or remediation of any release or threat of
release of Hazardous Substances. The Corporation has not received any
citation, directive, letter or other communication, written or oral, or any
notice of any proceeding, claim or lawsuit, from any Person arising out of
the ownership or occupation of the Premises, or the conduct of its
operations, and the Corporation is not aware of any basis therefor. The
Corporation has obtained and is maintaining in full force and effect all
necessary permits, licenses and approvals required by all Environmental Laws
applicable to the Premises and the business operations conducted thereon
(including operations conducted by tenants on the Premises), and is in
compliance with all such permits, licenses and approvals. The Corporation has
not caused or allowed a release, or a threat of release, of any Hazardous
Substance
16
onto, at or near the Premises, and, to the best of the Corporation's
knowledge, neither the Premises nor any property at or near the Premises has
ever been subject to a release, or a threat of release, of any Hazardous
Substance.
4.27. ERISA. Except as listed in Schedule 4.27, neither the
Corporation nor any entity required to be aggregated with the Corporation
under Sections 4.14(b), (c), (m) or (n) of the Code sponsors, maintains, has
any obligation to contribute to, has any liability under, or is otherwise a
party to, any Benefit Plan. With respect to each Benefit Plan listed in
Schedule 4.27, to the extent applicable:
(a) Each such Benefit Plan has been maintained and operated
in all material respects in compliance with its terms and with all applicable
provisions of ERISA, the Code and all regulations, rulings and other
authority issued thereunder;
(b) All contributions required by law to have been made
under each such Benefit Plan (without regard to any waivers granted under
Section 412 of the Code) to any fund or trust established thereunder or in
connection therewith have been made by the due date thereof;
(c) Each such Benefit Plan intended to qualify under
Section 401(a) of the Code is the subject of a favorable unrevoked
determination letter issued by the Internal Revenue Service as to its
qualified status under the Code, which determination letter may still be
relied upon as to such tax qualified status, and no circumstances have
occurred that would adversely affect the tax qualified status of any such
Benefit Plan;
(d) The actuarial present value of all accrued benefits
under each such Benefit Plan subject to Title IV of ERISA did not, as of the
latest valuation date of such Benefit Plan, exceed the then current value of
the assets of such Benefit Plan allocable to such accrued benefits, all as
based upon the actuarial assumptions and methods currently used for such
Benefit Plan;
(e) None of such Benefit Plans that are "employee welfare
benefit plans" as defined in Section 3(l) of ERISA provides for continuing
benefits or coverage for any participant or beneficiary of a participant
after such participant's termination of employment; and
(f) Neither the Corporation nor any trade or business
(whether or not incorporated) under common control with the Corporation
within the meaning of Section 4001 of ERISA has, or at any time has had, any
obligation to contribute to any "multiemployer plan" as defined in Section
3(37) of ERISA.
17
4.28. Foreign Corrupt Practices Act. The Corporation has not taken
any action which would cause it to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any rules and regulations thereunder.
To the best of the Corporation's knowledge after due inquiry, there is not
now, and there has never been, any employment by the Corporation of, or
beneficial ownership in the Corporation by, any governmental or political
official in any country in the world.
4.29. Federal Reserve Regulations. The Corporation is not engaged in
the business of extending credit for the purpose of purchasing or carrying
margin securities (within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of the
Series B Shares will be used to purchase or carry any margin security or to
extend credit to others for the purpose of purchasing or carrying any margin
security or in any other manner which would involve a violation of any of the
regulations of the Board of Governors of the Federal Reserve System.
4.30. Indemnification of Directors and Officers. The By-Laws, as in
effect on the date hereof, provide for the indemnification of officers and
directors to the full extent permitted by the General Corporation Law of
Delaware.
4.31. Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, nor any of the financial statements delivered
pursuant to Section 4.5 of this Agreement, nor the Business Plan of the
Corporation dated November 25, 1996 (the "Business Plan"), contains an untrue
statement of a material fact or omits a material fact necessary to make the
statements contained herein or therein not misleading. None of the
statements, documents, certificates or other items prepared or supplied by
the Corporation with respect to the transactions contemplated hereby contains
an untrue statement of a material fact or omits a material fact necessary to
make the statements contained therein not misleading. There is no fact which
the Corporation has not disclosed to the Investor and its counsel in writing
and of which the Corporation is aware which materially and adversely affects
or could materially and adversely affect the business, prospects, financial
condition, operations, property or affairs of the Corporation.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The
Investor represents and warrants to the Corporation that:
5.1. Organization, Authority, Binding Effect.
(a) It has full power and authority to enter into and
perform this Agreement and the other Related Documents to which it is a
party, in accordance with their respective terms. It is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and has the power and
18
authority to enter into this Agreement and the other Related Documents to
which it is a party.
(b) The execution, delivery and performance by it of this
Agreement and the other Related Documents to which it is a party, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by all requisite action of it, and each such agreement
or document constitutes the valid and binding obligation of the Investor,
enforceable in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting the enforcement
of creditors' rights and by the discretionary nature of equitable remedies,
and except as rights to indemnity and contribution may be limited by
applicable law.
5.2. Investment Representations.
(a) The Investor represents and warrants to the
Corporation as follows:
(i) It is acquiring the Series B Shares and, in the
event it should acquire Conversion Shares upon conversion of
the Series B Shares, it will be acquiring such Conversion
Shares, for its own account, for investment and not with a
view to the distribution thereof within the meaning of the
Securities Act.
(ii) It is an "accredited investor" as such term is
defined in Rule 501 (a) promulgated under the Securities Act.
(iii) It agrees that the Corporation may place a
legend on the certificates delivered hereunder stating that
the Series B Shares and any Conversion Shares have not been
registered under the Securities Act, and, therefore, cannot be
offered, sold or transferred unless they are registered under
the Securities Act or an exemption from such registration is
available, and that the Corporation may place stop transfer
orders on the transfer books of the Corporation.
(iv) It further understands that the exemptions from
registration afforded by Rule 144 and Rule 144A (the
provisions of each of which are known to it) promulgated under
the Securities Act depend on the satisfaction of various
conditions, and that, if applicable, Rule 144 may afford the
basis for sales only in limited amounts.
(v) It has such knowledge and experience in business
and financial matters and with respect to investments in
securities of
19
privately-held companies so as to enable it to
understand and evaluate the risks of the Investor's investment
in the Series B Shares and the Conversion Shares and form an
investment decision with respect thereto. It has been afforded
the opportunity during the course of negotiating the
transactions contemplated by this Agreement to ask questions
of, and to secure such information from, the Corporation and
its officers and directors as it deemed necessary to evaluate
the merits of entering into such transactions.
(vi) It has adequate net worth and means of providing
for its current needs and contingencies to sustain a complete
loss of its investment in the Corporation.
(b) The Investor further represents and warrants to the
Corporation that: (i) it is a Delaware corporation, (ii) it was not formed
for the specific purpose of acquiring any of the Series B Shares or the
Conversion Shares, (iii) it has assets in excess of $5,000,000 and (iv) its
principal office is located in Cambridge, Massachusetts.
5.3. Brokers. The Investor has not retained, utilized or been
represented by any broker or finder in connection with the transactions
contemplated by this Agreement.
SECTION 6. CONDITIONS TO THE OBLIGATIONS OF THE INVESTOR. The
obligation of the Investor to purchase and pay for the Series B Shares is
subject to the satisfaction, on or before such Closing Date, of the following
conditions (unless waived in writing by the Investor):
6.1 Representations and Warranties to be True and Correct. The
representations and warranties contained in Section 4 hereof shall be true,
complete and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date, and the President and Treasurer of the Corporation shall have
certified to such effect to the Investor in writing.
6.2 Performance. The Corporation shall have performed and complied
with all agreements contained herein required to be performed or complied
with by it prior to or at the Closing, and the President and Treasurer of the
Corporation shall have certified to the Investor in writing to such effect
and to the further effect that all of the conditions set forth in this
Section 6 have been satisfied.
6.3 Investors' Rights Agreement. The Corporation and the Investor
shall have executed and delivered the Investors' Rights Agreement.
20
6.4 Stock Restriction Agreement. The Corporation, the Management
Stockholders and the Investor shall have executed and delivered the Stock
Restriction Agreement.
6.5 Registration Rights Agreement. The Corporation and the Investor
shall have executed and delivered the Registration Rights Agreement.
6.6 Nondisclosure and Invention Assignment Agreements. Each of the
Corporation's officers, key employees or consultants and employees and
consultants having access to confidential information of the Corporation
shall have executed and delivered to the Corporation a written nondisclosure
and invention assignment agreement in form and substance satisfactory to the
Investor, and copies thereof have been delivered to counsel for the Investor.
6.7 Restated Certificate of Incorporation. The Restated Certificate
of Incorporation shall have been duly executed and shall have been filed with
the Secretary of State of Delaware and shall be in full force and effect.
6.8 Preemptive Rights. All stockholders of the Corporation having
any preemptive, first refusal or other right with respect to the issuance of
the Series B Shares or Conversion Shares shall have irrevocably waived the
same in writing.
6.9 Opinion of Corporation's Counsel. The Corporation shall have
delivered to the Investor an opinion from Jenner & Block, counsel to the
Corporation, in form and substance satisfactory to the Investor and its
counsel.
6.10 Supporting Documents. The Corporation shall have delivered to
the Investor and its counsel copies of the following documents:
(a) the Restated Certificate of
Incorporation, certified as of a recent date by
the Secretary of State of the State of Delaware;
(b) a certificate of the Secretary of State of
Delaware, dated as of a recent date, as to the due
incorporation and good standing of the Corporation, the
payment of all excise taxes by the Corporation and listing all
documents of the Corporation on file with said Secretary;
(c) a certificate of the Secretary or an Assistant
Secretary of the Corporation, dated the Closing Date, and
certifying: (A) that attached thereto is a true and complete
copy of the By-laws of the Corporation as in effect on the
date of such certification; (B) that attached thereto is a
true and complete copy of all resolutions adopted by the Board
of Directors and/or stockholders of the Corporation
21
authorizing the execution, delivery and performance of this
Agreement, the other Related Documents, the issuance, sale and
delivery of the Series B Shares, the reservation, issuance and
delivery of the Conversion Shares and that all such
resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions
contemplated by this Agreement and the other Related
Documents; (C) that the Restated Certificate of Incorporation
has not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause
(b) above; and (D) to the incumbency and specimen signature of
each officer of the Corporation executing this Agreement, the
other Related Documents, the stock certificates representing
the Series B Shares and any certificate or instrument
furnished pursuant hereto, and a certification by another
officer of the Corporation as to the incumbency and signature
of the officer signing the certificate referred to in this
clause (c); and
(d) such additional supporting documents and other
information with respect to the operations and affairs of the
Corporation as the Investor or its counsel reasonably may
request.
6.11 No Adverse Change. There shall not have been any material
adverse change in the Corporation, its business, financial condition,
operations or prospects.
6.12 Litigation. No proceeding challenging this Agreement or any of
the other Related Documents, or any of the transactions contemplated hereby
or thereby, or seeking to prohibit, alter, prevent or materially delay the
Closing, shall have been instituted before any court, arbitrator or
governmental body, agency or official and shall be pending.
6.13 Compliance with Laws; Governmental Consents and Approvals. The
purchase of and payment for the Series B Shares by the Investor shall not be
prohibited by any law or governmental order or regulation; and all necessary
consents, approvals, licenses, permits, orders and authorizations of, or
registrations, declarations and filings with, any governmental or
administrative agency or of any other Person with respect to any of the
transactions contemplated under this Agreement or any of the other Related
Documents shall have been duly obtained or made and shall be in full force
and effect.
6.14 All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Corporation in connection with the
transactions contemplated hereby and all documents incident thereto shall be
satisfactory in form and substance to the Investor and its counsel, and the
Investor and their counsel shall have received all such counterpart originals
or certified or other copies of such documents as they reasonably may request.
22
SECTION 7. RESEARCH COLLABORATION.
7.1 Collaboration.
(a) The Corporation and the Investor hereby agree (i) to
engage in the Collaborative "BioKeys" Research Project and the
"ElectroScreen" Research Project, all as described in Exhibit F attached
hereto, (ii) to engage in the research activities described in Section 7.1(c)
below and (iii) to engage in such other research activities as the parties
may agree upon from time to time. For purposes hereof, the term
"Collaboration" shall mean the collaboration and other research activities
engaged in by the parties pursuant to this Section 7. The terms and
conditions of the Collaboration and of all research activities of the parties
pursuant to the Collaboration shall be governed by, to the extent applicable,
the provisions of this Section 7, the provisions of Exhibit F attached hereto
and such other provisions as the parties may agree upon in writing from and
after the date hereof. The term of the Collaboration (the "Term") shall
commence on the date hereof and end on February 5, 2001, provided that the
Investor shall be entitled to terminate the Collaboration at any time from
and after November 5, 1997 by giving the Corporation at least thirty (30)
days prior written notice of termination. For purposes of this Agreement, (A)
the term "Collaboration Termination Date" shall mean the earlier of (i)
February 5, 2001 or (ii) the effective date of termination of the
Collaboration pursuant to the provisions of this Section 7.1(a), (B) the term
"Minimum Research Period" shall mean the period commencing on the date hereof
and ending on the earlier of (i) the Collaboration Termination Date or (ii)
May 5, 1998 (the "Acquisition Option Expiration Date"), and (C) the term
"Remaining Research Period" shall mean the period commencing on May 5, 1998
and ending on the Collaboration Termination Date.
(b) During the Minimum Research Period, the Corporation and
the Investor shall engage in the research activities described in Exhibit F
attached hereto. The respective tasks, activities and obligations of the
parties during the Minimum Research Period are set forth in Exhibit F
attached hereto.
(c) In the event that the Investor elects not to exercise
the Acquisition Option, the Investor shall, within thirty (30) days after the
Acquisition Option Expiration Date, deliver to the Corporation a schedule
listing all of the research programs then being conducted by the Investor
(the "Specified Research Programs"). During the Remaining Research Period,
the Corporation and the Investor shall (i) continue the research activities
described in Exhibit F, (ii) engage in such research, screening, target
discovery and validation, and drug discovery and development activities as
the Investor shall request, provided that such research, screening, target
discovery and validation and drug discovery and development activities are
related to, or involve, biological targets that are within the scope of
23
the Specified Research Programs and (iii) engage in such other research
activities as the parties may agree from time to time. The respective tasks,
activities and obligations of the parties in connection with any of the
matters on which the parties are collaborating during the Remaining Research
Period shall be mutually agreed upon by the parties.
7.2 Funding.
(a) On the first day of each month during the Minimum
Research Period and on the first day of the first month immediately after the
Minimum Research Period, the Investor shall reimburse the Corporation for any
payments made by the Corporation during the immediately preceding month in
respect of (i) salary and fringe benefits payable by the Corporation to no
more than two scientists and one technician employed by the Corporation and
engaged solely in activities relating the Collaboration, and (ii) laboratory
supplies for use solely in activities relating to the Collaboration;
provided, however, that the amount of any monthly payment that the Investor
shall be required to make to the Corporation pursuant to the foregoing
provisions of this Section 7.2(a) shall in no event exceed $18,334 (it being
understood that any expenses incurred or payments made by the Corporation in
connection with the Collaboration in any month during the Minimum Research
Period in excess of $18,334 shall be the Corporation's sole responsibility
and the Investor shall have no obligation to reimburse the Corporation with
respect to any such excess). In addition, the Investor shall reimburse the
Corporation for up to a total of $30,000 of travel expenses incurred by the
Corporation in connection with travel by officers or employees of the
Corporation in the performance of tasks and duties pertaining to the
Collaboration, provided that such travel expenses are incurred by the
Corporation, and are submitted by the Corporation for reimbursement, in
accordance with the Investor's policy on reimbursable travel expenses that is
applicable to all officers and employees of the Investor.
(b) On the first day of each month during the Remaining
Research Period and on the first day of the first month immediately after the
Remaining Research Period, the Investor shall reimburse the Corporation for
the direct costs incurred by the Corporation in connection with activities
relating to the Collaboration, provided that such costs shall not exceed the
amount budgeted for such costs by mutual agreement of the Investor and the
Corporation (it being understood that any costs incurred by the Corporation
in connection with the Collaboration activities that are in excess of the
amount budgeted by the parties for such costs shall be the Corporation's sole
responsibility and the Investor shall have no obligation to reimburse the
Corporation with respect to any such excess).
(c) The Investor shall also pay to the Corporation seven
percent (7%) of all revenue actually received by the Investor from third
parties to the extent that such revenue is directly attributable to (i) the
sale of a third party anti-
24
bacterial or anti-fungal drug that was discovered or developed as a result of
the use of the Licensed Technology (as defined in Section 7.5 hereof), (ii)
drug development milestone payments actually received by the Investor on
account of any anti-bacterial or anti-fungal drug candidate that was
discovered or developed as a result of the use of the Licensed Technology,
and (iii) any licensing fees actually received by the Investor with respect
to any sublicense of the Licensed Technology.
7.3 Obligations Following Termination of Collaboration. Except for
the Investor's obligation, pursuant to Section 7.2(a) above, to make a
payment to the Corporation on the first day of the first month immediately
after the Minimum Research Period and except for any other payment
obligations of the Investor in connection with the Collaboration which are
agreed upon by the parties in writing after the date hereof and which by
their own terms survive the Collaboration Termination Date, the Investor
shall have no obligations or liabilities to the Corporation pursuant to this
Section 7 (including, without limitation, the obligation to make payments to
the Corporation in connection with the Collaboration) from and after the
Collaboration Termination Date.
7.4 Exclusivity.
(a) Until the later of (i) the expiration of the
Acquisition Option Period or (ii) if the Acquisition Option is exercised, the
closing of the Acquisition, the Corporation shall not engage in any research
or screening activities or programs, any research collaboration, any drug
discovery or drug development collaboration, partnership or alliance, any
licensing transaction, or any other kind of transaction, involving all or any
portion of the Corporation's intellectual property or know-how or the
intellectual property or know-how of any Person; provided, however, that the
foregoing provisions of this Section 7.4(a) shall not preclude the
Corporation from engaging in (i) the Collaboration or (ii) any research or
screening activities or programs set forth in Schedule 7.4(a) attached
hereto, all of which are research or screening activities or programs in
which the Corporation is currently involved as of the date of this Agreement.
The restrictions set forth in this Section 7.4(a) may be waived, in any
instance, by written consent of the Investor.
(b) During the period commencing upon the expiration of the
restrictions set forth in Section 7.4(a) above and ending on the
Collaboration Termination Date, the Corporation shall not engage in any
research or screening activities or programs, any research collaborations,
any drug discovery or drug development collaborations, partnerships or
alliances, any licensing transactions, or any other kind of transactions, in
the anti-bacterial and/or anti-fungal therapeutic area; provided, however,
that the foregoing provisions of this Section 7.4(b) shall not preclude the
Corporation from engaging in (i) the Collaboration, (ii) any research or
screening activities or programs set forth in Schedule 7.4(b) attached
hereto, all of which are research or screening activities or programs in
which the Corporation is
25
currently involved as of the date of this Agreement or (iii) any research or
screening activity or program so long as it (A) covers a finite number of
specific biological targets for drug discovery and development, (B) provides
for the Corporation to engage in active research, discovery and development
activities with respect to all of such biological targets, (C) provides for
the payment to the Corporation of commercially reasonable consideration and
(D) does not preclude the Corporation from entering into similar arrangements
with other parties (including the Investor) relating to other targets in the
same or any different field or pathogen. The restrictions set forth in this
Section 7.4(b) may be waived, in any instance, by written consent of the
Investor.
(c) Until the later of (i) the expiration of the
Acquisition Option Period or (ii) if the Acquisition Option is exercised, the
closing of the Acquisition, the Corporation, subject to any applicable
nondisclosure agreements between the Corporation and third parties, shall
discuss and coordinate in advance with the Investor any contacts, meetings,
discussions or negotiations that the Corporation proposes to make or in which
the Corporation proposes to participate, to the extent that such proposed
contacts, meetings, discussions or negotiations relate to any research or
screening activities or programs, any research collaboration, any drug
discovery or drug development collaboration, partnership or alliance, any
licensing transaction, or any other kind of transaction, involving all or any
portion of the Corporation's intellectual property or know-how or the
intellectual property or know-how of any Person; provided, however, that the
foregoing provisions of this Section 7.4(c) shall not apply to (i) the
Collaboration or (ii) any research or screening activities or programs set
forth in Schedules 7.4(a) or 7.4(b) attached hereto, all of which are
research or screening activities or programs in which the Corporation is
currently involved as of the date of this Agreement.
7.5 License. Subject to the provisions of this Section 7.5 hereof,
the Corporation hereby grants to the Investor a worldwide license (the
"License") to use any and all inventions, technology, know-how and
intellectual property of the Corporation (collectively, the "Licensed
Technology") for purposes of (i) researching, screening for, discovering or
developing anti-bacterial or anti-fungal drug candidates or anti-bacterial or
anti-fungal drug discovery targets or (ii) selling, licensing, marketing or
otherwise commercializing anti-bacterial or anti-fungal drugs discovered or
developed using any portion of the Licensed Technology during the Term.
Without limiting the generality of the definition of the term "Licensed
Technology" set forth above, such term shall include any patent or patent
applications of the Corporation and any inventions, technology or know-how
disclosed in such patents or patent applications. The License shall be
perpetual and irrevocable. The License shall be exclusive to the extent and
for the period of time that the Corporation has agreed to abide by the
exclusivity provisions of Section 7.4 above. The Investor shall have the
right to sublicense the License and the Licensed Technology. Except for any
payments made or required to be made by the Investor
26
to the Corporation pursuant to Section 7.2 above in connection with the
Collaboration, the Investor shall not have to pay or otherwise owe to the
Corporation any consideration of any kind in connection with the License.
7.6 Collaborative Research Agreement. The parties hereby acknowledge
that the foregoing provisions of this Section 7 do not address all of the
matters with respect to the Collaboration that would customarily be addressed
in a stand-alone collaborative research agreement. Accordingly, the parties
hereby agree that, within sixty (60) days after the Closing Date, the parties
shall negotiate and enter into a collaborative research agreement with
respect to the Collaboration (the "Collaborative Agreement"), which
Collaborative Agreement shall contain terms and provisions that are
consistent with all of the provisions set forth above in this Section 7 and
such other terms and provisions as are customary for research collaborations
similar to the Collaboration. In the event that the parties fail to reach
agreement with respect to the terms and conditions of the Collaborative
Agreement, the respective Chief Executive Officers of the parties shall,
within thirty (30) days after the expiration of such sixty (60) day period,
meet and negotiate in good faith a resolution of the parties' differences. If
the parties' respective Chief Executive Officers are unable to resolve the
parties' differences, then such differences shall be submitted to binding
arbitration as provided in Section 7.7 below. Upon execution and delivery by
both parties of the Collaborative Agreement, the provisions of this Section 7
shall terminate and be superseded by the provisions of the Collaborative
Agreement. Nothing in this Section 7.6 shall be construed as limiting the
enforceability, validity or binding effect of any of the other provisions of
this Section 7.
7.7 Arbitration. If the parties are unable to agree on the terms and
conditions of the Collaborative Agreement contemplated by Section 7.6 above
prior to or during the thirty (30) day period referred to in Section 7.6
above, the dispute issues shall be submitted to binding arbitration. The
parties shall select one arbitrator, provided that, if the parties cannot
agree on the arbitrator, each party shall select an arbitrator, and these two
arbitrators will then select a third arbitrator. The arbitrator or
arbitrators shall be accredited by the American Arbitration Association and
shall be individuals with relevant business experience in structuring and
negotiating biotechnology research collaborations; provided, however, that
the parties may mutually agree in writing to waive either or both of the
foregoing requirements. The arbitration shall be held in Boston,
Massachusetts or in such other city in the United States as the parties may
mutually agree. The arbitration session will be held no later than thirty
(30) days after the expiration of the thirty (30) day period referred to in
Section 7.6 above. The arbitrator or arbitrators shall render a decision
within ten (10) business days of the conclusion of the arbitration session.
The arbitration proceeding shall be conducted in accordance with the rules of
the American Arbitration Association. The decision of the arbitrator or
arbitrators shall be final and binding on both parties. If the
27
parties are able to agree on the appointment of a single arbitrator, then the
cost of such arbitrator shall be shared equally by both parties. If the
parties are unable to agree on the appointment of a single arbitrator, each
party shall bear the cost of the arbitrator appointed by such party and the
cost of the third arbitrator shall be shared equally by both parties. Each
party shall be responsible for all costs incurred by it in preparing for and
participating in the arbitration.
7.8 Termination. The provisions of this Section 7 shall
automatically terminate upon consummation of the Acquisition.
SECTION 8. USE OF PROCEEDS. The Corporation shall use the proceeds
from the sale of the Series B Shares solely for working capital in the
ordinary course of its business as currently conducted by the Corporation.
SECTION 9. RESTRICTIONS ON TRANSFER. The Series B Shares and the
Conversion Shares shall be subject to the restrictions on transfer set forth
in Section 4 of the Investors' Rights Agreement.
SECTION 10. INDEMNIFICATION. The Corporation agrees to indemnify,
defend and hold the Investor (and its directors, officers, employees, agents
and affiliates and the directors, officers, employees and agents of such
affiliates) harmless against any and all liabilities, losses, costs or
damages, together with all reasonable costs and expenses related thereto
(including reasonable legal and accounting fees and expenses), incurred or
suffered by any such indemnified Person arising from, relating to, or in
connection with the untruth, inaccuracy or breach of any statements,
representations, warranties or covenants of the Corporation contained herein.
The Investor agrees to indemnify, defend and hold the Corporation (and its
directors, officers, employees, agents and affiliates and the directors,
officers, employees and agents of such affiliates) harmless against any and
all liabilities, losses, costs or damages, together with all reasonable costs
and expenses related thereto (including reasonable legal and accounting fees
and expenses), incurred or suffered by any such indemnified Person arising
from, relating to, or in connection with the untruth, inaccuracy or breach of
any statements, representations, warranties or covenants of the Investor
contained herein. Indemnification pursuant to this Section 10 shall be in
addition to any liability the Corporation or the Investor may otherwise have.
28
SECTION 11. GENERAL.
11.1 Election to Board of Directors. The Corporation shall use its
best efforts to cause a representative of the Investor to be elected as a
director of the Corporation within thirty days after the Closing Date.
11.2 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated; provided, however, that, at the Closing,
the Investor shall reimburse the Corporation, up to a maximum aggregate
amount of $10,000, for any amounts paid or payable by the Corporation in
respect of the reasonable fees, expenses and disbursements of the
Corporation's outside legal, accounting and tax advisors but only if and to
the extent that (i) such reasonable fees, expenses and disbursements pertain
to the transactions contemplated by this Agreement and the Related Documents
and (ii) the Corporation provides the Investor with a copy of the invoices
submitted to the Corporation by such advisors and such invoices are
sufficiently detailed to adequately support the amount of such fees, expenses
and disbursements.
11.3 Survival of Agreements. All covenants, agreements,
representations and warranties made herein or in any of the other Related
Documents, or any certificate or instrument delivered to the Investor
pursuant to or in connection with this Agreement or any of the other Related
Documents, shall survive the execution and delivery of this Agreement and
each of the other Related Documents, the issuance, sale and delivery of the
Series B Shares and the issuance and delivery of the Conversion Shares, and
all statements contained in any certificate or other instrument delivered by
the Corporation hereunder or thereunder or in connection herewith or
therewith shall be deemed to constitute representations and warranties made
by the Corporation.
11.4 Brokerage. Each party hereto will indemnify and hold harmless
the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made
or claimed to have been made by such party with any third party.
11.5 Parties in Interest. All representations, 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
permitted assigns of the parties hereto whether so expressed or not. Without
limiting the generality of the foregoing, all representations, covenants and
agreements benefiting the Investor shall inure to the benefit of any and all
subsequent holders from time to time of Series B Shares or Conversion Shares.
29
11.6 Assignment. This Agreement and the respective rights and
obligations of the parties hereto may not be assigned or delegated, except to
the extent otherwise consented to in writing by the Corporation and the
Investor and except that, after the Closing, the Investor may assign all of
its rights under this Agreement to any Person.
11.7 Remedies. In case that any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by any party
hereto, the party or parties entitled to the benefit of such covenants or
agreements may proceed to protect and enforce its or their rights, either by
suit in equity and/or 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 Agreement.
The rights, powers and remedies of the parties to this Agreement are
cumulative and not exclusive of any other right, power or remedy which such
parties may have under any other agreement or law. No single or partial
assertion or exercise of any right, power or remedy of a party hereunder
shall preclude any other or further assertion or exercise thereof.
11.8 Entire Agreement. This Agreement contains the entire agreement
among the parties with respect to the subject matter hereof and supersedes
all prior and contemporaneous arrangements or understandings with respect
thereto.
11.9 Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or duly sent by first
class, registered, certified or overnight mail, postage prepaid, or
telecopied with a confirmation copy by regular mail, addressed or telecopied,
as the case may be, to such party at the address or telecopier number, as the
case may be, set forth below or such other address or telecopier number, as
the case may be, as may hereafter be designated in writing by the addressee
to the addresser listing all parties:
(i) If to the Corporation to:
Novalon Pharmaceutical Corporation
214 West Cameron Avenue, Suite B
Chapel Hill, N.C. 27516
Attention: Dana M. Fowlkes, M.D., Ph.D.,
President & CEO
Telecopier:(919) 968-9255
30
with a copy to:
Jenner & Block
12th Floor
601 Thirteenth Street, N.W.
Washington, D.C. 20005
Attention: D. Joe Smith
Telecopier: (203) 639-6066
(ii) If to the Investor, to:
Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, MA 02139
Attention: Scott M. Rocklage, Ph.D.
Telecopier: (617) 576-0232
with a copy to:
Bingham, Dana & Gould LLP
150 Federal Street
Boston, MA 02110-1726
Attention: Julio E. Vega, Esquire
Telecopier: (617) 951-8736
Any notice or other communication pursuant to this Agreement shall be deemed
to have been duly given or made and to have become effective (i) when
delivered in hand to the party to which it was directed, (ii) if sent by
telex, telecopier, facsimile machine or telegraph and properly addressed in
accordance with the foregoing provisions of this Section 11.9, when received
by the addressee, (iii) if sent by commercial courier guaranteeing next
business day delivery, on the business day following the date of delivery to
such courier, or (iii) if sent by first-class mail, postage prepaid, and
properly addressed in accordance with the foregoing provisions of this
Section 11.9, (A) when received by the addressee, or (B) on the third
business day following the day of dispatch thereof, whichever of (A) or (B)
shall be the earlier.
11.10 Amendments and Waivers. Any provision of this Agreement may be
amended, modified or terminated, and the observance of any provision of this
Agreement may be waived (either generally or in a particular instance and
either retrospectively or prospectively), with, but only with, the written
consent of each of the parties hereto.
31
11.11 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
11.12 No Waiver of Future Breach. No failure or delay on the part of
any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof. No assent, express or implied,
by any party hereto to any breach in or default of any agreement or condition
herein contained on the part of any other party hereto shall constitute a
waiver of or assent to any succeeding breach in or default of the same or any
other agreement or condition hereof by such other party.
11.13 No Implied Rights or Remedies; Third Party Beneficiaries.
Except as otherwise expressly provided in this Agreement, nothing herein
expressed or implied is intended or shall be construed to confer upon or to
give any Person, firm or corporation, other than the Corporation and the
Investor, any rights or remedies under or by reason of this Agreement. Except
as otherwise expressly provided in this Agreement, there are no intended
third party beneficiaries under or by reason of this Agreement.
11.14 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not
be deemed to be a part of this Agreement.
11.15 Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
32
11.16 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, excluding the choice of
law rules thereof.
11.17 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Series B
Convertible Preferred Stock Purchase Agreement as of the date first above
written.
CORPORATION:
NOVALON PHARMACEUTICAL
CORPORATION
By: [signature appears here]
----------------------------
Name: Dana M. Fowlkes, M.D., Ph.D.
Title: President & CEO
INVESTOR:
CUBIST PHARMACEUTICALS, INC.
By: [signature appears here]
------------------------
Scott M. Rocklage,
President
33