EXHIBIT 10.6
STOCK PURCHASE AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of the 21st day of
July, 1997, by and between GENVEC, INC., a Delaware corporation, with its
principal place of business at 00000 Xxxxxxxx Xxxxx, Xxxxxxxxx, Xxxxxxxx 00000
(the "Company"), and XXXXXX-XXXXXXX COMPANY, a Delaware corporation, with its
principal place of business at 000 Xxxxx Xxxx, Xxxxxx Xxxxxx, Xxx Xxxxxx 00000
(the "Investor"), with reference to the following recitals:
WHEREAS, the Company and the Investor have entered into a Research,
Development and Collaboration Agreement, dated as of the date hereof (the
"Collaboration Agreement"), pursuant to which the Company and the Investor have
agreed to enter into a collaborative effort, as defined in the Collaboration
Agreement (the "Collaboration"), and have established a framework for their
collaboration, as described in the Collaboration Agreement; and
WHEREAS, the Investor agrees to purchase certain shares of the capital
stock of the Company on and pursuant to the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements, undertakings and
covenants set forth in this Agreement and in the Collaboration Agreement, and
for other good and valuable consideration, the receipt, sufficiency and adequacy
of which are hereby acknowledged, the parties, intending to be legally bound,
hereby agree as follows:
1. Definitions. For purposes of this Agreement the following terms shall
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have the meanings ascribed to them in this Section 1 except as otherwise
expressly indicated or limited by the context in which they appear in this
Agreement. All terms defined in Section 1 or in the Preamble to this Agreement
in the singular form shall have the same meaning when used in the plural form
and vice versa.
(a) "Affiliate" shall mean a person or entity that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, the person or entity specified.
(b) "Aggregate Purchase Price" shall mean, in each instance of a
Tranche Event (as defined below), the cash consideration as specified by the
Company in a Sale Notice (as defined below) or Amended Sale Notice (as defined
below) to be paid by the Investor for the Securities (as defined below)
specified therein; provided however, the amount of such cash consideration shall
not exceed Two Million Dollars ($2,000,000) for the Tranche Event described in
Section l(mm)(1), Three Million Dollars ($3,000,000) for the Tranche Event
described in Section l(mm)(2), Five Million Dollars ($5,000,000) for the Tranche
Event described in Section I (mm)(3), Five Million Dollars ($5,000,000) for the
Tranche Event described in Section 1(mm)(4), Five Million Dollars ($5,000,000)
for the Tranche Event described in Section 1(mm)(5), and Five Million Dollars
($5,000,000) for the Tranche Event described in Section l(mm)(6).
(c) "Amended Sale Notice" shall mean the written notice given under
certain circumstances by the Company to the Investor in accordance with Section
2(b)(i)(C) of this Agreement that (i) indicates that the Investor must acquire
Securities in accordance with this Agreement and (ii) provides the information
set forth in Section 2(b)(i)(C) hereof, as appropriate.
(d) "Bylaws" shall mean the Company's Amended and Restated By-Laws as
set forth in Exhibit B hereto, as amended from time to time.
(e) "Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day when the banking institutions in Maryland
are authorized or obligated by law or proclamation to close or be closed.
(f) "CAD" shall have the meaning ascribed thereto in the Collaboration
Agreement.
(g) "CAD Milestone I" shall mean with respect to a Collaboration
Product (as defined below) for the treatment of CAD, the enrollment of the first
human patient in a clinical trial.
(h) "CAD Milestone II" shall mean with respect to a Collaboration
Product (as defined below) for the treatment of CAD the earliest of: (x) the
first completion, as determined by the Executive Committee (as defined below),
of the initial Phase I (as defined in the Collaboration Agreement) clinical
trial, (y) the treatment of all patients in a Phase I (as defined in the
Collaboration Agreement) clinical trial per the initial clinical protocol or
thirty (30) days after the administration of a Collaboration Product to three
(3) patients at a dose of ten to the ninth power (10/9/) plaque forming units
(or equivalent), or (z) the enrollment of the first patient in the initial Phase
II (as defined in the Collaboration Agreement) or Phase III (as defined in the
Collaboration Agreement) or Pivotal (as defined in the Collaboration Agreement)
clinical trial (whichever is earliest) which (i) is intended to include thirty
(30) or more patients, or (ii) is approved by the Drug Development Committee (as
defined in the Collaboration Agreement).
(i) "Charter" shall mean the Company's Restated Certificate of
Incorporation as set forth in Exhibit A hereto, as amended from time to time.
(j) "Class A Preferred Stock" shall mean the Company's Class A
Convertible Preferred Stock, par value $.01 per share.
(k) "Class B Preferred Stock" shall mean the Company's Class B
Convertible Preferred Stock, par value $.01 per share.
(l) "Class C Preferred Stock" shall mean the Company's Class C
Convertible Preferred Stock, par value $.01 per share, and the shares of Common
Stock (as defined below) that have been issued upon conversion of the Class C
Preferred Stock.
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(m) "Class D Preferred Stock" shall mean the Company's Class D
Convertible Preferred Stock, par value $.01 per share.
(n) "Collaboration Product" shall have the meaning ascribed thereto in
the Collaboration Agreement.
(o) "Commission" shall mean the United States Securities and Exchange
Commission.
(p) "Common Stock" shall mean the Company's common stock, par value
$.01 per share, or any common stock issued by the Company in exchange for such
Common Stock.
(q) "Executive Committee" shall have the meaning ascribed thereto in
the Collaboration Agreement.
(r) "Fair Market Value" shall mean, if the Company has sold shares of
Common Stock in an IPO (as defined below), the average of the daily closing bid
and ask prices for a share of the Common Stock for the Trading Period (as
defined below) on the principal national securities exchange or quotation system
on which the Common Stock is listed or quoted. "Fair Market Value" shall mean,
if the closing bid and ask prices of a share of Common Stock are not so listed
or quoted or if the Company has not sold shares of Common Stock in an IPO, the
fair market value of a share of Common Stock or Preferred Stock (as defined
below), respectively, as reasonably determined by the Company's board of
directors on a date no more than fifteen (15) Business Days prior to the date
that the applicable Sale Notice or Amended Sale Notice is to be sent to the
Investor. The Company will provide to the Investor notice of the Fair Market
Value no less than ten (10) Business Days prior to the date the applicable Sale
Notice is to be sent to the Investor. If the Investor disagrees with the
board's determination of the Fair Market Value, it must provide to the Company
notice within five (5) Business Days of receiving the Company's notice of the
Fair Market Value that the Investor disagrees with the board's determination of
the Fair Market Value in which case the Fair Market Value shall be determined by
an appraiser that is selected and paid for by the Company and is reasonably
acceptable to the Investor. The Fair Market Value will then be the amount
determined by the appraiser as of the same date as of which the Company's board
of directors determined the Fair Market Value with which the Investor disagreed.
(s) "GAAP" shall mean generally accepted accounting principles in the
United States.
(t) "Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
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(u) "IPO" shall mean an initial underwritten public offering of shares
of Common Stock through the registration of the shares on a registration
statement filed under the Securities Act (as defined below).
(v) "Lock-up Period" shall mean each of: (i) the period commencing on
the date of this Agreement and ending two (2) years after the Company sells
shares of Common Stock in an IPO; (ii) the period commencing ninety (90) days
prior to the anticipated date of the occurrence of any Tranche Event and ending
on the day the Investor receives the Sale Notice regarding such Tranche Event
from the Company, and (iii) with respect to Securities sold to the Investor in
connection with each Tranche Event occurring after the Company sells shares of
Common Stock in an IPO, the period commencing on the date the Investor becomes
the holder of record of the Securities purchased in connection with such Tranche
Event and ending on the latter of the lock-up period in this Section 1(v)(i) or
eighteen (18) months after the date the Investor becomes the holder of record of
such Securities determined on a Tranche Event-by-Tranche Event basis.
(w) "Manufacturing Milestone" shall mean the reproducible
demonstration, as shown by the preparation of three (3) consecutive lots of the
first Collaboration Product, of a process for the production and purification of
Bulk Product (as defined in the Collaboration Agreement) at the scale and in a
GMP facility agreed to by the Executive Committee that is usable for the conduct
of a Pivotal (as defined in the Collaboration Agreement) study of such
Collaboration Product.
(x) "Original Registration Stock" shall mean the shares of the Class A
Preferred Stock and the Class B Preferred Stock, the shares of Common Stock that
have been issued upon conversion of the Class A Preferred Stock and the Class B
Preferred Stock, and any shares of Common Stock or other securities issued in
respect of any such securities upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event.
(y) "Other Shares" shall mean the issued and outstanding shares of
Common Stock proposed to be included in the Piggyback Registration Statement (as
defined below) and held by holders of shares other than the Investor and holders
of any of the Original Registration Stock, the Class C Preferred Stock, and the
Warrant Shares (as defined below).
(z) "PVD" shall have the meaning ascribed thereto in the Collaboration
Agreement.
(aa) "PVD Milestone" shall mean with respect to a Collaboration
Product for the treatment of PVD, the earlier of (i) the first completion, as
determined by the Executive Committee, of the initial Phase I (as defined in the
Collaboration Agreement) clinical trial which comprises less than twelve (12)
patients, or (ii) the administration of a Collaboration Product to the first
twelve (12) patients in any clinical trial.
(bb) "Piggyback Registration Statement" shall have the meaning
ascribed thereto in Section 8(a) herein.
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(cc) "Preferred Stock" shall mean shares of any of one or more series
of convertible preferred stock which the Company's board of directors shall
authorize for issuance pursuant to the terms of this Agreement and which the
Investor must purchase pursuant to this Agreement. Each share of Preferred
Stock shall have the designations, limitations and rights specified in
subsections B(l), (2)(a) and (4) of Article Ninth of the Charter. Each share of
Preferred Stock (i) shall be entitled to liquidation rights pursuant to the
provisions of B(3) of Article Ninth of the Charter except that the Liquidation
Preference (as defined in the Charter) of the Preferred Stock shall be the same
as the purchase price and (ii) shall be convertible at the option of the
Investor pursuant to the provisions of subsection B(5)(b) of Article Ninth of
the Charter into shares of the Common Stock of the Company at a rate of one
share of Common Stock for each share of Preferred Stock, subject to adjustment
pursuant to the provisions of subsection B(5)(d)(iv) and (v) of Article Ninth of
the Charter, provided, however, that such conversion shall be mandatory upon an
IPO pursuant to the provisions of subsection (B)(6) of Article Ninth of the
Charter.
(dd) "Restriction Period" shall mean the period commencing on the
date the Company sells Common Stock in an IPO and ending one year after the
Company receives notice from the Investor or otherwise becomes aware of the
occurrence of (i) all of the Tranche Events or (ii) the Tranche Event that is
the last of the Tranche Events that is reasonably likely to occur, as mutually
agreed to by the Investor and the Company.
(ee) "Sale Notice" shall mean the written notice given by the Company
to the Investor that (i) indicates that the Investor must acquire Securities in
accordance with this Agreement and (ii) provides the information set forth in
Section 2(a) or 2(b) hereof, as appropriate.
(ff) "Security" shall mean a share of Common Stock or Preferred Stock
issued by the Company to the Investor pursuant to this Agreement.
(gg) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(hh) "Selling Stockholders" shall mean the holders of shares of
Common Stock which seek to have their shares registered for sale on a
registration statement.
(ii) "Subsidiary" shall mean any corporation the majority of the
voting capital stock of which is owned directly or indirectly beneficially or of
record by the Company or the Investor, as applicable.
(jj) "Term of the Research Program" shall have the meaning ascribed
thereto in the Collaboration Agreement.
(kk) "Third Indication Milestone" shall mean the first indication
other than PVD or CAD for which a Collaboration Product achieves either (i) the
first completion, as determined by the Executive Committee, of the initial Phase
I (as defined in the Collaboration Agreement) clinical trial
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which comprises less than twelve (12) patients or (ii) the administration of a
Collaboration Product to the first twelve (12) patients in any clinical trial.
(ll) "Trading Period" shall mean the twenty (20) consecutive trading
days ending one Business Day prior to the Business Day on which the Investor
must pay the Aggregate Purchase Price for the shares of Common Stock being sold.
(mm) "Tranche Event" shall mean each of the events specified below.
The occurrence of each Tranche Event, independently and without regard to
whether any one of the other Tranche Events has or has not occurred, entitles
the Company to sell Securities to the Investor for the Aggregate Purchase Price,
provided that, prior to such occurrence, Pre-Clinical Activities (as defined in
the Collaboration Agreement) or Development (as defined in the Collaboration
Agreement) with respect to all Development Candidates (as defined in the
Collaboration Agreement) (and corresponding Collaboration Products) for the
related clinical indication set forth in subparagraphs (1), (2) and (4) below
have not been terminated under the Collaboration Agreement:
(1) CAD Milestone I;
(2) CAD Milestone II;
(3) An IPO;
(4) PVD Milestone;
(5) Third Indication Milestone; and
(6) Manufacturing Milestone.
(nn) "Transfer" or "Transferred" shall mean to sell, assign, pledge,
hypothecate, encumber or in any other manner transfer or dispose of or to have
sold, assigned, pledged, hypothecated, encumbered or in any other manner
transferred or disposed of
(oo) "Transferee" shall mean a person or entity to which this
Agreement or the Securities are Transferred.
(pp) "Warrant Shares" shall mean any shares of Common Stock acquired
by Scios Inc. pursuant to the Warrant Agreement entered into by the Company with
Scios Inc. as of May 31, 1996
2. Purchase of Stock. As set forth below, the Investor agrees to
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purchase Securities issued by the Company for an aggregate amount not to exceed
Twenty-Five Million Dollars ($25,000,000) subject to the terms and conditions
contained in this Agreement. Such purchase will be made in up to six (6)
separate transactions with each such transaction occurring simultaneously with
or after the occurrence of a Tranche Event and after receipt by the Investor of
a Sale Notice for
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each such purchase. The Investor agrees to purchase shares of Common Stock at
the time the Company sells shares of Common Stock in an IPO and, thereafter,
after the occurrence of each of the other Tranche Events. Prior to the sale of
shares of Common Stock in an IPO, the Investor agrees to purchase shares of
Preferred Stock after each Tranche Event. The Company's right to sell Securities
and the Investor's obligation to purchase Securities are subject to the right of
the Investor to refuse to acquire any portion of the Securities specified in the
Sale Notice, if, at the time of such acquisition, and after taking into account
the conversion into shares of Common Stock of any and all outstanding shares of
the Company's preferred stock and the shares of Preferred Stock specified in the
Sale Notice, the purchase of such portion of Securities would result in the
Investor owning twenty percent (20%) or more of the outstanding shares of Common
Stock and the shares of Common Stock into which the Company's outstanding shares
of preferred stock and the shares of Preferred Stock specified in the Sale
Notice are convertible.
(a) Purchase of Common Stock Upon an IPO. If the Company intends to
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sell shares of Common Stock to the Investor at the time of the sale of shares of
Common Stock in an IPO, at least thirty (30) days before the effectiveness of
the registration statement filed under the Securities Act in connection with the
IPO, the Company will provide a Sale Notice to the Investor to inform the
Investor that it must purchase shares of Common Stock in accordance with this
Agreement.
(i) The Sale Notice will advise the Investor of the Aggregate
Purchase Price and the estimated range of prices at which the shares of Common
Stock may be sold in the IPO. The Investor agrees to pay a purchase price for
each share of Common Stock equal to one-hundred twenty-five percent (125%) of
the price at which a share of Common Stock is sold to the public in the IPO. The
number of shares of Common Stock that the Investor will purchase will equal the
Aggregate Purchase Price divided by the product of 1.25 times the price at which
a share of Common Stock is sold to the public in the IPO, rounded down, if
necessary, to the next whole number of shares. The Aggregate Purchase Price
shall be reduced by the purchase price of the fractional share not issued.
(ii) The purchase and sale of the shares of Common Stock shall
take place simultaneously with the closing of the IPO or on a Business Day no
more than one full Business Day after the closing of the IPO. The Investor
shall deliver the payment for the shares of Common Stock by a wire transfer of
immediately available funds or by a certified bank check payable to the order of
the Company in the amount of the Aggregate Purchase Price. Upon receipt of such
payment by the Company, the Investor will be deemed to be the holder of record
of the shares of Common Stock and the Company will promptly execute and provide
to the Investor a certificate or certificates evidencing issuance to the
Investor of the appropriate number of fully-paid and non-assessable shares of
Common Stock purchased. The Company and the Investor shall comply with the
conditions to the sale set forth in Sections 9 and 10 hereof.
(iii) The Company agrees to advise the Investor periodically
as to the expected timing of the closing of the IPO. If shares of Common Stock
are not sold in the IPO with
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respect to which the Sale Notice is given, the Company shall continue to have
the right to provide a Sale Notice and sell shares of the Common Stock pursuant
to this Section 2(a) in connection with any future IPO.
(b) Purchase of Securities Upon the Occurrence of A Tranche Event
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Other than an IPO. If the Company intends to sell Securities after the
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occurrence of a Tranche Event other than an IPO, the Company will provide a Sale
Notice to the Investor to inform the Investor that it must acquire the
Securities in accordance with this Agreement. The Sale Notice will advise the
Investor to purchase shares of either Common Stock or Preferred Stock as set
forth below.
(i) Purchase of Securities Before an IPO.
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(A) The Sale Notice will be sent to the Investor no more
than ninety (90) days after the Company receives notice from the Investor or
otherwise becomes aware of the occurrence of a Tranche Event that occurs before
the sale of shares of Common Stock in an IPO, or such longer period of time to
enable the Company to obtain an appraisal of the Fair Market Value of the
Preferred Stock, if required. The Sale Notice will advise the Investor of the
number of shares of Preferred Stock that the Company has determined to sell to
the Investor, the Fair Market Value of each such share of Preferred Stock, the
purchase price for each such share of Preferred Stock and the Aggregate Purchase
Price. The Investor agrees to pay a purchase price for each share of Preferred
Stock equal to one-hundred twenty-five percent (125%) of the Fair Market Value
of a share of such Preferred Stock. Within thirty (30) days of the Investor's
receipt of the Sale Notice, the Investor shall deliver the payment for such
shares of Preferred Stock by a wire transfer of immediately available funds or
by a certified bank check payable to the order of the Company in the amount of
the Aggregate Purchase Price. Upon receipt of such payment by the Company on a
Business Day, the Investor will be deemed to be the holder of record of such
shares of Preferred Stock and the Company will promptly execute and provide to
the Investor a certificate or certificates evidencing issuance to the Investor
of the appropriate number of fully-paid and non-assessable shares of such
Preferred Stock. The Company and the Investor shall comply with the conditions
to the sale set forth in Sections 9 and 10 hereof.
(B) Notwithstanding paragraph (A) of this Section 2(b)(i),
if the Company sends a Sale Notice in connection with a Tranche Event other than
an IPO after it has filed a registration statement for an IPO which is being
reviewed by the Commission, the Sale Notice shall advise the Investor that the
Investor will purchase shares of Common Stock and will specify the Aggregate
Purchase Price and the estimated range of prices at which such shares of Common
Stock may be sold in the IPO. The Investor agrees to pay a purchase price for
each share of Common Stock equal to one-hundred twenty-five percent (125%) of
the price at which a share of Common Stock is sold to the public in the IPO. The
number of shares of Common Stock that the Investor will purchase will equal the
Aggregate Purchase Price divided by the product of 1.25 times the price at which
a share of Common Stock is sold to the public in the IPO, rounded down, if
necessary, to the next whole number of shares. The Aggregate Purchase Price
shall be reduced by the purchase price of the fractional share not issued. The
purchase and sale of the shares of Common Stock shall take
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place simultaneously with the closing of the IPO or on a Business Day no more
than one full Business Day after the closing of the IPO. The Investor shall
deliver the payment for the shares of Common Stock by a wire transfer of
immediately available funds or by a certified bank check payable to the order of
the Company in the amount of the Aggregate Purchase Price. Upon receipt of such
payment by the Company, the Investor will be deemed to be the holder of record
of the shares of Common Stock and the Company will promptly execute and provide
to the Investor a certificate or certificates evidencing issuance to the
Investor of the appropriate number of fully-paid and non-assessable shares of
Common Stock. The Company and the Investor shall comply with the conditions to
the sale set forth in Sections 9 and 10 hereof.
(C) If the Company has sent a Sale Notice pursuant to
paragraph (B) of this Section 2(b)(i), the Company agrees to advise the Investor
periodically as to the expected timing of the closing of the IPO. If at any time
the Company reasonably believes that shares of Common Stock will not be sold in
an IPO within the next thirty (30) days, the Company may send to the Investor an
Amended Sale Notice which will supersede the Sale Notice delivered under
2(b)(i)(B). Such Amended Sale Notice shall advise the Investor of the number of
shares of Preferred Stock that the Company has determined to sell to the
Investor, the Fair Market Value of each such share of Preferred Stock, the
purchase price for each such share of Preferred Stock and the Aggregate Purchase
Price. The Investor agrees to pay a purchase price for each share of Preferred
Stock equal to one-hundred twenty-five percent (125%) of the Fair Market Value
of a share of such Preferred Stock within thirty (30) days of the Investors
receipt of the Amended Sale Notice. The Investor shall deliver the payment for
such shares of Preferred Stock by a wire transfer of immediately available funds
or by a certified bank check payable to the order of the Company in the amount
of the Aggregate Purchase Price. Upon receipt of such payment by the Company on
a Business Day, the Investor will be deemed to be the holder of record of such
shares of Preferred Stock and the Company will promptly execute and provide to
the Investor a certificate or certificates evidencing issuance to the Investor
of the appropriate number of fully-paid and non-assessable shares of such
Preferred Stock. The Company and the Investor shall comply with the conditions
to the sale set forth in Sections 9 and 10 hereof.
(ii) Purchase of Common Stock After an IPO.
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(A) The Sale Notice relating to a Tranche Event that occurs
after an IPO will be sent to the Investor no sooner than fifty (50) days and no
later than sixty (60) days after the issuance of an announcement, a press
release or other publicity regarding the occurrence of the related Tranche Event
or twenty-five (25) Business Days after the Investor has reasonably withheld
consent to the issuance of the announcement, the press release or the other
publicity regarding the occurrence of the Tranche Event. The Sale Notice will
advise the investor that it must purchase shares of Common Stock in accordance
with this Agreement, that the Fair Market Value will be determined based upon
the Trading Period beginning on the specific date that was ten (10) Business
Days prior to the date of the Sale Notice and that the Investor must pay the
Aggregate Purchase Price on the tenth (10th) Business Day after the date of the
Sale Notice. The Investor agrees to pay a purchase price for each share of
Common Stock equal to one-hundred twenty-five percent (125%) of
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the Fair Market Value of a share of Common Stock. The number of shares of Common
Stock that the investor will purchase will equal the Aggregate Purchase Price
divided by the product of 1.25 times the Fair Market Value of a share of Common
Stock, rounded down, if necessary, to the next whole number of shares.
(B) On the tenth (10th) Business Day after the date of the
Sale Notice the Investor shall deliver the payment for the shares of Common
Stock by a wire transfer of immediately available funds or by a certified bank
check payable to the order of the Company in the amount of the Aggregate
Purchase Price. Upon receipt of such payment by the Company, the Investor will
be deemed to be the holder of record of the shares of Common Stock and the
Company will promptly execute and provide to the Investor a certificate or
certificates evidencing issuance to the Investor of the appropriate number of
fully-paid and non-assessable shares of Common Stock. In addition, the Company
will advise the Investor of the calculation of the Fair Market Value of each
share of Common Stock, the purchase price paid by the Investor for each such
share of Common Stock and the number of shares of Common Stock that the Investor
has purchased and will remit to the Investor the difference, if any, between the
Aggregate Purchase Price and the product of the purchase price for each share of
Common Stock purchased by the Investor under this Section 2(b)(ii)(A) multiplied
by the number of shares of Common Stock purchased by the Investor. The Company
and the Investor shall comply with the conditions to the sale set forth in
Sections 9 and 10 hereof.
(c) Nonperformance by the Investor. Any failure by the Investor to
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acquire the Securities in compliance with the provisions of this Agreement,
including as a result of any failure of the Investor to satisfy the conditions
of Section 10 hereof, but excluding as a result of any failure of the Company to
satisfy the conditions of Section 9 hereof, may result in a termination of the
Collaboration Agreement in accordance with Section 19.2 of the Collaboration
Agreement; provided that no such termination shall occur if the Investor's
failure to pay for the Securities in accordance with the Agreement is caused by
a circumstance outside of the control of the Investor and the Investor's payment
for the Securities is delivered as soon as practicable but no later than twenty
(20) Business Days, or a period of time that is otherwise reasonably agreed to
by the parties, after delivery is required pursuant to this Section 2.
3. Authorization of Securities. At the time the Company provides the
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Sale Notice or the Amended Sale Notice to the Investor, the Securities shall be
duly and validly authorized and reserved for issuance.
4. Representations and Warranties of the Company. The Company hereby
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represents and warrants that, as of the date of this Agreement:
(a) Corporate Organization. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware, and is duly qualified to conduct its business as a foreign corporation
in all jurisdictions where the failure to be so qualified would have an adverse
effect on the Company or its business.
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(b) Corporate Authority. The Company has all necessary corporate power
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to execute, deliver and perform this Agreement subject to, in each instance, the
due authorization of the issuance of the Securities and the taking of all
required steps to effect the same.
(c) Capitalization. The Company's authorized capital stock consists
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of (i) 52,005,095 shares of Common Stock, 5,672,475 of which are outstanding;
(ii) 1,334,000 shares of Class A Preferred Stock, 1,334,000 of which are
outstanding; (iii) 11,800,468 shares of Class B Preferred Stock, 11,320,314 of
which are outstanding; (iv) 21,065,000 shares of Class C Preferred Stock,
21,065,000 of which are outstanding; and (v) 2,000,000 shares of Class D
Preferred Stock, 571,429 of which are outstanding. All outstanding shares of
capital stock are validly issued and outstanding, fully-paid and non-assessable.
Except as contemplated by this Agreement and as set forth on Schedule 4(c)
hereto, there are no outstanding rights of first refusal, warrants, options,
conversion privileges, preemptive rights, or other rights or agreements to
purchase or otherwise acquire or issue any equity securities of the Company.
(d) Subsidiaries. The Company does not presently own, have any
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investment in, or control, directly or indirectly, any Subsidiaries,
corporations, associations or other business entities.
(e) Validity of Securities. The Securities, when issued, sold and
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delivered in accordance with the terms of this Agreement and for the Aggregate
Purchase Price specified in the applicable Sale Notice or Amended Sale Notice,
shall be duly and validly issued, fully-paid and nonassessable. If the
Securities are shares of Preferred Stock, the Common Stock issuable upon
conversion of such Preferred Stock, in accordance with the Company's Charter,
shall be, upon such issuance, duly and validly issued, fully-paid and non-
assessable.
(f) Financial Statements. The Company has made available to the
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Investor the Company's audited financial statements for its most recent fiscal
year and unaudited financial statements for its most recent interim period, in
each case, to the extent available. As of the date of this Agreement, the
financial statements provided are attached hereto as Exhibit C. The annual
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financial statements have been prepared in accordance with GAAP and the interim
financial statements have been prepared in a manner consistent with the annual
financial statements (subject to normal year-end audit adjustments and the
omission of footnotes required by GAAP).
(g) Agreements; Actions.
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(i) Schedule 4(g)(i) hereto sets forth a list of agreements
and proposed agreements between the Company and any of its officers, directors,
Affiliates or any Affiliate thereof
(ii) Except as set forth in Schedule 4(g)(ii) hereto, there are
no agreements,
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instruments or contracts to which the Company is a party or by which it is bound
which involve (A) obligations of, or payments to, the Company in excess of Two-
Hundred Fifty Thousand Dollars ($250,000), (B) the license for commercial
purposes of any patent, copyright, trade secret or other proprietary rights to
or by the Company or (C) any other material agreement.
(iii) Except as set forth in Schedule 4(g)(iii) hereto, the
Company has not (A) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(B) incurred any indebtedness for money borrowed, (C) incurred any other
liabilities individually in excess of One-Hundred Twenty-Five Thousand Dollars
($125,000) or in excess of Two-Hundred Fifty Thousand Dollars ($250,000) in the
aggregate, other than obligations or liabilities of the Company for compensation
under employment, advisor or consulting agreements, (D) made any loans or
advances to any person, other than ordinary advances for travel expenses, (E)
sold, exchanged or otherwise disposed of any of its material assets or rights or
(F) agreed to any of the foregoing.
(h) Litigation. To the Company's knowledge, there are neither any
----------
pending nor threatened suits, legal proceedings, claims or governmental
investigations against or with respect to the Company or its properties or
assets, or that question the validity of this Agreement or the right of the
Company to enter into this Agreement. There is no judgment, decree or order of
any court in effect against the Company and the Company is not in default with
respect to any order of any governmental authority to which the Company is a
party or by which it is bound.
(i) No Conflict with other Instruments; Compliance with Laws. Subject
--------------------------------------------------------
to obtaining authorization of the issuance of the Securities and subject to
Section 9 hereof, the execution, delivery and performance of this Agreement will
not result in any material violation of, be in material conflict with, or
constitute a material default under, with or without the passage of time or the
giving of notice (i) any provision of the Charter or the Bylaws; (ii) any
provision of any judgment, decree or order to which the Company is a party or by
which it is bound; (iii) any material contract, obligation or commitment to
which the Company is a party or by which it is bound; or (iv) any material
statute, rule or governmental regulation applicable to the Company. The Company
is conducting its business in compliance with all material statutes, rules and
governmental regulations applicable to the Company, and has obtained all
licenses, permits and other governmental authorizations required thereby, where
the failure to do so would have a material adverse effect on the Company or its
business.
(j) Title to Properties; Liens and Encumbrances. Except as set forth
-------------------------------------------
in the Company's financial statements or Schedule 4(j) hereto, the Company has
good and marketable title to all of its properties and assets, both real and
personal, and has good title to all of its leasehold interests, in each case
subject to no mortgage, pledge, lien, security interest, conditional sale
agreement, encumbrance or charge.
(k) Confidential and Proprietary Information. Each employee of and
----------------------------------------
consultant to the Company with access to confidential or proprietary
-12-
information has executed a proprietary information agreement obligating such
employee or consultant to hold all of such information in confidence.
(l) No Defaults; Violations or Conflicts. Except as set forth in
------------------------------------
Schedule 4(l) hereto, the Company is not in violation of any term or provision
of the Charter, the Bylaws, or any term or provision of any document
representing indebtedness or any mortgage, indenture, contract, agreement or
judgment which would have a material adverse effect on the Company or its
business.
(m) Insurance. The Company has in effect insurance covering risks
---------
associated with its business in such amounts as are customary in its industry.
(n) Prior Registration Rights. Except as set forth in Schedule 4(n)
-------------------------
hereto, the Company is under no contractual obligation to register under the
Securities Act any of its presently outstanding securities or any shares of
Common Stock into which such securities are convertible.
(o) Full Disclosure. The representations and warranties of the
---------------
Company contained in this Agreement and the answers to the questions provided to
Section 5(b)(i) hereof do not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made herein, in
light of the circumstances under which they were made, not misleading.
(p) Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for any filing required by
federal or state securities laws and except, under certain circumstances, for
filings and notifications under the Xxxx-Xxxxx-Xxxxxx Improvements Act of 1976,
as amended, where applicable.
(q) Corporate Documents. The Charter and the Bylaws of the Company in
-------------------
effect as of the date of this Agreement are in the forms attached hereto as
Exhibits A and B, respectively.
5. Representations and Warranties of the Investor. The Investor hereby
----------------------------------------------
represents and warrants that, as of the date of this Agreement:
(a) Authorization. The Investor has all corporate power to enter into
-------------
this Agreement and to carry out all of the transactions contemplated hereby,
including the purchase of Securities for an aggregate amount of Twenty-Five
Million Dollars ($25,000,000) and in up to six (6) separate transactions. The
execution, delivery and performance of this Agreement by the Investor and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite corporate action on the part of the Investor. This Agreement
constitutes a valid and binding instrument of the Investor, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
-13-
(b) Securities Representations. The Investor will acquire the
--------------------------
Securities for purposes of investment for its own account and not with a view
to, or for resale in connection with, the distribution thereof, as those terms
are used in the Securities Act, and the rules and regulations promulgated
thereunder. The Investor has been advised and acknowledges that it will not be
able to dispose of the Securities, or any interest therein, without first
complying with the relevant provisions of this Agreement, the Securities Act and
any applicable state securities laws. The Investor also understands that the
provisions of Rule 144 promulgated under the Securities Act, permitting routine
sales of securities of certain issuers subject to the terms and conditions
thereof, are not currently available to it with respect to the Securities. The
Investor acknowledges that, except as set forth in this Agreement, the Company
is under no obligation to register the Securities or to take any action to
assist the Investor in complying with the terms and conditions of any exemption
that might be available under the Securities Act or any state securities laws
with respect to sales of the Securities by the Investor in the future.
(i) The Investor believes that, as of the date of this
Agreement, it has received all of the information it considers necessary or
appropriate for deciding whether to purchase the Securities. The Investor
further represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering of
the Securities pursuant to this Agreement and the business, properties,
prospects and financial condition of the Company.
(ii) The Investor represents that: (A) the Investor has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of the Investor's prospective investments in the
Securities; (B) the Investor has the ability to bear the economic risk of its
prospective investments; and (C) the Investor is able, without materially
impairing its financial condition, to hold the Securities for an indefinite
period of time and to suffer complete loss on its investments.
(iii) The Investor is an "accredited investor," as that term is
defined in Rule 501 promulgated under the Securities Act.
(iv) The Investor either is (A) not an "Investment Company," as
that term is defined in the Investment Company Act or (B) excluded from the
definition of an Investment Company under Section 3(c)(1) of the Investment
Company Act.
(v) The Investor acknowledges that the representations,
agreements and acknowledgments set forth above are being given by the Investor
with the understanding that they will be relied upon by the Company and its
board of directors to claim the availability of the exemption from the
registration provisions of the Securities Act contained in Section 4(2) thereof
or Regulation D promulgated thereunder.
-14-
6. Covenants of the Company. The Company hereby covenants that, so long
------------------------
as (x) the Investor owns any shares of Preferred Stock and (y) the Company has
not consummated an IPO, the Company shall furnish to the Investor the financial
statements and reports described in (a) and (b) of this section, such annual
financial statements to be prepared in accordance with GAAP and such interim
financial statements to be prepared in a manner consistent with the annual
financial statements (subject to normal year-end audit adjustments and the
omission of footnotes required by GAAP):
(a) As soon as available, and in any event within one-hundred twenty
(120) days after the end of each fiscal year of the Company, a balance sheet of
the Company as of the end of such fiscal year and related statements of
operations, stockholders' equity and cash flows for such fiscal year, all in
reasonable detail and setting forth in comparative form the figures as of the
end of and for that fiscal year, which financial statements shall have been
audited; and
(b) As soon as available, and in any event within sixty (60) days
after the end of each fiscal quarter of the Company, an unaudited balance sheet
and unaudited statements of operations and cash flows.
7. Covenants of the Investor.
-------------------------
(a) Notification of the Occurrence of a Tranche Event, The Investor
-------------------------------------------------
agrees to promptly notify the Company when it becomes aware of the occurrence of
any Tranche Event other than through the receipt of notice from the Company.
(b) Transfer of Securities.
----------------------
(i) The Investor agrees that it will not Transfer Securities
at any time during any Lock-up Period unless (A) the Investor receives the
express prior written consent of the Company, at the Company's sole discretion
and subject to appropriate Transfer restrictions, (B) the Transfer is a Transfer
to a holder of any of the Company's capital stock and the Transfer takes place
after the Investor provides the Company with prior notice of the Transfer and
before (x) the sale of shares of Common Stock in an IPO and (y) the earlier of
the end of the Term of the Research Program or the delivery by the Investor to
the Company of a notice of termination of the Term of the Research Program, (C)
the Transfer is a Transfer after the end of the Term of the Research Program and
prior to the sale of shares of Common Stock in an IPO to the Company at the
purchase price that a bona fide third party offered to pay the Investor for the
Securities or to the third party if the Company determines not to purchase the
Securities and expresses prior written consent to the Transfer of the Securities
to the third party, which consent shall not be unreasonably withheld, and the
third party agrees to restrictions of Transfer in this Section 7, in a written
agreement reasonably acceptable to the Company, or (D) the Transfer is a
Transfer to the purchaser of all of the outstanding capital stock of the
Investor or all or substantially all of the assets of the Investor, including
every right and interest such entity may have in the Collaboration Agreement, or
to a Subsidiary of the Investor and the Transferee assumes all of the Investor's
obligations, covenants and
-15-
agreements under this Agreement, including the restrictions on Transfer in this
Section 7, in a written agreement reasonably acceptable to the Company. Upon
such a Transfer to a Subsidiary, the Investor agrees to repurchase the
Securities from the Subsidiary immediately prior to a cessation of the
Subsidiary's status as a Subsidiary of the Investor. If any Lock-up Period is in
effect at the time the Collaboration Agreement is terminated pursuant to its
terms, the Lock-up Period shall terminate one year after such termination.
(ii) In addition to Section 7(b)(i), until the end of the
Restriction Period, the Investor agrees that any sales of shares of Common Stock
acquired under this Agreement, or shares of Common Stock obtained upon the
conversion of Preferred Stock acquired under this Agreement, will be in an
amount that does not exceed in any ninety (90) day period the greater of' (i)
two and one-half percent (2 1/2%) of the Investor's ownership of shares of
Common Stock at the time of the sale or (ii) the average weekly reported volume
of trading in shares of Common Stock on all national securities exchanges and/or
reported through the automated quotation system of a registered securities
association during the four calendar weeks preceding the sale except as
otherwise agreed to in writing by the Company.
(iii) The Investor agrees to hold the Securities subject to
all of the applicable provisions of the Securities Act and the Charter and the
Bylaws in effect as of the date of this Agreement.
(iv) Until the first approval of a PLA (as defined in the
Collaboration Agreement) by an Agency (as defined in the Collaboration
Agreement) of a Collaboration Product, the Investor shall give the Company
prompt written notice of any proposed Transfer of the Securities and shall not
proceed with any such proposed Transfer unless otherwise permitted under this
Agreement.
(v) The Investor agrees that certificates representing the
Securities issued to it pursuant hereto may bear the following or a similar
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL
LIMITATION ON THEIR SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION, ENCUMBRANCE,
TRANSFER OR OTHER DISPOSITION DESCRIBED IN THE STOCK PURCHASE AGREEMENT
DATED JULY ___, 1997. IN ADDITION, THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE.
NEITHER THE SHARES NOR ANY INTEREST OR PARTICIPATION IN THE SHARES MAY BE
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER
TRANSFERRED OR DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT, UNLESS, IN THE OPINION
(WHICH SHALL BE IN FORM AND
-16-
SUBSTANCE SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
(c) Confidential Information. The Investor's obligations with respect
------------------------
to disclosure of certain information are set forth in Article 17 of the
Collaboration Agreement.
(d) Agreements with Underwriters. In connection with any public
----------------------------
offering of shares of Common Stock, the Investor agrees to enter into a written
agreement with the underwriter(s) if the managing underwriter(s) demands or
requests such an agreement from the Investor and in such form and containing
such provisions as are required by the managing underwriter(s) (except that such
provisions will not be less favorable to the Investor than the provisions of any
agreements entered into by the managing underwriter(s) with other holders of
securities issued by the Company) to preclude the Investor from directly or
indirectly offering to sell, contracting
-17-
to sell or otherwise disposing of any shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock for a specified
period of time after completion of the public offering.
(e) Acquisitions of Securities of the Company. The Investor agrees
-----------------------------------------
that from the date hereof until the expiration of the Collaboration Agreement
(or, if the Collaboration Agreement is terminated earlier pursuant to its terms,
one year after such termination), it will not, directly or indirectly, acquire,
offer to acquire, agree to acquire, become the beneficial owner of or obtain any
rights in respect of any capital stock of the Company, by purchase or otherwise,
except as contemplated by this Agreement or as otherwise agreed to in writing by
the Company, and except through the acquisition for business purposes unrelated
to the Company of all of the outstanding capital stock or all or substantially
all of the assets of a holder of any of the Company's capital stock.
8. Registration Rights.
-------------------
(a) Piggyback Registration Rights. Subject to Section 7(b)(i) and
-----------------------------
Section 7(b)(ii) hereof, if the Company plans to file a registration statement
under the Securities Act on a Form S-3 to register any shares of Common Stock
for sale by it in an underwritten public offering during the Restriction Period
or for sale by it (except in connection with any dividend reinvestment plan,
stock option plan stock purchase plan, savings or similar plan) or any of its
stockholders at any time after the end of the Restriction Period other than on a
shelf registration statement (the "Piggyback Registration Statement"), the
Company shall provide to the Investor and any Transferee under Section
7(b)(i)(D) (referred to jointly in this Section 8 as the "Investor") hereof the
right to include the shares of Common Stock acquired under this Agreement on the
Piggyback Registration Statement, if the Investor is the stockholder of record
of the shares of Common Stock at such time and is unable to sell any shares of
Common Stock acquired under this Agreement pursuant to Rule 144(k) (or any
successor rule) under the Securities Act by providing the Investor with at least
twenty (20) days notice prior to the effectiveness of such registration
statement. At the written request of the Investor, given within ten (10) days
after receipt of such notice, the Company will use reasonable efforts to cause
all of the shares of Common Stock for which registration shall have been
requested to be included in the Piggyback Registration Statement.
(b) Demand Registration. If the Investor is unable to sell shares of
-------------------
Common Stork within eighteen (18) months after the end of the Restriction Period
pursuant to Rule 144(k) (or a successor rule) under the Securities Act or on a
Piggyback Registration Statement, the Investor shall have the right to require
the Company to file one registration statement under the Securities Act on a
Form S-3, provided such registration form is available to the Company, to
register shares of Common Stock acquired under this Agreement for sale in a
public offering that is not to be made on a continuous or delayed basis pursuant
to Rule 415 (or a successor rule) under the Securities Act and that is expected
to yield net proceeds to the Investor of at least Five Million Dollars
($5,000,000), as specified in a written notice from the Investor to the Company.
-18-
(i) Following the Company's receipt of any notice under this
Section 8(b), the Company shall use its best efforts to register under the
Securities Act, as soon as reasonably practicable, the number of shares of
Common Stock specified by the Investor in such notice (or such lesser number as
the managing underwriter(s) in such offering believes will not unduly jeopardize
the success of the offering); provided, however, that the Company may delay the
filing of the registration statement for as long as
(A) the request for registration pursuant to this Section
8(b) would require the Company to include in the registration statement on the
filing date or on the expected effective date audited financial statements which
are not yet required to be filed with the Commission under the Exchange Act; or
(B) the Company's board of directors reasonably
determines that the disclosure required in the registration statement or the
pricing of the offering would adversely affect the Company or its ability to
engage in a planned registered public offering or in any other planned activity.
(ii) In the event that the Investor makes a demand for
registration as described in this Section 8(b), the Company shall have the right
to register other shares of Common Stock in the registration statement;
provided, however, that such shares shall not be included to the extent provided
-------- -------
in Section 8(f) below, if applicable, and in all other situations, such shares
(other than the Original Registration Stock) shall not be included to the extent
that the Investor determines in good faith that the inclusion of such shares
will interfere with the successful marketing of the Investor's shares to be
included therein; provided, further, that, if the number of shares to be so
-------- -------
included exceeds the number of the Investor's shares included therein, such
registration shall be deemed to be a registration pursuant to Section 8(a)
hereof.
(iii) The managing underwriter(s) for any underwritten public
offering pursuant to this Section 8(b), shall be mutually acceptable to the
Company and the Investor.
(c) In connection with any registration statement prepared pursuant to
this Section 8:
(i) the Company shall:
(A) use its best efforts to prepare and file with the
Commission the registration statement and use its best efforts to cause such
registration statement to become effective as soon as practicable, provided that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by the
Investor, which shall be reasonably acceptable to the Company, and the counsel
selected by any managing underwriter(s) copies of all such documents proposed to
be filed, which documents will be subject to the review of such counsel;
-19-
(B) use its best efforts to prepare and file with the
Commission such amendments and supplements to such registration statement as may
be necessary to comply with the provisions of the Securities Act;
(C) furnish, or instruct the printer to furnish, to the
Investor such number of copies of the registration statement, each amendment and
supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as the Investor
may reasonably request in order to facilitate the disposition of the registered
shares of Common Stock;
(D) use its best efforts to register or qualify the
registered shares of Common Stock under such other securities or blue sky laws
of such jurisdictions as the Investor or the managing underwriter(s) in the
offering reasonably deems appropriate, provided that the Company will not be
required to subject itself to taxation in any such jurisdiction, qualify itself
to do business as a foreign corporation in any such jurisdiction, or consent to
general service of process in any such jurisdiction, where it would not
otherwise be so subject, need to be so qualified or need to so consent but for
this requirement;
(E) use its best efforts to cause all of such registered
shares of Common Stock to be listed on each securities exchange on which
securities of the same class as the registered shares of Common Stock are then
listed;
(F) take all actions Customary for such offerings as the
Investor or any managing underwriter(s) reasonably request in order to expedite
or facilitate the disposition of the registered shares of Common Stock being
sold; and
(G) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any security included in such registration statement for sale
in any jurisdiction, use its best efforts promptly to obtain the withdrawal of
such order, and
(ii) the Investor shall be required to furnish the Company with
all relevant information concerning the proposed method of sale of the shares of
Common Stock, and such other information as may be reasonably required by the
Company properly to prepare and file such registration statement in accordance
with applicable provisions of the Securities Act and the rules and regulations
thereunder. Upon request of the Company, such information shall be furnished by
the Investor in writing.
(d) The Investor shall bear all of its expenses in connection with any
registration statement under this Section 8, including the fees and expenses of
its counsel. The Investor shall also bear its pro rata share of all of the
other expenses in connection with the preparation and filing of any registration
statement under this Section 8, any registration or qualification under the
securities laws of states in which the offering will be made under such
registration statement, any
-20-
filing fee of the National Association of Securities Dealers, Inc. relating to
such offering and any underwriters' or brokers' commission, provided, however,
that the Company shall pay half of the Investor's pro rata share of such other
expenses, except for any brokers' commissions, in an offering that is not
underwritten.
(e) In connection with any public underwritten offering in which the
Investor's shares are registered, the Company and the Investor shall enter into
a written agreement with the managing underwriter(s) in such form and containing
such provisions as are customary in the securities business for such an
arrangement between such managing underwriter(s) and companies of the Company's
size and investment stature, including indemnification.
(f) In the event that the proposed offering under this Section 8 is an
offering by the Company that is, in whole or in part, an underwritten public
offering of shares of Common Stock, and the managing underwriter(s) determines
and advises in writing that the inclusion in the underwritten public offering of
all of the shares of Common Stock owned by the Selling Stockholders would
interfere with the successful marketing (including pricing) of the shares, the
number of the Selling Stockholders' shares to be included in such underwritten
public offering shall be reduced, based upon the number of shares requested by
the Selling Stockholders to be registered in such underwritten public offering
first, pro rata among the holders of Other Shares; second, if necessary, by the
Investor's shares of Common Stock; third, if necessary, pro rata, among the
holders of the Class C Preferred Stock and the Warrant Shares; fourth, if
necessary, pro rata among the holders of the Original Registration Stock; and
lastly, if necessary, among the Company's shares requested by the Company to be
registered.
9. Conditions of the Investor's Obligations to Acquire the Securities.
------------------------------------------------------------------
The obligations of the Investor to acquire the Securities in connection with
each Tranche Event are subject to the following, any of which the Investor may
waive in its discretion:
(a) Opinion of` Counsel. The Company shall provide to the Investor
-------------------
with the Sale Notice or the Amended Sale Notice, as applicable, an opinion of
the Company's counsel, in form and substance reasonably acceptable to the
Investor, that the Securities, when sold and delivered in accordance with this
Agreement, will be duly authorized, validly issued, fully-paid and non-
assessable and, if the Securities are shares of Preferred Stock, the Common
Stock issuable upon conversion of the Preferred Stock, when issued and delivered
upon such conversion in accordance with the Charter, as amended, will be duly
authorized, validly issued, fully-paid and non-assessable.
(b) Representations and Warranties. The Company shall update the
------------------------------
representations and warranties in Section 4 hereof as of the date of the Sale
Notice or the Amended Sale Notice, as applicable.
(c) Securities Laws. The Company shall have complied with the federal
---------------
and state securities laws applicable to the offer and sale of the Securities to
the Investor.
-21-
(d) Compliance Certificate. The Company shall have delivered to the
----------------------
Investor a certificate, dated as of the date of the Sale Notice or the Amended
Sale Notice, as applicable, signed by the Company's President, certifying that
the conditions to be performed by the Company set forth in this Section 9 have
been satisfied.
(e) Certified Documents. There shall have been delivered to the
-------------------
Investor copies of the Charter and the Bylaws (in each case, as amended or
restated through the date of the Sale Notice), certified by the Secretary of the
Company as complete and correct copies thereof as of the date of the Sale Notice
or the Amended Sale Notice, as applicable.
(f) Court Orders. There shall not be in effect any injunction or
------------
restraining order issued by any court of competent jurisdiction in any action or
proceeding against the consummation of the sale and purchase of the Securities
under this Agreement.
(g) Third Party and Governmental Consents and Approvals. The Company
---------------------------------------------------
shall have obtained any third party and governmental consents and approvals
necessary for the consummation of the transactions contemplated hereby.
10. Conditions of the Company's Issuance of Securities upon Receipt of
------------------------------------------------------------------
Investor's Payment Therefor. The obligations of the Company to issue
---------------------------
certificates for the Securities upon receipt of the Aggregate Purchase Price in
connection with each Tranche Event are subject to the following, any of which
the Company may waive in its discretion:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Investor contained in Section 5 shall be true on and as of the
date that payment for the Securities is given to the Company.
(b) Covenants of the Investor. The Investor shall be in compliance
-------------------------
with its covenants in Section 7 hereof.
(c) Third Party and Governmental Consents and Approvals. The Investor
---------------------------------------------------
shall have obtained any third party and governmental consents and approvals
necessary for the consummation of the transactions contemplated hereby.
(d) Compliance Certificates. The Investor shall have delivered to the
-----------------------
Company dated as of the date of the payment of the Aggregate Purchase Price,
signed by an authorized representative of the Investor, certifying that the
conditions set forth in this Section 10 have been satisfied.
11. Post-Sale Covenants of the Company.
----------------------------------
(a) Securities Laws Compliance. The Company shall make any filings
--------------------------
required by the securities laws of any applicable jurisdiction within the
required time period.
-22-
(b) Confidential and Proprietary Information. Unless otherwise
----------------------------------------
determined by the board of directors, the Company shall require all future
officers, directors and employees of the Company and its Subsidiaries to execute
the Company's standard form of proprietary information agreement.
12. Termination and Survival.
------------------------
This Agreement shall terminate upon a termination of the Collaboration
Agreement. Sections 7, 12 and 13(f) of this Agreement shall survive any
termination of this Agreement which results from a termination of the
Collaboration Agreement by the Company for cause pursuant to Section 19.2 of the
Collaboration Agreement as a result of actions taken by the Investor. If the
Collaboration Agreement shall be terminated for any other reason, Sections
7(b)(iii), 7(b)(iv), 7(b)(v), 7(c), 7(d), 8(a), 8(c), 8(d), 8(e), 9(c), 11(a),
12 and 13(f) of this Agreement shall survive such termination.
13. Miscellaneous.
-------------
(a) Existing Ownership of Common Stock and Class B Preferred Stock.
--------------------------------------------------------------
The parties acknowledge and agree that the shares of Common Stock and Class B
Preferred Stock, and the right to acquire shares of Common Stock upon the
conversion of such Class B Preferred Stock, owned by the Investor as of the date
of this Agreement, and any other rights arising as a result of such ownership of
shares of Common Stock or Class B Preferred Stock, are not subject to this
Agreement.
(b) Amendments and Waivers. Except as otherwise provided in this
----------------------
Agreement, any provision hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the Company and the Investor. Any
change, waiver, discharge or termination effected in accordance with this
subsection shall be binding upon the Company and the Investor and upon any
Transferee to which this Agreement or the Securities are Transferred pursuant to
Section 13(d) hereof or Section 7(b) of this Agreement, respectively.
(c) Necessary Action to Effect the Agreement. The parties agree to
----------------------------------------
take all necessary action to effect the transactions contemplated by this
Agreement including making all of the required filings and notifications under
the Xxxx-Xxxxx-Xxxxxx Improvements Act of 1976, as amended, if applicable, and
any other required filings or notices with other governmental agencies Each
party will bear its own expenses associated with any such filings and
notifications.
(d) Transferability. Neither the Investor nor the Company may
---------------
Transfer this Agreement, or any of the rights or obligations hereunder, unless
it is Transferred to the purchaser of all of the outstanding capital stock of
the entity or all or substantially all of the assets of the entity, including
every right and interest such entity may have in the Collaboration Agreement.
The Investor and the Company further agree that, prior to any Transfer of this
Agreement in accordance
-23-
with this Section 13(d), the Investor or the Company, as applicable, will give
written notice to the other party. This Agreement will be binding upon any
Transferees to which this Agreement is Transferred.
(e) Publicity. The parties agree to cooperate with respect to the
---------
issuance of any publicity about the occurrence of a Tranche Event. Within five
(5) Business Days after the Company receives notice from the Investor or
otherwise becomes aware of the occurrence of a Tranche Event, the Company shall
give notice to the Investor of a request for the consent of the Investor to an
announcement, press release or other publicity about the occurrence of a Tranche
Event. The Investor shall advise the Investor whether it consents to the
requested disclosure, which consent may not be unreasonably withheld, within
five (5) Business Days after its receipt of the notice. Notwithstanding the
Investors' failure to consent, the Company shall have the right to announce,
issue a press release or otherwise publicize the occurrence of a Tranche Event
to the extent necessary to comply with securities laws or listing or similar
requirements. Once the Investor has consented to an announcement, press release
or other publicity of the occurrence of a Tranche Event, the announcement, press
release or other publicity must be issued within ten (10) Business Days of such
consent unless otherwise agreed to by the parties and either party may make
disclosures which do not differ materially from the agreed upon disclosure.
(f) Law Governing. This Agreement will be governed by, and construed
-------------
and enforced in accordance with, the internal laws of the State of Delaware.
(g) Notices. Unless otherwise provided, all notices, requests,
-------
demands and other communications required or permitted under this Agreement will
be in writing and will be deemed to have been duly made and received: (i) upon
personal delivery or confirmed facsimile to the party to be notified; (ii) three
(3) Business Days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, addressed as set forth below; or
(iii) one (1) Business Day after deposit for overnight delivery with Federal
Express or another reputable overnight courier, shipping prepaid, addressed as
set forth below:
(i) If to the Company, then to:
GenVec, Inc.
00000 Xxxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attn: President
With a copy to:
Attn: Chief Financial Officer
(ii) If to the Investor, then to:
Xxxxxx-Xxxxxxx Company
-24-
0000 Xxxxxxxx Xxxx
Xxx Xxxxx, Xxxxxxxx 00000
Attn: Vice President and Chairman
Xxxx-Xxxxx Research Division
With a copy to:
Xxxxxx-Xxxxxxx Company
000 Xxxxx Xxxx
Xxxxxx Xxxxxx, XX 00000
Attn: Vice President and General Counsel
Either party may change the address to which communications are to be sent by
giving five (5) Business Days' advance notice of such change of address to the
other party in conformity with the provisions of this Section 13(g).
(h) Headings. The headings in this Agreement are for purposes of
--------
reference only and will not affect the meaning or construction of any of the
provisions hereof
(i) Execution; Counterparts. This Agreement may be executed in any
-----------------------
number of counterparts, each of which will be deemed to be an original as
against any party whose signature appears on such counterpart, and all of which
will together constitute one and the same instrument. This Agreement will become
binding when one or more counterparts of this Agreement, individually or taken
together, bear the signatures of all of the parties to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Stock Purchase Agreement as
of the date first above written.
XXXXXX-XXXXXXX COMPANY
By:
-------------------------------------
Name: Xxxxxxx Wild, Ph.D.
Title: President
Worldwide Pharma Sector
GENVEC
By:
-------------------------------------
Xxxx X. Xxxxxxx, Ph.D..
President and Chief Executive Officer
-25-
Exhibit A
State of Delaware
Office of the Secretary of State
I, XXXXXX X. XXXXX, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"GENVEC, INC.", FILED IN THIS OFFICE ON THE TWENTY-SIXTH DAY OF JUNE, A.D. 1996,
AT 9:05 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Xxxxxx X. Xxxxx
Xxxxxx X. Xxxxx, Secretary of State
RESTATED CERTIFICATE OF INCORPORATION
OF
GENVEC, INC.
The undersigned, Xxxxxx X. X'Xxxxxx, President of Genvec, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The present name of the Corporation is GenVec, Inc.
2. The original Certificate of Incorporation of the Corporation was
filed in the Office of the Secretary of State of the State of Delaware on
December 7, 1992.
3. This Restated Certificate of Incorporation was duly adopted in
accordance with the provisions of Section 245 of the Delaware General
Corporation Law, the Board of Directors having duly adopted resolutions
declaring advisable this Restated Certificate of Incorporation.
4. This Restated Certificate of Incorporation is being filed pursuant to
Section 245 of the Delaware General Corporation Law in order to restate and
integrate the Certificate of Incorporation of the Corporation. This Restated
Certificate of Incorporation does not further amend the provisions of the
Certificate of Incorporation of the Corporation as amended previously, and there
is no discrepancy between those provisions and the provisions of this Restated
Certificate of Incorporation.
5. The Certificate of Incorporation of the Corporation is hereby restated
in its entirety as follows:
-2-
RESTATED CERTIFICATE OF INCORPORATION
OF GENVEC, INC.
FIRST: The name of the Corporation is:
GENVEC, INC.
SECOND: The address of its registered office in the State of Delaware is:
Corporation Trust Center, 0000 Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxx Xxxxxx Xxxxxx,
Xxxxxxxx 00000. The name of its registered agent at such address is: THE
CORPORATION TRUST COMPANY.
THIRD: The nature of the business or purposes to be conducted or
promoted is:
To have unlimited power to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The name and mailing address of the incorporator is as follows:
Name Address
---- -------
Xxxxxxx X. Xxxxx 12th Floor Packard Building
00xx xxx Xxxxxxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, alter or repeal the Bylaws of the Corporation.
SIXTH: Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
SEVENTH:
A. Elimination of Certain Liabilities of Directors. A director of
-----------------------------------------------
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that this shall not exempt a director from liability (i) for
-----------------
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which a director derived an improper personal benefit. If the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on personal
-3-
liability provided herein, shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal of modification.
B. Indemnification and Insurance.
-----------------------------
(1) Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "Proceeding"), by reason of the fact that he or she, or a person
for whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, the rights of
indemnification provided hereby shall continue as theretofore notwithstanding
such amendment unless such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors, administrators and personal
representatives; provided, however, that, except as provided in Section (B)(2)
-----------------
of this Article, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) authorized by
the board of directors of the Corporation.
The right to indemnification conferred in this section shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
-----------------
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall he made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this section or
otherwise. The Corporation may, by action of its board of directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
-4-
(2) Right of Claimant to Bring Suit. A claimant may bring suit
-------------------------------
against the Corporation under Section (B)(1) of this Article only if the
Corporation fails to pay in full within thirty days of its receipt of a written
claim for payment hereunder. If successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim
(including, but not limited to, attorneys' fees). It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct that make it
permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of providing such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(3) Non-Exclusivity of Rights. The right to indemnification
--------------------------
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this section shall not be exclusive of any other
right that any person may have or hereafter acquire under any statute, provision
of the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(4) Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
C. Amendment. Notwithstanding the provisions of this Certificate of
---------
Incorporation and any provisions of the by-laws of the Corporation, no amendment
to this Certificate of Incorporation shall amend, modify or repeal any or all of
this Article SEVENTH unless adopted by the affirmative vote of the consent of
holders of not less than three-fourths of the outstanding shares of stock of the
Corporation entitled to vote in elections of directors, considered for purposes
of this Article as a class.
EIGHTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of
-5-
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
NINTH: The aggregate number of shares which the Corporation shall have
authority to issue is 88,204,563 of which 52,005,095 shall be designated as
Common Stock, par value $0.01 per share ("Common Stock"), 1,334,000 shall be
designated as Class A Convertible Preferred Stock, par value $.01 per share
("Class A Preferred Stock"), 11,800,468 shall be designated as Class B
Convertible Preferred Stock, par value $0.01 per share, ("Class B Preferred
Stock"), 21,065,000 shall be designated as Class C Convertible Preferred Stock,
par value $.01 per share ("Class C Preferred Stock"), and 2,000,000 shall be
designated as Class D Convertible Preferred Stock, par value $.01 per share
("Class D Preferred Stock") (the Class A Preferred Stock, Class B Preferred
Stock, Class C Preferred Stock and Class D Preferred Stock, unless otherwise
indicated, are hereinafter referred to collectively as the "Preferred Stock") .
The following is a statement of the designations, preferences,
limitations and relative rights in respect of the shares of each class of stock
of the Corporation:
A. Common Stock.
------------
(1) Voting Rights. Each holder of record of Common Stock shall
-------------
have the right to one vote for each share of Common Stock standing in the name
of such holder on the books of the Corporation.
(2) Dividends. Subject to the rights of the holders of the
---------
Preferred Stock, each holder of record of Common Stock will be entitled to
dividends in such amounts and at such times as may be declared by the Board of
Directors.
B. Preferred Stock. Except as provided in Section B(5)(d)(i) of
---------------
this Article, each share of Class A Preferred Stock, Class B Preferred Stock,
Class C Preferred Stock and Class D Preferred Stock is identical in all respects
and possesses the same designations, limitations and rights as each other share
of Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock and
Class D Preferred Stock, as the case may be. Except as provided in Sections
B(2)(b), B(3)(a), B(5)(a) and B(5)(d) of this Article, the Class A Preferred
Stock, Class B Preferred Stock, Class C
-6-
Preferred Stock and Class D Preferred Stock are identical in all respects and
possess the same designations, limitations and rights.
(1) Dividends. In the event that the Corporation declares or
---------
pays any dividend on the Common Stock or makes, directly or indirectly, any
other distribution in respect to the Common Stock, the holders of Preferred
Stock shall be entitled to participate with the holders of Common Stock in any
such dividends paid or set aside for payment, such that the holders of Preferred
Stock shall receive, with respect to each share of Preferred Stock, an amount
equal to (a) the dividend payable with respect to each share of Common Stock
multiplied by (b) the number of shares (and fraction of a share, if any) of
Common Stock into which such share of Preferred Stock is convertible as of the
record date for such dividend.
(2) Voting Rights.
-------------
(a) Except as otherwise provided herein or by law, the holders of
Preferred Stock shall have full voting rights and powers, they shall be entitled
to vote on all matters as to which holders of the Common Stock shall be entitled
to vote, they shall vote together with the holders of the Common Stock as a
single class, and they shall be entitled to one vote for each share of Common
Stock which would be held by them if all of their shares of Preferred Stock
would be converted into shares of Common Stock under Section B(5) of this
Article.
(b) Except as otherwise provided herein or by law, the vote or consent
of at least two-thirds of the outstanding shares of the Class C Preferred Stock
voting as a separate class shall be required for the following actions:
(i) any change in the rights, preferences, or privileges of
the Class C Preferred Stock;
(ii) any amendment, repeal or addition of any provision
of or to the By-Laws, if such action would adversely affect the
preferences, rights, privileges or powers of, or restrictions provided for
the benefit of, the Class C Preferred Stock;
(iii) the authorization of any class of equity securities
ranking prior to or having preference over the Class C Preferred
Stock with respect to dividends, redemption or assets of the Corporation;
(iv) the reclassification of any shares of Common Stock
into shares of any class of equity securities ranking prior to or having
preference over the Class C Preferred Stock with respect to dividends,
redemption or assets of the Corporation;
-7-
(v) the merger or consolidation of the Corporation into or
with any other corporation, the sale of all or substantially all of the
Corporation's assets, or the liquidation of the assets of the Corporation,
provided, however, that no such vote or consent under this Section B(2) (b)
-------- -------
(v) shall be required if the aggregate price to be paid to the
Corporation's stockholders in the merger, consolidation, sale or
liquidation is equal to or greater than an amount determined by multiplying
(X) $1.50 per share, as adjusted to reflect any change in the number of
shares of the Corporation's Common Stock as a result of a stock split,
stock dividend, distribution payable in shares of the Corporation's Common
Stock or other reclassification after September 19, 1995, by (y) the number
of outstanding shares of the Corporation's Common Stock (for purposes of
this determination only, a securityholder holding capital stock of the
Corporation convertible into the Corporation's Common Stock shall be
treated as having converted all such convertible stock into the
Corporation's Common Stock at the applicable conversion rate, pursuant to
Section B(5) of this Article, in effect at the time of this determination);
and
(vi) the acquisition by the Corporation of any corporation or
other business entity if such a transaction involves (A) the issuance of
equity securities of the Corporation resulting in the new securityholders
having more than 25 percent of the voting power pursuant to Sections A(1)
and B(2) (a) of this Article or (B) the payment of cash consideration
equivalent to 25% of the product of (x) the sum of the number of shares of
Common Stock and Preferred Stock then outstanding and the number of such
shares underlying options and other rights to acquire such shares
(irrespective of whether such shares, options or other rights are
conditional or unvested) times (y) the then most recent price per share at
which the Corporation sold any shares of Preferred Stock in an offering
that yielded gross proceeds of not less than $5,000,000 to the Corporation.
(c) Whenever holders of the Preferred Stock or Common Stock,
separately or as a single class, are required or permitted to take any action,
such action may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
(3) Rights of Liquidation.
---------------------
-8-
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (any such event being hereinafter
referred to as a "Liquidation"), before any distribution of assets of the
Corporation shall be made to or set apart for the holders of the Common Stock,
the holders of the Preferred Stock shall be entitled to receive payment out of
such assets of the Corporation in an amount per share equal to $0.50 per share
for each share of Class A Preferred Stock held by such holder, $1.00 per share
for each share of Class B Preferred Stock or Class C Preferred Stock held by
such holder and $1.75 per share for each share of Class D Preferred Stock held
by such holder (such amounts being referred to herein as "Liquidation
Preference") plus any declared but unpaid dividends on such shares of Preferred
Stock. If the assets of the Corporation available for distribution to the
holders of the Preferred Stock shall not be sufficient to make in full the
payments required by this Section B(3)(a), such assets shall be distributed
ratably among the holders of the Preferred Stock based upon the aggregate
Liquidation Preferences of the shares of Preferred Stock held by each such
holder.
(b) If the assets of the Corporation available for
distribution to stockholders exceed the aggregate amounts payable pursuant to
Section B(3)(a) of this Article above, the remainder of such assets shall be
distributed to the holders of Preferred Stock and Common Stock on a pro rata
basis, with the amount distributable to the holders of Preferred Stock to be
computed on the basis of the number of shares of Common Stock which would be
held by them if immediately prior to the Liquidation all of the outstanding
shares of such Preferred Stock had been converted into shares of Common Stock
under Section of this Article.
(c) A merger or consolidation involving the Corporation in
which the Corporation is not the surviving entity and a sale, lease or transfer
of all or substantially all of the assets of the Corporation shall, at the
option of holders representing a majority of the Preferred Stock voting as a
single class, be deemed a Liquidation, unless in connection with such
transaction, each holder of Preferred Stock receives a preferred stock having
terms and conditions which are no less favorable than the terms and conditions
of the Preferred Stock held by such holder prior to the transaction.
(d) Notwithstanding the provisions contained in Section
B(3)(c) of this Article above, in the event of a merger or consolidation
involving the Corporation in which the Corporation is not the surviving entity,
or a sale, lease or transfer of all or substantially all of the assets of the
Corporation, in which a holder of Preferred Stock would receive cash and/or
marketable securities (i.e., securities registered under the Securities Act of
----
1933, as amended, at the time of delivery, or securities committed to be so
registered within 60 days after delivery) in an amount less than the aggregate
Liquidation Preference of the shares of Preferred Stock held by such holder,
then holders of a majority of the Preferred Stock then outstanding, voting as a
single class, may elect, in lieu of all other rights under the terms of the
transaction or this Article, to receive an amount equal to their aggregate
Liquidation Preference for such shares of Preferred Stock. If the holders make
such an election, each such holder shall have a priority on such holder's pro
rata portion of all cash and marketable securities received in such transaction
to the extent of the aggregate Liquidation Preference for such holder's shares
of Preferred Stock. Such election shall be made by the holders by
-9-
written notice to the Corporation within 30 days after the date of stockholder
approval of the transaction (or within 30 days after receiving notice of such
transaction from the Corporation if the transaction is not submitted for
stockholder approval).
(e) In the event that the Corporation shall, at any time,
issue any shares of Preferred Stock (i) by stock dividend or any other
distribution upon any stock of the Corporation payable in shares of Preferred
Stock, or (ii) by a subdivision of its shares of outstanding Preferred Stock, by
reclassification or otherwise, the Liquidation Preference then in effect shall
be reduced proportionately, and, in like manner, in the event of any combination
of shares of Preferred Stock, by reclassification or otherwise, the Liquidation
Preference then in effect shall be proportionately increased.
(4) Actions Requiring the Consent of the Holders of the Preferred
-------------------------------------------------------------
Stock. As long as any shares of Preferred Stock remain outstanding, the consent
-----
of the holders of at least a majority of the votes which holders of Preferred
Stock are entitled to cast, given in person or by proxy, either in writing
without a meeting or by vote at a meeting called for such purpose, shall be
necessary for effecting or validating any amendment, alteration or repeal of any
of the provisions of the Certificate of Incorporation or the By-Laws of the
Corporation which (a) increases the number of authorized shares of any class of
capital stock, (b) adversely affects the rights, preferences or powers of any
class of Preferred Stock or of the holders thereof or (c) decreases the required
time for the giving of any notice to which the holders of Preferred Stock may be
entitled.
(5) Conversion.
----------
(a) Right To Convert. A holder of record of any share or
----------------
shares of Class A Preferred Stock shall have the right at any time, at such
holder's option, to convert, without the payment of any additional
consideration, each share of Class A Preferred Stock held by such holder into
that number of fully paid and nonassessable shares of Common Stock as is
determined by dividing (i) .50 by (ii) the Conversion Factor (as defined in
Section B(5)(d) of this Article below) then in effect for the Class A Preferred
Stock. A holder of record of any share or shares of Class B Preferred Stock,
Class C Preferred Stock or Class D Preferred Stock shall have the right at any
time, at such holder's option, to convert, without the payment of any additional
consideration, each share of Class B Preferred Stock, Class C Preferred Stock or
Class D Preferred Stock held by such holder into that number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (X) 1 by (Y)
the Conversion Factor (as defined in Section B(5)(d) of this Article below) then
in effect for the Class B Preferred Stock, Class C Preferred Stock or Class D
Preferred Stock, as applicable; provided, however, that the provisions of
-----------------
B(5)(d)(i) shall not apply to the Conversion Factor for Class D Preferred Stock.
No fractional shares or scrip representing fractional shares shall be issued
upon the conversion of any Preferred Stock. With respect to any fraction of a
share of Common Stock called for upon any conversion after completion of the
calculation of the aggregate number of shares of Common Stock to be issued to
such holder, the Corporation shall pay to such holder an amount in cash equal to
any fractional share to which such holder would be entitled,
-10-
multiplied by the current market value of a
share, as determined in good faith by the Board of Directors of the Corporation.
(b) Mechanics of Conversion. If the holder of shares of
-----------------------
Preferred Stock desires to exercise such right of conversion, such holder must
give written notice to the Corporation (the "Conversion Notice") of the election
by such holder to convert a stated number of shares of Preferred Stock (the
"Conversion Shares") into shares of Common Stock on the date specified in the
Conversion Notice (which date shall not be earlier than the date on which the
Corporation receives the Conversion Notice (the "Conversion Date)), and by
surrender of the certificate or certificates representing such Conversion
Shares. The Conversion Notice shall also contain a statement of the name or
names (with addresses) in which the certificate or certificates for Common Stock
shall be issued. Promptly after the Conversion Date and the surrender of the
Conversion Shares, the Corporation shall issue and deliver, or cause to be
delivered, to the holder of the Conversion Shares or such holder's nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
issuable upon the conversion of such Conversion Shares. Such conversion shall be
deemed to have been effected as of the close of business on the Conversion Date,
and the person or persons entitled to receive the shares of Common Stock
issuable upon conversion shall be treated for all purposes as the holder or
holders of record of such shares of Common Stock as of the close of business on
such date.
(c) Common Stock Reserved. The Corporation shall at all
---------------------
times reserve and keep available out of its authorized but unissued Common
Stock, solely for issuance upon the conversion of shares of Preferred Stock as
herein provided, such number of shares of Common Stock as shall from time to
time be issuable upon the conversion of all of the shares of Preferred Stock at
the time outstanding.
(d) Conversion Factor. The initial conversion factor for
-----------------
the Class A Preferred Stock shall be .50 and the initial conversion factor for
the Class B Preferred Stock, the Class C Preferred Stock and the Class D
Preferred Stock shall be 1, subject to adjustment, in each case, in accordance
with the provisions in this Section B(5)(d), except that the provisions of
B(5)(d)(i) shall not apply to the Conversion Factor for Class D Preferred Stock.
Such respective conversion factors in effect from time to time, as adjusted
pursuant to the applicable provisions of this Section B(5)(d), are referred to
herein as the "Conversion Factor" for the Class A Preferred Stock, the Class B
Preferred Stock, the Class C Preferred Stock or the Class D Preferred Stock, as
applicable. All of the remaining provisions of this Section B(5)(d) shall apply
separately to the respective Conversion Factors in effect from time to time;
provided, however, that the provisions of B(5)(d)(i) shall not apply to the
-----------------
Conversion Factor for Class D Preferred Stock.
(i) In the event that the Corporation shall, at any
time or from time to time, issue or sell any shares of the capital stock of the
Corporation (including treasury shares, but excluding (x) 1,334,000 shares of
Class A Preferred Stock and 21,065,000 shares of Class C Preferred Stock, (y) an
aggregate of 15,805,627 shares of Common Stock and an aggregate of 11,800,468
shares of Class B Preferred Stock that have been issued, have been reserved for
-11-
issuance or will be issued pursuant to options, warrants or other commitments
which have been granted or executed as of December 12, 1995 or will be granted
or executed pursuant to the Corporation's 1993 Stock Incentive Plan, and (z) the
shares of Common Stock issuable upon conversion of the Preferred Stock), then,
immediately upon such issuance or sale, the Conversion Factor shall be reduced
as follows:
(A) The Conversion Factor shall be changed to a
number determined by multiplying the Conversion Factor in effect immediately
prior to such issuance by the following fraction:
A + B
---
C
---------
A + D
wherein:
A = the number of Outstanding Shares (as defined below)
immediately prior to the subject issuance;
B = the aggregate consideration in dollars for the shares
then being issued, expressed as an absolute number;
C = the Conversion Factor in effect immediately prior to
the subject issuance with respect to the applicable
class of Preferred Stock; and
D = the number of shares then being issued.
The applicable Conversion Factor shall be further reduced from time to time
thereafter whenever any shares are so issued or converted for a price per share
lower than the amount of the applicable Conversion Factor, then in effect, as
adjusted prior to that date.
(B) In the event that any shares shall be issued
or sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In the event that any shares shall be
issued for a consideration other than cash, the amount of the consideration
other than cash received by the Corporation shall be deemed to be the fair value
of such consideration, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation in
connection therewith. Whenever shares are issued upon the exercise of warrants,
options or other conversion rights, the consideration received therefor shall
include both the consideration paid upon the issuance and upon the exercise of
such warrant, option or other right.
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(C) In the event that the Corporation shall in
any manner grant (whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase any Common Stock or securities
convertible into Common Stock ("Convertible Securities"), or any options for the
purchase of any Common Stock or Convertible Securities, whether or not such
rights or options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which shares
of Common Stock issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by dividing
(I) the total amount, if any, received or receivable by the Corporation as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Corporation
upon the exercise of such rights or options, or plus, in the case of any
Convertible Securities or rights or options to purchase Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (II) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of such
rights or options) shall be less than the Conversion Factor in effect
immediately prior to the time of the granting of such rights or options, then
the total maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or upon conversion or exchange of all such Convertible
Securities issuable or issuable upon the exercise of such rights or options
shall be deemed to be outstanding as of the date of the granting of such rights
or options and to have been issued for such price per share, with the effect on
the applicable Conversion Factor specified in Section (5)(d)(i) of this Article.
No further adjustment of the applicable Conversion Factor shall be made upon the
actual issue of such Common Stock or upon the actual issue of such Convertible
Securities upon exercise of such rights or options or upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible Securities.
(D) If the purchase price provided for in any
right or option referred to in Section B(5)(d)(i)(C) of this Article, or the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change (other than under
or by reason of provisions designed to protect against dilution), the Conversion
Factor then in effect hereunder shall forthwith be readjusted (increased or
decreased, as the case may be) to the Conversion Factor which would have been in
effect at such time had such rights, options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or conversion rate, as the case may be, at the time initially granted, issued or
sold.
(E) Notwithstanding the foregoing, upon the
consent of the holders of two-thirds of the applicable class of Preferred Stock
affected and then outstanding, if the Conversion Factor for the applicable class
of Preferred Stock, as set forth in this Section B(5)(d)(i) otherwise would be
reduced, no such reduction in the Conversion Factor for the applicable class of
Preferred Stock, as set forth in this Section B(5)(d)(i), shall occur.
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(F) Notwithstanding the foregoing, if any holder
of shares of Preferred Stock is entitled to exercise the preemptive rights (the
"Preemptive Right") set forth in Section 9 of the Second Class C Preferred Stock
Purchase Agreement, dated as of September 19, 1995, or in Schedule 9 of the
Amendment and Waiver Agreement, dated as of September 19, 1995 (collectively,
the "Purchase Agreement") with respect to any "Issuance" (as defined in Section
9.2 of the Purchase Agreement) which would, absent the provisions of this
subsection (F), result in a reduction of the Conversion Factor applicable to
shares of such holder's Preferred Stock pursuant to Section B(5)(d)(i) of this
Article, and if such holder (a "Non-Participating Holder") does not, by exercise
of such holder's Preemptive Right, acquire not less than such holder's
"Proportionate Percentage" (as defined in Section 9.2 of the Purchase Agreement)
of the Issuance, then all of such holder's shares of Class A Preferred Stock,
Class B Preferred Stock and Class C Preferred Stock shall automatically, and
without further action on the part of such holder, be converted effective upon,
subject to and concurrently with consummation of the Issuance (the "Issuance
Date") as follows: each share of Class A Preferred Stock held by such Non-
Participating Holder shall be converted into one share of a newly created series
of preferred stock (having such number of shares as the Board of Directors may
by resolution fix) which such class shall be identical in all respects to the
Class A Preferred Stock, except that the Conversion Factor of such class shall
be fixed immediately prior to the Issuance Date and shall be subject to no
further adjustments pursuant to Section B(5)(d)(i) of this Article; each share
of Class B Preferred Stock held by such Non-Participating Holder shall be
converted into one share of a newly created class of preferred stock (having
such number of shares as the Board of Directors may by resolution fix) which
such class shall be identical in all respects to the Class B Preferred Stock,
except that the Conversion Factor of such class shall be fixed immediately prior
to the Issuance Date and shall be subject to no further adjustments pursuant to
Section B(5)(d)(i) of this Article; and each share of Class C Preferred Stock
held by such Non-Participating Holder shall be converted into one share of a
newly created class of preferred stock (having such number of shares as the
Board of Directors may by resolution fix) which such class shall be identical in
all respects to the Class C Preferred Stock, except that the Conversion Factor
of such class shall be fixed immediately prior to the Issuance Date and shall be
subject to no further adjustments pursuant to Section B(5)(d)(i) of this
Article. The Board of Directors of the Corporation shall take all necessary
actions to designate each such new class. Upon such conversion, the shares of
Class A Preferred Stock, Class B Preferred Stock and Class C Preferred Stock so
converted shall be cancelled and not subject to reissuance, but instead shall be
redesignated by the Board of Directors of the Corporation in accordance with the
terms of this Section B(5)(d)(i)(F).
(ii) Each adjustment in a Conversion
Factor shall be calculated to the nearest tenth of a cent.
(iii) As used in this Section B(5)(d), the
term "Outstanding Shares" shall be deemed to include the number of issued and
outstanding shares of Common Stock, plus the number of shares of Common Stock
issuable upon the conversion of the issued and outstanding shares of Preferred
Stock, but shall not include the new shares of Common Stock then being issued by
the Corporation.
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(iv) In the event that the Corporation
shall, at any time, issue any shares of Common Stock (A) by stock dividend or
any other distribution upon any stock of the Corporation payable in shares of
Common Stock or in shares of Preferred Stock, or (B) by subdivision of its
shares of outstanding Common Stock, by reclassification or otherwise, the
Conversion Factor then in effect shall be reduced proportionately, and, in like
manner, in the event of any combination of shares of Common Stock, by
reclassification or otherwise, the Conversion Factor then in effect shall be
proportionately increased.
(v) If any capital reorganization or
reclassification of the Common Stock of the Corporation, or consolidation or
merger of the Corporation with or into another corporation, or the sale or
conveyance of all or substantially all of its assets to another corporation
shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holders of the Preferred Stock shall thereafter have
the right to receive, in lieu of the shares of Common Stock of the Corporation
immediately theretofore receivable with respect to such shares of Preferred
Stock upon the exercise of their conversion rights, such shares of stock,
securities or assets as would have been issued or payable with respect to or in
exchange for the number of outstanding shares of such Common Stock immediately
theretofore receivable with respect to such shares of Preferred Stock upon the
exercise of such rights had such reorganization, reclassification,
consolidation, merger or sale not taken place. In any such case, appropriate
provision shall he made with respect to the rights and interests of the holders
of the Preferred Stock to the end that such conversion rights (including,
without limitation, provisions for adjustment of the applicable Conversion
Factor) shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise thereof. The Corporation shall not effect any such
consolidation, merger or sale, unless it provides the holders of the Preferred
Stock at least 30 days advance notice thereof, and prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets, shall assume by written instrument, executed and mailed
or delivered to the holders of the Preferred Stock, the obligation to deliver to
such holders the shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to receive upon
conversion of the shares of Preferred Stock held by such holder.
(vi) If any event occurs as to which the
other provisions of this Section B(5)(d) are not strictly applicable, or if
strictly applicable would not fairly protect the conversion rights of the
Preferred Stock in accordance with the intent and principles of such provisions,
then the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such intent and principles, so as to protect such
conversion rights as aforesaid, but in no event shall any such adjustment have
the effect of increasing the applicable Conversion Factor as otherwise
determined pursuant to this Section B(5)(d).
(e) Stock Transfer Taxes. The issuance of stock certificates upon the
--------------------
conversion of the Preferred Stock shall be made without charge to the converting
holder for any
tax in respect of such issuance. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of shares in any name other than that of the holder of
such shares of Preferred Stock converted, and the Corporation shall not be
required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Factor, the Corporation, at its
expense, promptly shall compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Factor at the time in effect for the Preferred Stock, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of such Preferred Stock owned
by such holder.
(g) Notices of Record Date. In the event of any fixing by the
----------------------
Corporation of a record date for the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any shares of
Common Stock or other securities, or any right to subscribe for, purchase or
otherwise acquire, or any option for the purchase of, any shares of stock of any
class or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Preferred Stock at least 30 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(h) Notices. Any notice required by the provisions of this Section
-------
B(5) to be given to the holders of shares of Preferred Stock shall he deemed
given if deposited in the United States mail, first class postage prepaid, and
addressed to each holder of record at such holder's address appearing on the
books of the Corporation.
(6) Mandatory Conversion.
--------------------
(a) The Corporation shall cause the conversion ("Mandatory
Conversion") of all of the shares of Preferred Stock into fully paid and
nonassessable shares of Common Stock, at the conversion rate then in effect,
upon the occurrence of the Corporation's underwritten public offering of its
Common Stock pursuant to a registration statement (other than a registration
statement relating to an offer and sale of securities to employees of, or other
persons providing services to, the Corporation pursuant to an employee or
similar benefit plan, registered on Form S-8 or a comparable or successor form)
filed under the Securities Act of 1933, as amended, which yields to the
Corporation not less than $15,000,000 (before deducting any underwriters' or
-16-
brokers' discounts, fees or commissions) and under which the offering price to
the public is equal to at least $1.50 per share (adjusted for any stock splits,
stock dividends, recapitalizations, mergers, consolidations or similar events
occurring after September 19, 1995) (a "Qualifying Public Offering").
(b) The date ("Mandatory Conversion Date") on which such Mandatory
Conversion shall be deemed to occur is the date on which a closing occurs
pursuant to a Qualifying Public Offering.
(c) On the Mandatory Conversion Date, all rights of the holders of
shares of the Preferred Stock as such holders shall cease except their right to
receive payment of any dividends declared and unpaid to such date; such shares
shall no longer be deemed to be outstanding; and the holders thereof shall on
and after such date be conclusively deemed for all purposes to be holders of the
shares of Common Stock into which their shares of Preferred Stock were
converted.
(d) The Corporation shall promptly give all holders of record of
shares of Preferred Stock written notice of the date that a Qualifying Public
Offering will occur or is anticipated to occur. Such notice shall also specify
the place designated for exchanging the shares of Preferred Stock for shares of
Common Stock. Such notice shall be sent by first class mail, postage prepaid,
to each holder of record of shares of Preferred Stock at such holder's address
as shown in the records of the Corporation. Each holder of shares of Preferred
Stock shall surrender its certificate or certificates for all such shares to the
Corporation or the transfer agent at the place designated in such notice and
shall, upon surrender, receive certificates for the number of shares of Common
Stock to which such holder is entitled.
(e) For the purpose of calculating the conversion ratio of Preferred
Stock into Common Stock in the event of a Mandatory Conversion, such calculation
shall be made in accordance with Section B(5) of this Article.
-17-
IN WITNESS WHEREOF, the undersigned have executed this Restated Certificate
of Incorporation on behalf of the Corporation and have attested such execution
and do verify and affirm, under penalty of perjury, that this Restated
Certificate of Incorporation is the act and deed of the Corporation and that the
facts stated herein are true as of this 19th day of June, 1996.
GENVEC, INC.
By:
--------------------------------
Xxxxxx X. X'Xxxxxx
President
Attest:
By:
--------------------------------
Xxxxxxx X. Xxxxxxxx III
Secretary
(Corporate Seal)
-18-
AMENDED AND RESTATED
BYLAWS OF
GENVEC, INC.
(Amended and Restated as of September 12, 1995)
ARTICLE I
OFFICES
-------
Section 1.1 Registered Office and Registered Agent. The Corporation
--------------------------------------
shall maintain a registered office and registered agent within the State of
Delaware, which may be changed by the Board of Directors from time to time.
Section 1.2 Other Offices. The Corporation may also have offices at
-------------
such other places, within or without the State of Delaware, as the Board of
Directors may from time to time determine.
ARTICLE II
STOCKHOLDERS' MEETINGS
----------------------
Section 2.1 Place of Stockholders' Meetings. Meetings of stockholders
-------------------------------
may be held at such place, either within or without the State of Delaware, as
may be designated by the Board of Directors from time to time. If no such place
is designated by the Board of Directors, meetings of the stockholders shall be
held at the registered office of the Corporation in the State of Delaware.
Section 2.2 Annual Meeting. A meeting of the stockholders of the
--------------
Corporation shall be held in each calendar year, commencing with the year 1993,
at such time as the Board of Directors may determine.
At such annual meeting, there shall be held an election for a Board of
Directors to serve for the ensuing year and until their respective successors
are elected and qualified, or until their earlier resignation or removal.
Subject to the terms of the Corporation's Certificate of Incorporation, the
Board of Directors shall consist of the number of directors determined pursuant
to Section 3.1 hereof, of which the holders of the Corporation's Class A
Convertible Preferred Stock, par value $.01 per share (the "Class A Stock"), the
Corporation's Class B Convertible Preferred Stock, par value $.01 per share (the
"Class B Stock") and the Corporation's Class C Convertible Preferred Stock, par
value $0.01 per share (the "Class C Stock") (the Class A Stock, the Class B
Stock and the Class C Stock being hereinafter collectively referred to as the
"Preferred Stock"), in the aggregate, shall elect at least five directors, of
which Xxxxxxx Medical Ventures 1995 L.P. or its successor limited partnership
("Xxxxxxx") shall be entitled to elect two such directors and each of Prince
Venture Partners III, L.P. ("Prince III") and Genentech, Inc. ("Genentech")
acting individually and Sierra Ventures IV, L.P. ("Sierra IV") and Sierra
Ventures International IV, L.P. ("Sierra International IV") acting in the
aggregate being entitled to elect one director each; provided, however, that if
-------- -------
the ownership of "Preferred Stock" or shares of the common stock of the Company,
par value $0.01 per share (the "Common Stock"), into which such shares of
"Preferred Stock" are converted (collectively, "Securities") by any of
"Xxxxxxx," "Prince III" or "Genentech" individually, or of "Sierra IV" and
"Sierra International IV" in the aggregate, ever becomes less than ten percent
(10%) of the "Common Stock" then outstanding, assuming conversion of all
"Preferred Stock" and issuance of the aggregate maximum number of shares of
"Common Stock" issued, delivered or exchanged therefor and irrespective of
whether any such shares of "Common Stock" or "Preferred Stock" are
-2-
conditional or unvested (the "Director Entitlement Threshold"), then on the date
on which the ownership of "Securities" by any of "Xxxxxxx," "Prince III" or
"Genentech" individually, or of "Sierra IV" and "Sierra International IV" in the
aggregate, falls below the "Director Entitlement Threshold," such applicable
holder or holders of "Preferred Stock" shall no longer be entitled to elect any
particular director and shall only have such rights to exercise the voting power
of the "Preferred Stock" as are set forth in the Corporation's Certificate of
Incorporation; provided, further, that if the Corporation consummates an
-------- -------
underwritten public offering of the Corporation's "Common Stock" pursuant to one
or more registration statements filed under the Securities Act of 1933, as
amended (or any successor statute), yielding gross proceeds to the Corporation
of at least $15,000,000 and under which the offering price to the public is
equal to at least $1.50 per share (adjusted for any stock splits, stock
dividends, recapitalizations, mergers, consolidations or similar events
occurring after September 19, 1995) (a "Qualifying Public Offering"), upon the
closing of the "Qualifying Public Offering," the holders of the "Preferred
Stock" shall not be entitled to elect any particular directors and shall have no
other voting rights with respect to the "Preferred Stock" other than as are set
forth in the Corporation's Certificate of Incorporation; and further provided,
------- --------
that if the director nominated by "Genentech," prior to any "Qualifying Public
Offering" or "Genentech" holding "Securities" in an amount less than the
"Director Entitlement Threshold," is an employee of "Genentech" and if
"Genentech" and the Corporation in good faith and after due and careful
consideration of objective and tangible evidence, agree that the presence of a
"Genentech" employee on the Board substantially, materially and adversely
impedes on an ongoing basis the Corporation's ability to enter into substantial
collaborative agreements with third party biotechnology or pharmaceutical
concerns, then "Genentech" shall be entitled to have an independent individual
-3-
acceptable to "Genentech," but not a "Genentech" employee, elected as the
representative of "Genentech" on the Corporation's Board of Directors during the
period, as described above, in which "Genentech" has such right to nominate a
director.
Section 2.3 Special Meetings. Except as otherwise specifically provided
----------------
by law, special meetings of the stockholders may be called at any time:
(a) By the Board of Directors; or
(b) By the President of the Corporation; or
(c) By the holders of record of not less than 20% of all
the shares outstanding and entitled to vote.
Upon the written request of any person entitled to call a special meeting
and who is entitled to do so under these Bylaws or applicable law, which request
shall set forth the purpose for which the meeting is desired, it shall be the
duty of the Secretary to give prompt written notice of such meeting to be held
at such time as the Secretary may fix, subject to the provisions of Section 2.4
hereof. If the Secretary shall fail to fix such date and give notice within 10
days after receipt of such request, the person or persons calling the meeting
may do so.
Section 2.4 Notice of Meetings and Adjourned Meetings. Written notice
-----------------------------------------
stating the place, date and hour of any meeting and, in the case of special
meetings, the purpose or purposes for which the meeting is called, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting, except as provided in Section
230 of the Delaware General Corporation Law, as amended from time to time (the
"Delaware Code"). Such notice may be given by or at the direction of the person
or persons authorized to call the meeting.
-4-
When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 2.5 Quorum of and Action by Shareholders.
------------------------------------
(a) Unless otherwise provided in the Certificate of
Incorporation of the Corporation (the "Certificate") or in a Bylaw adopted by
stockholders, the presence, in person or by proxy, of stockholders entitled to
cast at least a majority of the votes that all stockholders are entitled to cast
on a particular matter to be acted upon at the meeting shall constitute a
quorum, but in no event shall a quorum consist of less than one-third (1/3) of
the shares entitled to vote at a meeting. If a meeting cannot be organized
because of the absence of a quorum, those present may, except as otherwise
provided by law, adjourn the meeting to such time and place as they may
determine.
(b) Whenever any corporate action is to be taken by vote
of the stockholders of the Corporation at a duly organized meeting, unless
otherwise provided in the Certificate or the Delaware Code, such corporate
action shall be authorized by a majority of the votes cast at the meeting by the
holders of shares entitled to vote thereon.
(c) The stockholders present at a duly organized meeting
can continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.
-5-
(d) In the case of any meeting for the election of
Directors, those stockholders who attend the second of such adjourned meetings,
although less than a quorum as fixed in this Section, shall nevertheless
constitute a quorum for the purpose of electing Directors.
Section 2.6 Voting List; Proxies. The officer who has charge of the
--------------------
stock ledger of the Corporation shall prepare, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Upon the willful neglect or refusal of the Directors to produce such a list
at any meeting for the election of Directors, they shall be ineligible to any
office at such meeting.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy. All proxies shall
be executed in writing and shall be filed with the Secretary of the Corporation
not later than the day on which exercised. No proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period.
Except as otherwise specifically provided by law, all matters coming before
the meeting shall be determined by a vote by shares. All elections of Directors
shall be by written ballot unless
-6-
otherwise provided in the Certificate. Except as otherwise specifically provided
by law, all other votes may be taken by voice unless a stockholder demands that
it be taken by ballot, in which latter event the vote shall be taken by written
ballot.
Section 2.7 Informal Action by Stockholders. Unless otherwise provided
-------------------------------
in the Certificate, any action required to be taken at any annual or special
meeting of stockholders, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders or members,
who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 3.1 Number. The business and affairs of the Corporation shall
------
be managed by or under the direction of a Board of Directors which shall be
composed of not less than five (5) and not more than twelve (12) Directors, the
precise number to be determined from time to time by the Board of Directors.
Section 3.2 Place of Meeting. Meetings of the Board of Directors may be
----------------
held at such place either within or without the State of Delaware, as a majority
of the Directors may from time to time designate or as may be designated in the
notice calling the meeting.
-7-
Section 3.3 Regular Meetings. A regular meeting of the Board of
----------------
Directors shall be held annually, immediately following the annual meeting of
stockholders, at the place where such meeting of the stockholders is held or at
such other place, date and hour as a majority of the newly elected Directors may
designate. At such meeting the Board of Directors shall elect officers of the
Corporation. In addition to such regular meeting, a majority of the Board of
Directors shall have the power to fix, by resolution, the place, date and hour
of other regular meetings of the Board to occur at least once a month and to
convene one meeting a month of the company's executive officers. The Board of
Directors also shall invite the "Primary Investigator" (as defined in that
certain Preferred Stock Purchase Agreement dated as of December 8, 1992, as
Amended and Restated as of May 19, 1993 (as so amended and restated, the
"Purchase Agreement")) to attend any and all meetings of the Board of Directors,
to participate in discussions and express views on matters before the Board, but
without any right to vote; and provided that the "Primary Investigator" shall
--------
withdraw from such meeting upon any discussion of the terms of his engagement or
continuing engagement by the Corporation.
Section 3.4 Special Meetings. Special meetings of the Board of
----------------
Directors shall be held whenever ordered by the President, by a majority of the
members of the executive committee, if any, or by a majority of the Directors in
office. The "Primary Investigator" (as defined in the Purchase Agreement) shall
be invited to attend such special meetings, under the same terms and conditions
as a regular meeting of the Board of Directors as set forth in Section 3.3.
Section 3.5 Notices of Meetings of Board of Directors.
-----------------------------------------
(a) Regular Meetings. No notice shall be required to be
----------------
given of any regular meeting, unless the same be held at other than the time or
place for holding such meetings as fixed in
-8-
accordance with Section 3.3, in which event one day's notice shall be given of
the time and place of such meeting.
(b) Special Meetings. At least one day's notice shall be
----------------
given of the time, place and purpose for which any special meeting of the Board
of Directors is to be held.
Section 3.6 Quorum. A majority of the total number of Directors shall
------
constitute a quorum for the transaction of business, and the vote of a majority
of the Directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors. If there be less than a quorum present, a
majority of those present may adjourn the meeting from time to time and place to
place and shall cause notice of each such adjourned meeting to be given to all
absent Directors.
Section 3.7 Informal Action by the Board of Directors. Any action
-----------------------------------------
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 3.8 Powers.
------
(a) General Powers. The Board of Directors shall have all
--------------
powers necessary or appropriate to the management of the business and affairs of
the Corporation and, in addition to the power and authority conferred by these
Bylaws, may exercise all powers of the Corporation and do all such lawful acts
and things as are not by statute, these Bylaws or the Certificate directed or
required to be exercised or done by the stockholders.
(b) Specific Powers. Without limiting the general powers
---------------
conferred by subparagraph (a) above and the powers conferred by the Certificate
of Incorporation and Bylaws of
-9-
the Corporation, it is hereby expressly declared that the Board of Directors
shall have the following powers:
(i) To confer upon any officer or officers of the
Corporation the power to choose, remove or suspend assistant officers, agents or
servants.
(ii) To appoint any person, firm or corporation to
accept and hold in trust for the Corporation any property belonging to the
Corporation or in which it is interested, and to authorize any such person, firm
or corporation to execute any documents and perform any duties that may be
requisite in relation to any such trust.
(iii) To appoint a person or persons to vote shares of
another corporation held and owned by the Corporation.
(iv) By resolution adopted by a majority of the full
Board of Directors, to designate one or more of its members to constitute an
executive committee which, to the extent provided in such resolution and subject
to the Delaware code, shall have and may exercise the power of the Board of
Directors in the management of the business and affairs of the corporation and
may authorize the seal of the Corporation to be affixed.
(v) By resolution passed by a majority of the whole
Board of Directors, to designate one or more additional committees, each to
consist of one or more Directors, to have such duties, powers and authority as
the Board of Directors shall determine. All committees of the Board of
Directors, including the executive committee, shall have the authority to adopt
their own rules of procedure. Absent the adoption of specific procedures, the
procedures applicable to the Board of Directors shall also apply to committees
thereof.
(vi) To fix the place, time and purpose of meetings of
stockholders.
-10-
(vii) To purchase or otherwise acquire for the
Corporation any property, rights or privileges which the Corporation is
authorized to acquire, at such prices, on such terms and conditions and for such
consideration as it shall from time to time see fit, and, at its discretion, to
pay any property or rights acquired by the Corporation, either wholly or partly
in money or in stocks, bonds, debentures or other securities of the Corporation.
(viii) To create, make and issue mortgages, bonds,
deeds of trust, trust agreements and negotiable or transferable instruments and
securities, secured by mortgage or otherwise, and to do every other act and
thing necessary to effectuate the same.
(ix) To appoint and remove or suspend such
subordinate officers, agents or servants, permanently or temporarily, as it may
from time to time think fit, and to determine their duties, and fix, and from
time to time change, their salaries or emoluments, and to require security in
such instances and in such amounts as it thinks fit.
(x) To determine who shall be authorized on the
Corporation's behalf to sign bills, notes, receipts, acceptances, endorsements,
checks, releases, contracts and documents.
Section 3.9 Compensation of Directors. Compensation of Directors and
-------------------------
reimbursement of their expenses incurred in connection with the business of the
Corporation, if any, shall be as determined from time to time by resolution of
the Board of Directors.
Section 3.10 Removal of Directors by Stockholders. Any individual
------------------------------------
Director may be removed from office without assigning any cause by the
affirmative vote of the holders of a majority of the outstanding shares entitled
to elect such Director. In case any one or more Directors are so removed, new
Directors may be elected at the same time.
-11-
Section 3.11 Resignations. Any Director may resign at any time by
------------
submitting his written resignation to the Corporation. Such resignation shall
take effect at the time of its receipt by the Corporation unless another time be
fixed in the resignation, in which case it shall become effective at the time so
fixed. The acceptance of a resignation shall not be required to make it
effective.
Section 3.12 Vacancies. Except as otherwise set forth in the Certificate,
---------
any vacancies on the Board of Directors, including vacancies resulting from a
removal of Directors under Section 3.10 and newly created directorships
resulting from any increase in the authorized number of Directors, may be filled
by a majority vote of the remaining Directors then in office, although less than
a quorum, or by a sole remaining Director, and each person so elected shall be a
Director until his successor is elected and qualified or until his earlier
resignation or removal.
Section 3.13 Participation by Conference Telephone. Directors may
-------------------------------------
participate in regular or special meetings of the Board by telephone or similar
communications equipment by means of which all other persons participating in
the meeting can hear each other, and such participation shall constitute
presence at the meeting.
ARTICLE IV
OFFICERS
--------
Section 4.1 Election and Office. The Corporations shall have a President,
-------------------
a Secretary and a Treasurer who shall be elected by the Board of Directors. The
Board of Directors may elect such additional officers as it may deem proper,
including a Chairman and Vice Chairman of the Board of Directors, one or more
Vice Presidents, and one or more assistant or honorary officers. Any number of
offices may be held by the same person.
-12-
Section 4.2 Term. The President, Secretary and Treasurer shall each serve
----
for a term of one year and until their respective successors are chosen and
qualified, unless removed from office by the Board of Directors during their
respective tenures. The term of office of any other officer shall be as
specified by the Board of Directors.
Section 4.3 Powers and Duties of the President. Unless otherwise
----------------------------------
determined by the Board of Directors, the President shall have the usual duties
of an executive officer with general supervision over and direction of the
affairs of the Corporation. In the exercise of these duties and subject to the
limitations set forth in the Delaware Code, these Bylaws, and the actions of the
Board of Directors, the President may appoint, suspend and discharge employees,
agents and assistant officers, fix the compensation of all officers and
assistant officers, shall preside at all meetings of the stockholders at which
he or she shall be present, shall, unless there is a Chairman of the Board of
Directors, preside at all meetings of the Board of Directors and, unless
otherwise specified by the Board of Directors, shall be a member of all
committees. The President shall also do and perform such other duties as from
time to time may be assigned to him or her by the Board of Directors. Unless
otherwise designated by the Board of Directors, the President shall be the Chief
Executive Officer of the Corporation.
Section 4.4 Powers and Duties of the Secretary. Unless otherwise
----------------------------------
determined by the Board of Directors, the Secretary shall record all proceedings
of the meetings of the Corporation, the Board of Directors and all committees,
in books to be kept for that purpose, and shall attend to the giving and serving
of all notices for the Corporation. The Secretary shall have charge of the
corporate seal, the certificate books, transfer books and stock ledgers, and
such other books and papers as the Board of Directors may direct. The Secretary
shall perform all other duties ordinarily
-13-
incident to the office of Secretary and shall have such other powers and perform
such other duties as may be assigned to him or her by the Board of Directors.
Section 4.5 Powers and Duties of the Treasurer. Unless otherwise
----------------------------------
determined by the Board of Directors, the Treasurer shall have charge of all the
funds and securities of the Corporation which may come into his or her hands.
When necessary or proper, unless otherwise ordered by the Board of Directors,
the Treasurer shall endorse for collection on behalf of the Corporation checks,
notes and other obligations, and shall deposit the same to the credit of the
Corporation in such banks or depositories as the Board of Directors may
designate and shall sign all receipts and vouchers for payments made to the
Corporation. The Treasurer shall enter regularly, in books of the Corporation
to be kept by him or her for that purpose, a full and accurate account of all
moneys received and paid by him or her on account of the Corporation. Whenever
required by the Board of Directors, the Treasurer shall render a statement of
the financial condition of the Corporation. The Treasurer shall at all
reasonable times exhibit the Corporation's books and accounts to any Director of
the Corporation, upon application at the office of the Corporation during
business hours. The Treasurer shall have such other powers and shall perform
such other duties as may be assigned to him or her from time to time by the
Board of Directors.
Section 4.6 Powers and Duties of the Chairman of the Board of Directors.
-----------------------------------------------------------
Unless otherwise determined by the Board of Directors, the Chairman of the Board
of Directors, if any, shall preside at all meetings of Directors and shall serve
ex officio as a member of every committee of the Board of Directors. The
-- -------
Chairman shall have such other powers and perform such further duties as may be
assigned to him or her by the Board of Directors.
-14-
Section 4.7 Powers and Duties of Vice Presidents and Assistant Officers.
-----------------------------------------------------------
Unless otherwise determined by the Board of Directors, each Vice President and
each assistant officer shall have the powers and perform the duties of his or
her respective superior officer. Vice Presidents and assistant officers shall
have such rank as shall be designated by the Board of Directors and each, in the
order of rank, shall act for such superior officer in his or her absence or
disability or when so directed by such superior officer or by the Board of
Directors. Vice Presidents may be designated as having responsibility for a
specific aspect of the Corporation's affairs, in which event each such Vice
President shall be superior to the other Vice Presidents in relation to matters
within his aspect. The President shall be the superior officer of the Vice
Presidents. The Treasurer and the Secretary shall be the superior officers of
the Assistant Treasurers and Assistant Secretaries, respectively.
Section 4.8 Delegation of Office. The Board of Directors may delegate the
--------------------
powers or duties of any officer of the Corporation to any other officer or to
any Director from time to time.
Section 4.9 Vacancies. The Board of Directors shall have the power to
---------
fill any vacancies in any office occurring from whatever reason.
Section 4.10 Resignations. Any officer may resign at any time by
------------
submitting his or her written resignation to the Corporation. Such resignation
shall take effect at the time of its receipt by the Corporation, unless another
time be fixed in the resignation, in which case it shall become effective at the
time so fixed. The acceptance of a resignation shall not be required to make it
effective.
ARTICLE V
CAPITAL STOCK
-------------
-15-
Section 5.1 Stock Certificates. Shares of the Corporation shall be
------------------
represented by certificates signed by or in the name of the Corporation by (a)
the Chairman or Vice Chairman of the Board of Directors, the President or a Vice
President, and (b) the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, representing the number of shares registered in
certificate form, and may be countersigned by a transfer agent or registrar
other than the Corporation or its employee. Any or all of the signatures on the
share certificates may be facsimiles. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in the Delaware Code, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
-16-
Section 5.2 Determination of Stockholders of Record. The Board of
---------------------------------------
Directors may fix, in advance, a record date to determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action. Such date shall not be less than 10 nor more than 60 days
before the date of any such meeting, nor more than 60 days prior to any other
action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held.
The record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 5.3 Transfer of Shares. Except as provided in Section 5.4,
------------------
transfer of shares shall be made on the books of the Corporation only upon
surrender of the share certificate, duly endorsed and otherwise in proper form
for transfer, which certificate shall be cancelled at the time of the transfer;
no transfer of shares shall be made on the books of this Corporation if such
transfer is in violation of a lawful restriction noted conspicuously on the
certificate.
-17-
Section 5.4 Lost, Stolen or Destroyed Share Certificates. The Corporation
--------------------------------------------
may issue a new certificate of stock in place of any certificate therefore
issued by it, alleged to have been lost, stolen or destroyed, and the
Corporation may require the owner of the lost, stolen, or destroyed certificate,
or his legal representative to give the Corporation a bond sufficient to
indemnify it against claim that may be made against it on account of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
ARTICLE VI
NOTICES
-------
Section 6.1 Contents of Notice. Whenever any notice of a meeting is
------------------
required to be given pursuant to these Bylaws, the Certificate or otherwise, the
notice shall specify the place, day and hour of the meeting; in the case of a
special meeting or where otherwise required by law, the general nature of the
business to be transacted at such meeting; and any other information required by
the Delaware Code.
Section 6.2 Method of Notice. All notices shall be given to each person
----------------
entitled thereto, either personally or by sending a copy thereof by first class
or express mail, postage prepaid, or by telegram (with messenger service
specified), telex or TWX (with answer back received) or courier service, charges
prepaid, or by telecopier, with confirmation of receipt, to such person's
address (or their telex, TWX, telecopier or telephone number) as it appears on
the records of the Corporation, or supplied by such person to the Corporation
for the purpose of notice. If notice is sent by mail, telegraph or courier
service, it shall be deemed to have been given to the person entitled thereto
when deposited in the United States Mail, with the telegraph office or with the
courier service, as the case may be, for delivery to that person or, in the case
of telex, TWX or telecopier, when dispatched.
-18-
If no address for a stockholder appears on the books of the Corporation and such
stockholder has not supplied the Corporation with an address for the purpose of
notice, notice deposited in the United States Mail addressed to such stockholder
care of General Delivery in the city in which the principal office of the
Corporation is located shall be sufficient.
Section 6.3 Waiver of Notice. Whenever notice is required to be given
----------------
under any provision of the Delaware Code, the Certificate or these Bylaws, a
written waiver, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
Directors, or members of a committee of Directors need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS
----------------------------
AND OFFICERS AND OTHER PERSONS
------------------------------
Section 7.1 Indemnification. The Corporation shall have the power to
---------------
indemnify any Director, officer, employee or agent of the Corporation against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him, to the fullest extent now
or hereafter permitted by law in connection with and including, but not limited
to, those instances in which such indemnification, although greater in scope or
degree than that expressly provided by Section 145 of the Delaware Code, as
deemed by a majority of a quorum of
-19-
disinterested Directors (which may consist of only one Director if there is only
one independent Director) or by independent legal counsel, after due
investigation, to be in the best interests of the Corporation, with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, brought or threatened to be brought
against him or her by reason of his or her performance as a Director, officer,
employee or agent of the Corporation, its parent or any of its subsidiaries, or
in any other capacity on behalf of the Corporation, its parent or any of its
subsidiaries. The Board of Directors by resolution adopted in each specific
instance may similarly indemnify any person other than a Director, officer,
employee or agent of the Corporation for liabilities incurred by him or her in
connection with services rendered by him or her for or at the request of the
Corporation, its parent or any of its subsidiaries.
The provisions of this Section shall be applicable to all actions, suits or
proceedings commenced after its adoption, whether such arise out of acts or
omissions which occurred prior or subsequent to such adoption and shall continue
as to a person who has ceased to be a Director, officer, employee or agent or to
render services for or at the request of the Corporation or as the case may be,
its parent, or subsidiaries and shall inure to the benefit of the heirs,
executors and administrators of such a person. The rights of indemnification
provided for herein shall not be deemed exclusive of any other rights to which
any Director, officer, employee or agent of the Corporation may be entitled
under these bylaws, agreement, vote of stockholders or disinterested Directors
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
-20-
Section 7.2 Advances. Expenses (including attorney's fees) incurred by
--------
any officer or Director in defending any civil, criminal, administrative or
investigative action, suit or proceeding, whether threatened, pending or
completed, may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking, by or on behalf of such Director
or officer, to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by the Corporation as authorized by law.
Such expenses including attorney's fees incurred by other employees and agents
may be paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
Section 7.3 Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a Director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the Corporation would have the power
to indemnify him or her against such liability under law.
ARTICLE VII
SEAL
----
The form of the seal of the Corporation, called the corporate seal of the
Corporation, shall be as impressed adjacent hereto. (Form of Seal)
ARTICLE IX
FISCAL YEAR
-----------
-21-
The Board of Directors shall have the power by resolution to fix the fiscal
year of the Corporation. If the Board of Directors shall fail to do so, the
President shall fix the fiscal year.
ARTICLE X
AMENDMENTS
----------
The original or other Bylaws may be adopted, amended or repealed by the
stockholders entitled to vote thereon at any regular or special meeting or, if
the Certificate of Incorporation so provides, by the Board of Directors. The
fact that such power has been so conferred upon the Board of Directors shall not
divest the stockholders of the power nor limit their power to adopt, amend or
repeal Bylaws.
ARTICLE XI
INTERPRETATION OF BYLAWS
------------------------
All words, terms and provisions of these Bylaws shall be interpreted and
defined by and in accordance with the Delaware Code.
-22-
KPMG
The Global Leader
GENVEC, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
KPMG Peat Marwick LLP
Suite 400
0000 Xxxxxxxxxx Xxxxx
XxXxxx, XX 00000-0000
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GenVec, Inc.:
We have audited the accompanying balance sheets of GenVec, Inc. as of December
31, 1996 and 1995, and the related statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GenVec, Inc. as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the.
Company will continue as a going concern. As discussed in note 3 to the
financial statements, the Company has no source of revenue, has incurred
aggregated net losses of $27,604,590 and has insufficient cash flows to sustain
its operations. Such conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
April 11, 1997
1
GENVEC, INC.
Balance Sheets
December 31, 1996 and 1995
================================================================================================
ASSETS 1996 1995
------------ -----------
Current assets:
Cash and cash equivalents $ 5,146,226 13,879,746
Investments (note 4) 2,579,124
Other current assets 268,640 284,689
Total current assets 7,993,990 14,164,435
Property and equipment (note 7):
Equipment 1,566,091 1,492,561
Leasehold improvements 176,311 176,311
Furniture and fixtures 58,256 45,399
1,800,658 1,714,271
Less: Accumulated depreciation and amortization (1,194,228) (690,943)
------------ -----------
Net property and equipment 606,430 1,023,328
------------ -----------
Other assets 37,950 38,464
------------ -----------
$ 8,638,370 15,226,227
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 955,986 463,831
Accrued payroll and related expenses 245,843 182,756
Current portion of capital lease obligation (note 7) 414,529 361,707
------------ -----------
Total current liabilities 1,616,358 1,008,294
Capital lease obligation, less current portion (note 7) 157,729 527,187
Stockholders' equity (notes 6 and 8):
Convertible preferred stock $.01 par value:
Class A, 1,334,000 shares authorized, issued and
outstanding (liquidation preference of $11,320,314) 13,340 13,340
Class B, 11,800,468 shares authorized and 11,320,314
shares issued and outstanding (liquidation preference of
$11,320,314) 113,203 113,203
Class C, 21,065,000 shares authorized, issuing and
outstanding (liquidation preference of $21,065,000) 210,650 210,650
Class D, 2,000,000 shares authorized and 571,429 shares
issued and outstanding in 1996 (liquidation preference of
$1,000,000) 5,714
Common stock, $.01 par value, 52,005,095 and 46,305,095
shares authorized and 5,826,087 and 3,683,141 shares issued
and outstanding in 1996 and 1995, respectively 58,260 36,831
Additional paid-in capital 34,095,613 32,813,151
Accumulated deficit (27,604,590) (19,496,429)
Treasury stock, at cost, 279,069 common shares (27,907)
------------ -----------
Total stockholders' equity 6,864,283 13,690,746
------------ -----------
Commitments (note 7)
$ 8,638,370 15,226,227
============ ===========
See accompanying notes to financial statements.
2
GENVEC, INC.
Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
Class A Class B Class C
Preferred Stock Preferred Stock Preferred Stock
--------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- ---------- ---------- -------- ---------- --------
Balance, December 31, 1993 1,334,000 $13,340 8,750,000 $ 87,500 -- --
Issuance of Class C
convertible
preferred shares, net
of issuance costs of
$______ (note 8) -- -- -- -- 8,700,000 87,000
Repayment of notes
receivable -- -- -- -- -- --
Purchase of Theragen,
Inc. (note 5) -- -- 2,165,696 21,657 -- --
Net loss -- -- -- -- -- --
--------- ---------- ---------- -------- ---------- --------
Balance, December 31, 1994 1,334,000 13,340 10,915,696 109,157 8,700,000 87,000
Issuance of Class C
convertible preferred
shares, net of issuance
costs of $53,698 (note 8) -- -- -- -- 12,365,000 123,650
Issuance of common stock -- -- -- -- -- --
Exercise of options -- -- -- -- -- --
Issuance of stock for
Theragen contingent shares,
net of issuance costs of
$13,335 (note 5) -- -- 404,618 4,046 -- --
Net loss -- -- -- -- -- --
--------- ---------- ---------- -------- ---------- --------
Balance, December 31, 1995 1,334,000 13,340 11,320,314 113,203 21,065,000 210,650
Issuance of Class D
convertible preferred
shares, net of issuance
costs of $8,683 (note 8) -- -- -- -- -- --
Exercise of options -- -- -- -- -- --
Options granted to
consultants -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ---------- ---------- -------- ---------- --------
Balance, December 31, 1996 1,334,000 $13,340 11,320,314 $113,203 21,065,000 $210,650
--------- ---------- ---------- -------- ---------- --------
Class D Treasury
Preferred Stock Common Stock Additional stock
---------------- -------------------- paid in Accumulated -------
Shares Amount Shares Amount capital deficit Amount Total
------- -------- --------- ------- ----------- ----------- ------- ----------
Balance, December 31, 1993 -- -- 1,345,478 $13,455 $ 9,246,543 (3,254,126) -- 6,106,712
Issuance of Class C
convertible preferred
shares, net of issuance
costs of
$______ (note 8) -- -- -- -- 8,583,583 -- -- 8,670,583
Repayment of notes
receivable -- -- 30,000 -- -- 30,000
Purchase of Theragen,
Inc. (note 5) -- -- 1,796,469 17,964 2,329,000 -- -- 2,368,621
Net loss -- -- -- -- -- (8,693,131) -- (8,693,131)
------- -------- --------- ------- ----------- ----------- ------- ----------
Balance, December 31, 1994 3,141,947 31,419 20,189,126 (11,947,257) 8,482,785
Issuance of Class C
convertible preferred
shares, net of issuance
costs of $53,698 (note 8) -- -- -- -- 12,187,652 -- -- 12,311,302
Issuance of common stock -- -- 120,500 1,205 10,845 -- -- 12,050
Exercise of options -- -- 46,092 461 4,577 -- -- 5,038
Issuance of stock for
Theragen contingent shares,
net of issuance costs of
$13,335 (note 5) -- -- 374,602 3,746 420,951 -- -- 428,713
Net loss -- -- -- -- -- (7,549,172) -- (7,549,172)
------- -------- --------- ------- ----------- ----------- ------- ----------
Balance, December 31, 1995 -- -- 3,683,141 36,831 32,813,151 (19,496,429) -- 13,690,746
Issuance of Class D
convertible preferred
shares, net of issuance
costs of $8,683 (note 8) 571,429 5,714 -- -- 985,603 -- -- 991,317
Exercise of options -- -- 2,142,946 21,429 191,799 (27,907) (27,907)
Options granted to
consultants -- -- -- -- 105,060 -- -- 105,060
Net loss -- -- -- -- -- (8,108,161) -- (8,108,161)
------- -------- --------- ------- ----------- ----------- ------- ----------
Balance, December 31, 1996 571,429 $5,714 5,826,087 $58,260 $34,095,613 (27,604,590) (27,907) 6,864,283
See accompanying notes to financial statements
3
GENVEC, INC.
Statement of Operations
Years ended December 31, 1996, 1995, and 1994
=======================================================================================
1996 1995 1994
----------- ----------- -----------
Research revenues (note 6) 698,370 1,005,000 1,000,000
----------- ----------- -----------
Operating expenses:
Research and development 6,077,683 6,499,830 5,645,764
General and administrative 2,947,165 2,025,131 1,605,722
Clinical and regulatory 160,315 - -
Product development 117,335 - -
Purchase of in-process technology (note 5) - 442,078 2,580,798
----------- ----------- -----------
Total operating expenses 9,302,498 8,967,039 9,832,284
----------- ----------- -----------
Loss from operations (8,604,128) (7,962,039) (8,832,284)
----------- ----------- -----------
Other income (expense):
Interest income 571,239 486,435 180,498
Interest expense (75,272) (73,568) (41,345)
----------- ----------- -----------
Total other income 495,967 412,867 139,153
----------- ----------- -----------
Net loss $(8,108,161) (7,549,172) (8,693,131)
=========== ========== ==========
Net loss per share $ (1.71) (2.28) (4.18)
=========== ========== ==========
Shares used for computation 4,730,436 3,311,783 2,078,831
=========== ========== ==========
See accompanying notes to financial statements
4
GENVEC, INC.
Notes to Financial Statements
December 31, 1996 and 1995
================================================================================
(1) ORGANIZATION AND BUSINESS DESCRIPTION
GenVec, Inc. (the Company) was incorporated under the laws of the state of
Delaware on December 7, 1992. The Company is involved in the research and
development of in-vivo gene therapy products, whereby corrective or
therapeutic genes are introduced directly into affected organs and tissues.
The Company's early clinical applications are the development of gene
therapies for cardiovascular disease, cancer and cystic fibrosis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from research and development contracts is recognized when earned
as defined under the terms of the respective contracts. Revenue from
milestone events is recognized when the milestone is achieved. Revenue
recognized in the accompanying statements of operations is not subject to
repayment.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred. Such
costs include proprietary research and development activities and expenses
associated with collaborative research agreements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Capitalized lease assets are
stated at the lower of the present value of the future minimum lease
payments or fair market value at the inception of the lease.
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets which is five years.
Leasehold improvements are amortized using the straight-line method over
the shorter of their estimated useful lives or the term of the leases.
Property and equipment held under capital lease are amortized using the
straight-line method over the lease term, which is 42 months.
5
INCOME TAXES
Income taxes are accounted for in accordance with Financial Accounting
Standards Board Statement No. 109 (Statement 109).
(2) CONTINUED
Under the asset and liability method of Statement 109, deferred tax assets
and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that are expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less, and are stated at market value which
approximates cost. Cash equivalents consist primarily of money market
funds and commercial paper.
INVESTMENTS
The Company's short-term investments, consisting primarily of bonds and
commercial paper, are classified as a held-to-maturity security portfolio
as the Company has both the ability and intent to hold the securities until
maturity. The portfolio is carried at amortized cost which approximates
fair value.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the year.
Common stock equivalents, which consist of convertible preferred stock,
warrants and options, are not included in the calculation as their effect
would be anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued
---------------------------
6
to Employees, and related interpretations. As such, compensation expense
------------
would be recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
---------------------------------------
which permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 also allows entities to continue to apply the provisions of
APB Opinion No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosures of SFAS No.
123.
(3) LIQUIDITY
The accompanying financial statements have been prepared on a going concern
basis which contemplates the continuation of operations, realization of
assets, and liquidation of liabilities in the ordinary course of business.
The Company has incurred aggregate net losses of $27,604,590 and has
terminated its contract with a corporate sponsor which was its sole source
of revenue. The Company has insufficient cash flows to sustain its
operations. Such conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result should the Company be unable to
continue as a going concern.
In a continuing effort to improve the situation, the Company is focusing
its strategy on pursuing corporate partnerships and exploring a variety of
other financing options to raise additional capital. Nevertheless, there
can be no assurance that the Company's efforts will result in positive
effects on the Company's financial condition.
(4) INVESTMENTS
The amortized cost, gross unrealized holding gains and losses and fair
value for held-to-maturity securities by major security type at December
31, 1996 were as follows:
Gross
unrealized
Amortized holding Fair
cost gains (losses) value
--------------------------------------------------------------------------
Classified as investments:
Corporate bonds $1,686,350 15,759 1,702,109
Commercial paper 892,774 (6,537) 886,237
---------- ------ ---------
$2,579,124 9,222 2,588,346
---------- ------ ---------
Classified as cash equivalents:
Corporate bonds $ 601,932 37 601,969
7
Commercial 989,656 - 989,656
---------- ------ ---------
$1,591,588 37 1,591,625
---------- ------ ---------
The above securities all mature in 1997.
(5) PURCHASE OF THERAGEN, INC.
Pursuant to an agreement effective August 8, 1994, the Company acquired
Theragen, Inc., a gene therapy company incorporated under the laws of the
state of Michigan. This acquisition transferred all of Theragen's
technology, know-how and licenses to the Company. The purchase was
effected through an exchange of all shares of Theragen stock outstanding
immediately prior to the acquisition for up to 5,693,147 shares of the
Company's capital stock which is comprised of common stock, Class B
preferred stock and options to purchase common stock. This included
contingent shares of 1,498,200 that were to be issued or vested upon the
achievement of certain milestones. The cost of the acquisition was
$2,580,798 in 1994, which consisted of the fair value of the Company's
capital stock contributed on the purchase date as well as other direct
transaction-related costs. These costs were recorded as purchase of in-
process technology expense since no capitalizable technology was purchased.
The acquisition was accounted for using the purchase method. Accordingly,
the results of operations of the acquired company were included with those
of the Company for periods subsequent to the date of acquisition.
In 1995, the terms for the issuance or vesting of the contingent shares
were modified. Instead of issuing these shares upon the achievement of
certain milestones, shares and options were issued or vested in 1995 in an
amount equal to 55.066 percent of the original issuable contingent shares
in lieu of all contingent rights of former Theragen stockholders. As a
result, shares of stock totaling 779,220 were issued at fair market value,
as determined by the Company's Board of Directors, while options totaling
45,780 were vested, and 83,138 were canceled. The cost of the stock
transaction is deemed to be part of the acquisition cost, and is reflected
in the accompanying statements of operations as purchase of in-process
technology expense.
The following unaudited pro forma results of operations for the year ended
December 31, 1994, give effect to the acquisition of Theragen, Inc. as
though it had occurred on January 1, 1994. The unaudited pro forma results
of operations do not include the nonrecurring charge to operations of
$2,580,798 ($.82 per share) for the costs in excess of net assets acquired
which was recorded as purchase of in-process technology.
Total revenues $ 1,005,000
-----------
Net $(6,926,179)
-----------
Pro forma net loss per share $ (2.20)
-----------
Shares used for computation 3,141,947
-----------
8
The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the purchase been
made at January 1, 1994, or of results which may occur in the future.
(6) RELATED-PARTY TRANSACTIONS
RESEARCH AND DEVELOPMENT AGREEMENT
In May 1993, Genentech Inc., a stockholder owning 334,000 shares of the
Company's Class A preferred stock, and 2,000,000 shares each of the
Company's Class B and Class C preferred stock as of December 31, 1996,
executed a five-year research and development agreement with the Company.
Under this agreement, the Company performed research and development
activities with respect to gene therapy products for cystic fibrosis.
Genentech was required to make certain research and development payments
and certain milestone payments to the Company aggregating up to $12,750,000
in exchange for the right to develop, manufacture, and sell potential
products in the cystic fibrosis field. Contract revenues of $698,370,
$1,000,000 and $1,000,000 were recognized from Genentech in 1996, 1995, and
1994, respectively.
Effective September 12, 1996, the research and development agreement
between the Company and Genentech terminated due to a change in research
focus. In the event of termination, the agreement allows the Company to
require Genentech to purchase additional equity in the Company in an
aggregate amount as defined in the agreement. This transaction, totaling
approximately $474,000 in additional equity, is expected to occur in
1997.
(7) COMMITMENTS
LEASE AGREEMENTS
In January 1994, the Company entered into a capital lease agreement
allowing it to fund the acquisition of up to $1,500,000 of furniture and
equipment purchases. Lease terms of new purchases were 42 months with an
interest rate of 9.6 percent. In connection with this agreement, the
Company granted the lessor warrants to purchase approximately 140,000
shares of Series B preferred stock at a purchase price of $1.00 per share.
Pursuant to this lease agreement, in May 1994, the Company entered into a
sale lease-back transaction whereby it sold and subsequently leased-back
furniture and equipment to which it held title. Additional equipment
purchases have been funded under extensions made to this agreement through
1996.
Included in property and equipment at December 31, 1996 and 1995 are assets
recorded under this agreement of $1,404,620 and $1,288,065, respectively.
Accumulated depreciation and amortization
9
at December 31, 1996 and 1995 includes amounts for the capital lease of
$906,311 and $521,642, respectively.
Future minimum lease payments due under this capital lease at December 31,
1996 are as follows:
1997 $ 450,687
1998 149,321
1999 16,204
---------
Total minimum lease payments 616,212
Less amounts representing interest at 9.6% 43,954
---------
Present value of minimum capital lease payments 572,258
Less current installments 414,529
---------
Obligations under capital lease, net of current installments $ 157,729
---------
In addition to the aforementioned capital lease, the Company leases office
and laboratory space under operating leases which are cancelable at the
Company's discretion with a 30 to 60 day notice. Office and laboratory
rent expense under operating leases for fiscal years 1996, 1995, and 1994
was approximately $167,000, $156,000, and $105,000, respectively.
RESEARCH AND DEVELOPMENT AGREEMENTS
The Company has agreed to provide grants for certain research projects
under agreements with several universities and research organizations.
Under the terms of these agreements, the Company has received exclusive
licenses to the resulting technology. Total grants paid by the Company
were $2,277,000, $2,598,000, and $2,791,000 during 1996, 1995, and 1994,
respectively. The Company has commitments to pay up to approximately
$2,600,000 related to these grants through 1999.
(8) STOCKHOLDERS' EQUITY
CAPITAL CHANGES
Effective in December 1995, the Company amended its Certificate of
Incorporation which effected the authorization of a total of 46,305,095
shares of common stock and 21,065,000 shares of Class C convertible
preferred stock, each having a par value of $.01 per share.
Effective in June 1996, the Company restated its Certificate of
Incorporation which effected the authorization of a total of 52,005,095
shares of common stock and 2,000,000 shares of Class D convertible
preferred stock, each having a par value of $.01 per share.
10
CONVERTIBLE PREFERRED STOCK
In November 1994, the Company issued 8,700,000 shares of Class C
convertible preferred stock in a private placement. In September 1995, the
Company issued an additional 12,365,000 shares of Class C convertible
preferred stock in a private placement. In May 1996, the Company issued
571,429 shares of Class D convertible preferred stock.
Since its inception, the Company has issued 34,290,743 shares of
convertible preferred stock (Class A, B, C, and D) for aggregate cash
consideration of $31,482,000. Preferred stockholders participate in the
dividends declared to common stockholders, if any, in an amount
proportionate to the number of shares of common stock into which the
preferred stock is convertible. Preferred holders are entitled to one vote
for each share of common stock into which the preferred shares can be
converted.
In the event of any voluntary or involuntary liquidation of the
corporation, before any distribution can be made to the holders of common
stock, the preferred stockholders are entitled to receive payment of $.50
for each share of Class A preferred stock, $1 for each share of Class B and
C preferred stock and $1.75 for each share of Class D preferred stock, plus
any declared but unpaid dividends. No dividends were declared for the
years ended December 31, 1996, 1995, and 1994.
Holders of Class A, B, C, and D preferred stock have the right at any time,
at their option, to convert without the payment of additional
consideration, each preferred stock share into an equivalent number of
common stock shares.
Upon the occurrence of an initial public offering (IPO) of company stock
which yields the Company at least $15,000,000 and under which the offering
price to the public is equal to at least $1.50 per share, all preferred
stock shares will convert to common stock shares.
TREASURY STOCK
Outstanding shares of common stock totaling 279,069 were repurchased by the
Company in 1996 at $.10 per share. The shares were purchased from two
employees who left the Company in 1996.
STOCK OPTION PLAN
Options to purchase common stock under the Company's stock option plan are
granted to employees and consultants at prices which approximate fair
market value as determined by the Board of Directors. The options vest
over four years for most employees and a combination of time and milestones
for certain employees and consultants. The exercise and expiration dates of
options are also determined by the Company's Board of Directors.
11
In adopting SFAS No. 123 for options granted to consultants, the total
compensation expense recognized in 1996 for compensation awards to
consultants was $105,060.
The Company applies APB Opinion No. 25 in accounting for its stock option
plan for options granted to employees and accordingly, no compensation
expense has been recognized in the financial statements. Had the Company
determined compensation expense based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net loss would have
been increased to the pro forma amounts indicated below:
1996 1995
----------- ----------
Net loss As reported $(8,108,161) (7,549,172)
----------- ----------
Pro forma $(8,179,600) (7,571,594)
----------- ----------
Loss per common share As reported $ (1.71) (2.28)
----------- ----------
Pro forma $ (1.73) (2.29)
----------- ----------
Pro forma net losses reflect compensation expense under SFAS No. 123 only
for options granted in 1996 and 1995. Therefore, the full impact of
calculating compensation expense for stock options under SFAS No. 123 is
not reflected in the pro forma net loss amounts presented above because
compensation expense is reflected over the options' vesting period and
compensation expense for options granted prior to January 1, 1995 is not
considered.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: dividend yield of 0 percent,
expected volatility of 63 percent, risk free interest rate of 5.8 percent,
and expected life of 4.25 years.
A summary of the status of the Company's stock options as of December 31,
1996, 1995, and 1994 and changes during the period ending on those dates is
presented below:
1996 1995 1994
---------------------------- ---------------------------- --------------------------
Weighted- Weighted- Weighted-
average average average
Shares exercise Shares exercise Shares exercise
(000)'s price (000)'s price (000)'s price
--------- ----------- ---------- ----------- ---------- ----------
Outstanding at beginning
of year 5,093 $ .12 2,254 $ .10 1,542 $ .10
Granted 3,635 0.19 2,989 0.13 712 0.09
Cancelled (1,791) (0.10) (104) (0.03) - -
Exercised (1,863) 0.10 (46) (0.11) - -
------ ------ ----- ------ ----- ------
Outstanding at end of year 5,074 $ 0.18 5,093 $ 0.12 2,254 $ 0.10
Options exercisable at end
12
Options exercisable at end
of year 1,921 $ .15 1,875 $ .10 392 $ .10
Weighted-average fair
value of options
granted during the
year $ .11 $ .05 $ .03
The following table summarizes information about stock options outstanding
at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- ---------------------------
Range Weighted-avg.
of remaining Weighted-avg. Weighted-avg.
exercise prices Number contractual life exercise price Number exercise price
--------------- ------ ---------------- -------------- ------ --------------
$ .01 - .03 54,697 8.82 years $.02 54,697 $.02
.10 3,830,513 8.5 .10 1,600,396 .10
11 - .17 63,783 8.42 .16 45,413 .15
.25 480,000 9.5 .25 52,514 .25
.60 644,999 9.55 .60 167,496 .60
----------- --------- ----------- ---- --------- ----
$ .01 - .60 5,073,992 8.73 $.18 1,920,516 $.15
--------- ---------
(9) INCOME TAXES
A reconciliation of tax credits computed at the statutory federal tax rate
on loss from operations before income taxes to the actual income tax
expense is as follows:
1996 1995 1994
----------- ---------- ----------
Tax provision (credit) computed at the statutory rate $(2,838,000) (2,642,000) (3,043,000)
State income taxes, net of federal income tax provision
(credit) (324,000) (284,000) (244,000)
Purchase of in-process technology - 155,000 903,000
Book expenses not deductible for tax purposes 6,000 5,000 3,000
Research and experimentation tax credit 41,000 (263,000) (241,000)
Change in the beginning of the year valuation
allowance for deferred tax assets allocated to tax 3,086,000 3,032,000 3,168,000
Expected tax benefit of acquired net operating
loss carryforwards - - (582,000)
Other, net 29,000 (3,000) 36,000
----------- ---------- -----------
Income tax expense $ - - -
----------- ---------- -----------
Deferred income taxes reflect the net effects of net operating loss
carryforwards and the temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and
13
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets as of December 31, 1996 and 1995, are as
follows:
1996 1995
----------- ----------
Deferred tax
Net operating loss carryforwards $9,703,000 6,912,000
Research and experimentation tax credit 541,000 581,000
Cumulative effect of using cash basis method of
accounting for income tax purposes 364,000 141,000
Other 41,000 15,000
Property and equipment, principally due to
differences in depreciation 66,000 (20,000)
----------- ----------
Total deferred tax 10,715,000 7,629,000
Valuation allowance (10,715,000) (7,629,000)
----------- ----------
Net deferred tax asset $ - -
----------- ----------
The valuation allowance for deferred tax assets increased approximately
$3,086,000, $3,032,000 and $3,168,000 for the years ended December 31,
1996, 1995, and 1994, respectively.
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $24,880,000 for federal income tax purposes which expire at
various dates through 2011, including $1,493,000 which were acquired from
the purchase of Theragen, Inc. (note 5). The Company also has research and
experimentation tax credit carryforwards of $541,000 at December 31, 1996
which expire through 2011. These carryforwards may be significantly
limited under the Internal Revenue Code as a result of ownership changes
experienced by the Company.
(10) DEFINED CONTRIBUTION PLAN - 401(K)
The Company has a defined contribution plan (the Plan) under Internal
Revenue Code Section 401(k) which became effective on January 1, 1995. All
full-time employees who have completed six months of service and are over
age 21 are eligible for participation in the Plan. Participants may elect
to have up to 15 percent of compensation contributed to the Plan. Under
the Plan, the Company's contributions are discretionary. During the years
ended December 31, 1996 and 1995, no discretionary contributions were made.
14
EXHIBIT B
UNAUDITED
GENVEC, INC.
BALANCE SHEET
AS OF APRIL 30,1997
Current Period Current Period
Actual Budget Variance
-----------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents 3,087,307 2,356,978 730,329
Short term investments 1,296,606 2,579,124 (1,282,518)
Accounts receivable 51,162 103,712 (52,550)
Inventory - - -
Prepaids and other current assets 378,819 164,928 213,891
-----------------------------------------------------------
Total current assets 4,813,894 5,204,742 (390,848)
Property, plant and equipment:
Building and improvements 176,311 176,311 -
Research equipment 1,569,575 1,496,000 73,575
Office equipment 85,260 70,091 15,169
Furniture and fixtures 62,234 58,256 3,978
Production equipment - - -
Assets under financing agreements - - -
Construction In Process - - -
-----------------------------------------------------------
Gross property, plant and equipment 1,893,380 1,800,658 92,722
Accumulated depreciation (1,361,735) (1,327,560) (34,175)
Net property, plant and equipment 531,645 473,098 58,547
Other assets:
Investments - - -
Other long term assets 37,950 37,950 -
Intangible assets - - -
-----------------------------------------------------------
Total other assets 37,950 37,950 -
Total assets 5,383,489 5,715,790 (332,301)
===========================================================
15
GENVEC, INC.
UNAUDITED
BALANCE SHEET
AS OF APRIL 30,1997
Current Period Current Period
Actual Budget Variance
------------------------------------------
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable 234,797 264,011 (29,214)
Payroll liabilities 53,742 54,593 (851)
Accrued expenses 311,379 883,226 (571,847)
Unearned revenue - - -
Current portion of notes payable - - -
Current portion of capital leases 339,344 339,344 -
Deferred taxes - - -
Other current liabilities - - -
------------------------------------------
Total current liabilities 939,262 1,541,174 (601,912)
Long Term Liabilities:
Long term notes payable - - -
Long term capital lease obligations 92,743 92,743 -
Unearned revenue - - -
Deferred taxes - - -
Other long term liabilities - - -
------------------------------------------
Total liabilities 1,032,005 1,633,917 (601,912)
------------------------------------------
Stockholders' equity:
Preferred stock 342,907 342,907
Common stock 58,715 58,260
Additional paid in capital 34,099,703 34,095,613
Treasury stock (27,907) (27,907)
Unrealized gain on investments - -
Retained earnings (deficit) (27,604,590) (27,604,590)
Net profit / (loss) (2,517,344) (2,782,410)
------------------------------------------
Total stockholders' equity 4,351,484 4,081,873 269,611
------------------------------------------
Total liabilities and equity 5,383,489 5,715,790 (332,301)
=========================================
16
GENVEC, INC.
UNAUDITED
COMBINED STATEMENT OF OPERATIONS
FOR THE MONTH ENDED APRIL 30, 1997
Current Current
Period Period Year to Date Year to Date
Actual Budget Variance Actual Budget Variance
-------------------------------------------------------------------------
Revenues:
Product sales -- -- -- -- -- --
Other sales -- -- -- -- -- --
Contract research revenues -- -- -- -- -- --
Royalties, licenses and other -- -- -- -- -- --
revenues
-------------------------------------------------------------------------
Total revenues -- -- -- -- -- --
Cost of sale:
Cost of products sold -- -- -- -- -- --
Costs of other sales -- -- -- -- -- --
Cost of contract research -- -- -- -- -- --
-------------------------------------------------------------------------
Total cost of sales -- -- -- -- -- --
Gross margin -- -- -- -- -- --
-------------------------------------------------------------------------
Operating expenses:
General and administrative 167,710 176,500 8,790 718,170 753,376 35,206
Research and development 465,577 468,924 3,347 1,852,739 2,012,196 159,457
Clinical and regulatory 16,217 36,714 20,497 47,647 98,505 50,858
Product development -- -- -- -- -- --
Manufacturing -- -- -- -- -- --
-------------------------------------------------------------------------
Total operating expenses 649,504 682,138 32,634 2,618,556 2,864,077 245,521
-------------------------------------------------------------------------
Operating income (loss) (649,504) (682,138) 32,634 (2,618,556) (2,864,077) 245,521
Other income and expense:
Interest income 30,372 23,750 6,622 117,853 95,000 22,853
Interest expense 3,740 3,333 (407) 16,641 13,333 (3,308)
Gain (loss) disposal of assets -- -- -- -- -- --
Other income (expense) -- -- -- -- -- --
-------------------------------------------------------------------------
Net other income and expense 26,632 20,417 6,215 101,212 81,667 19,545
Income (loss) before taxes (622,872) (661,721) 38,849 (2,517,344) (2,782,410) 265,066
Provision for income taxes -- -- -- -- -- --
-------------------------------------------------------------------------
Net income (loss) (622,872) (661,721) 38,849 (2,517,344) (2,782,410) 265,066
=========================================================================
17
GENVEC, INC.
UNAUDITED
COMBINED STATEMENT OF OPERATIONS
FOR THE MONTH ENDED APRIL 30, 1997
Current Current Year To Year To
Period Period Date Date
Actual Budget Variance Actual Budget Variance
---------------------------------------------------------------------------------------------------
Cash flows used in operating
activities:
Net loss (622,872) (661,721) 38,849 (2,517,344) (2,782,410) 265,066
Adjustments to reconcile net
loss used in operating
activities:
Depreciation expense 42,259 33,333 8,926 167,507 133,333 34,174
Decrease (increase) in
other current assets (205,424) - (205,424) (161,341) - (161,341)
Decrease (increase) in
other assets - - - - - -
Increase (decrease) in
accounts payable and
accrued expenses (104,546) - (104,546) (601,911) - (601,911)
---------------------------------------------------------------------------------------------------
Net cash used in operating
activities (890,583) (628,388) (262,195) (3,113,089) (2,649,077) (464,012)
---------------------------------------------------------------------------------------------------
Cash flows provided by
(used for) Investing activities:
Maturity (purchase) of
Short Term investments 977,327 - 977,327 1,282,518 - 1,282,518
Purchase of property
and equipment (28,682) - (28,682) (92,722) - (92,722)
Net cash used for
investing activities 948,645 - 948,645 1,189,796 - 1,189,796
---------------------------------------------------------------------------------------------------
Cash flows provided by (used in)
financing activities:
Proceeds from issuance
of stock 927 - 927 4,545 - 4,545
Payments under capital
lease obligations (35,464) (35,464) - (140,171) (140,171) -
---------------------------------------------------------------------------------------------------
Net cash used in financing
activities (34,537) (35,464) 927 (135,626) (140,171) 4,545
---------------------------------------------------------------------------------------------------
Decrease in cash and cash
equivalents 23,525 (668,852) 687,377 (2,058,919) (2,789,248) 730,329
Cash and cash equivalents,
beginning of period 3,063,782 3,020,830 42,952 5,146,226 5,146,226 -
Cash and cash equivalents,
end of period
18
Liabilities in excess of $250,000
Sponsored Research Agreement by and between Cornell University for its
medical college, and the Company, dated as of May 18, 1993, and related Side
Letter Agreement by Cornell University, dated May 18, 1993.
Exclusive License Agreement by and between ARCH Development
Corporation, Xxxx-Xxxxxx Cancer Institute and the Company, effective May 26,
1993, amended January 1, 1994 (currently under renegotiation).
Exclusive License Agreement by and between ARCH Development
Corporation and the Company, effective May 26, 1993 (currently under
renegotiation).
