-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OqrJXTxMifgTsaKyC9F59ec3uPX4PpMFwEeiZRh0cgvvYdVl8KojzvRM77lUNhGg QDqbwiPLSmAu/iyJOvDb5g== 0000912057-00-015627.txt : 20000403 0000912057-00-015627.hdr.sgml : 20000403 ACCESSION NUMBER: 0000912057-00-015627 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 30 FILED AS OF DATE: 20000331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KOSAN BIOSCIENCES INC CENTRAL INDEX KEY: 0001110206 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 943217016 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-33732 FILM NUMBER: 591158 BUSINESS ADDRESS: STREET 1: 3832 BAY CENTER PLACE CITY: HAYWARD STATE: CA ZIP: 94545 BUSINESS PHONE: 5107328400 MAIL ADDRESS: STREET 1: 3832 BAY CENTER PLACE CITY: HAYWARD STATE: CA ZIP: 94545 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 2000 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ KOSAN BIOSCIENCES INCORPORATED (Exact name of Registrant as specified in its charter) CALIFORNIA 8731 94-3217016 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
------------------------ 3832 BAY CENTER PLACE HAYWARD, CA 94545 (510) 732-8400 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ------------------------------ DANIEL V. SANTI, M.D., PH.D. CHAIRMAN AND CHIEF EXECUTIVE OFFICER KOSAN BIOSCIENCES INCORPORATED 3832 BAY CENTER PLACE HAYWARD, CA 94545 (510) 732-8400 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ COPIES TO: BLAIR W. STEWART RICHARD R. PLUMRIDGE ANGELA CORSILLES DARREN R. HENSLEY JASON BRANDWENE PATRICIA A. ELIAS WILSON SONSINI GOODRICH & ROSATI BROBECK, PHLEGER & HARRISON LLP 650 PAGE MILL ROAD 370 INTERLOCKEN BLVD., SUITE 500 PALO ALTO, CA 94304 BROOMFIELD, COLORADO 80021 (650) 493-9300 (303) 410-2000
------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. ------------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If this Form is a post-effective amendment filed pursuant to 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / ------------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED TO BE REGISTERED SHARE PRICE REGISTRATION FEE Common Stock, $0.001 par value.............. shares(1) $ $80,000,000 $21,120
(1) Includes shares which the Underwriters have the option to purchase to cover over-allotments, if any. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a) MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PRELIMINARY PROSPECTUS Subject to completion dated March 31, 2000 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. - -------------------------------------------------------------------------------- Shares [LOGO] Common Stock - ------------------------------------------------------------ This is our initial public offering of shares of common stock. No public market currently exists for our common stock. We expect the public offering price to be between $ and $ per share. We have applied to have our common stock listed on the Nasdaq National Market under the symbol "KOSN." BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF INVESTING IN OUR COMMON STOCK UNDER "RISK FACTORS" BEGINNING ON PAGE 5. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Per Share Total - -------------------------------------------------------------------------------- Public offering price $ $ - -------------------------------------------------------------------------------- Underwriting discounts and commissions $ $ - -------------------------------------------------------------------------------- Proceeds, before expenses, to Kosan $ $ - --------------------------------------------------------------------------------
The underwriters may also purchase up to shares of common stock from us at the public offering price, less the underwriting discounts and commissions, within 30 days from the date of this prospectus. This option may be exercised to cover over-allotments, if any. If the option is exercised in full, the total underwriting discounts and commissions will be $ , and the total proceeds, before expenses, to Kosan will be $ . The underwriters are offering the common stock as set forth under "Underwriting." Delivery of the shares will be made on or about , 2000. Warburg Dillon Read LLC CIBC World Markets Prudential Vector Healthcare a unit of Prudential Securities ARTWORK [DESCRIPTION OF ARTWORK] [Front cover "POLYKETIDE GENE MANIPULATIONS" The art shows 4 cells (arranged vertically or diagonally), each containing a polyketide gene with modules of different color; an arrow leads from one cell to the next indicating a conversion, and each cell has an arrow to a polyketide structure, indicating the production of that polyketide. Each conversion has an explanatory caption by its side. The conversions indicated by color and size changes are heterologous expression, gene manipulation and chemobiosynthesis. Following is the text that will be presented with the artwork: Polyketide Gene Manipulations We have proprietary gene-manipulating technologies that enable the alteration and production of polyketides, an important class of natural products that have yielded many pharmaceuticals. [The captions adjacent to the art are:] HETEROLOGOUS OVER-EXPRESSION. We transfer polyketide genes from their host organisms that produce only small amounts to our genetically modified hosts to allow increased production of polyketides for commercialization. GENE ALTERATION. We change the order of polyketide genes to make specific changes in a polyketide and produce novel analogs. CHEMOBIOSYNTHESIS. We disable an early part of a polyketide gene which allows us to feed chemically prepared fragments into later parts of the polyketide and incorporate them into the polyketide.] PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS." OUR BUSINESS We are a biotechnology company that focuses on the genetic manipulation of an important class of organic, natural molecules known as polyketides. We are using our proprietary gene manipulating technologies to generate a pipeline of potentially high-value pharmaceutical product candidates. Due to their natural bioactivity and many built-in properties, polyketides have been a rich source of pharmaceutical products for many uses, including antibiotics, anticancer drugs, cholesterol-lowering drugs, immunosuppressants and other therapeutics, as well as animal health and agricultural products. Currently, natural or semi-synthetic polyketide pharmaceuticals represent over 20 products industry-wide, with sales exceeding $10 billion per year. We are the leader in the alteration of polyketides through gene manipulations. Polyketides are structurally complex molecules that are not easy to make or modify by chemical means. Using our technologies, we can make and modify polyketides in ways chemists cannot. Our approach mimics, accelerates and expands the evolutionary process that gave rise to this important class of molecules. We use our technologies to: - create novel, improved versions of currently marketed high-value pharmaceuticals; - modify an existing polyketide used in one therapeutic area to create a novel polyketide to be used in another; - transfer polyketide genes from their natural hosts to our optimized hosts to enable large-scale production of the polyketides; and - expand significantly the potential repertoire of natural product libraries to provide a source for the discovery of new product candidates. OUR STRATEGY Our goal is to translate our technologies into a pipeline of high-value drug candidates, and to advance our candidates into clinical trials. Our technology platform has five components: polyketide gene alteration, chemo-biosynthesis, heterologous over-expression, combinatorial biosynthesis and screening libraries. Together, our technologies allow us to modify, create and produce novel polyketides and polyketide libraries. We aim to: - maximize the value and minimize the risk associated with new drug development by focusing on analogs of polyketides with known utility, safety and market potential; - establish collaborative relationships with large pharmaceutical companies to develop our most complex projects through clinical trials and into the market, as well as to prepare and screen our polyketide libraries; and - expand and enhance our enabling technology platform to maintain our leadership position and amplify our capabilities. OUR PRODUCT DEVELOPMENT OPPORTUNITIES We have six primary programs for the discovery and development of novel polyketides for bacterial infections, gastrointestinal motility disorders, mucus hypersecretion, cancer, immunosuppression and nerve regeneration. These programs were selected because they represent opportunities where our technologies could improve upon existing products or fill unmet needs, and because they address very large markets. In infectious disease, we rapidly identified several polyketide antibiotic lead product candidates that are effective against organisms resistant to existing related products. We have developed these candidates in collaboration with The R.W. Johnson Pharmaceutical Research Institute, a Johnson & Johnson company. 2 THIS OFFERING UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES: - THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF OUR PREFERRED STOCK INTO 4,073,573 SHARES OF COMMON STOCK, INCLUDING 804,196 SHARES OF SERIES C ISSUED IN MARCH 2000, UPON THE CLOSING OF THIS OFFERING; - NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION TO PURCHASE UP TO SHARES; AND - OUR REINCORPORATION IN DELAWARE PRIOR TO THE CLOSING OF THIS OFFERING. Common stock offered by us................ shares Common stock to be outstanding after this offering................................ shares(1) Proposed Nasdaq National Market symbol.... KOSN Use of proceeds........................... We intend to use the net proceeds from this offering for advancing our product candidates through preclinical and later-stage development, discovering new product candidates, expanding our technology platform, including through in-licensing opportunities or acquisition of complementary technologies, capital expenditures, working capital, general corporate purposes and possible future acquisitions. See "Use of Proceeds."
- ------------------------ (1) The number of shares of common stock to be outstanding after this offering excludes: - 1,700,000 shares of common stock reserved for issuance under our 1996 Stock Option Plan, including 800,000 shares authorized following December 31, 1999, of which 455,900 shares are subject to outstanding options at December 31, 1999 with a weighted average exercise price of $0.87 per share; - 100,000 shares of common stock reserved for issuance under our 2000 Employee Stock Purchase Plan approved in March 2000; and - 100,000 shares of common stock reserved for issuance under our 2000 Non-Employee Director Stock Option Plan approved in March 2000. Our principal executive offices are located at 3832 Bay Center Place, Hayward, California, 94545. Our phone number is (510) 732-8400. Our website is http://www.kosan.com. We do not intend for the information found on our website to be incorporated into or be a part of this prospectus. 3 SUMMARY FINANCIAL DATA The following tables summarize our financial data, and should be read together with our financial statements and the related notes, the "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The pro forma information contained in the statement of operations data gives effect to the automatic conversion of all convertible preferred stock upon the completion of this offering. The pro forma balance sheet data reflects the sale of 804,196 shares of preferred stock on March 30, 2000 at a price of $31.00 per share, less expenses, and the automatic conversion of all outstanding shares of preferred stock into common stock on a one-to-one basis upon the closing of the offering. The pro forma as adjusted balance sheet data reflects the automatic conversion of our preferred stock into common stock on a one-to-one basis and the sale of shares of our common stock at an assumed price to the public of $ per share, after deducting the underwriting discounts, commissions and estimated offering expenses payable by us, resulting in net proceeds of approximately $ .
YEAR ENDED DECEMBER 31, ------------------------------------------ STATEMENT OF OPERATIONS DATA: 1997 1998 1999 - ----------------------------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenue............................................... $ 287 $ 1,236 $ 5,346 Total operating expenses.................................... 2,379 5,021 10,400 Operating loss.............................................. (2,092) (3,785) (5,054) Net loss.................................................... $(1,994) $(3,267) $(4,401) ======= ======= ======= Historical net income (loss) per share, basic and diluted... $ (1.46) $ (2.30) $ (2.93) ======= ======= ======= Historical weighted average shares outstanding.............. 1,365 1,423 1,503 Pro forma net loss per share................................ $ (0.92) ======= Pro forma weighted average shares outstanding............... 4,772
AS OF DECEMBER 31, 1999 ---------------------------------- PRO FORMA BALANCE SHEET DATA: ACTUAL PRO FORMA AS ADJUSTED - ------------------- -------- --------- ----------- (IN THOUSANDS) Cash, cash equivalents and short-term investments........... $ 2,022 $26,622 Working capital............................................. 750 25,350 Long-term investments....................................... 8,442 8,442 Total assets................................................ 14,157 38,757 Capital lease and debt obligations, less current portion.... 1,591 1,591 Accumulated deficit......................................... (11,593) (11,593) Stockholders' equity........................................ 10,471 35,071
4 RISK FACTORS - -------------------------------------------------------------------------------- YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION. RISKS RELATED TO OUR BUSINESS WE HAVE A HISTORY OF NET LOSSES. WE ARE IN AN EARLY STAGE OF DEVELOPMENT AND WE MAY NEVER SELL PRODUCTS OR BECOME PROFITABLE. We commenced operations in 1996 and are still in an early stage of development. We have not commercialized any products and we have incurred significant losses to date. As of December 31, 1999, we had an accumulated deficit of approximately $11.6 million. If we are ever to obtain revenue from the sales of our products, we must successfully develop, test, obtain regulatory approval for, manufacture, market and sell our products. To date, our revenues have been solely from collaborations and government grants. Our expenses have consisted principally of costs incurred in research and development and from general and administrative costs associated with our operations. We have incurred net losses since our inception, including a net loss of approximately $4.4 million for the year ended December 31, 1999. We expect our expenses to increase and to continue to incur operating losses for at least the next several years as we continue our research and development efforts for our product candidates. The amount of time necessary to successfully commercialize any of our product candidates is long and uncertain and successful commercialization may not occur at all. As a result, we may never become profitable. WE MAY NOT BE SUCCESSFUL IN THE DEVELOPMENT AND COMMERCIALIZATION OF PRODUCTS. Our technologies are new and our product candidates are in the early stage of development. We may not develop products that prove to be safe and effective, meet applicable regulatory standards, are capable of being manufactured at reasonable costs, or can be marketed successfully. Successful products will require significant development and investment, including testing, to demonstrate their safety and efficacy prior to their commercialization. We have not proven our ability to develop and commercialize products. We must conduct a substantial amount of additional research and development before any regulatory authority will approve any of our products. Our research and development and clinical trials may not indicate that our products are safe and effective, in which case regulatory authorities are likely not to approve them. In addition, even if our research and development efforts are successfully completed, our products may not perform in the manner we anticipate, and may not be accepted for use by the public. IF OUR DEVELOPMENT COLLABORATIONS WITH OTHER PARTIES FAIL, THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS WILL BE DELAYED OR STOPPED. Because we do not currently possess the resources necessary to develop and commercialize potential products that may result from our technologies, or the resources to complete any approval processes which may be required for these products, we must enter into collaborative arrangements to develop and commercialize our product candidates. We have entered into a collaborative agreement with The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil Pharmaceutical, Inc., both Johnson & Johnson companies, to fund a research and development program. This agreement expires on December 28, 2000 unless it is extended. If it is not extended or renewed, or if we do not enter into new collaborative agreements, then our revenues will be reduced, and our product candidates may not be developed or commercialized. We have limited or no control over the resources that any collaborator may devote to our product candidates. Our present or future collaborators may not perform their obligations as expected. These collaborators may breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner. Further, our collaborators may elect not to 5 develop product candidates arising out of our collaborative arrangements, fail to comply with government regulations or fail to devote sufficient resources to the development, manufacture, market, or sale of these products. If any of these events occur, then we may not be able to develop our technologies or commercialize our products. We may pursue opportunities in fields that could conflict or compete with those of our collaborators. Moreover, disagreements with our collaborators could develop over rights to our intellectual property. Any conflict or competition with our collaborators could reduce our ability to obtain future collaboration agreements and negatively impact our relationship with existing collaborators, which could reduce our future revenues, and our product candidates may not be developed or commercialized. OUR POTENTIAL PRODUCTS ARE IN AN EARLY STAGE OF DEVELOPMENT AND SUBSTANTIAL ADDITIONAL EFFORT WILL BE NECESSARY FOR DEVELOPMENT AND COMMERCIALIZATION. All of our product candidates are in an early stage of development and will require the commitment of substantial resources to move them towards commercialization. All of the potential proprietary products that we are currently developing will require extensive preclinical and clinical testing before we can submit any application for regulatory approval. Before obtaining regulatory approvals for the commercial sale of any of our products, we must demonstrate through preclinical testing and clinical trials that our product candidates are safe and effective in humans. We have not commenced clinical testing of any of our potential products, nor have we submitted any application to test any potential products in humans. Conducting clinical trials is a lengthy, expensive and uncertain process. Completion of clinical trials may take several years or more. The length of time generally varies substantially according to the type, complexity, novelty and intended use of the product candidate. Our clinical trials, when commenced, may be suspended at any time if we or the U.S. Food and Drug Administration, or FDA, believe the patients participating in our studies are exposed to unacceptable health risks. We may encounter problems in our studies which will cause us or the FDA to delay or suspend the studies. Our commencement and rate of completion of clinical trials may be delayed by many factors, including: - ineffectiveness of the study compound, or perceptions by physicians that the compound is not effective for a particular indication; - inability to manufacture sufficient quantities of compounds for use in clinical trials; - failure of the FDA to approve our clinical trial protocols; - slower than expected rate of patient recruitment; - unforeseen safety issues; or - government or regulatory delays. If any future clinical trials are not successful, our business, financial condition and results of operations will be harmed. OUR POTENTIAL THERAPEUTIC PRODUCTS ARE SUBJECT TO A LENGTHY AND UNCERTAIN REGULATORY PROCESS. IF OUR POTENTIAL PRODUCTS ARE NOT APPROVED, THEN WE WILL NOT BE ABLE TO COMMERCIALIZE THESE PRODUCTS. The FDA must approve any therapeutic product before it can be marketed in the U.S. Before we can file a new drug application or biologics license application with the FDA, the product candidate must undergo extensive testing, including animal and human clinical trials, which can take many years and require substantial expenditures. Data obtained from such testing are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. In addition, changes in regulatory policy for product approval during the period of product development and regulatory agency review of each submitted new drug application or biologics license application may cause delays or rejections. The regulatory process is expensive and time consuming. 6 Because our product candidates involve the application of new technologies and may be based upon new therapeutic approaches, they may be subject to more rigorous review by government regulatory authorities, and government regulatory authorities may grant regulatory approvals more slowly for our products than for products using more conventional technologies. We have not conducted any clinical trials for any potential products nor have we submitted any applications with the FDA or any other regulatory authority to test any potential products in humans or to market any product candidate. Neither we nor any of our collaborators may be able to conduct clinical testing or obtain the necessary approvals from the FDA or other regulatory authorities to market our products. The regulatory agencies of foreign governments must also approve any therapeutic products we may develop before the products can be sold in those countries. Even after investing significant time and resources, we may not obtain regulatory approval for our products. If we do not receive regulatory approval, we cannot sell the product. Even if we receive regulatory approval, this approval may place limitations on the indicated uses for which we can market a product. Further, once regulatory approval is obtained, a marketed product and its manufacturer are subject to continual review, and discovery of previously unknown problems with a product or manufacturer may result in restrictions on the product, manufacturer and manufacturing facility, including withdrawal of the product from the market. In certain countries, regulatory agencies also set or approve prices. EVEN IF PRODUCT CANDIDATES EMERGE SUCCESSFULLY FROM CLINICAL TRIALS, WE MAY NOT BE ABLE TO SUCCESSFULLY MANUFACTURE, MARKET AND SELL THEM. None of our product candidates has been developed sufficiently or been approved for clinical trials. If successful product candidates emerge from clinical trials, we will either commercialize products resulting from our proprietary programs directly or through licensing to other companies. We have no experience in manufacturing and marketing, and we currently do not have the resources or capability to manufacture, market and sell our products on a commercial scale. For us to commercialize products directly, we would need to develop or obtain through outsourcing arrangements the capability to manufacture, market, and sell products. We currently do not have any agreements for the manufacture, marketing, or sale of any of our products and we may not be able to enter into such agreements on commercially reasonable terms or at all. If we are unable to successfully commercialize products resulting from our proprietary research efforts, then we will continue to incur losses. ANY INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGIES COULD HARM OUR COMPETITIVE POSITION. Our success will depend in part on our ability to obtain patents and maintain adequate protection of other intellectual property for our technologies and products in the United States and other countries. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate our competitive advantage. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these foreign countries. The patent positions of biotechnology companies, including our patent position, involve complex legal and factual questions and, therefore, validity and enforceability cannot be predicted with certainty. Patents may be challenged, deemed unenforceable, invalidated or circumvented. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. We will apply for patents covering both our technologies and product candidates as we deem appropriate. However, we may fail to apply for patents on important technologies or products in a timely fashion or at all, and in any event, the applications we do file may be challenged and may not result in issued patents. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore, others may independently develop similar or alternative technologies or design around 7 our patented technologies. In addition, others may challenge or invalidate our patents, or our patents may fail to provide us with any competitive advantages. If the use or validity of any of our patents is ever challenged, resulting in litigation or administrative proceedings, we would incur substantial costs and the diversion of management in defending the patent. In addition, we generally do not control the patent prosecution of technology that we license from others. Accordingly, we are unable to exercise the same degree of control over this intellectual property as we would over technology we own. We rely upon trade secret protection for our confidential and proprietary information. We have taken measures to protect our proprietary information. These measures may not provide adequate protection for our trade secrets or other proprietary information. We seek to protect our proprietary information by entering into confidentiality agreements with employees, collaborators, and consultants. Nevertheless, employees, collaborators, or consultants may still disclose our proprietary information, and we may not be able to meaningfully protect our trade secrets. In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to our trade secrets. LITIGATION OR OTHER PROCEEDINGS OR THIRD-PARTY CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT WOULD REQUIRE US TO SPEND TIME AND MONEY AND COULD PREVENT US FROM COMMERCIALIZING PRODUCTS. Our commercial success depends in part on not infringing the patents and proprietary rights of third parties and not breaching any licenses that we have entered into with regard to our technologies and products. Others have filed patent applications and issued patents, and in the future are likely to continue to file patent applications and issue patents, claiming genes or gene fragments which we may wish to use with our technologies and products that are similar to products developed with the use of our technologies. If we wish to use the claimed technology in issued and unexpired patents, then we may need to obtain a license from the third party, enter into litigation, or incur the risk of litigation. The biotechnology industry is characterized by extensive litigation regarding patents and other intellectual property rights. We cannot be sure that other parties have not been issued relevant patents that could affect our ability to obtain patents or to operate as we would like to. We are aware of patents and published patent applications that, if valid, and if we are unsuccessful in circumventing or acquiring the rights to these patents, may block our ability to commercialize products. Third parties may sue us in the future to challenge our patent rights or claim infringement of their patents. An adverse determination in litigation to which we may become a party could subject us to significant liabilities to third parties, require us to license disputed rights from third parties or require us to cease using the disputed technology. We are aware of a significant number of patents and patent applications relating to aspects of our technologies and families of compounds filed by, and issued to, third parties. If any of our competitors have filed patent applications or have been granted patents claiming inventions also claimed by us, we may have to participate in an interference proceeding declared by the relevant patent regulatory agency to determine priority of invention and, thus, the right to a patent for these inventions in the U.S. Such a proceeding could result in substantial cost to us even if the outcome is favorable. Even if successful on priority grounds, an interference may result in loss of claims based on patentability grounds raised in the interference. Although patent and intellectual property disputes in the biotechnology area are often settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, we cannot be certain that the necessary licenses would be available to us on satisfactory terms, if at all. Third parties may obtain future patents and claim that the use of our technologies infringes these patents or that we are employing their proprietary technology without authorization. We could incur substantial costs and diversion of management and technical personnel in defending ourselves against any of these claims or enforcing our patents against others. Furthermore, parties making claims against 8 us may be able to obtain injunctive or other equitable relief which could effectively block our ability to further develop, commercialize, and sell products, and could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to: - pay damages; - stop using our products or methods; - develop non-infringing products or methods; and - obtain one or more licenses from third parties. We may not be able to obtain these licenses at a reasonable cost, if at all. In that event, we could encounter substantial delays in product introductions while we attempt to develop alternative methods or products, which we may not be able to accomplish. Litigation or failure to obtain licenses could prevent us from commercializing available products. MANY POTENTIAL COMPETITORS WHO HAVE GREATER RESOURCES AND EXPERIENCE THAN WE DO MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAKE OURS OBSOLETE. The biotechnology industry is characterized by rapid technological change, and the area of gene and product research is a rapidly evolving field. Our future success will depend on our ability to maintain a competitive position with respect to technological advances. Rapid technological development by others may result in our products and technologies becoming obsolete. We face, and will continue to face, intense competition from organizations such as large biotechnology and pharmaceutical companies, as well as academic and research institutions and government agencies, that are pursuing competing technologies for modifying DNA. These organizations may develop technologies that are superior alternatives to our technologies. Further, our competitors in the polyketide gene engineering field may be more effective at implementing their technologies to develop commercial products. Some of these competitors have entered into collaborations with leading companies within our target markets to produce polyketides for commercial purposes. Any products that we develop through our technologies will compete in multiple, highly competitive markets. Many of the organizations competing with us in the markets for such products have greater capital resources, research and development and marketing staffs, facilities and capabilities, and greater experience in modifying DNA, obtaining regulatory approvals, and product manufacturing and marketing. Accordingly, our competitors may be able to develop technologies and products more easily, which would render our technologies and products and those of our collaborators obsolete and noncompetitive. IF THE PUBLIC DOES NOT ACCEPT GENETICALLY ENGINEERED PRODUCTS, WE WILL HAVE LESS DEMAND FOR OUR PRODUCTS. The commercial success of our potential products will depend in part on public acceptance of the use of genetically engineered products including drugs, plants, and plant products. Our product candidates are derived from genetically engineered cells and may not gain public acceptance. Negative public reaction to genetically modified organisms and products could result in greater governmental regulation of genetic research and resulting products, including stricter labeling requirements, and could cause a decrease in the demand for our products. The subject of genetically modified organisms has received negative publicity in the United States, Europe, and many other countries throughout the world. The adverse publicity could lead to greater regulation and trade restrictions on imports of genetically altered products. As a result of such adverse 9 publicity, genetic research and resulting products could be subject to greater domestic regulation and could cause a decrease in the demand for our products. IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS, WE MAY NOT BE ABLE TO SUPPORT OUR OPERATIONS. Based on our current plans, we believe our cash, cash equivalents and investments, together with the net proceeds of this offering, will be sufficient to fund our operating expenses and capital requirements through at least the next 24 months. However, the actual amount of funds that we will need during or after the next 24 months will be determined by many factors, including those discussed in this section. If additional funds are required and we are unable to obtain them on terms favorable to us, we may be required to delay, scale back or eliminate some or all of our research and development programs or to license third parties to develop or market products or technologies that we would otherwise seek to develop or market ourselves. If we raise additional funds by selling additional shares of our capital stock, the ownership interest of our stockholders will be diluted. WE MAY ENCOUNTER DIFFICULTIES IN MANAGING OUR GROWTH, WHICH COULD INCREASE OUR LOSSES. We have experienced a period of rapid and substantial growth that has placed, and if this growth continues will further place, a strain on our human and capital resources. If we are unable to manage this growth effectively, then our losses could increase. The number of our employees increased from 21 on December 31, 1997 to 55 on March 30, 2000. Our ability to manage our operations and growth effectively requires us to continue to expend funds to improve our operational, financial, and management controls, reporting systems and procedures and to attract and retain sufficient numbers of talented employees. If we are unable to successfully implement improvements to our management information and control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then management may receive inadequate information to manage our day-to-day operations. IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL PERSONNEL, THEN WE MAY BE UNABLE TO DISCOVER AND DEVELOP OUR PRODUCTS. We are highly dependent on the principal members of our management and scientific staff, such as our two co-founders, the loss of whose services would adversely impact the achievement of our objectives. Although we maintain and are the beneficiary of $1.0 million key-man life insurance policies for the lives of each of our two co-founders, Dr. Daniel Santi, our Chief Executive Officer, and Dr. Chaitan Khosla, a director, we do not believe the proceeds would be adequate to compensate us for their loss. We do not currently have sufficient executive management personnel to execute our business plan fully. In addition, recruiting and retaining qualified scientific personnel to perform future research and development work will be critical to our success. Although we believe we will be successful in attracting and retaining qualified personnel, competition may be intense for experienced scientists. Failure to attract and retain skilled personnel would prevent us from pursuing collaborations and developing our products and core technologies to the extent otherwise possible. Our planned activities will require additional expertise in specific industries and areas applicable to the products developed through our technologies. These activities will require the addition of new personnel, including management, and the development of additional expertise by existing management personnel. The inability to acquire or develop this expertise could impair the growth, if any, of our business. 10 IF WE ENGAGE IN ANY ACQUISITION, WE MAY INCUR A VARIETY OF COSTS, AND WE MAY NEVER REALIZE THE ANTICIPATED BENEFITS OF THE ACQUISITION. If appropriate opportunities become available, we may attempt to acquire businesses, technologies, services, or products that we believe are a strategic fit with our business. We currently have no commitments or agreements with respect to any material acquisitions. If we do undertake any transaction of this sort, the process of integrating an acquired business, technology, service, or product may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of our business. Moreover, we may fail to realize the anticipated benefits of any acquisition. Future acquisitions could reduce your ownership in us and could cause us to incur debt, expose us to future liabilities and result in amortization expenses related to goodwill and other intangible assets. In addition, recent proposed changes in the Financial Accounting Standards Board rules for merger accounting may affect the cost of making acquisitions or of being acquired. For example, if these proposed changes become effective, then we would likely have to record goodwill or other intangible assets that we would amortize to earnings if we merge with another company. Such amortization would adversely impact our future operating results. Further, accounting rule changes that reduce the availability of write-offs of the value of in-process research and development in connection with an acquisition could result in the capitalization and amortization of these amounts which would negatively impact results of operations in future periods. IF WE FACE CLAIMS IN CLINICAL TRIALS OF A DRUG CANDIDATE, THESE CLAIMS WILL DIVERT OUR MANAGEMENT'S TIME AND WE WILL INCUR LITIGATION COSTS. We face an inherent business risk of clinical trial liability claims in the event that the use or misuse of our potential products results in personal injury or death. We may experience clinical trial liability claims if our drug candidates are misused or cause harm before regulatory authorities approve them for marketing. We currently do not maintain clinical trial liability insurance coverage. Even if we do obtain an insurance policy, it may not be sufficient to cover claims that may be made against us. Clinical trial liability insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms, if at all. Any claims against us, regardless of their merit, could materially and adversely affect our financial condition, because litigation related to these claims would strain our financial resources in addition to consuming the time and attention of our management. If we are sued for any injuries caused by our products, our liability could exceed our total assets. WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR BUSINESS. ANY CLAIMS RELATING TO IMPROPER HANDLING, STORAGE, OR DISPOSAL OF THESE MATERIALS COULD BE TIME CONSUMING AND COSTLY. Our research and development processes involve the controlled use of hazardous materials, including hazardous chemicals and radioactive and biological materials. Some of these materials may be novel, including bacteria with novel properties and bacteria that produce biologically active compounds. Our operations also produce hazardous waste products. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state, and local laws and regulations govern the use, manufacture, storage, handling, and disposal of these materials. We believe that our current operations comply in all material respects with these laws and regulations. We could be subject to civil damages in the event of an improper or unauthorized release of, or exposure of individuals to, hazardous materials. In addition, claimants may sue us for injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our total assets. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development, or commercialization efforts. 11 In addition, certain of our collaborators are working with these types of hazardous materials in connection with our collaborations. To our knowledge, the work is performed in accordance with applicable safety regulations. In the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property by exposure to, or release of, these hazardous materials. Further, under certain circumstances, we have agreed to indemnify our collaborators against all damages and other liabilities arising out of development activities or products produced in connection with these collaborations. WE HAVE ANTI-TAKEOVER PROVISIONS IN OUR CORPORATE CHARTER DOCUMENTS THAT MY RESULT IN OUTCOMES WITH WHICH YOU DO NOT AGREE. Our board of directors will have the authority to issue up to 10,000,000 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions of those shares without further vote or action by our stockholders. The rights of the holders of any preferred stock that may be issued in the future may adversely affect the rights of the holders of common stock. The issuance of preferred stock could make it more difficult for third parties to acquire a majority of our outstanding voting stock. Our certificate of incorporation will provide for staggered terms for the members of the board of directors and and prevent our stockholders from acting by written consent. These provisions and other provisions of our by-laws and of Delaware law applicable to us could delay or make more difficult a merger, tender offer or proxy contest involving us. RISKS RELATED TO THIS OFFERING OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT COULD SUFFER A DECLINE IN VALUE. The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including: - announcements of technological developments in research by us or our competitors; - delay or failure in initiating, conducting, completing or analyzing clinical trials or unsatisfactory design or results of these trials; - achievement of regulatory approvals; - new products or services introduced or announced by us or our competitors; - changes in financial estimates by securities analysts; - announcements or departures of key personnel; and - sales of our common stock. In addition, the stock market in general, and the Nasdaq National Market and the market for biotechnology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted against that company. If this type of litigation was instituted against us, we would be faced with substantial costs and management's attention and resources would be diverted, which could in turn seriously harm our business, financial condition and results of operations. 12 WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE, CREATING INVESTOR LOSSES. Our quarterly operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our stock price to fluctuate significantly or decline. Some of the factors which could cause our operating results to fluctuate include: - expiration of research contracts with collaborators or government research grants, which may not be renewed or replaced; - the success rate of our discovery efforts leading to milestones and royalties; - the timing and willingness of collaborators to commercialize our products that would result in royalties; and - general and industry specific economic conditions, which may affect our collaborators research and development expenditures. A large portion of our expenses are relatively fixed, including expenses for facilities, equipment, and personnel. Accordingly, if revenues decline or do not grow as anticipated due to expiration of research contracts or government research grants, failure to obtain new contracts or other factors, we may not be able to correspondingly reduce our operating expenses. In addition, we plan to increase operating expenses in 2000. Failure to achieve anticipated levels of revenues could therefore significantly harm our operating results for a particular fiscal period. Due to the possibility of fluctuations in our revenues and expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. Our operating results in some quarters may not meet the expectations of stock market analysts and investors. In that case, our stock price would probably decline. FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE. The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in the public market after the closing of this offering or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of common stock. There will be shares of common stock outstanding immediately after this offering, or shares if the representatives of the underwriters exercise their over-allotment option in full. Of the shares sold in the offering, shares will be freely transferable without restriction or further registration under the Securities Act of 1933, except for any shares purchased by our affiliates, as defined in Rule 144 of the Securities Act, and shares will be subject to a lock-up agreement providing that the stockholder will not offer, sell, or otherwise dispose of any of the shares of common stock owned by them for a period of 180 days after the date of this prospectus. The remaining 6,250,321 shares of common stock outstanding will be restricted securities as defined in Rule 144. 5,147,478 of these shares may be sold on the 181st day after the date of this prospectus without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act. See "Shares Eligible for Future Sale." SOME OF OUR EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER US, AND MAY NOT MAKE DECISIONS THAT ARE IN THE BEST INTERESTS OF ALL STOCKHOLDERS. After this offering, our officers, directors and principal stockholders (greater than 5% stockholders) will together control approximately % of our outstanding common stock. As a result, these stockholders, if they act together, will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, this concentration of ownership 13 may delay or prevent a change in control of us and might affect the market price of our common stock, even when a change may be in the best interests of all stockholders. In addition, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders and accordingly, they could cause us to enter into transactions or agreements which we would not otherwise consider. MANAGEMENT MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU DO NOT AGREE AND IN WAYS THAT MAY NOT YIELD A RETURN. Management will retain broad discretion over the use of proceeds from this offering. Stockholders may not deem such uses desirable, and our use of the proceeds may not yield a significant return or any return at all. Management intends to use a majority of the proceeds from this offering for research and development, working capital, and other general corporate purposes and to finance potential acquisitions or investments. Because of the number and variability of factors that determine our use of the net proceeds from this offering, we cannot assure you that these uses will not vary substantially from our currently planned uses. Pending these uses of the net proceeds from this offering, we intend to invest the net proceeds from this offering in interest-bearing, investment grade and U.S. government securities. AS A NEW INVESTOR, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION. If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution of $ per share in pro forma net tangible book value. If the holders of outstanding options exercise those options, you will incur further dilution. To the extent we raise additional capital by issuing equity securities, our stockholders may experience additional substantial dilution. See "Dilution." 14 FORWARD-LOOKING STATEMENTS - -------------------------------------------------------------------------------- This prospectus contains forward looking statements within the meaning of the federal securities laws that relate to future events or our future financial performance. You can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "intend," "potential," or "continue," or the negative of these terms or other comparable terminology. Examples of these forward-looking statements include, but are not limited to, statements regarding the following: - our technologies and programs, - our ability to realize commercially valuable discoveries in our programs, - our intellectual property portfolio, - our business strategies and plans, and - our ability to develop products suitable for commercialization. Although we believe that the predictions and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus or to conform these statements to actual results. USE OF PROCEEDS - -------------------------------------------------------------------------------- We estimate that the net proceeds from the sale of the shares of common stock that we are offering will be $ after deducting estimated underwriters' discounts and commissions and estimated offering expenses and assuming an initial public offering price of $ per share. If the underwriters' over-allotment option is exercised in full, we estimate that the net proceeds will be $ million. We anticipate using the net proceeds from this offering for advancing our product candidates through preclinical and later stage development, discovering new product candidates, expanding our technology platform including through in-licensing opportunities or acquisition of complementary technologies, working capital, and other general corporate purposes and capital expenditures. The amounts and timing of our actual expenditures will depend upon numerous factors, including the status of our product development and commercialization efforts, technological advances, the amount of proceeds actually raised in this offering and the amount of cash generated by our operations. We may also use a portion of the proceeds for the acquisition of, or investment in, companies, technologies or assets that complement our business, although we are not currently planning any acquisitions, and no portion of the net proceeds has been allocated to any particular acquisition. We have not determined the amounts we plan to spend on any of the areas listed above or the timing of these expenditures. As a result, our management will have broad discretion to allocate the net proceeds from this offering. We believe that the net proceeds of this offering, existing cash, cash equivalents and investments, will be sufficient to meet our operating expenses and capital requirements for at least the next 24 months. Pending the use of the net proceeds, we intend to invest the net proceeds in interest-bearing investment grade and U.S. government securities. 15 DIVIDEND POLICY - -------------------------------------------------------------------------------- We have never declared or paid any cash dividends on our common stock. We currently intend to retain earnings, if any, for use in the expansion and operation of our business and do not anticipate paying cash dividends for the foreseeable future. DILUTION - -------------------------------------------------------------------------------- Our pro forma net tangible book value, as of December 31, 1999, was $35.1 million, or $5.94 per share of common stock, including the issuance of 804,196 shares of Series C preferred stock for cash on March 30, 2000 and after giving effect to the automatic conversion of all outstanding shares of preferred stock into an aggregate of 4,073,573 shares of common stock. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities, divided by the number of shares of common stock outstanding. After giving effect to our sale of common stock offered hereby at an assumed initial public offering price of $ per share, and our receipt of the estimated net proceeds from the offering of $ , our pro forma net tangible book value as of December 31, 1999 would have been approximately $ million, or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share............. $ Pro forma net tangible book value per share before the offering................................................ $ 5.94 Increase per share attributable to new investors.......... Pro forma net tangible book value per share after this offering.................................................. ------ Dilution per share to new investors......................... $
If the underwriters' over-allotment option were exercised in full, the pro forma net tangible book value per share after this offering would be $ per share, the increase in net tangible book value per share to existing stockholders would be $ per share and the dilution in net tangible book value to new investors would be $ per share. The following table summarizes, on a pro forma basis as of December 31, 1999, as adjusted for the March 2000 issuance of Series C preferred stock described above, the differences between existing stockholders and the new investors with respect to the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid before deducting the underwriting discounts and commissions and our estimated offering expenses:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE -------------------- ---------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE --------- -------- ----------- -------- ----------- Existing stockholders.................... 5,900,421 % $45,934,000 % $ 7.78 New investors............................ --------- ----- ----------- ----- Total.................................. 100.0% 100.0% ========= ===== =========== =====
The discussion and tables above assume no exercise of stock options outstanding. At December 31, 1999, there were options outstanding to purchase a total of 455,900 shares of common stock, with a weighted average exercise price of $0.87 per share. To the extent that any of these options are exercised, there will be further dilution to new investors. 16 CAPITALIZATION - -------------------------------------------------------------------------------- The following table shows our capitalization as of December 31, 1999: - on an actual basis; - on a pro forma basis to give effect to the sale of 804,196 shares of Series C preferred stock on March 30, 2000 with net proceeds of $24.6 million and after reflecting the automatic conversion of all outstanding shares of preferred stock into common stock upon the closing of this offering; and - on a pro forma as adjusted basis to give effect to the sale of shares of common stock by us in this offering at an assumed price of $ per share less the estimated discounts and offering expenses.
AS OF DECEMBER 31, 1999 ---------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- (IN THOUSANDS, EXCEPT SHARE DATA) Capital lease and debt obligations, less current portion.... $ 1,591 $ 1,591 $ 1,591 -------- -------- ------- Stockholders' equity: Convertible preferred stock, par value $0.001; 4,348,182 shares authorized, 3,269,377 shares issued and outstanding (actual); no shares issued and outstanding (pro forma and pro forma as adjusted)................... 3 -- Common stock, par value $0.001; 12,000,000 shares authorized, 1,826,848 shares issued and outstanding, actual; 5,900,421 shares issued and outstanding, pro forma; shares issued and outstanding, pro forma as adjusted................................................ 2 6 Additional paid-in capital.................................. 24,851 49,450 Notes receivable from stockholders.......................... (349) (349) (349) Deferred stock compensation................................. (2,377) (2,377) (2,377) Accumulated deficit......................................... (11,593) (11,593) (11,593) Accumulated other comprehensive loss........................ (66) (66) (66) -------- -------- ------- Total stockholders' equity............................ 10,471 35,071 -------- -------- ------- Total capitalization.................................. $ 12,062 $ 36,662 $ ======== ======== =======
This table excludes: - 1,700,000 shares of our common stock reserved for issuance under our 1996 Stock Option Plan, including 800,000 shares authorized following December 31, 1999, of which 455,900 shares are subject to outstanding options with a weighted average exercise price of $0.87 per share; - 100,000 shares available for issuance under our 2000 Employee Stock Purchase Plan approved in March 2000; and - 100,000 shares available for issuance under our 2000 Non-Employee Director Stock Option Plan approved in March 2000. 17 SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- The following selected historical financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes appearing elsewhere in this prospectus. The selected financial data set forth below with respect to our statements of operations for the years ended December 31, 1997, 1998 and 1999 and with respect to the our balance sheets at December 31, 1998 and 1999 are derived from our financial statements that have been audited by Ernst & Young LLP, which are included elsewhere in this prospectus, and are qualified by reference to such financial statements. The statement of operations data for the period from Inception (January 5, 1995) to December 31, 1995 and for the year ended December 31, 1996 and the balance sheet data as of December 31, 1996 and 1997 are derived from our audited financial statements that are not included in this prospectus.
FROM INCEPTION (JANUARY 5, 1995) TO YEAR ENDED DECEMBER 31, DECEMBER 31, ----------------------------------------- STATEMENT OF OPERATIONS DATA: 1995 1996 1997 1998 1999 - ----------------------------- -------------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Contract revenue............................ $ -- $ -- $ 10 $ 974 $ 5,206 Grant revenue............................... -- 200 277 262 140 ------ ------- ------- ------- ------- Total revenues............................ -- 200 287 1,236 5,346 Operating expenses: Research and development.................. 197 1,286 1,922 4,030 7,623 General and administrative................ 281 402 457 991 1,632 Stock-based compensation.................. -- -- -- -- 1,145 ------ ------- ------- ------- ------- Total operating expenses.................... 478 1,688 2,379 5,021 10,400 ------ ------- ------- ------- ------- Operating loss.............................. (478) (1,488) (2,092) (3,785) (5,054) Other income, net........................... -- 35 98 518 653 ------ ------- ------- ------- ------- Net loss.................................... $ (478) $(1,453) $(1,994) $(3,267) $(4,401) ====== ======= ======= ======= ======= Historical net loss per share, basic and diluted................................... $(0.49) $ (1.41) $ (1.46) $ (2.30) $ (2.93) ====== ======= ======= ======= ======= Historical weighted average shares outstanding............................... 978 1,027 1,365 1,423 1,503 Pro forma net loss per share................ $ (0.92) ======= Pro forma weighted average shares outstanding............................... 4,772
AS OF DECEMBER 31, ---------------------------------------------------- BALANCE SHEET DATA: 1995 1996 1997 1998 1999 - ------------------- -------- -------- -------- -------- -------- (IN THOUSANDS) Cash, cash equivalents and short-term investments.................................... $ 31 $ 1,465 $ 2,019 $ 6,328 $ 2,022 Working capital.................................. (257) 1,369 1,976 4,267 750 Long-term investments............................ -- -- -- 9,073 8,442 Total assets..................................... 62 1,965 2,757 17,201 14,157 Capital lease and debt obligations, less current portion........................... -- -- 385 1,004 1,591 Accumulated deficit.............................. (478) (1,930) (3,924) (7,192) (11,593) Stockholders' equity............................. (226) 1,721 2,111 13,759 10,471
18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH OUR "SELECTED FINANCIAL DATA," OUR FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. OVERVIEW We are a biotechnology company that has both proprietary gene manipulating technologies and a pipeline of potentially high-value pharmaceuticals. We use our platform technologies to develop product candidates from an important class of organic natural molecules known as polyketides. Our pipeline of product opportunities currently targets the areas of infectious disease, gastrointestinal motility, mucus hypersecretion, cancer, immunology and nerve regeneration. In infectious disease, we have a collaboration with The R.W. Johnson Pharmaceutical Research Institute, a Johnson & Johnson company, focusing on the development of a next generation antibiotic. We have incurred significant losses since our inception. As of December 31, 1999, our accumulated deficit was $11.6 million and total stockholders' equity was $10.5 million. We expect to incur additional operating losses over the next several years as we continue to develop our technologies and fund internal product research and development. DEFERRED COMPENSATION During the year ended December 31, 1999, in connection with the grant of stock options to employees, we recorded deferred stock-based compensation totaling $2.9 million, representing the difference between the deemed fair market value of our common stock for financial reporting purposes on the date such options were granted and the applicable exercise prices. Such amount is included as a reduction of stockholders' equity and is being amortized using the graded vesting method over the vesting period of the individual options, which is generally four years. We recognized amortization of deferred compensation of $535,000 for the year ended December 31, 1999. At December 31, 1999, we had a total of $2.4 million remaining to be amortized over the vesting periods of the stock options. We expect to defer additional stock-based compensation of $9.9 million for stock options granted to employees from January 1, 2000 through March 24, 2000. Accordingly, we expect to recognize additional amortization expense related to stock-based compensation of approximately $5.6 million during 2000, $3.7 million during 2001, $2.0 million during 2002, $832,000 during 2003 and $85,000 during 2004. In connection with the grants of stock options and restricted stock to non-employees, we recognize compensation on a ratable basis over the related service period. We recognized other stock-based compensation for non-employees of $610,000 for the year ended December 31, 1999. In addition, we expect to recognize other stock-based compensation in connection with stock options and restricted stock granted to non-employees of $934,000 during 2000, $829,000 during 2001, $677,000 during 2002, $213,000 during 2003 and $41,000 during 2004. The measurement of stock-based compensation to our non-employees is subject to periodic adjustment as our stock price changes and as the underlying securities vest. As such, changes to these measurements could be substantial should we experience significant changes in our stock price. Please see Notes 1 and 9 of our financial statements. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999 AND 1998 REVENUE. Our revenues increased to $5.3 million in 1999 from $1.2 million in 1998. This increase primarily reflected the full year of funding under our corporate collaboration with The R.W. Johnson Pharmaceutical Research Institute which was established in September 1998. Total contract revenues earned under this collaboration were $5.0 million in 1999 and $974,000 in 1998. Also included in 1999 19 contract revenue was $1.2 million of non-recurring milestones earned under this agreement. The initial term of our collaboration with The R.W. Johnson Pharmaceutical Research Institute has been extended to December 28, 2000. If we do not further extend this agreement, our revenues will significantly decrease thereafter, unless we enter into additional collaborations. RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses consist primarily of salaries and other personnel-related expenses, facility expenses, lab consumables and depreciation of facilities and equipment. Research and development expenses increased to $7.6 million in 1999 from $4.0 million in 1998. The increase was primarily due to increases in employee costs as our scientific headcount increased to 43 individuals in December 1999 from 16 in January 1998 and higher occupancy expenses associated with our move to a larger facility in March 1999. We expect our research and development expenses will increase substantially to fund the expansion of our technology platform, support our collaborative research program and advance our in-house research programs into later stages of development. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased to $1.6 million in 1999 from $991,000 in 1998. This increase was primarily due to additional staffing and higher facility related expenses. We expect our general and administrative expenses will increase in the future to support the continued growth of our research and development efforts and to fulfill our obligations associated with being a publicly held company. STOCK-BASED COMPENSATION. Stock-based compensation expense was $1.1 million in 1999. Stock-based compensation results from the amortization of deferred stock-based compensation related to stock options granted to employees and compensation expense from the valuation of stock options and restricted stock granted to consultants. INTEREST INCOME. Interest income increased to $679,000 in 1999 from $598,000 in 1998. This increase resulted from higher average investment balances due to contract revenue received under our collaboration with The R.W. Johnson Pharmaceutical Research Institute. INTEREST EXPENSE. Interest expense increased to $196,000 in 1999 from $80,000 in 1998. This increase resulted from additional debt financing associated with our fixed asset purchases. OTHER INCOME. For the year ended December 31, 1999, other income included a $170,000 termination fee received from the landlord of our previously occupied facility for the buy-out of the rights to our sublease agreement. YEARS ENDED DECEMBER 31, 1998 AND 1997 REVENUE. Our revenue increased to $1.2 million in 1998 from $287,000 in 1997. This increase was attributable to the initiation of our corporate collaboration with The R.W. Johnson Pharmaceutical Research Institute in September 1998. RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses increased to $4.0 million in 1998 from $1.9 million in 1997. The increase was primarily due to increases in employee related costs as our scientific headcount increased to 37 at December 1998 from 12 in January 1997. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased to $991,000 in 1998 from $457,000 in 1997. This increase was primarily due to higher employee and consulting costs to support our expanding research and development activities. INTEREST INCOME. Interest income increased to $598,000 in 1998 from $154,000 in 1997. This increase resulted from higher investment balances arising from our April 1998 private placement of preferred stock and contract revenue received under our collaboration with The R.W. Johnson Pharmaceutical Research Institute. 20 INTEREST EXPENSE. Interest expense increased to $80,000 in 1998 from $56,000 in 1997. This increase resulted from additional debt financing associated with our fixed asset purchases. PROVISION FOR INCOME TAXES We incurred net operating losses in the years ended December 31, 1999 and 1998, and consequently did not pay federal, state or foreign income taxes. As of December 31, 1999, we had federal and state net operating loss carryforwards of approximately $9.6 million and $4.1 million, respectively. We also had federal research and development tax credit carryforwards of approximately $300,000. If not utilized, the net operating losses and credit carryforwards will expire at various dates beginning in 2002 through 2019. Use of the net operating losses and credits may be subject to a substantial annual limitation due to the change in the ownership provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. See Note 10 of our financial statements. LIQUIDITY AND CAPITAL RESOURCES We have financed our operations from inception primarily through sales of preferred stock, totaling $21.0 million in net proceeds, contract payments under our collaboration agreement, equipment financing arrangements and government grants. As of December 31, 1999, we had $10.5 million in cash and investments compared to $15.4 million as of December 31, 1998. Our funds are currently invested in U.S. Treasury and government agency obligations, investment-grade asset-backed securities and corporate obligations. Our operating activities used cash of $3.9 million in the year ended December 31, 1999 compared to $1.2 million in the year ended December 31, 1998. Cash used in 1999 operating activities were primarily to fund our net operating losses. Non-cash charges of $1.8 million related to stock-based compensation and depreciation expenses were nearly offset by working capital changes of $1.3 million. The $1.2 million used for 1998 operations consisted of our $3.3 million net loss for the period, partially offset by depreciation and working capital changes of $2.1 million. Our investing activities provided cash of $978,000 in the year ended December 31, 1999 compared to the usage of cash of $11.6 million in the year ended December 31, 1998. Our investing activities consist primarily of purchases and maturities of investment securities and capital expenditures. Cash provided by our 1999 investing activities consisted of $2.8 million of net investment maturities, partially offset by capital expenditures of $1.8 million. Cash used in our 1998 investing activities primarily reflected the net purchases of securities with the $14.9 million net proceeds from the issuance of our 1998 Series B preferred stock. Net additions to property and equipment were $1.8 million for the year ended December 31, 1999 and $1.2 million for the year ended December 31, 1998. Proceeds received from equipment financing arrangements amounted to $1.3 million for the year ended December 31, 1999 and $870,000 for the same period ended 1998. In January 2000, we secured an additional $2.0 million line of credit for facility improvements and equipment purchases. On March 30, 2000, we issued 804,196 shares of Series C preferred stock at a purchase price of $31.00 per share for net proceeds of approximately $24.6 million. We will reflect a deemed dividend of approximately $13.7 million in our first quarter 2000 financial statements in relation to the Series C financing. Please see Note 11 of our financial statements. We believe our existing cash and investments, including proceeds of the sale of Series C preferred stock and of this offering, will be sufficient to meet our anticipated cash requirements for at least 24 months. Our future capital uses and requirements 21 depend on numerous forward-looking factors. These factors include, but are not limited to the following: - Our ability to establish and the scope of any new collaborations; - The progress and number of research programs carried out by us; - The progress and success of preclinical and clinical trials of our drug candidates; - Our ability to maintain our existing collaboration; - The costs and timing of obtaining, enforcing and defending our patent and intellectual rights; - The costs and timing of regulatory approvals; and - Expenses associated with unforeseen litigation. For the next several years, we do not expect our operations to generate the amounts of cash required for our future cash needs. In order to fulfill our cash requirements, we expect to finance future cash needs through the sale of equity securities, strategic collaborations and debt financing. We cannot assure you that additional financing or collaboration and licensing arrangements will be available when needed or that, if available, will be on terms favorable to us or our stockholders. Insufficient funds may require us to delay, scale back or eliminate some or all of our research or development programs, to lose rights under existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose or may adversely affect our ability to operate as a going concern. If additional funds are obtained by issuing equity securities, substantial dilution to existing stockholders may result. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary objective of our investment activities is to preserve principal while at the same time maximize the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities and corporate obligations. The table below presents the principal amounts of our investments and equipment loans by expected maturity and related weighted average interest rates at December 31, 1999 (in thousands):
2000 2001 2002 2003 TOTAL FAIR VALUE -------- -------- -------- -------- -------- ---------- Debt securities: US treasury.......................... $ -- $1,300 $ -- $ -- $1,300 $1,290 Corporate bond....................... 1,000 -- -- -- 1,000 990 Average interest rate.................. 5.6% 5.6% -- -- 5.6% Asset-backed securities................ -- -- -- -- 7,198 7,152 Average interest rate.................. -- -- -- -- 5.9% Equipment financing.................... 447 497 616 311 1,871 1,871 Average interest rate.................. 10.8% 10.8% 10.8% 11.0% 10.8%
22 BUSINESS - -------------------------------------------------------------------------------- OVERVIEW We are a biotechnology company that has both proprietary gene manipulating technologies and a pipeline of potentially high-value pharmaceuticals. We use our platform technologies to develop product candidates from an important class of organic, natural molecules known as polyketides. Polyketides have long been a rich source of pharmaceutical products for many uses, including antibiotics, anticancer drugs, cholesterol-lowering drugs, immunosuppressants and other therapeutics, as well as animal health and agricultural products. Currently, natural or semi-synthetic polyketide pharmaceuticals represent over 20 products, with worldwide sales exceeding $10 billion per year. We are the leader in the alteration of polyketides by gene manipulations. Polyketides are naturally bioactive, small molecules and possess many built-in properties that are useful in pharmaceuticals, such as oral availability and the ability to penetrate biological membranes. Polyketides are structurally complex molecules that are not easy to make or modify by chemical means. Using our technologies, we can modify and produce polyketides in ways chemists cannot. Our approach mimics, accelerates and expands the evolutionary process that gave rise to this important class of molecules. We use our technologies to: - create novel, improved versions of currently marketed high-value pharmaceuticals; - modify an existing polyketide used in one therapeutic area to create a novel polyketide to be used in another; - transfer polyketide genes from their natural hosts to our optimized hosts to enable large-scale production of the polyketides; and - significantly expand the repertoire of natural product libraries to provide a source for the discovery of new product candidates. We are applying our technologies to develop a pipeline of product candidates in the areas of infectious disease, gastrointestinal motility, mucus hypersecretion, cancer, immunosuppression and nerve regeneration. These programs were selected because they represent opportunities where our technologies could improve upon existing products or fill unmet needs, and because they address very large markets. In infectious disease, we have a collaboration with The R.W. Johnson Pharmaceutical Research Institute, a Johnson & Johnson company, that has rapidly generated several polyketide antibiotic product candidates that are effective against organisms resistant to existing related products. OVERVIEW OF POLYKETIDES Polyketides are complex natural products that are produced by soil microorganisms. There are about 7,000 known polyketides, from which numerous pharmaceutical products in many therapeutic areas have been derived. 23 SELECTED POLYKETIDE PRODUCTS AND THEIR USES
PRODUCT (TRADE NAME) USE - -------------------- -------------------- Azithromycin (Zithromax)................................. Antibacterial Clarithromycin (Biaxin).................................. Antibacterial Erythromycin............................................. Antibacterial Rifamycin (Rifampin)..................................... Antibacterial Tetracyclines............................................ Antibacterial Doxorubicin (Adriamycin)................................. Anticancer Amphotericin B........................................... Antifungal Lovastatin (Mevacor)..................................... Cholesterol-lowering Pravastatin (Pravacol)................................... Cholesterol-lowering Simvastatin (Zocor)...................................... Cholesterol-lowering Tacrolimus (FK506, Prograf).............................. Immunosuppressant Sirolimus (Rapamycin).................................... Immunosuppressant Spinosad................................................. Insecticide Avermectin............................................... Veterinary Product
Unlike most classes of chemicals, polyketides often have unrelated structures. The common features that link the polyketides as a class are the sequence of reactions, or biosynthetic pathways, by which they are formed, and the intermediate compounds made in these reactions. Each polyketide is produced by a unique polyketide synthase, or PKS, which is a large enzyme composed of many component enzymes. For example, the antibiotic erythromycin is made by approximately 25 consecutive enzyme reactions, all carried out within a single large PKS. There are two types of PKSs, modular and iterative. Modular PKSs contain many enzymes, each of which is used only once during polyketide production, while iterative PKSs may use some enzymes several times. A modular PKS is encoded by neighboring DNA sequences, collectively called a gene cluster, in the host organism's genome. The genes are not neighboring in most other biosynthetic pathways for natural products, but are dispersed over the chromosome of the organism and are not easily identified. Thus, when any component of the polyketide gene cluster is identified, the entire cluster can be obtained by DNA sequencing in either direction, and the cluster can be modified or transferred to another host organism. [FIGURE 1] [DESCRIPTION OF POLYKETIDE SYNTHESIS] [The artwork is a depiction of a polyketide (PKS) gene cluster, with 4 modules indicated; underneath each module is the 2-carbon unit building block of polyketides it specifies. Underneath the 4 building blocks (in a row) is the corresponding PKS, showing the component enzymes of each of the 4 modules and the intermediate polyketide chains formed at each module. Finally, at the bottom left there is a depiction of the building blocks used by the PKS with an arrow leading from the building blocks to the PKS; at the right there is a downward arrow leading from the PKS to the polyketide shown in the right, lower corner.] A modular PKS is subdivided into units called modules. Polyketide assembly begins at one end of the PKS, and continues to the other by adding and then modifying 2-carbon building blocks at each module to form a polyketide chain. The chain is finally converted into a polyketide ring. Since each module codes for one building block, the number of modules in a PKS codes for the size of the polyketide. Each module contains the same three enzyme activities that connect the polyketide building blocks. One of these modules also selects which one of about three building blocks is used by that module, and thereby determines the structure at one of the two carbon atoms of the building block. A 24 module may also have 1, 2 or 3 additional enzymes that modify the building blocks and thereby determine the structure at the other carbon of the building block. The structure of a modular polyketide ring can be viewed as being coded by the content, sequence and number of modules in a PKS, much as the structure of a protein is encoded by sequence of DNA. The contents of a module code for the structure of each 2-carbon building block used in a polyketide, the sequence of modules codes for the arrangement of building blocks, and the number of modules codes for the number of building blocks in, or size of, a polyketide. Modifying, rearranging or deleting the modules results in specific changes to the structure of the polyketide. OUR STRATEGY Our goal is to translate our technologies into a pipeline of high-value drug candidates, and to advance our candidates into clinical trials. Our strategy includes the following components: MAXIMIZE VALUE, MINIMIZE RISK. We apply our technologies to improve existing high-value pharmaceuticals and create new ones, generating a pipeline of drug candidates moving towards market. By improving the properties of currently marketed pharmaceuticals, we believe we can create novel products that take advantage of the known utility, safety, development path and market for existing drugs to reduce the risk and time required for development. ESTABLISH COLLABORATIVE RELATIONSHIPS. We have entered into a collaboration with The R.W. Johnson Pharmaceutical Research Institute, a Johnson & Johnson company, in the area of infectious disease. We plan to establish additional collaborative relationships with large pharmaceutical companies to move our product candidates through clinical trials and into the market, prepare and screen our polyketide libraries, apply our technologies to new polyketides and develop large-scale production systems for polyketides. ENHANCE LEADERSHIP POSITION OF OUR TECHNOLOGY PLATFORM. We will expand and enhance our enabling technology platform by increasing in-house research activities in order to maintain our leadership position. We will continue to extend the reach of our technologies through strategic alliances or acquisitions. We plan to broaden and protect our intellectual property portfolio and in-license patents that complement our core technologies. OUR TECHNOLOGY PLATFORM Our technology platform has five components: polyketide gene alteration, chemo-biosynthesis, heterologous over-expression, combinatorial biosynthesis, and screening libraries. Together, our technologies enable us to modify, create and produce proprietary polyketides and polyketide libraries that may enable us to develop valuable pharmaceutical products. POLYKETIDE GENE ALTERATION The structure of a polyketide is primarily determined by variation in the number, sequence and components of modules in the gene cluster. Our technologies enable us to make these alterations in a specific, directed manner, and thus we can control the polyketide structure. Polyketides are structurally complex, small organic molecules that are not easy to make or modify chemically. Because each building block of a polyketide is encoded by a specific module of the gene cluster, we use our technologies to make precise structural changes by altering the module that specifies the targeted building block. We use our technologies to improve properties of known biologically active molecules, and to activate inert parts of the polyketide. This allows us to make subsequent chemical modifications not currently feasible. We can also make small changes in the structure of existing proprietary polyketide products to allow freedom to operate in otherwise 25 proprietary space. In addition, by changing the order and number of modules, we can create entirely new libraries of polyketides as sources of new structures both for screening and for improving bio-activities of a lead compound. CHEMO-BIOSYNTHESIS We incorporate chemically synthesized fragments into complicated polyketide structures, permitting changes in their structures and properties in ways that have not been achieved by any other process. This should enable us to produce novel polyketide product candidates. First, we disable the first two modules in a PKS by gene alteration. This prevents formation of the two-building-block intermediate that feeds module two, but leaves the remainder of the PKS fully functional. Then, microorganisms containing this modified PKS are fed our chemically synthesized fragments which substitute for the natural building-block intermediate. HETEROLOGOUS OVER-EXPRESSION We can isolate a polyketide gene cluster from one organism and transfer it to another. This is important because many polyketides are produced by microorganisms that are poorly understood or difficult or slow to grow, or whose genes are not easy to manipulate. In addition, polyketides are often produced in small amounts in organisms that naturally produce them, which can limit their commercial opportunities. We have created genetically-enhanced microorganisms to serve as optimized hosts for efficient polyketide manipulation and production. Our proprietary technologies allow us to transfer polyketide genes to these optimized hosts to enable easier manipulation and increased production of polyketides necessary for commercialization of our technologies. COMBINATORIAL BIOSYNTHESIS We have developed a novel combinatorial technology to produce libraries of polyketides. Because the approximately 7,000 naturally occurring polyketides have yielded many pharmaceutical products, we believe that libraries of new polyketides may do likewise. We separate the large polyketide gene cluster into several fragments. Each of these gene fragments is then genetically manipulated to produce numerous variations. We then reassemble the gene cluster with all possible combinations of the altered fragments to create combinatorial polyketide libraries. Using our combinatorial biosynthesis technology, we produce large polyketide libraries. For example, one of our libraries contains the largest number of erythromycin analogs produced by genetic engineering. [FIGURE 2] [DESCRIPTION OF ARTWORK] [The artwork is a depiction of the process of combinatorial biosynthesis. A) The first drawing depicts a PKS gene cluster, and underneath it are individual modules obtained from other PKS gene clusters. B) The second drawing shows the incorporation of new individual modules into the gene cluster to make hybrid gene clusters. C) The third drawing shows a number of cells containing individual (colored) hybrid genes. D) The fourth drawing shows cell colonies, each producing a different polyketide (color-coded).] SCREENING LIBRARIES In addition to our combinatorial library, we have acquired a collection of over 10,000 soil microorganisms. The collection is unusual because it has been pre-selected for bioactivities from a larger group of over 100,000 microorganisms. Our collection shows antibiotic, antiviral, and pesticidal 26 activities, as well as activity specific to one or more of about 20 enzyme targets. We believe that the lead compounds from this library, together with our technologies, will provide a flow of new chemical entities for our product pipeline. OUR PRODUCT DEVELOPMENT OPPORTUNITIES Our primary programs are currently directed at discovery and development of novel polyketides for bacterial infections, gastrointestinal motility disorders, mucus hypersecretion, cancer, immunosuppression and nerve regeneration. These programs were selected because they represent opportunities where our technologies could improve upon existing products or fill unmet needs, and because each addresses very large markets. We are able to maintain a diverse portfolio of product candidates because the fundamental aspects of our technology generally apply to all PKS gene clusters. BACTERIAL INFECTIONS Clarithromycin, marketed as Biaxin, and azithromycin, marketed as Zithromax, are polyketide-derived antibiotics that show high potency, a broad spectrum of activity and few side effects. These products had revenues in 1999 of approximately $2.3 billion. However, organisms are emerging that are resistant to these two drugs. Ketolides, analogs of the polyketide erythromycin, possess the potency and spectrum of activity shown by clarithromycin and azithromycin, but are effective against these resistant organisms. Another company has recently filed a new drug application with the FDA for a ketolide. We have a collaborative research agreement with The R.W. Johnson Pharmaceutical Research Institute, a Johnson & Johnson company, to discover and develop a next-generation ketolide. Our collaboration was established in September 1998, and has already resulted in several proprietary ketolides that we believe have activities competitive with other ketolides. One of these compounds is currently undergoing preclinical evaluation. GASTROINTESTINAL MOTILITY One of the actions of erythromycin is stimulation of gastrointestinal movement, or GI motility. Therefore, erythromycin-derived compounds called motilides may be useful to treat diseases such as gastroparesis and gastroesophageal reflux disease, also known as GERD or heartburn, that are unresponsive to antacids. The leading product currently used for stimulation of GI motility is cisapride, marketed as Propulsid, which had sales of approximately $1 billion in 1999. Cisapride has been reported to have side effects, including arrhythmias and various drug interactions. Recently, Cisapride's manufacturer announced that Cisapride will no longer be marketed in the United States. Motilides have an entirely different mechanism of action and should not have the same side effects. Another company's motilide candidate is in clinical trials. Many members of our erythromycin library can readily be converted into motilides. In less than a year, we have prepared several proprietary motilides with IN VITRO activity comparable to the motilide that is in clinical trials. In addition, our genetic manipulation technology enables the preparation of numerous new motilides that could not easily be made chemically. We expect to have optimized candidates advance into preclinical testing within a year. MUCUS HYPERSECRETION Mucus hypersecretion, or excessive production of mucus, is a major, problematic symptom of asthma, chronic obstructive pulmonary disease, or COPD, cystic fibrosis and allergic rhinitis, including hay fever. Mucus hypersecretion in these diseases results from the release of mucus from abnormally high numbers of large mucus-secreting cells, or goblet cells. There is no effective treatment for this type of mucus hypersecretion from which to determine market potential, but we believe, based on the disease prevalence, that the market potential is significant. 27 Our scientists, in collaboration with scientists at the University of California, San Francisco, have discovered a potential target for inhibiting mucus hypersecretion. We have prepared a non-antibiotic analog of erythromycin that inhibits this target, and are using our technology to optimize its activity. Although this is an early-stage project, we believe we will have candidates advance into preclinical testing within a year. CANCER Many cancers are treated by paclitaxel, marketed as Taxol, which had revenues in 1999 of approximately $1.5 billion. However, some tumors are resistant to Taxol. Epothilone, a polyketide with an identical mechanism of action and similar potency to Taxol, is active against Taxol-resistant tumors. A major problem with the further development of epothilone is that its sole natural source produces small amounts. Moreover, one of the most effective forms of epothilone, epothilone D, represents only about 10% of the total epothilones produced. Although epothilone has been chemically synthesized, the synthesis is not readily amenable to large-scale production. Our technology allows polyketide genes to be moved from their natural organism to another to produce greater quantities of the polyketide. Our scientists have cloned and expressed the epothilone gene cluster in two high-producing organisms and demonstrated production of all important forms of epothilone, including epothilone D. We believe we can increase current yields of the important types of epothilone through our gene-manipulating technologies. We also expect to produce proprietary analogs of epothilone. IMMUNOSUPPRESSION Prograf, also known as FK506, is one of the most widely used immunosuppressants for organ transplantation, with 1999 worldwide revenues of approximately $259 million. Additionally, FK506 has been approved in Japan to treat atopic dermatitis and approval for this indication is pending in the United States. It is also in clinical trials to treat psoriasis and rheumatoid arthritis. The enzyme P450-3A metabolizes FK506 at a single site to destroy over 90% of the drug. A major problem is that P450-3A levels are variable among individuals and fluctuate in the presence of other drugs. As a result, FK506 metabolism is variable in different people and its dosage must be carefully individualized and monitored to avoid under- or over-dosing. If the primary site at which FK506 is metabolized by P450-3A could be blocked without affecting its biological activity, the variable metabolism of the drug might be averted. The primary site of metabolism of FK506 is different from those required for activity, so we do not expect its modification to prevent metabolism to be detrimental. This site of metabolism cannot be protected by chemical modification, but can be protected using our technology. We have modified this site in an FK506 analog, FK520, to make proprietary, metabolically stable analogs. We expect to have optimized candidates to advance into preclinical testing within a year. NERVE REGENERATION The immunosuppressive effect of FK506 is generated by concurrent binding to two proteins, FKBP and calcineurin. However, analogs of FK506 that bind to FKBP but not calcineurin stimulate nerve regeneration without immunosuppression. Such compounds could be used to treat peripheral and spinal cord injury, Parkinson's disease, and other diseases involving nerve degeneration. We are converting our metabolically stable FK520 analogs to non-immunosuppressant nerve regeneration agents by removing their ability to bind to calcineurin. Our analogs may have advantages because we expect them to be orally available, have well-characterized pharmacokinetic properties, and penetrate the blood brain barrier. We expect to have optimized candidates to advance into preclinical testing within a year. 28 INTELLECTUAL PROPERTY Our intellectual property consists of patents, copyrights, trade secrets and know-how. Our ability to compete effectively depends in large part on our ability to obtain patents for our technologies and products, maintain trade secrets and operate without infringing the rights of others and to prevent others from infringing on our proprietary rights. We will be able to protect our technologies from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents, or copyrights or are effectively maintained as trade secrets. Accordingly, patents or other proprietary rights are an essential element of our business. As of March 29, 2000, we owned three U.S. patents and one foreign patent and had exclusive license rights to six U.S. patents and five foreign patents owned by Stanford University. We also have 34 U.S. patent applications and 23 foreign patent applications, as well as the exclusive rights to 15 U.S. patent applications and 33 foreign patent applications. We have exclusive rights to the combinatorial biosynthesis technology developed by Dr. Chaitan Khosla, which is claimed in a series of issued and pending patents filed by Stanford University beginning in 1993. These patents include claims to recombinant expression of polyketide synthase enzymes and production of polyketides using recombinantly expressed enzymes, as well as useful hosts, vectors and methods of library production. To date, six of these patents have issued and three patent applications have been allowed by the U.S. Patent Office. We have also entered into an agreement with Stanford University that grants us an exclusive option to license certain new technologies involving polyketides and their production developed by Dr. Khosla. We have applied for patents claiming the production of polyketide libraries using our proprietary multi-vector technology, the production of polyketides in E. COLI, yeast, and plant cells, polyketide gene clusters cloned and expressed in heterologous hosts, and novel polyketide compounds generated in our drug discovery and development programs. Our policy is to file patent applications to protect technology, compounds and improvements that are commercially important to our business. We also rely on trade secrets to protect our technology, especially where patent protection is deemed inappropriate or unobtainable. We protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, collaborators and certain contractors. There can be no assurance that proprietary information will not be disclosed, that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or that we can meaningfully protect our trade secrets. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS JOHNSON & JOHNSON In September 1998, we signed a two-year collaborative agreement with The R.W. Johnson Pharmaceutical Research Institute, and Ortho-McNeil Pharmaceutical, Inc., both Johnson & Johnson companies, which has been extended through December 2000. Under the terms of the agreement, we use our technologies to produce specific novel antibiotics on a best efforts basis. The agreement provides for payments, including payments for research and development costs, and payments for reaching certain research and development milestones. In addition to creating a two-year collaborative research term, the agreement grants several licenses that include: - a research license, whereby we and The R.W. Johnson Pharmaceutical Research Institute grant each other a non-exclusive license, with no sublicense rights, to make and use methods and material covered under the parties' respective patents to carry out research during the term of the agreement; 29 - a screening license, whereby we grant to The R.W. Johnson Pharmaceutical Research Institute a non-transferable exclusive license, with the right to grant sublicenses, to conduct screening for antibiotic activity; and - a development and commercialization license, whereby we grant to Ortho-McNeil Pharmaceutical, Inc. and The R.W. Johnson Pharmaceutical Research Institute exclusive worldwide rights to make, use, develop and sell the licensed products as defined in the agreement. The development, marketing, and sale of drugs resulting from this collaboration will be undertaken by The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil Pharmaceutical, Inc. Should the development efforts result in a marketable product, we will receive royalty payments based on product sales as well as payments based on reaching research and development milestones. We recognized $5.0 million of contract revenue for the year ended December 31, 1999 and $1.0 million for the same period in 1998, pursuant to this agreement. Included in 1999 contract revenue were $1.2 million of nonrecurring milestones earned under this agreement. After the research term under this agreement ends, The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil Pharmaceutical can terminate the agreement as a whole or with respect to any pharmaceutical product upon three months' written notice and they or we may terminate the agreement upon 90 days' written notice upon a material breach of the agreement. If The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil Pharmaceutical terminate the agreement, rights to compounds developed under the agreement revert to us except for rights to compounds being commercialized by The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil Pharmaceutical. STANFORD UNIVERSITY In March 1996, we entered into an exclusive license agreement with the Board of Trustees of the Leland Stanford Junior University, or Stanford University, for certain technology and related patent rights now contained in six issued U.S. patents and five foreign patents, as well as 44 U.S. and foreign patent applications, and materials for the recombinant production of novel polyketides. Under the terms of the agreement, we pay annual license fees to Stanford University and will pay milestones and royalties on net sales resulting from successful products originating from the licensed technology. In March 2000, an amendment to the agreement was signed giving us an exclusive option to acquire an exclusive license to future patents or patent applications related to certain technology related to polyketides and their production developed by Dr. Khosla. HARVARD COLLEGE In December 1998, we entered into an exclusive license agreement with the President and Fellows of Harvard College for certain technology and related patent rights for the production of polyketides. In connection with the license agreement, which gives us the exclusive license rights to the technology in five patent applications, we paid a non-refundable license fee and will pay annual maintenance fees, milestones and royalties on net sales of products originating from the licensed technology. COMPETITION The pharmaceutical and biotechnology industries are intensely competitive. Many companies, including biotechnology, chemical and pharmaceutical companies, are actively engaged in activities similar to ours, including research and development of drugs for the treatment of the same diseases and conditions as our potential product candidates. Many of these companies have substantially greater financial and other resources, larger research and development staffs, and more extensive marketing and manufacturing organizations than we do. In addition, some of them have considerable experience in preclinical testing, clinical trials and other regulatory approval procedures. There are also academic 30 institutions, governmental agencies and other research organizations that are conducting research in areas in which we are working. They may also market commercial products, either on their own or through collaborative efforts. Our major competitors include fully integrated pharmaceutical companies that have extensive drug discovery efforts. We face significant competition from organizations that are pursuing the same or similar technologies, including polyketide manipulation, as the technologies used by us in our drug discovery efforts. We expect to encounter significant competition for any of the pharmaceutical products we plan to develop. Companies that complete clinical trials, obtain required regulatory approvals and commence commercial sales of their products before their competitors may achieve a significant competitive advantage. Other pharmaceutical and biotechnology companies have announced efforts in the field of polyketide manipulation. We are aware that many other companies or institutions are pursuing development of drugs and technologies directly targeted at applications for which we are developing our drug compounds. Developments by others may render our product candidates or technologies obsolete or noncompetitive. We face and will continue to face intense competition from other companies for collaborative arrangements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions and for licenses to additional technologies. These competitors, either alone or with their collaborative partners, may succeed in developing technologies or products that are more effective than ours. In order to compete successfully, we must develop proprietary positions in patented drugs for therapeutic markets that have not been satisfactorily addressed by conventional research strategies and, in the process, expand our expertise in polyketide manipulation. Our potential products, even if successfully tested and developed, may not be adopted by physicians over other products and may not offer economically feasible alternatives to other therapies. GOVERNMENT REGULATION The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our potential products. The process required by the FDA before our products may be marketed in the United States generally involves the following: - preclinical laboratory and animal tests; - submission of an investigational new drug, or IND, application, which must become effective before clinical trials may begin; - adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use; and - FDA approval of a new drug application, or NDA, or biologics license application, or BLA. The testing and approval process requires substantial time, effort, and financial resources, and we cannot be certain that any approvals for any of our potential products will be granted on a timely basis, if at all. Prior to commencing clinical trials, which are typically conducted in three sequential phases, we must submit an IND application to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about 31 the conduct of the trial. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Our submission of an IND may not result in FDA authorization to commence a clinical trial. Further, an independent institutional review board at the medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences. We may not successfully complete any of the three phases of testing of any of our potential products within any specific time period, if at all. Furthermore, the FDA or an institutional review board or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. The results of product development, preclinical studies and clinical studies are submitted to the FDA as part of a NDA or BLA. The FDA may deny a NDA or BLA if the applicable regulatory criteria are not satisfied or may require additional clinical data. Even if such data is submitted, the FDA may ultimately decide that the NDA or BLA does not satisfy the criteria for approval. Once issued, the FDA may withdraw product approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products which have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs. Satisfaction of FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and the actual time required may vary substantially, based upon the type, complexity and novelty of the product or indication. Government regulation may delay or prevent marketing of potential products or new indications for a considerable period of time and to impose costly procedures upon our activities. Success in early stage clinical trials does not assure success in later stage clinical trials. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations which could delay, limit or prevent regulatory approval. Even if a product receives regulatory approval, the approval may be significantly limited to specific indications and dosages. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Delays in obtaining, or failures to obtain additional regulatory approvals for any of our products would have a material adverse effect on our business. Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with good manufacturing practices, which impose certain procedural and documentation requirements upon us and our third party manufacturers. We cannot be certain that we or our present or future suppliers will be able to comply with the good manufacturing practices regulations and other FDA regulatory requirements. Outside the United States, our ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. At present, foreign marketing authorizations are applied for at a national level, although within the European Community, or EC, registration procedures are available to companies wishing to market a product in more than one EC member state. If the regulatory authority is satisfied that adequate evidence of safety, quality and efficacy has been presented, a marketing authorization will be granted. This foreign regulatory approval process involves all of the risks associated with FDA clearance. LITIGATION We are not currently involved in any litigation. EMPLOYEES As of March 30, 2000 we had 55 full-time employees, 29 of whom hold Ph.D. degrees and 28 of whom were engaged in full-time research activities. We believe that our relations with our employees are good. FACILITIES Our facilities consist of approximately 44,000 square feet of research and office space located in Hayward, California that is leased to us until 2003. We believe that our facility will meet our space requirements for research and development and administration functions through the year 2002, and beyond that time, that suitable additional space will be available on commercially reasonable terms. 32 MANAGEMENT - -------------------------------------------------------------------------------- The following table provides information regarding our directors, executive officers and key employees:
NAME AGE TITLE - ---- -------------------- ------------------------------------------ Daniel V. Santi, M.D., Ph.D............... 58 Chief Executive Officer and Chairman of the Board of Directors Michael S. Ostrach........................ 48 Chief Operating Officer Brian Metcalf, Ph.D....................... 54 Senior Vice President, Chief Scientific Officer Susan M. Kanaya........................... 37 Vice President, Finance and Chief Financial Officer Kevin Kaster.............................. 40 Vice President, Intellectual Property C. Richard Hutchinson..................... 56 Vice President, New Technologies Chaitan Khosla, Ph.D...................... 35 Director Jean Deleage.............................. 59 Director Raymond Whitaker, Ph.D.................... 52 Director Peter Davis, Ph.D......................... 55 Director Christopher Walsh, Ph.D................... 56 Director
- ------------------------ DANIEL V. SANTI, M.D., PH.D., is one of our co-founders, and has served as Chairman of the Board of Directors since our inception. In November 1998, Dr. Santi was appointed as our Chief Executive Officer. He is on leave of absence from his position as Professor of Biochemistry and Biophysics, and of Pharmaceutical Chemistry at University of California, San Francisco. Dr. Santi was one of the original members of the Scientific Advisory Boards of Chiron Corporation and Mitotix, Inc., and has served as a consultant to several large pharmaceutical companies. In 1988, Dr. Santi founded and served as Chairman of the Board of Directors of the biotechnology firm Protos, a subsidiary of Chiron Corporation, which was merged with Chiron in 1992. Dr. Santi was also founder and Chairman of Parnassus Pharmaceuticals. Dr. Santi has published over 275 scientific papers and is inventor on many patents in combinatorial chemistry and other areas. Dr. Santi received a Ph.D. in medicinal chemistry from the State University of New York, his M.D. from the University of California, San Francisco, and his B.S. in pharmacy from the State University of New York. MICHAEL S. OSTRACH has served as our Chief Operating Officer since October 1998. Prior to joining Kosan as Vice President, Corporate Development in October 1997, Mr. Ostrach worked as an independent consultant for biotechnology companies from October 1996 to October 1997. Mr. Ostrach was Executive Vice President and Chief Operating Officer of Neurobiological Technologies, Inc., a publicly-held biotechnology company from 1994 to 1996. From 1981 to 1991, he was a Senior Vice President at Cetus Corporation. In 1991, Cetus Corporation merged into Chiron Corporation and during 1992 Mr. Ostrach was a Vice President of Chiron Corporation and a founder and the President of Chiron Technologies, a Chiron business unit. Mr. Ostrach received his B.A. from Brown University and his J.D. from Stanford Law School. BRIAN W. METCALF, PH.D. has served as our Senior Vice President and Chief Scientific Officer since March 2000. From 1983 to 2000, Dr. Metcalf held a number of executive management positions with SmithKline Beecham, most recently as Senior Vice President, Discovery Chemistry & Platform Technologies worldwide. Prior to joining SmithKline Beecham, Dr. Metcalf held positions with Merrell 33 Research Center from 1973-1983. Dr. Metcalf received his B.S. and Ph.D. in organic chemistry from the University of Western Australia. SUSAN M. KANAYA has served as our Vice President, Finance and Chief Financial Officer since November 1999. Prior to joining Kosan, Ms. Kanaya was most recently Vice President, Finance and Treasurer at SUGEN, Inc., a publicly-held biotechnology company that was recently acquired by Pharmacia & Upjohn, Inc. Since joining SUGEN in 1994, Ms. Kanaya held various positions in finance. Before joining SUGEN, Ms. Kanaya was the Controller at 50/50 Micro Electronics, Inc. and at Power Up Software Corporation. Ms. Kanaya received her B.S. in business administration from the University of California, Berkeley. KEVIN KASTER has served as our Vice President, Intellectual Property since August 1998. Prior to joining Kosan, he was Vice President, Intellectual Property at Geron Corporation. Prior to joining Geron in 1994, Mr. Kaster managed the patent group at Affymax N.V. between 1991 and 1994. Between 1988 and 1991, he was a Patent Attorney at Cetus Corporation. After receiving a B.S., magna cum laude, in chemistry and molecular biology from Vanderbilt University, Mr. Kaster joined Eli Lilly and Co. as an Associate Biologist, later becoming a patent technician. Mr. Kaster received his J.D. from Indiana University, Indianapolis. C. RICHARD HUTCHINSON has served as our Vice President, New Technologies since March 2000. From 1971 to 2000, Dr. Hutchinson served on the faculty of the University of Wisconsin-Madison, most recently as Professor of Medicinal Chemistry, School of Pharmacy and Professor of Bacteriology. Dr. Hutchinson received his B.S. in pharmacy from Ohio State University and his Ph.D. in organic chemistry from the University of Minnesota. CHAITAN KHOSLA, PH.D., is one of our co-founders and has served as our director since our inception. Dr. Khosla has been Associate Professor of chemical engineering, chemistry and biochemistry at Stanford University since 1997, and has been a faculty member since 1992. Dr. Khosla is co-chairman of our Scientific Advisory Board. Dr. Khosla is the inventor of the combinatorial biosynthesis technology that we licensed from Stanford University. He is the recipient of several awards, including the 1999 Alan T. Waterman award by the National Science Foundation, the 1999 Eli Lilly Award in biological chemistry, and the 2000 ACS Award in pure science. Dr. Khosla is the author of over 90 publications and is an inventor on numerous patents. Dr. Khosla received his B. Tech. from the Indian Institute of Technology, Bombay, India and his Ph.D. from the California Institute of Technology. JEAN DELEAGE, PH.D., has served as our director since April 1996. He is a founder and managing general partner of Alta Partners, a venture capital partnership investing in information technologies and life science companies. From 1979 to 1996, Dr. Deleage was a managing partner of Burr, Egan, Deleage & Co., a venture capital firm. Dr. Deleage was the founder of Sofinnova, a venture capital firm in France, and Sofinnova, Inc., the U.S. subsidiary of Sofinnova. Dr. Deleage is a director of Flamel Technologies, S.A., Aclara BioSciences, Inc. and several privately held companies. Dr. Deleage received a Baccalaureate in France, a Masters Degree in electrical engineering from the Ecole Superieure d'Electricite, and a Ph.D. in economics from the Sorbonne. RAYMOND WHITAKER, MBA, PH.D., has served as our director since April 1998. Dr. Whitaker has been Vice President of S.R. One, Ltd., the venture investment affiliate of SmithKline Beecham, since 1997. From 1992 to 1996, he was Director, Worldwide Business Development, SmithKline Beecham Pharmaceuticals. He has over twenty-five years of international business development experience. His previous appointments include Director, Corporate Development at Recordati SpA, Milan, Italy, and Director, Business Development with Laboratories Delagrange--SESIF in Paris, France. He is a member of the Board of Directors of CPBD, Inc., Electrosols Limited, OnyVax Limited and Xenogen 34 Corporation. Dr. Whitaker received his Ph.D. in biochemistry, his M.B.A. and his B.S. in biochemistry and mathematics from the National University of Ireland, University College Dublin. PETER DAVIS, PH.D., has served as our director since April 1998. Dr. Davis has been a member of the Executive Committee of Pulsar International, S.A., an affiliate of A.G. Biotech Capital since 1993. Dr. Davis was a faculty member at the Wharton School of the University of Pennsylvania, where he was Director of the Applied Research Center and Director of Executive Education. He is a Board member of several Pulsar companies including Bionova Holdings Inc. and Seminis, Inc. He is also a Board member of Lutron Electronics, Inc., Instromedix, Inc., C.H. Werfen and Celsa S.A. Dr. Davis received his B.A. in physics from Cambridge University, his Masters Degree in operations research from the London School of Economics and his Ph.D. in operations research from the Wharton School. CHRISTOPHER WALSH, PH.D., has served as our director since April 1996. Dr. Walsh has been the Hamilton Kuhn Professor of biological chemistry and molecular pharmacology at Harvard Medical School since 1991 and formerly was President of the Dana-Farber Cancer Institute and Chairman of the Department of Biological Chemistry and Molecular Pharmacology at Harvard Medical School. He has performed extensive research in enzyme stereochemistry, reaction mechanisms and the mechanisms of action of anti-infective and immunosuppressive agents. He is co-chairman of the Kosan Scientific Advisory Board. Dr. Walsh is also a member of the board of directors of Diacrin, Inc. Dr. Walsh received his A.B. in biology from Harvard University and Ph.D. in life sciences from The Rockefeller University, New York. In April 1998, Mr. Ostrach consented, without admitting or denying the Securities and Exchange Commission's allegations and conclusions, to the entry of a Commission administrative order requiring future compliance with Rule 102 of the Commission's Regulation M, a regulation which prohibits participants in a public stock offering from purchasing securities for their own account until the public distribution is complete. The administrative order resulted from Mr. Ostrach's purchase of 600 shares of Neurobiological Technologies, Inc., or NTI, common stock during a restricted period preceding a 1996 stock offering by NTI. SCIENTIFIC ADVISORY BOARD The following individuals are members of our Scientific Advisory Board, or SAB: CHAITAN KHOSLA, PH.D., is co-chairman of our SAB and a member of our board of directors. CHRISTOPHER WALSH, PH.D., is co-chairman of our SAB and a member of our board of directors. HOMER A. BOUSHEY, M.D., is a Professor of Medicine at the University of California, San Francisco. Dr. Boushey is an expert in clinical research on the causes and treatment of asthma and serves as Principal Investigator for UCSF's Asthma Clinical Research Center. DAVID CANE, PH.D., is Professor of Chemistry at Brown University. He is an expert in the biosynthesis of natural products, with particular emphasis on macrolide polyketides and terpenes. SAMUEL DANISHEFSKY, PH.D., is Professor of Chemistry at Columbia University. He is an expert in synthetic organic chemistry. SIR DAVID A. HOPWOOD, PH.D., is Professor and Head of the Genetics Dept. at John Innes Institute, Norwich, U.K. He is an expert in Streptomyces genetics, molecular biology and the genetic manipulation of polyketide genes. IVAN KOMPIS, PH.D., has an extensive background in natural products chemistry, in particular antibacterial agents. He recently retired from Hoffmann-La Roche, where he held the position of Deputy Director of the Department of Infectious Diseases since 1987. 35 MOHAMMED A. MARAHIEL, PH.D., is Professor of Biochemistry at Philipps University, Marburg, Germany. Dr. Marahiel is an expert in the field of non-ribosomal peptide biosynthesis. HARUO SETO, PH.D., is Professor of the Institute of Molecular and Cellular Biosciences, University of Tokyo, Japan. Dr. Seto has an extensive background in the structure, biosynthesis and screening of antibiotics. BOARD COMPOSITION Dr. Santi is currently the chairman of the board of directors. Immediately following the sale of securities under this registration statement, our board of directors will consist of six directors divided into three classes with each class serving for a term of three years. - Drs. Khosla and Whitaker will be the Class I directors whose terms expire at the annual meeting of stockholders to be held in 2001; - Drs. Walsh and Davis will be the Class II directors whose terms will expire at the annual meeting of stockholders to be held in 2002; and - Drs. Deleage and Santi will be the Class III directors whose terms will expire at the annual meeting of stockholders to be held in 2003. At each annual meeting of stockholders after the initial classification, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following the election. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of our board of directors may have the effect of delaying or preventing change in our control or management. COMMITTEES OF THE BOARD COMPENSATION COMMITTEE. The compensation committee, which is composed of Drs. Davis, Deleage and Walsh, reviews and recommends to our board of directors the compensation and benefits of all our officers and establishes and reviews general policies relating to compensation and benefits to our employees. AUDIT COMMITTEE. The audit committee, which is comprised of Drs. Whitaker, Davis and Deleage, reviews our internal accounting procedures and the services provided by our independent auditors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the compensation committee is currently, or has ever been at any time since our formation, one of our officers or employees, nor has served as a member of the board of directors or compensation committee of any entity that has one or more officers serving as a member of our board of directors or compensation committee. COMPENSATION OF DIRECTORS We reimburse our non-employee directors for expenses incurred in connection with attending board and committee meetings but do not compensate them for their services as board or committee members. We have in the past granted non-employee directors options to purchase our common stock pursuant to the terms of our stock option plans, and our board continues to have the discretion to grant options to new non-employee directors. On March 14, 2000, we granted an option to purchase 5,000 shares of common stock to director Dr. Christopher Walsh. See "Management--Stock Plans--2000 Non-Employee Director Stock Option Plan" and "Related Party Transactions." 36 EMPLOYMENT AGREEMENTS We require each of our employees to enter into confidentiality agreements prohibiting the employee from disclosing any of our confidential or proprietary information. At the time of commencement of employment, our employees also generally sign offer letters specifying basic terms and conditions of employment. In March 2000, we entered into an agreement with Brian Metcalf, Ph.D. in connection with his appointment as Senior Vice President and Chief Scientific Officer. Under the agreement, Dr. Metcalf is entitled to receive an annual salary of $280,000, a $100,000 sign-on bonus and an option to purchase 100,000 shares of our common stock. In addition, Dr. Metcalf is entitled to a housing loan up to $400,000 which will be secured by a deed of trust on Dr. Metcalf's principal residence. In addition, Dr. Metcalf is entitled to five years of monthly mortgage assistance to support up to a $400,000 mortgage. Either we or Dr. Metcalf may terminate his employment at any time for any reason. If we terminate Dr. Metcalf without cause during his first three years of employment, he will receive twelve months of salary continuation. Further, if such termination occurred after one year from his date of hire, six additional months of vesting of his stock options will be accelerated. In October 1999, we entered into an agreement with Susan M. Kanaya in connection with her appointment as Vice President, Finance and Chief Financial Officer. Under the agreement, Ms. Kanaya is entitled to receive an annual salary of $172,500, a $20,000 sign-on bonus and an option to purchase 50,000 shares of our common stock. In addition, Ms. Kanaya is entitled to a $50,000 loan to replace an existing loan arrangement with her former employer, which is forgiven on the third anniversary date of her employment with us. Either we or Ms. Kanaya may terminate her employment at any time for any reason. If we terminate Ms. Kanaya's employment without cause during the first two years of employment, she will receive six months of salary continuation and an additional six months of vesting on her stock options. If such termination occurs following a change in control, the period of salary continuation will be twelve months. In November 1998, we entered into an agreement with Daniel V. Santi, MD, Ph.D. in connection with his appointment as our Chief Executive Officer. Under the agreement, Dr. Santi is entitled to receive an annual base salary of $250,000, adjusted annually by a minimum of a percentage change equal to the annual percentage change in the Consumer Price Index, and an option to purchase 250,000 shares of our common stock. Either we or Dr. Santi may terminate his employment at any time for any reason. If we terminate Dr. Santi without cause, he will receive a lump sum severance payment in the amount equal to eighteen months of his then current base salary, and eighteen months accelerated vesting of the shares subject to the stock option. In July 1998, we entered into an agreement with Kevin Kaster in connection with his appointment as Vice President, Intellectual Property. Under the agreement, Mr. Kaster is entitled to receive an annual base salary of $180,000 and an option to purchase 60,000 shares of our common stock. Either we or Mr. Kaster may terminate his employment at any time for any reason. If we terminate Mr. Kaster without cause during the first three and one-half years of employment, he will receive an amount equal to six months of his then current base salary and will accelerate the vesting of the lesser of (a) six months of his original stock option grant and (b) the remainder of his original stock option grant. Drs. Santi, Khosla and Metcalf, Messrs. Ostrach and Kaster and Ms. Kanaya each have stock option or stock purchase agreements which contain acceleration clauses providing for 100% vesting of the unvested shares in the event of a change in control. 37 EXECUTIVE COMPENSATION The following table sets forth information concerning compensation that we paid during 1999 to our Chief Executive Officer and to our four other most highly compensated executive officers who received salary and bonus compensation of more than $100,000 during 1999 on an annualized basis. All option grants were made under our 1996 Stock Option Plan. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ------------ NUMBER OF ANNUAL COMPENSATION SECURITIES ------------------- UNDERLYING NAME AND PRINCIPAL POSITION SALARY BONUS OTHER OPTIONS - --------------------------- -------- -------- -------- ------------ Daniel V. Santi .................................... $250,812 -- -- -- Chairman and Chief Executive Officer Michael S. Ostrach ................................. 191,667 -- -- -- Chief Operating Officer Susan M. Kanaya(1) ................................. 26,870 $20,000 -- 50,000 Vice President, Finance and Chief Financial Officer Kevin Kaster ....................................... 190,559 -- -- 12,500 Vice President, Intellectual Property Daniel Chu(2) ...................................... 172,560 -- $46,800 -- Former Vice President, Research
- ------------------------ (1) Ms. Kanaya joined Kosan in November 1999. Her annual salary is $172,500. (2) Dr. Chu resigned as Vice President, Research, effective November 30, 1999. His other compensation represents a separation payment. OPTION GRANTS The following table sets forth summary information regarding the option grants made to our Chief Executive Officer and four of our other executive officers whose salary and bonus was in excess of $100,000 on an annualized basis during 1999. Options granted to purchase shares of our common stock under our 1996 Stock Option Plan are generally immediately exercisable by the optionee but are subject to a right of repurchase pursuant to the vesting schedule of each specific grant. In the event that a purchaser ceases to provide service to us, we have the right to repurchase any of that person's unvested shares of common stock at the original option exercise price. The purchase price per share is equal to the deemed fair market value of our common stock on the date of grant as determined by our board of directors. The percentage of total options was calculated based on options to purchase an aggregate of 154,700 shares of common stock granted under our 1996 Stock Option Plan in 1999. The potential realizable value was calculated based on the ten-year term of the options and assumed rates of stock appreciation of 5% and 10%, compounded annually from the date the options were granted to their expiration date based on the fair market value of the common stock on the date of grant. These assumed rates of appreciation comply with the rules of the Securities and Exchange Commission and do not represent our estimate of our future stock price. For our employees and officers, 25% of the option grant generally vests on the one-year anniversary of employment, and the remainder vest in a series of equal monthly installments beginning on the one-year anniversary of employment and 38 continuing over the next three years of service. See "Management--Stock Plans" for a description of the material terms of these options. OPTION GRANTS IN 1999
PERCENTAGE OF POTENTIAL REALIZABLE NUMBER OF TOTAL VALUE AT ASSUMED ANNUAL SECURITIES OPTIONS RATES OF STOCK APPRECIATION UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------- NAME GRANTED FISCAL YEAR (PER SHARE) DATE 5% 10% - ---- ---------- ------------- ----------- ---------- ------------ ------------- Daniel V. Santi................. -- -- -- -- $ $ Michael S. Ostrach(1)........... -- -- -- -- Susan M. Kanaya(2).............. 50,000 32% $1.00 11/04/09 Kevin Kaster(3)................. 12,500 8% 1.00 08/06/09 Daniel Chu...................... -- -- -- --
- ------------------------ (1) In February 2000, we granted Mr. Ostrach an option to purchase 25,000 shares of common stock at an exercise price of $1.25 per share, which was equal to the fair market value of the common stock on the date of grant as determined by the board of directors. These options vest over a four-year period from the date of grant. (2) In March 2000, we granted Ms. Kanaya an option to purchase 5,000 shares of common stock at an exercise price of $3.00 per share, which was equal to the fair market value of the common stock on the date of grant. These options vest over a four-year period from the date of grant. (3) In February 2000, we granted Mr. Kaster an option to purchase 12,500 shares of common stock at an exercise price of $1.25 per share, which was equal to the fair market value of the common stock on the date of grant as determined by the board of directors. These options vest over a four-year period from the date of grant. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table provides summary information concerning the shares of common stock represented by outstanding stock options held by our Chief Executive Officer and four of our other most highly compensated executive officers with annualized base salaries in excess of $100,000 as of December 31, 1999. Options granted to purchase shares of our common stock under our 1996 Stock Option Plan are generally immediately exercisable by optionees but are subject to a right of repurchase pursuant to the vesting schedule of each specific grant. The repurchase option generally lapses over a four-year period with 25% lapsing after the first year and the remainder in equal monthly installments thereafter over a three-year period. In the event that a purchaser ceases to provide service to us, we have the right to repurchase any of that person's unvested shares of common stock at the original option exercise price. Amounts shown in the value realized column were calculated based on the difference between the option exercise price and the fair market value of the common stock on the 39 date of exercise, without taking into account any taxes that may be payable in connection with the transaction, multiplied by the number of shares of common stock underlying the option.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT SHARES DECEMBER 31, 1999 DECEMBER 31, 1999(2) ACQUIRED VALUE --------------------------- --------------------------- NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ----------- ----------- ------------- ----------- ------------- Daniel V. Santi.................. -- -- -- -- -- Michael S. Ostrach............... -- -- 110,000 -- -- Susan M. Kanaya.................. -- -- 50,000 -- -- Kevin Kaster..................... -- -- 72,500 -- -- Daniel Chu....................... -- -- -- -- --
- ------------------------ (1) Based on an assumed initial public offering price of $ per share, minus the per-share exercise price, multiplied by the number of shares issued upon exercise of the option. (2) The value of unexercised in-the-money options is calculated based on the difference between an assumed initial public offering price of $ per share and the exercise price for these shares, multiplied by the number of shares underlying the option. STOCK PLANS 1996 STOCK OPTION PLAN Our 1996 Stock Option Plan was adopted by our board of directors in June 1996 and approved by the stockholders in June 1996. This plan provides for the grant of incentive stock options to our employees and nonstatutory stock options to our employees, directors and consultants. The board of directors approved amendments to the stock option plan to increase the number of shares reserved under the stock option plan in October 1998, October 1999 and March 2000. The stockholders approved these amendments in October, 1998, November, 1999 and March 2000, respectively. As of March 30, 2000, 1,700,000 shares of common stock were reserved for issuance under this plan. Of these shares, 701,439 shares were issued upon exercise of stock options, 355,434 shares were subject to outstanding options and 643,127 shares were available for future grant. Our board of directors or a committee appointed by the board administers the stock option plan and determines the terms of options granted, including the exercise price, the number of shares subject to individual option awards and the vesting of the options. The exercise price of nonstatutory options must generally be at least 85% of the fair market value of the common stock on the date of grant. The exercise price of incentive stock options cannot be lower than 100% of the fair market value of the common stock on the date of the grant and, in the case of incentive stock options granted to holders of more than 10% of our voting power, not less than 110% of the fair market value. The term of an incentive stock option cannot exceed ten years, and the term of an incentive stock option granted to a holder of more than 10% of our voting power cannot exceed five years. A participant may not transfer rights granted under our stock option plan other than by will, the laws of descent and distribution or as otherwise provided under the stock option plan. Options granted under our stock option plan are immediately exercisable. Unvested shares are subject to our right of repurchase in the event the employee, director or consultant ceases his or her employment with us. Our board of directors may not, without the adversely affected optionee's prior written consent, amend, modify or terminate the stock option plan if the amendment, modification or termination would impair the rights of optionees. Our stock option plan will terminate in 2006 unless terminated earlier by the board of directors. 40 2000 EMPLOYEE STOCK PURCHASE PLAN Our 2000 employee stock purchase plan was adopted by our board of directors in March 2000, and we expect will be approved by our stockholders in April 2000. A total of 100,000 shares of our common stock has been reserved for issuance under the 2000 employee stock purchase plan. The 2000 purchase plan, which is intended to qualify under Section 423 of the Internal Revenue Code, contains a 6 month offering period. The offering period generally starts on the first trading day on or after June 1 and December 1 of each year, except for the first such offering period which commences on the first trading day on or after the effective date of this offering and ends on the last trading day on or before November 30. Employees are eligible to participate if they are employed by us for at least 20 hours per week and more than five months in any calendar year. However, employees may not be granted an option to purchase stock under the 2000 employee stock purchase plan if they either: - immediately after grant, own stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock; or - hold rights to purchase stock under our employee stock purchase plans which accrue at a rate which exceeds $25,000 worth of stock for each calendar year. The 2000 employee stock purchase plan permits participants to purchase our common stock through payroll deductions of up to 15% of the participant's compensation. Compensation is defined as the participant's base gross earnings but exclusive of incentive compensation and bonuses. The maximum number of shares a participant may purchase during a single purchase period is 5,000 shares. Amounts deducted and accumulated by the participant are used to purchase shares of common stock at the end of each purchase period. The price of stock purchased under the 2000 purchase plan is generally 85% of the lower of the fair market value of the common stock either: - at the beginning of the offering period; or - at the end of the purchase period. In the event the fair market value at the end of a purchase period is less than the fair market value at the beginning of the offering period, the participants will be withdrawn from the current offering period following exercise and automatically re-enrolled in a new offering period. The new offering period will use the lower fair market value as of the first date of the new offering period to determine the purchase price for future purchase periods. Participants may end their participation at any time during an offering period, and they will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with us. Rights granted under the 2000 employee stock purchase plan are not transferable by a participant other than by will, the laws of descent and distribution, or as otherwise provided under the 2000 employee stock purchase plan. The 2000 employee stock purchase plan provides that, in the event we merge with or into another corporation or there is a sale of substantially all of our assets, each outstanding option may be assumed or substituted for by the successor corporation. If the successor corporation refuses to assume or substitute for the outstanding options, the offering period then in progress will be shortened and a new exercise date will be set. The 2000 employee stock purchase plan will terminate in 2010. Our board of directors has the authority to amend or terminate the 2000 employee stock purchase plan, except that no such action may adversely affect any outstanding rights to purchase stock under the 2000 employee stock purchase plan. 41 2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN Non-employee directors are entitled to participate in our 2000 non-employee director stock option plan, or the director option plan. The director option plan was adopted by our board of directors in March 2000 and we expect will be approved by our stockholders in April 2000, but it will not become effective until the date of this offering. The director option plan has a term of ten years, unless terminated sooner by our board of directors. A total of 100,000 shares of our common stock have been reserved for issuance under the director option plan. The director option plan generally provides for an automatic initial grant of an option to purchase 2,500 shares of our common stock to each non-employee director on the date which the later of the following events occur: - the effective date of the director option plan; or - the date when a person first becomes a non-employee director. After the initial grant, a non-employee director will automatically be granted subsequent options to purchase 1,250 shares of our common stock each year on the date of our annual stockholder's meeting, if on such date he or she has served on our board of directors for at least six months. Each initial option grant and each subsequent option grant shall have a term of 10 years. Each initial option grant will vest as to 25% of the shares subject to the option on each anniversary of its date of grant and each subsequent option grant will vest as to 100% of the shares subject to the option on each anniversary of its date of grant. The exercise price of all options will be 100% of the fair market value per share of our common stock on the date of grant. The director option plan provides that in the event of our merger with or into another corporation, or a sale of substantially all of our assets, each option will become fully vested and exercisable for a period of thirty days from the date our board of directors notifies the optionee of the option's full exercisability, after which period the option shall terminate. Options granted under the director option plan must be exercised within three months of the end of the optionee's tenure as a director of the Company, or within 12 months after such director's termination by death or disability, but in no event later than the expiration of the option's ten year term. No option granted under the director option plan is transferable by the optionee other than by will or the laws of descent and distribution, and each option is exercisable, during the lifetime of the optionee, only by the optionee. LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION MATTERS Our certificate of incorporation and bylaws limit the liability of our directors, officers, employees, and other agents to the fullest extent permitted by Delaware law. However, we will indemnify a person in connection with a proceeding initiated by such person only if such proceeding was authorized by our board. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for - breach of their duty of loyalty to the corporation or its stockholders; - acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; - unlawful payments of dividends or unlawful stock repurchases or redemptions; or - any transaction from which the director derived an improper personal benefit. This limitation of liability does not apply to liabilities arising under the federal or state securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. 42 We believe that indemnification under our bylaws and certificate of incorporation covers at least negligence and gross negligence on the part of indemnified parties. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee, or other agent for any liability arising out of his or her actions in this capacity, regardless of whether the bylaws permit indemnification. We have entered and intend to continue to enter into agreements to indemnify our directors, in addition to the indemnification provided for in our bylaws. These agreements, among other things, indemnify our directors and officers for certain expenses (including attorneys' fees), judgments, fines, and settlement amounts incurred by any such person in any action or proceeding, including any action by or in our right arising out of such person's services as one of our directors or such person's services to any of our subsidiaries or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and officers. See "Related Party Transactions." There is no pending litigation or proceeding involving any of our directors or officers in which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification. 43 RELATED PARTY TRANSACTIONS - -------------------------------------------------------------------------------- The following executive officers, directors and holders of more than five percent of our voting securities purchased securities in the amounts as of the dates shown below.
SHARES OF PREFERRED STOCK COMMON ------------------------------ STOCK SERIES A SERIES B SERIES C ----------------- -------- -------- -------- DIRECTORS AND EXECUTIVE OFFICERS Daniel V. Santi, M.D., Ph.D.... 966,498 229,761 24,244 -- Chaitan Khosla, Ph.D........... 587,857 7,143 -- -- 5% STOCKHOLDERS AG Biotech Capital LLC(1)...... -- -- 484,848 16,129 Alta California Partners(2).... 52,263 462,968 5,415 23,654 Alta Embarcadero Partners(2)... 1,552 13,224 237,009 540 Franklin Biotechnology Discovery Fund............... -- -- -- 387,097 Lombard Odier & Cie............ 363,636 58,065 S.R. One, Limited(3)........... 303,030 16,129 Price per share................ $0.001 to $1.10 $4.20 $8.25 $ 31.00 Date(s) of purchase............ Jan 1995 - Nov 99 Jan 97 Apr 98 Mar 00
- ------------------------ (1) Peter Davis, one of our directors, is a member of the Executive Committee of Pulsar International, S.A., an affiliate of AG Biotech Capital LLC. (2) Jean Deleage, one of our directors, is a general partner of Alta Partners, an affiliate of Alta California Partners and Alta Embarcadero Partners. (3) Raymond Whitaker, one of our directors, is Vice President of S.R. One, Limited, the venture investment affiliate of SmithKline Beecham. PROMISSORY NOTES. Stock options granted under our 1996 Stock Option Plan are immediately exercisable as to both vested and unvested shares, with unvested shares being subject to a right of repurchase in our favor in the event of termination of employment or consultancy prior to vesting of all shares. These individuals pay the exercise price for their outstanding options pursuant to full recourse promissory notes secured by the common stock underlying the options. The notes bear interest at the Applicable Mid Term Federal Rate at the time of exercise. Principal and interest is due on the earlier of the employee's or consultant's termination date or three years after the date of the promissory note. As of February 29, 2000, the original and outstanding principal amounts of each promissory note by a director or executive officer are set forth below.
ORIGINAL AND OUTSTANDING NOTE DIRECTOR OR EXECUTIVE OFFICER ISSUANCE DATE AMOUNT - ----------------------------- -------------- ---------------- Daniel V. Santi............................. December 1998 $275,000 Michael S. Ostrach.......................... February 2000 74,250 Susan M. Kanaya............................. February 2000 50,000 Kevin Kaster................................ February 2000 72,500 Chaitan Khosla.............................. September 1999 71,500
CONSULTING AGREEMENTS. In December 1998, we entered into an amended and restated consulting agreement with our co-founder and director, Dr. Chaitan Khosla. Under the terms of this agreement, Dr. Khosla is entitled to receive consulting fees of not less than $100,000 per year and was granted an 44 option to purchase 65,000 shares of our common stock at an exercise price of $1.10 per share which vest over a four year period. During 1999, total consulting fees paid to Dr. Khosla totaled $104,279. Either Kosan or Dr. Khosla may terminate his consultancy at any time for any reason. If we terminate Dr. Khosla without cause or as a result of a change in control, he will receive the greater of (i) any compensation payable during the extended term of his consulting agreement or (ii) an amount equal to two times his then-current annual compensation. Further, all of Dr. Khosla's stock options and other similar equity rights will immediately vest in full. In December 1995, we entered into a consulting agreement with our director, Dr. Christopher Walsh. Under the terms of this agreement, Dr. Walsh is entitled to receive $1,000 per day for consultations and entered into a restricted stock purchase agreement which provided for the purchase of 20,000 shares of common stock at a purchase price of $0.002 per share, which vest over five years. In March 2000, we granted Dr. Walsh an additional option to purchase 5,000 shares of common stock at a purchase price of $3.00 per share, which vest over a four-year period. INDEMNIFICATION AGREEMENTS. We have entered into indemnification agreements with Drs. Davis, Deleage, Khosla, Santi, Walsh and Whitaker, Mr. Ostrach, Ms. Kanaya and Mr. Kaster. We intend to enter into indemnification agreements with all of our directors and officers for the indemnification of those persons to the full extent permitted by law. We also intend to execute these agreements with our future directors and officers. STOCK OPTIONS. Stock option grants to our executive officers and directors are described in this prospectus under the captions "Management--Compensation of Directors", "--Executive Compensation" and "--Option Grants". 45 PRINCIPAL STOCKHOLDERS - -------------------------------------------------------------------------------- The following table sets forth information with respect to beneficial ownership of our common stock as of March 30, 2000, as adjusted to reflect the sale of common stock in this offering. Information is given for: - each stockholder who is known by us to beneficially own more than five percent of our common stock; - our Chief Executive Officer and each of our four other most highly compensated executive officers whose compensation on an annualized basis exceeded $100,000 in 1999; - each of our directors and executive officers; and - all of our directors and officers as a group. Percentage of ownership in the following table is calculated based on 6,250,321 shares of our common stock outstanding as of March 30, 2000 and shares of common stock outstanding after completion of this offering. Beneficiary ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person are deemed outstanding. Those shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws, where applicable.
AMOUNT OF SHARES BENEFICIALLY OWNED AS OF MARCH 30, 2000 ----------------------------------------- PERCENTAGE OF TOTAL OUTSTANDING SHARES BENEFICIALLY OWNED ------------------- NUMBER OF SHARES BEFORE AFTER NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING - ------------------------------------ ------------------- -------- -------- Daniel V. Santi, M.D., Ph.D.(1)......................... 1,220,503 19.5% Alta Partners (2)....................................... 796,625 12.8% AG Biotech Capital (3).................................. 500,977 8.0% Lombard Odier & Cie (4)................................. 421,701 6.8% Franklin Biotechnology Discovery Fund (5)............... 387,097 6.2% S.R. One, Limited (6)................................... 319,159 5.1% Peter Davis, Ph.D. (7).................................. 500,977 8.0% Jean Deleage, Ph.D. (8)................................. 796,625 12.8% Chaitan Khosla, Ph.D. (9)............................... 595,000 9.5% Christopher Walsh, Ph.D. (10)........................... 26,500 * Raymond Whitaker, Ph.D. (11)............................ 319,159 5.1% Michael S. Ostrach (12)................................. 135,000 2.2% Brian W. Metcalf, Ph.D. (13)............................ 100,000 1.6% Susan M. Kanaya (14).................................... 55,000 * Kevin Kaster (15)....................................... 85,000 1.4% Daniel Chu (16)......................................... 22,500 * All directors and executive officers as a group (10 persons)(17).......................................... 3,856,264 61.7%
- ------------------------ * Less than one percent (1%) (1) Includes 161,458 shares that are subject to our right of repurchase as of March 30, 2000 if Dr. Santi is no longer an employee, director or consultant with us. Dr. Santi is located at 3832 Bay Center Place, Hayward, CA 94545. 46 (2) Alta Partners is located at One Embarcadero Center, Suite 4050, San Francisco, CA 94111. Includes 544,300 shares that are held by Alta California Partners, L.P. and 252,325 shares that are held by Alta Embarcadero Partners, LLC. (3) AG Biotech Capital, LLC is located at AG Biotech Capital LLC, c/o Viridian Management, LLC, 686 N. DuPont Boulevard #200, Milford, DE 19963. (4) Lombard Odier & Cie is located at Sihlstrasse 20, 8021 Zurich, Switzerland. (5) Franklin Biotechnology Discovery Fund is located at 777 Mariners Island Blvd., San Mateo, CA 94404 (6) S.R. One, Limited is located at Four Tower Bridge, West Conshohoken, PA 19428. (7) Includes 500,977 shares that are held by AG Biotech Capital LLC. Dr. Davis, one of our directors, is a member of the Executive Committee of Pulsar International, S.A., an affiliate of AG Biotech Capital. Dr. Davis disclaims beneficial ownership of the shares held by AG Biotech Capital except to the extent of his proportionate pecuniary interest therein. Dr. Davis is located c/o Pulsar International, 1 Tower Bridge, West Conshohoken, PA 19428. (8) Consists of 796,625 shares held directly by Alta Partners. Dr. Deleage, one of our directors, is the managing general partner of Alta Partners and disclaims beneficial ownership of such shares except to the extent of his proportionate pecuniary interest therein. Dr. Deleage is located at One Embarcadero Center, Suite 4050, San Francisco, CA 94111. (9) Includes 46,041 shares that are subject to our right of repurchase as of March 30, 2000 if Dr. Khosla is no longer an employee, director or consultant with us. Dr. Khosla is located at 3832 Bay Center Place, Hayward, CA 94545. (10) Includes the following: (i) 3,333 shares that are subject to our right of repurchase as of March 30, 2000; and (ii) 6,500 shares that are subject to option as of March 30, 2000, of which 5,687 would be subject to our right of repurchase if Dr. Walsh is no longer an employee, director or consultant with us. (11) Includes 319,159 shares that are held by S.R. One, Limited. Dr. Whitaker, one of our directors, is Vice President of S.R. One, Limited, the venture investment affiliate of SmithKline Beecham. Dr. Whitaker disclaims beneficial ownership of the shares held by S.R. One, Limited except to the extent of his proportionate pecuniary interest therein. Dr. Whitaker is located at Four Tower Bridge, West Conshohoken, PA 19428. (12) Includes the following. (i) 52,916 shares that are subject to our right of repurchase as of March 30, 2000; and (ii) 25,000 shares that are subject to option as of March 30, 2000, of which 24,479 would be subject to our right of repurchase if Mr. Ostrach is no longer an employee, director or consultant with us. (13) Includes 100,000 shares that are subject to option as of March 30, 2000, all of which would subject to our right of repurchase if Dr. Metcalf is no longer an employee, director or consultant with us. (14) Includes the following: (i) 50,000 shares that are subject to our right of repurchase as of March 30, 2000; and (ii) 5,000 shares that are subject to option as of March 30, 2000, all of which would be subject to our right of repurchase if Ms. Kanaya is no longer an employee, director or consultant with us. (15) Includes the following: (i) 46,927 shares that are subject to our right of repurchase as of March 30, 2000; and (ii) 12,500 shares that are subject to option as of March 30, 2000, of which 12,239 would be subject to our right of repurchase if Mr. Kaster is no longer an employee, director or consultant with us. (16) Dr. Chu resigned as Vice President, Research, effective November 30, 1999. (17) Includes shares included pursuant to notes (1) and (8) through (16) above. 47 DESCRIPTION OF CAPITAL STOCK - -------------------------------------------------------------------------------- Our certificate of incorporation, the filing of which will occur at the closing of this offering, authorizes the issuance of up to 200,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share, the rights and preferences of which may be established from time to time by our board of directors. As of March 30, 2000, after giving effect to the conversion of all of our preferred stock into common stock, 6,250,321 shares of common stock were outstanding. As of March 30, 2000, we had 99 stockholders. COMMON STOCK Each holder of common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders and there are no cumulative voting rights. Subject to preferences to which holders of preferred stock issued after the sale of the common stock offered hereby may be entitled, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available therefor. In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share in our assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted to the holders of any outstanding shares of preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and the shares of common stock offered by us in this offering, when issued and paid for, will be, fully paid and nonassessable. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock, which we may designate in the future. PREFERRED STOCK Upon the closing of this offering, the board of directors will be authorized, subject to any limitations prescribed by law, without stockholder approval, from time to time to issue up to an aggregate of 10,000,000 shares of preferred stock, $0.001 par value per share, in one or more series, each of such series to have such rights and preferences, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the board of directors. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our outstanding voting stock. We have no present plans to issue any shares of preferred stock. REGISTRATION RIGHTS Pursuant to the Third Amended and Restated Registration Rights Agreement entered into between us and holders of 4,408,827 shares of common stock and holders of shares of common stock issuable upon conversion of our Series A, Series B and Series C preferred stock, we are obligated, under limited circumstances and subject to specified conditions and limitations, to use our reasonable best efforts to register the registrable shares. We must use our reasonable best efforts to register shares subject to such registration rights if we: - receive written notice from holders of 50% or more of the registrable shares requesting that we effect a registration with respect to at least 20% of the registrable shares then held by the holders requesting registration; - decide to register our own securities; or 48 - both receive written notice from any holder or holders of the registrable shares requesting that we effect a registration on Form S-3 (a shortened form of registration statement) with respect to the registrable shares, and are then eligible to use Form S-3 (which at the earliest could occur 12 calendar months after the closing of this offering). However, in addition to certain other conditions and limitations, if we are proposing to issue registered shares and the underwriters request to decrease the number of shares registered, we can limit the number of registrable shares included in the registration statement. The underwriters have requested that no registrable shares be registered in this offering. In addition, the holders of these registration rights have entered into lockup agreements and waived their registration rights until 180 days following the completion of this offering. DELAWARE ANTI-TAKEOVER LAW AND CHARTER PROVISIONS Certain provisions of our certificate of incorporation and bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. Certain of these provisions will create a classified board of directors, will allow us to issue preferred stock without any vote or further action by the stockholders, require advance notification of stockholder proposals and nominations of candidates for election as directors, eliminate cumulative voting in the election of directors and eliminate shareholder action by written consent. In addition, our bylaws will provide that special meetings of the stockholders may be called only by the Chairman of the Board, the President, or board of directors and that the authorized number of directors may be changed only by resolution of the board of directors. These provisions may make it more difficult for stockholders to take certain corporate actions and could have the effect of delaying or preventing a change in our control. In addition, we will be subject to Section 203 of the Delaware General Corporation Law. This law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder, unless any of the following conditions are met. First, this law does not apply if prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder. Second, the law does not apply if upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer. Third, the law does not apply if at or after the date of the transaction, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for our common stock is Chase Mellon Shareholder Services LLC. 49 SHARES ELIGIBLE FOR FUTURE SALE - -------------------------------------------------------------------------------- Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of our common stock in the public market could reduce prevailing market prices. Furthermore, since certain shares will not be available for sale shortly after this offering because of contractual and legal restrictions on resale as described below, sales of substantial amounts of our common stock in the public market after any restrictions on sale lapse could adversely affect the prevailing market price of the common stock and impair our ability to raise equity capital in the future. Upon completion of the offering, we will have outstanding shares of common stock, assuming no exercise of the over-allotment option and no exercises of outstanding options after , 2000. Of these shares, all of the shares sold in the public offering will be freely tradable without restriction or further registration under the Securities Act, unless these shares are purchased by affiliates. The remaining 6,250,321 shares of common stock held by existing stockholders are restricted securities. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration described below under Rules 144, 144(k) or 701 promulgated under the Securities Act. As a result of contractual restrictions described below and the provisions of Rules 144, 144(k) and 701, the restricted shares will be available for sale in the public market as follows: - unless held by affiliates, the shares sold in the public offering will be freely tradable upon completion of the offering; - 5,147,478 shares will be eligible for sale upon the expiration of the lock-up agreements, described below, beginning 180 days after the date of this prospectus; and - 66,853 shares will be eligible for sale upon the exercise of vested options 180 days after the date of this prospectus. LOCK-UP AGREEMENTS All of our directors, officers, employees and other stockholders, who together hold all of our securities, have entered into lock-up agreements in connection with this offering. These lock-up agreements generally provide that these holders will not offer, sell, contract to sell, grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock owned by them for a period of 180 days after the date of this prospectus without the prior written consent of Warburg Dillon Read LLC. Notwithstanding possible earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements may not be sold until these agreements expire or are waived by Warburg Dillon Read LLC. RULE 144 In general, under Rule 144 as currently in effect, after the expiration of the lock-up agreements, a person who has beneficially owned restricted securities for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: - one percent of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; and - the average weekly trading volume of our common stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to requirements with respect to manner of sale, notice and the availability of current public information about us. 50 RULE 144(K) Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, may sell these shares without complying with the manner of sale, public information, volume limitation or notice requirements of Rule 144. RULE 701 Rule 701, as currently in effect, permits our employees, officers, directors or consultants who purchased shares pursuant to a written compensatory plan or contract to resell such shares in reliance upon Rule 144, but without compliance with certain restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 90 days after effectiveness without complying with the holding period requirement and that non-affiliates may sell such shares in reliance on Rule 144 90 days after effectiveness without complying with the holding period, public information, volume limitation or notice requirements of Rule 144. REGISTRATION RIGHTS Upon completion of this offering, the holders of 4,408,827 shares of our common stock, or their transferees, will be entitled to rights with respect to the registration of their shares under the Securities Act. Registration of their shares under the Securities Act would result in these shares becoming freely tradeable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of such registration. STOCK OPTIONS We intend to file a registration statement under the Securities Act after the effective date of this offering to register shares to be issued pursuant to our employee and director benefit plans. As a result, any options or rights exercised under the 1996 stock option plan, the 2000 employee stock purchase plan and the 2000 non-employee directors' stock option plan will also be freely tradable in the public market. However, shares held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144, unless otherwise resalable under Rule 701. As of March 30, 2000, we had granted options to purchase 355,434 shares of common stock that had not been exercised, of which options to purchase 48,063 shares were both exercisable and not subject to a right of repurchase in our favor. 51 UNDERWRITING - -------------------------------------------------------------------------------- We have entered into an underwriting agreement with the underwriters named below. Warburg Dillon Read LLC, CIBC World Markets Corp., and Prudential Securities Incorporated are acting as representatives of the underwriters. The underwriting agreement will provide for the purchase of a specific number of shares of common stock by each of the underwriters. The underwriters' obligations are several, which means that each underwriter is required to purchase a specific number of shares, but is not responsible for the commitment of any other underwriter to purchase shares. Subject to the terms and conditions of the underwriting agreement, each underwriter will severally agree to purchase the number of shares of common stock set forth opposite its name below.
NAME NUMBER OF SHARES - ---- ---------------- Warburg Dillon Read LLC..................................... CIBC World Markets Corp..................................... Prudential Securities Incorporated.......................... ----- Total................................................... =====
This is a firm commitment underwriting. This means that the underwriters have agreed to purchase all of the shares offered by this prospectus, other than those covered by the over-allotment option described below, if any are purchased. Under the underwriting agreement, if an underwriter defaults in its commitment to purchase shares, the commitments of non-defaulting underwriters may be increased or the underwriting agreement may be terminated, depending on the circumstances. The representatives have advised us that the underwriters propose to offer the shares directly to the public at the public offering price that appears on the cover page of this prospectus. In addition, the representatives may offer some of the shares to certain securities dealers at such price less a concession of $ per share. The underwriters may also allow to dealers, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the shares are released for sale to the public, the representatives may change the offering price and other selling terms at various times. We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 30 days after the date of this prospectus, permits the underwriters to purchase a maximum of additional shares of our common stock to cover over-allotments. If the underwriters exercise all or part of this option, they will purchase shares covered by the option at the public offering price that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the underwriters will purchase shares from us, the total price to the public will be , and the total proceeds to us will be . The underwriters have severally agreed that, to the extent the over-allotment option is exercised, each of the underwriters will purchase a number of additional shares proportionate to its initial amount reflected in the above table. The following table provides information regarding the amount of the discount to be paid to the underwriters by us:
PAID BY US --------------------------------------------- NO EXERCISE OF FULL EXERCISE OF OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION --------------------- --------------------- Per Share.............................. $ $ Total.................................. $ $
We estimate that the total expenses of this offering, excluding the underwriter discount, will be approximately $ . 52 We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act. We and our directors, executive officers, and all of the holders of our common stock and securities convertible into or exercisable or exchangeable for common stock issued prior to this offering, have agreed pursuant to certain lock-up agreements with the underwriters that we and they will not offer, sell, contract to sell, pledge, grant any option to sell, or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exercisable or exchangeable for our common stock for a period of 180 days after the date of this prospectus without the prior written consent of Warburg Dillon Read LLC. Warburg Dillon Read LLC, in its sole discretion, may release the shares subject to the lock-up agreements in whole or in part at any time with or without notice. However, Warburg Dillon Read LLC has no current plan to do so. At our request, the underwriters have reserved for offer and sale at the initial public offering price up to shares of our common stock for our officers, directors, employees, clients, friends and related persons who express an interest in purchasing these shares. The number of shares of our common stock available for sale to the general public will be reduced to the extent these persons purchase these reserved shares. The underwriters will offer any shares not so purchased by these persons to the general public on the same basis as the other shares in this initial public offering. Warburg Dillon Read LLC and CIBC World Markets Corp. intend to distribute and deliver this prospectus only by hand or mail and intend to use only printed prospectuses. Prudential Securities Incorporated facilitates the marketing of new issues online through its PrudentialSecurities.com division. Clients of Prudential advisors may view offering terms and this prospectus online. Prior to this offering, there has been no public market for our common stock. Consequently, the offering price for our common stock will be determined by negotiations between us and the underwriters and will not necessarily be related to our asset value, net worth or other established criteria of value. The factors to be considered in these negotiations, in addition to prevailing market conditions, will include the history of and prospects for the industry in which we compete, an assessment of our management, our prospects, our capital structure and certain other factors as are deemed relevant. Rules of the Securities and Exchange Commission may limit the ability of the underwriters to bid for or purchase shares before the distribution of shares is completed. However, the underwriters may engage in the following activities in accordance with the rules: - STABILIZING TRANSACTIONS--The representatives may make bids for or purchases of the shares for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum. - OVER-ALLOTMENTS AND SYNDICATE COVERING TRANSACTIONS--The underwriters may create a short position in the shares by selling more shares than are set forth on the cover page of this prospectus. If a short position is created in connection with this offering, the representatives may engage in syndicate covering transactions by purchasing shares in the open market. The representatives may also elect to reduce any short position by exercising all or part of the over-allotment option. - PENALTY BIDS--If the representatives purchase shares in the open market in a stabilizing transaction or syndicate covering transaction, they may reclaim a selling concession from the underwriters and selling group members who sold those shares as part of this offering. Stabilization and syndicate covering transactions may cause the price of the shares to be higher than it would be in the absence of these transactions. The imposition of a penalty bid might also have an effect on the price of the shares if it discourages resales of the shares. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the shares. These transactions may occur on the Nasdaq National Market or otherwise. If these transactions are commenced, they may be discontinued at any time without notice. The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered. 53 LEGAL MATTERS - -------------------------------------------------------------------------------- Wilson Sonsini Goodrich & Rosati, PC, will pass upon the validity of the issuance of the shares of common stock offered by this prospectus. The underwriters have been represented by Brobeck, Phleger & Harrison LLP. An investment partnership composed of current and former members of and persons associated with Wilson Sonsini Goodrich & Rosati, PC, beneficially owns 5,479 shares of our common stock. CHANGE IN INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- Effective May 28, 1998, Ernst & Young LLP was engaged as our independent accountants and replaced Coopers & Lybrand L.L.P. (now, PricewaterhouseCoopers LLP), who were dismissed as our independent accountants in May 1998. The decision to change accountants was approved by our Board of Directors. The audit reports of PricewaterhouseCoopers LLP for the years ended December 31, 1997 and 1996 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with its audits through December 31, 1997 and through May 1998, there were no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statements disclosure or auditing scope or procedures, which disagreements, if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement. PricewaterhouseCoopers LLP has not audited or reported on any of the financial statements or information included in this prospectus. For purposes of this filing, the financial statements at December 31, 1997, 1996 and 1995 as well as the financial statements for the years ended December 31, 1997 and 1996 and the period from inception (January 5, 1995) to December 31, 1995 have been audited by Ernst & Young LLP. Prior to May 28, 1998, we had not consulted with Ernst & Young LLP on items that involved our accounting principles or the form of audit opinion to be issued on our financial statements. EXPERTS - -------------------------------------------------------------------------------- Ernst & Young LLP, independent auditors, have audited our financial statements at December 31, 1998 and 1999 and for each of the three years in the period ended December 31, 1999, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION - -------------------------------------------------------------------------------- We have filed with the Securities and Exchange Commission, Washington, D.C., a registration statement on Form S-1 under the Securities Act, with respect to the common stock offered by this prospectus. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information with respect to us and our common stock, reference is made to the registration statement and the exhibits and schedules filed as part of the registration statement. Statements contained in this prospectus as to the contents of any contract or document filed as an exhibit to the registration statement are qualified by reference to the applicable exhibit as filed. A copy of the registration statement, and the exhibits and schedules to the registration statement, as well as reports and other information filed by us with the SEC may be inspected without charge at 54 the public reference facilities maintained by the SEC in Room 1025, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13(th) Floor, New York, New York 10048, and copies of all of any part of the registration statement may be obtained from those offices upon the payment of the fees prescribed by the SEC. You can obtain information about the operation of the public reference facilities by calling the SEC at 1-800-SEC-0330. In addition, registration statements and other filings we make with the SEC through its electronic data gathering, analysis and retrieval, or EDGAR, system, including our registration statement, are publicly available through the Internet. The SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The SEC's web site is http://www.sec.gov. As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, will file periodic reports, proxy statements and other information with the SEC. 55 KOSAN BIOSCIENCES INCORPORATED INDEX TO FINANCIAL STATEMENTS
PAGE -------- Report of Ernst & Young LLP, Independent Auditors........... F-2 Balance Sheets as of December 31, 1998 and 1999............. F-3 Statements of Operations for the years ended December 31, 1997, 1998 and 1999....................................... F-4 Statements of Stockholders' Equity for the years ended December 31, 1997, 1998 and 1999.......................... F-5 Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999....................................... F-6 Notes to Financial Statements............................... F-7
F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Kosan Biosciences Incorporated We have audited the accompanying balance sheets of Kosan Biosciences Incorporated as of December 31, 1998 and 1999, and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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 Kosan Biosciences Incorporated at December 31, 1998 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Palo Alto, California March 10, 2000 F-2 KOSAN BIOSCIENCES INCORPORATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PRO FORMA STOCKHOLDERS' DECEMBER 31, EQUITY AT ------------------- DECEMBER 31, 1998 1999 1999 -------- -------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 3,049 $ 1,032 Short-term investments.................................... 3,279 990 Other receivables......................................... 168 498 Prepaid expenses and other current assets................. 209 325 ------- -------- Total current assets........................................ 6,705 2,845 Property and equipment, net................................. 1,407 2,587 Long-term investments....................................... 9,073 8,442 Notes receivable from related party......................... 12 87 Other assets................................................ 4 196 ------- -------- Total assets................................................ $17,201 $ 14,157 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 333 $ 486 Accrued liabilities....................................... 98 626 Deferred revenue.......................................... 1,719 409 Current portion of capital lease obligation............... 118 127 Current portion of equipment loan......................... 170 447 ------- -------- Total current liabilities................................... 2,438 2,095 Equipment loan, less current portion........................ 700 1,424 Capital lease obligation, less current portion.............. 304 167 Stockholders' equity: Convertible preferred stock, $0.001 par value; 4,348,182 shares authorized, 3,269,377 shares issued and outstanding at December 31, 1998 and 1999 (none pro forma) (aggregate liquidation preference of $21,095 at December 31, 1999)...................................... 3 3 $ -- Common stock, $0.001 par value, 12,000,000 shares authorized, 1,729,317 and 1,826,848 shares issued and outstanding at December 31, 1998 and 1999, respectively (5,096,225 shares issued and outstanding pro forma)..... 2 2 5 Additional paid-in capital................................ 21,230 24,851 24,851 Notes receivable from stockholders........................ (275) (349) (349) Deferred stock compensation............................... -- (2,377) (2,377) Accumulated other comprehensive income (loss)............. (9) (66) (66) Accumulated deficit....................................... (7,192) (11,593) (11,593) ------- -------- ------- Total stockholders' equity.................................. 13,759 10,471 $10,471 ------- -------- ------- Total liabilities and stockholders' equity.................. $17,201 $ 14,157 ======= ========
See accompanying notes. F-3 KOSAN BIOSCIENCES INCORPORATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER ------------------------------ 1997 1998 1999 -------- -------- -------- Revenues: Contract revenue........................................ $ 10 $ 974 $ 5,206 Grant revenue........................................... 277 262 140 ------- ------- ------- Total revenues............................................ 287 1,236 5,346 Operating expenses: Research and development................................ 1,922 4,030 7,623 General and administrative.............................. 457 991 1,632 Amortization of stock-based compensation................ -- -- 535 Other stock-based compensation.......................... -- -- 610 ------- ------- ------- Total operating expenses.................................. 2,379 5,021 10,400 ------- ------- ------- Loss from operations...................................... (2,092) (3,785) (5,054) Interest income........................................... 154 598 679 Interest expense.......................................... (56) (80) (196) Other income.............................................. -- -- 170 ------- ------- ------- Net loss.................................................. $(1,994) $(3,267) $(4,401) ======= ======= ======= Basic and diluted net loss per share........................ $ (1.46) $ (2.30) $ (2.93) ======= ======= ======= Shares used in computing basic and diluted net loss per share..................................................... 1,365 1,423 1,503 Pro forma net loss per share (unaudited).................... $ (0.92) ======= Shares used in computing pro forma basic and diluted net loss per share (unaudited)................................ 4,772
See accompanying notes. F-4 KOSAN BIOSCIENCES INCORPORATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONVERTIBLE NOTES PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED ---------------------- ---------------------- PAID-IN FROM STOCK-BASED SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION --------- ---------- --------- ---------- ---------- ------------ ------------- BALANCES AT DECEMBER 31, 1996...... 1,215,988 $ 2 1,156,095 $ 1 $ 3,649 $ -- -- Conversion of Series A convertible preferred stock to common stock............................ (213,722) (1) 213,722 1 -- -- -- Conversion of Series B convertible preferred stock to Series A convertible preferred stock and common stock..................... (122,500) -- 122,500 -- -- -- -- Issuance of Series A convertible preferred stock, net of issuance costs of $15..................... 571,429 -- -- -- 2,384 -- -- Repurchase of common stock......... -- -- (6,800) -- -- -- -- Net loss........................... -- -- -- -- -- -- -- --------- ---------- --------- ---------- ------- ----- ------- BALANCES AT DECEMBER 31, 1997...... 1,451,195 1 1,485,517 2 6,033 -- -- Issuance of common stock upon exercise of options.............. -- -- 4,008 -- 1 -- -- Issuance of common stock upon exercise of options in exchange for promissory note.............. -- -- 250,000 -- 275 (275) -- Issuance of Series B convertible preferred stock, net of issuance costs of $77..................... 1,818,182 2 -- -- 14,921 -- -- Repurchase of common stock......... -- -- (10,208) -- -- -- -- Comprehensive income (loss): Net loss......................... -- -- -- -- -- -- -- Unrealized loss on available-for-sale securities..................... -- -- -- -- -- -- -- Comprehensive loss................. -- -- -- -- -- -- -- --------- ---------- --------- ---------- ------- ----- ------- BALANCES AT DECEMBER 31, 1998...... 3,269,377 3 1,729,317 2 21,230 (275) -- Issuance of common stock upon exercise of options.............. -- -- 26,906 -- 25 -- -- Issuance of common stock upon exercise of options in exchange for promissory note.............. -- -- 70,625 -- 74 (74) -- Deferred stock compensation........ -- -- -- -- 2,912 -- (2,912) Amortization of deferred stock compensation..................... -- -- -- -- -- -- 535 Revaluation of stock options issued to non-employees................. -- -- -- -- 610 -- -- Comprehensive income (loss): Net loss......................... -- -- -- -- -- -- -- Unrealized loss on available-for-sale securities..................... -- -- -- -- -- -- -- Comprehensive loss................. -- -- -- -- -- -- -- --------- ---------- --------- ---------- ------- ----- ------- BALANCES AT DECEMBER 31, 1999...... 3,269,377 $ 3 1,826,848 $ 2 $24,851 $(349) $(2,377) ========= ========== ========= ========== ======= ===== ======= ACCUMULATED OTHER TOTAL COMPREHENSIVE ACCUMULATED STOCKHOLDERS' INCOME (LOSS) DEFICIT EQUITY -------------- ------------ ------------- BALANCES AT DECEMBER 31, 1996...... $ -- $ (1,931) $ 1,721 Conversion of Series A convertible preferred stock to common stock............................ -- -- -- Conversion of Series B convertible preferred stock to Series A convertible preferred stock and common stock..................... -- -- -- Issuance of Series A convertible preferred stock, net of issuance costs of $15..................... -- -- 2,384 Repurchase of common stock......... -- -- -- Net loss........................... -- (1,994) (1,994) ---- --------- ------- BALANCES AT DECEMBER 31, 1997...... -- (3,925) 2,111 Issuance of common stock upon exercise of options.............. -- -- 1 Issuance of common stock upon exercise of options in exchange for promissory note.............. -- -- -- Issuance of Series B convertible preferred stock, net of issuance costs of $77..................... -- -- 14,923 Repurchase of common stock......... -- -- -- Comprehensive income (loss): Net loss......................... -- (3,267) (3,267) Unrealized loss on available-for-sale securities..................... (9) -- (9) ------- Comprehensive loss................. -- -- (3,276) ---- --------- ------- BALANCES AT DECEMBER 31, 1998...... (9) (7,192) 13,759 Issuance of common stock upon exercise of options.............. -- -- 25 Issuance of common stock upon exercise of options in exchange for promissory note.............. -- -- -- Deferred stock compensation........ -- -- -- Amortization of deferred stock compensation..................... -- -- 535 Revaluation of stock options issued to non-employees................. -- -- 610 Comprehensive income (loss): Net loss......................... -- (4,401) (4,401) Unrealized loss on available-for-sale securities..................... (57) -- (57) ------- Comprehensive loss................. -- -- (4,458) ---- --------- ------- BALANCES AT DECEMBER 31, 1999...... $(66) $ (11,593) $10,471 ==== ========= =======
See accompanying notes. F-5 KOSAN BIOSCIENCES INCORPORATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1998 1999 -------- -------- -------- OPERATING ACTIVITIES Net loss.................................................. $(1,994) $(3,267) $(4,401) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................... 122 246 654 Amortization of stock-based compensation................ -- -- 535 Other stock-based compensation.......................... -- -- 610 Loss on sale of investments............................. -- -- 41 Loss on disposal of property and equipment.............. -- -- 10 Changes in assets and liabilities: Other receivables..................................... (136) (8) (330) Prepaid expenses and other current assets............. (42) (156) (116) Other assets and notes receivable from related parties............................................. 8 28 (267) Accounts payable...................................... 8 282 153 Accrued liabilities................................... 46 (17) 528 Deferred revenue...................................... (8) 1,719 (1,310) ------- ------- ------- Net cash used in operating activities............... (1,996) (1,173) (3,893) ------- ------- ------- INVESTING ACTIVITIES Acquisition of property and equipment, net................ (111) (1,173) (1,828) Proceeds from sale of property and equipment.............. 324 -- 2 Purchase of investments................................... (1,914) (21,419) (11,929) Proceeds from maturity of investments..................... -- 10,972 14,733 ------- ------- ------- Net cash provided by (used in) investing activities........................................ (1,701) (11,620) 978 ------- ------- ------- FINANCING ACTIVITIES Proceeds from issuance of common stock.................... -- 1 25 Proceeds from issuance of convertible preferred stock, net of issuance costs....................................... 2,385 14,923 -- Proceeds from equipment loans............................. -- 870 1,336 Principal payments under capital lease obligations........ (48) (34) (128) Principal payments under equipment loans.................. -- (23) (335) ------- ------- ------- Net cash provided by financing activities........... 2,337 15,737 898 ------- ------- ------- Net decrease in cash and cash equivalents................... (1,360) 2,944 (2,017) Cash and cash equivalents at beginning of period............ 1,465 105 3,049 ------- ------- ------- Cash and cash equivalents at end of period.................. $105 $3,049 $1,032 ======= ======= ======= SUPPLEMENTAL DISCLOSURES Interest expense paid in cash............................... $56 $80 $196 ======= ======= ======= NON-CASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock under note receivable.............. $-- $275 $74 Fixed assets acquired under capital lease................... 403 35 -- Deferred stock-based compensation........................... -- -- 2,912
See accompanying notes. F-6 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OVERVIEW Kosan Biosciences Incorporated (the "Company") was incorporated under the laws of the state of California on January 6, 1995. The Company was considered to be in the development stage through December 31, 1998. The Company is engaged in the discovery and development of pharmaceuticals by genetic manipulation of biosynthetic pathways of natural products, with an initial focus on polyketides. The Company's technology permits modifications of polyketides not feasible by chemical methods, and over-expression of scarce polyketides in optimized hosts. Therapeutic targets for the Company's compounds include infectious disease, gastrointestinal motility disorders, mucus hypersecretion, cancer, nerve regeneration and immunosuppression. The Company has funded its operations primarily through sales of preferred stock, contract payments under our collaboration agreement, equipment financing arrangements and government grants. Prior to achieving profitable operations, the Company intends to fund operations through the additional sale of equity securities, strategic collaborations and debt financing. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. UNAUDITED PRO FORMA INFORMATION If the Company's initial public offering, or IPO, as described in Note 11 is consumated, all of the preferred stock outstanding will automatically be converted into common stock. The unaudited pro forma convertible preferred stock and stockholders' equity at December 31, 1999 has been adjusted for the assumed conversion of preferred stock based on the shares of preferred stock outstanding at December 31, 1999. CASH EQUIVALENTS AND INVESTMENTS The Company considers all highly liquid investments with a maturity from date of purchase of three months or less to be cash equivalents. The Company limits its concentration of risk by diversifying its investments among a variety of issuers. The Company classifies all investment securities as available-for-sale in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). Available-for-sale investments are recorded at fair value determined based on quoted market prices, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. F-7 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of three to five years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term. REVENUE RECOGNITION The Company recognizes license and other upfront fees on a ratable basis over the term on the respective agreement. Milestone payments are recognized pursuant to the terms of the agreement upon the achievement of the specified milestones. Contract revenues related to collaborative research and development agreements and government grants are recognized based on the timing of the performance of services. Any amounts received in advance of performance are recorded as deferred revenue. RESEARCH AND DEVELOPMENT Research and development expenses consist of costs incurred for Company-sponsored and collaborative research and development activities. These costs consist of direct and indirect internal costs related to specific projects as well as fees paid to other entities which conduct certain research activities on behalf of the Company. Research and development expenses under the government grants and collaborative agreements approximated the revenue recognized under such arrangements for the years ended December 31, 1998 and 1999. NET LOSS PER SHARE Basic and diluted net loss per common share are presented in conformity with the Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), for all periods presented. Following the guidance given by the Securities and Exchange Commission Staff Accounting Bulletin No. 98, common stock and convertible preferred stock that has been issued or granted for nominal consideration prior to the anticipated effective date of the initial public offering must be included in the calculation of the basic and diluted net loss per common share as if these shares had been outstanding for all periods presented. To date, the Company has not issued or granted shares for nominal consideration. In accordance with SFAS 128, basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. Diluted net loss is not presented separately as the Company is in a net loss position. Pro forma basic and diluted net loss per common share, as presented in the statement of operations, has been computed for the year ended December 31, 1999 as described above, and also gives effect to the conversion of the convertible preferred stock which will automatically convert to common stock immediately prior to the completion of the Company's initial public offering (using the if-converted method) from the original date of issuance. F-8 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The following table presents the calculation of basic, diluted and pro forma basic and diluted net loss per share (in thousands, except per share data):
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1998 1999 -------- -------- -------- Net loss.................................................... $(1,994) $(3,267) $(4,401) Weighted-average shares of common stock outstanding......... 1,458 1,484 1,758 Less: weighted-average shares subject to repurchase......... (93) (61) (255) ------- ------- ------- Weighted-average shares used in computing basic and diluted net loss per share............................ 1,365 1,423 1,503 ======= ======= ======= Basic and diluted net loss per share........................ ($ 1.46) $ (2.30) $ (2.93) ======= ======= ======= Pro forma: Shares used above........................................... 1,503 Pro forma adjustment to reflect weighted effect of assumed conversion of convertible preferred stock (unaudited)............................................... 3,269 ------- Shares used in computing pro forma basic and diluted net loss per share (unaudited)................ 4,772 ======= Pro forma basic and diluted net loss per share (unaudited)............................................... $ (0.92) =======
The Company has excluded all convertible preferred stock, outstanding stock options and shares subject to repurchase from the calculation of diluted net loss per common share because all such securities are antidilutive for all applicable periods presented. The total number of shares excluded from the calculations of diluted net loss per share, prior to application of the treasury stock method for options was 34,800, 471,600 and 455,900 for the years ended December 31, 1997, 1998 and 1999, respectively. Such securities, had they been dilutive, would have been included in the computations of diluted net loss per share. See Note 9 for further information on these securities. STOCK-BASED COMPENSATION The Company accounts for common stock options granted to employees using the intrinsic value method and, thus, recognizes no compensation expense for options granted with exercise prices equal to or greater than the deemed fair value of the Company's common stock on the date of the grant. Stock compensation expense for options granted to non-employees has been determined in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and EITF 96-18 as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. The measurement of stock-based compensation to non-employees is subject to periodic adjustment as the underlying securities vest. COMPREHENSIVE INCOME The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), at December 31, 1998. Under SFAS 130, the Company is F-9 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) required to display comprehensive income and its components as part of the Company's full set of financial statements. Comprehensive income is comprised of net income and other comprehensive income. Other comprehensive income includes certain changes in equity of the Company that are excluded from net income. Specifically, SFAS 130 requires unrealized holding gains and losses on the Company's available-for-sale securities, which were reported separately in shareholders' equity, to be included in accumulated other comprehensive income. INCOME TAXES Since inception, the Company has recognized income taxes under the liability method. Deferred income taxes are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In addition, valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. SEGMENT REPORTING The Company has adopted the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 established standards for the way companies report information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company did not have any separately reportable business segments as of December 31, 1999. RECENT ACCOUNTING PRONOUNCEMENTS DERIVATIVE INSTRUMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through net income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of asset, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. SFAS 133 is effective for years beginning after June 15, 2000. The Company does not currently hold any derivatives and does not expect this pronouncement to materially impact the results of its operations. REVENUE RECOGNITION In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company believes that its current revenue recognition principles comply with SAB 101. F-10 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SOFTWARE COSTS In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires the capitalization of certain costs incurred in connection with developing or obtaining internal use software. The Company has no capitalized software at December 31, 1999, therefore, the adoption of this statement did not have a significant impact on the Company's results of operations or financial condition. 2. COLLABORATIVE RESEARCH AND DEVELOPMENT AND LICENSE AGREEMENTS THE R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE In September 1998, the Company signed a collaborative agreement with The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil Pharmaceutical, Inc., both Johnson & Johnson companies. Under the terms of the agreement, the Company will use its technologies to produce novel macrolide antibiotics on a "best efforts" basis. The agreement provides for certain payments, including payments for research and development costs for at least two years, and payments for reaching certain research and development milestones. The collaborative partner received exclusive worldwide rights to the products developed in the field of use as defined in the agreement. The development, marketing, and sale of drugs resulting from the collaboration will be undertaken by the partner and should the development efforts result in a marketable product, the Company will receive royalty payments based on product sales. Upon the execution of the collaborative agreement the Company received an initial up-front fee of $1.0 million which was deferred and will be recognized on a ratable basis over the term of the agreement. For the years ended December 31, 1998 and 1999, the Company recognized $974,000 and $5.0 million, respectively, of contract revenues pursuant to this agreement which represents 100% and 96% of the contract revenues for 1998 and 1999, respectively. Included in 1999 contract revenue was $1.2 million of milestones earned under this agreement. LICENSE AGREEMENTS The Company entered into exclusive license agreements with The Board of Trustees of The Leland Stanford Junior University (Stanford) and with the President and Fellows of Harvard College (Harvard) in March 1996 and December 1998, respectively. These licenses provide the Company with certain technology and related patent rights and materials for the production of polyketides. Under the terms of the agreements, the Company pays annual license or maintenance fees and will pay milestones and royalties on net sales of products originating from the licensed technology. F-11 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS The amortized cost and fair value of securities, with gross unrealized gains and losses, were as follows (in thousands):
1998 1999 ------------------------------------------------ ------------------------------------------------ GROSS GROSS GROSS GROSS AMORTIZED UNREALIZED UNREALIZED AMORTIZED UNREALIZED UNREALIZED COST GAINS LOSSES FAIR VALUE COST GAINS LOSSES FAIR VALUE --------- ---------- ---------- ---------- --------- ---------- ---------- ---------- Debt securities: US treasury.......... $ 2,967 $ 2 $ -- $ 2,969 $1,300 $ -- $(10) $1,290 US agency notes...... 3,298 -- (8) 3,290 -- -- -- -- Corporate bonds...... 1,000 1 -- 1,001 1,000 -- (10) 990 Asset-backed securities........... 5,096 -- (4) 5,092 7,198 1 (47) 7,152 ------- ---- ---- ------- ------ ---- ---- ------ $12,361 $ 3 $(12) $12,352 $9,498 $ 1 $(67) $9,432 ======= ==== ==== ======= ====== ==== ==== ======
The fair value of available-for-sale debt securities by contractual maturity at December 31, 1999 were as follows: Within 1 year............................................... $ 990 Greater than 1 year less than 5 years....................... 1,290 Mortgage-backed securities.................................. 7,152 ------ $9,432 ======
4. PROPERTY AND EQUIPMENT Property and equipment consisted of the following (in thousands):
DECEMBER 31, ------------------- 1998 1999 -------- -------- Computer equipment and software............................. $ 249 $ 362 Office furniture............................................ 138 165 Lab equipment............................................... 1,400 2,228 Leasehold improvements...................................... 42 825 ------ ------ 1,829 3,580 Less accumulated depreciation and amortization.............. (422) (993) ------ ------ $1,407 $2,587 ====== ======
Depreciation expense was $246,000 and $636,000 for the years ended December 31, 1998 and 1999, respectively. Property and equipment financed under capital leases amounted to $562,000 at December 31, 1998 and 1999. Accumulated amortization related to this property and equipment amounted to $264,000 and $378,000 at December 31, 1998 and 1999, respectively. F-12 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. CAPITAL LEASES AND EQUIPMENT FINANCING The Company leases certain equipment and facility improvements under noncancelable capital leases and debt obligations. Future minimum lease and loan payments under these obligations are as follows (in thousands):
CAPITAL LEASES EQUIPMENT LOANS -------------- --------------- Year ended December 31,......................... 2000.......................................... $ 162 $ 627 2001.......................................... 168 627 2002.......................................... 9 688 2003.......................................... -- 324 ----- ------ Total minimum lease payments.................... 339 2,266 Less amount representing interest............... (45) (395) ----- ------ Present value of net minimum lease payments..... 294 1,871 Less current portion............................ (127) (447) ----- ------ Long-term portion............................... $ 167 $1,424 ===== ======
In 1997, the Company entered into a capital lease line agreement for up to $1.0 million in aggregate borrowings. Financing under this lease line was available through June 1998, at which time approximately $569,000 had been utilized and $431,000 was allowed to expire. In August 1998, the Company entered into a $2.2 million equipment loan agreement which was fully utilized by June 1999. The terms of the lease and loan obligations are for four years. The equipment loans have a balloon payment at the end of the term. The interest rates of each of the leases and loans are fixed at the time of the draw down, with the interest rates range from 10.55% to 10.96%. Obligations under the leases and loans are secured by the assets financed under the leases. In January 2000, the Company secured a $2.0 million line of credit which is available for draw down through December 2000. Each note will have a term of 43 months and have a balloon payment at the end of the term. F-13 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. FACILITY LEASES In March 1999, the Company moved its facilities from Burlingame, California to Hayward, California. The Company leases its new facility under a noncancelable operating lease with no renewal options, which commenced in February 1999 and expires in 2003. Minimum annual rental commitments under the operating lease at December 31, 1999 are as follows (in thousands): Year ended December 31, 2000...................................................... $1,081 2001...................................................... 1,118 2002...................................................... 1,144 2003...................................................... 682 ------ Total minimum payments...................................... $4,025 ======
In September 1999, the Company terminated its Burlingame facility lease agreement and at the same time, the rights to the Company's sublease agreement under this facility lease was bought out by the former landlord. In connection with this buy-out, the Company received a $170,000 termination fee which was recorded as other income. Rent expense for operating leases was approximately $181,000, $204,000, and $1.2 million for the years ended December 31, 1997, 1998 and 1999 respectively. The sublease income was approximately $100,000, $14,000, and $159,000 for the years ended December 31, 1997, 1998 and 1999, respectively. 7. ACCRUED LIABILITIES Accrued liabilities consisted of the following (in thousands):
DECEMBER 31, ------------------- 1998 1999 -------- -------- Facilities related.......................................... $ -- $280 Compensation................................................ 37 163 Professional fees........................................... 40 120 Other....................................................... 21 63 ---- ---- $ 98 $626 ==== ====
8. RELATED PARTY TRANSACTIONS In December 1998 and September 1999, the Company issued promissory notes to an officer and a director totaling $346,500 for the exercise of certain stock options. These notes bear interest between 4.47% and 5.89% per annum, compounded semiannually, and the principal and accrued interest is repayable three years from the date of issuance. These are full recourse notes secured in part by a pledge of the Company's common stock owned by the officer and director. The Company issued full recourse loans to certain employees, of which $12,000 and $87,000 were outstanding at December 31, 1998 and 1999, respectively. These loans bear interest at rates ranging from 4.47% to 5.43% with terms ranging from 4 to 5 years. The loans were issued for the purchase of the employees' residence, are secured by deeds of trust and are classified on the balance sheet as other assets. F-14 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. RELATED PARTY TRANSACTIONS (CONTINUED) The Company entered into a 14-month evaluation agreement with Savia Corporation and DNAP Plant Technologies ("DNAP") on March 1, 1998. The evaluation program was for the development of intellectual property and technology for use in the field. The Company received revenue of approximately $90,000 upon signing the agreement for work performed to that date. This agreement was subsequently terminated effective December 31, 1999. Under the terms of the termination agreement the Company will receive approximately $160,000 for development services performed through December 31, 1999, which is included in revenue and other receivables in 1999. A board member of the company which controls DNAP is also a board member of the Company. 9. STOCKHOLDERS' EQUITY During January 1997, the Company converted each existing share of "Original" Series A preferred stock into 0.76190 shares of common stock and 0.23810 shares of Series A preferred stock. Each existing share of "original" Series B preferred stock was converted into 0.13095 shares of common stock and 0.86905 shares of Series A preferred stock. Outstanding shares of the Company's preferred stock were converted to Series A preferred stock and common stock as follows:
SHARES OF SHARES SERIES A SHARES OF OUTSTANDING SERIES A PREFERRED COMMON STOCK COMMON STOCK BEFORE CONVERSION STOCK AFTER CONVERSION AFTER SERIES CONVERSION RATE CONVERSION RATE CONVERSION - ------ ----------- ---------- ----------- ------------ ------------ "Original" A...................... 280,512 0.23810 66,790 0.76190 213,722 "Original" B...................... 935,476 0.86905 812,976 0.13095 122,500
Convertible preferred stock outstanding as of December 31, 1999 was as follows (in thousands, except share data):
SHARES SHARES ISSUED AND REDEMPTION/ AUTHORIZED OUTSTANDING LIQUIDATION VALUE ---------- ----------- ----------------- Convertible preferred stock: Series A............................. 1,480,000 1,451,195 $ 6,095 Series B............................. 1,818,182 1,818,182 15,000 --------- --------- ------- Total.............................. 3,298,182 3,269,377 $21,095 ========= ========= =======
Upon the closing of an initial public offering, each of the outstanding 3,269,377 shares of convertible preferred stock will be automatically converted into one share of common stock. SERIES A PREFERRED STOCK On January 31, 1997, the Company completed a private placement for the sale of 571,429 shares of Series A convertible preferred stock resulting in gross proceeds of $2.4 million. The Series A convertible preferred stock is convertible at any time after the issuance date, at the option of the holder, into a number of shares of common stock equal to the stated value divided by the conversion price. Additionally, the Series A convertible preferred stock shall be automatically converted into common stock upon the closing of an initial public offering where the gross proceeds are at least $15.0 million and the offering price is not less than $21.00 per share. The conversion price initially will F-15 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY (CONTINUED) be $4.20 adjusted for any stock splits or combinations, consolidation, stock dividends, and recapitalizations. The Series A preferred shareholders are entitled to vote together with Series B preferred shareholders and common shareholders as a single class on all matters, except as otherwise required by law. The number of votes to which each Series A preferred shareholder will be entitled will equal the maximum number of shares of common stock into which each preferred stock will be converted. In the event of liquidation, dissolution or winding up of the Company, funds available for distribution to shareholders shall be paid to the holders of Series A preferred stock in an amount per share equal to $4.20 (adjusted for any stock dividends, split or combination, recapitalization, consolidation with respect to such shares) prior to any distribution to holders of Series B preferred stock and common stock. If there are inadequate funds available to provide a full payment of the liquidation preference amount to both the Series A and B preferred shareholders, then the assets available for distribution will be shared in proportion to the preference amount each such shareholder is entitled to receive. Noncumulative annual dividends of $0.25 per share (as adjusted for any stock dividend, combination, or split with respect to these shares), payable quarterly, will be paid if and when declared by the board of directors. SERIES B PREFERRED STOCK On April 3, 1998, the Company completed a private placement for the sale of 1,818,182 shares of Series B convertible preferred stock resulting in gross proceeds of $15.0 million. The Series B convertible preferred stock is convertible into a number of shares of common stock equal to the stated value divided by the conversion price. Additionally, the Series B convertible preferred stock shall be automatically converted into common stock upon the closing of an initial public offering where the gross proceeds are at least $15.0 million and the offering price is not less than $21.00 per share. The initial conversion price is $8.25, and may be adjusted for any stock splits or combination, consolidation, stock dividends, and recapitalizations. The Series B preferred shareholders are entitled to vote together with the Series A preferred and common shareholders as a single class on all matters, except as otherwise required by law. The number of votes to which each Series B Preferred Stock preferred shareholder will be entitled will equal the maximum number of shares of common stock into which each preferred stock is convertible. In the event of a liquidation, the holders of Series B convertible preferred stock shall be paid an amount per share equal to $8.25 (adjusted for any stock splits or combination, consolidation, stock dividends, and recapitalization respect to such shares) prior to any distribution to holders of common stock. Noncumulative annual dividends of $0.49 per share (as adjusted for any stock dividend, combination, or split with respect to these shares), payable quarterly, will be paid if and when declared by the board of directors. COMMON STOCK Under the terms of the 1996 Stock Option Plan (the "1996 Plan"), options are exercisable when granted and such shares are subject to repurchase upon termination of employment or consulting agreement. Repurchase rights lapse over the vesting periods which are generally four years. Should the employment of the holders of common stock subject to repurchase terminate prior to full vesting of the outstanding shares, the Company may repurchase all unvested shares at a price per share equal to the original exercise price. At December 31, 1999, 247,553 shares were subject to such repurchase terms. F-16 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY (CONTINUED) 1996 STOCK OPTION PLAN In 1996, the board of directors adopted the 1996 Stock Option Plan (the "Plan") that provides for the granting of incentive stock options and nonstatutory stock options to employees, officers, directors and consultants of the Company. Incentive stock options may be granted with exercise prices not less than fair value, and nonstatutory stock options may be granted with an exercise price not less than 85% of the fair value of the common stock on the date of grant. The fair value is determined by the board of directors. Stock options granted to a stockholder owning more than 10% of voting stock of the Company may be granted with an exercise price of not less than 110% of the fair value of the common stock on the date of grant. Options expire no later than ten years from the date of the grant. The number of shares, terms, and exercise period are determined by the board of directors. Options generally vest at 25% per year over a four-year period. Subsequent to December 31, 1999 the Company increased the total shares of common stock reserved for issuance under the 1996 Plan from 900,000 to 1,700,000 shares. A summary of the activity follows:
OPTIONS OUTSTANDING ---------------------------------------------------- WEIGHTED SHARES AVAILABLE NUMBER OF EXERCISE AGGREGATE AVERAGE FOR GRANT SHARES PRICE PRICE EXERCISE PRICE ---------------- --------- ----------- --------- -------------- Reserved at inception............ 250,000 -- -- $ -- $ -- Granted........................ (66,000) 66,000 $0.25 16,500 $0.25 -------- -------- --------- Balances at December 31, 1996.... 184,000 66,000 $0.25 16,500 $0.25 Granted........................ (28,800) 28,800 $0.25-$0.45 11,960 $0.42 Canceled....................... 60,000 (60,000) $0.25 (15,000) $0.25 -------- -------- --------- Balances at December 31, 1997.... 215,200 34,800 $0.25-$0.45 13,460 $0.39 Additional reserved............ 590,000 -- -- -- -- Granted........................ (695,000) 695,000 $0.45-$1.10 671,775 $0.97 Canceled....................... 4,192 (4,192) $0.25-$1.00 (1,978) $0.47 Exercised...................... -- (254,008) $0.25-$1.10 (276,262) $1.09 -------- -------- --------- Balances at December 31, 1998.... 114,392 471,600 406,995 $0.86 Additional reserved............ 60,000 -- -- -- -- Granted........................ (154,700) 154,700 $1.00 154,700 $1.00 Canceled....................... 72,869 (72,869) $0.45-$1.00 (66,023) $0.91 Exercised...................... -- (97,531) $0.25-$1.10 (99,127) $1.02 -------- -------- --------- Balances at December 31, 1999.... 92,561 455,900 $ 396,545 $0.87 ======== ======== =========
Options vested at December 31, 1998 and 1999 were 39,678 and 130,721, respectively. F-17 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY (CONTINUED) The options outstanding and currently exercisable by exercise price at December 31, 1999 are as follows:
OPTIONS OUTSTANDING AND EXERCISABLE - ------------------------------------------------- NUMBER OPTIONS VESTED OUTSTANDING WEIGHTED-AVERAGE --------------------------------- WEIGHTED-AVERAGE AND REMAINING NUMBER OF WEIGHTED-AVERAGE EXERCISE PRICE EXERCISABLE CONTRACTUAL LIFE OPTIONS VESTED EXERCISE PRICE - ---------------- ----------- ---------------- -------------- ---------------- (IN YEARS) $0.25 5,000 7.02 3,646 $0.25 $0.45 101,100 7.97 54,665 $0.45 $1.00 349,800 9.05 72,410 $1.00 ------- ------- 455,900 8.79 130,721 $0.75 ======= =======
STOCK-BASED COMPENSATION The Company has elected to follow the provision of APB Opinion No. 25 and related interpretations in the accounting for the stock-based awards because, as discussed below, the alternative fair value accounting provided for under FAS 123 requires use of option valuation models that were not developed for use in valuing employee stock-based awards. During the year ended December 31, 1999, in connection with the grant of stock options to employees, the Company recorded deferred stock-based compensation totaling $2.9 million, representing the difference between the deemed fair market value of the common stock on the date such options were granted and the applicable exercise prices. Such amount is included as a reduction of stockholders' equity and is being amortized using the graded vesting method over the vesting period of the individual options, which is generally four years. The Company recognized amortization of deferred stock-based compensation of $535,000 for the year ended December 31, 1999. The Company records compensation related to the grants of stock options and restricted stock to non-employees in accordance with SFAS 123 and EITF 96-18 using the Black-Scholes Model with the following assumptions: risk-free interest rate of 5%; volatility of 70%, expected lives of 2 to 3 years; and a dividend yield of zero. The Company recognized other stock-based compensation for grants to non-employees of $610,000 for the year ended December 31, 1999. The measurement of stock-based compensation to non-employees is subject to periodic adjustment as the underlying awards vest. Pro forma net loss and net loss per share information is required by SFAS 123 which also requires that the information be determined as if the Company had accounted for its employee stock options granted since inception under the fair value method of that statement. The fair value of these options was estimated at the date of grant using a minimum value option pricing model with the following assumptions: risk-free interest rate of 5.0%; a weighted-average expected life of the option of four years from the grant date for grants under the Stock Option Plan; and a dividend yield of zero. F-18 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY (CONTINUED) The Company's pro forma information follows (in thousands, except per share amounts):
YEARS ENDED DECEMBER 31, ------------------------------ 1997 1998 1999 -------- -------- -------- Net loss: As reported..................................... $(1,994) $(3,267) $(4,401) Pro forma....................................... (1,994) (3,454) (4,772) Basic and diluted net loss per share: As reported..................................... $ (1.46) $ (2.30) $ (2.93) Pro forma....................................... (1.46) (2.43) (3.17)
10. INCOME TAXES As of December 31, 1999, the Company had federal and state net operating loss carryforwards of approximately $9.6 million and $4.1 million, respectively. The Company also had federal and California research and development tax credit carryforwards of approximately $300,000 and $200,000. The federal and state net operating loss and credit carryforwards will expire at various dates beginning in the year 2002 through 2019, if not utilized. Utilization of the federal and state net operating loss and credit carryforwards may be subject to a substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration of net operating losses and credits before utilization. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets for financial reporting and the amount used for income tax purposes. Significant components of the Company's deferred tax assets for federal and state income taxes as of December 31, are as follows (in thousands):
1998 1999 -------- -------- Deferred tax assets Net operating loss carryforwards........................ $ 2,100 $ 3,500 Research and development credits........................ 300 500 Capitalized research and development expenses........... 200 300 ------- ------- Total deferred tax assets................................. 2,600 4,300 Valuation allowance....................................... (2,600) (4,300) ------- ------- Net deferred taxes........................................ $ -- $ -- ======= =======
Due to the Company's lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $900,000 and $1.7 million during the years ended December 31, 1998 and 1999, respectively. F-19 KOSAN BIOSCIENCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 11. SUBSEQUENT EVENTS SERIES C FINANCING In March 2000, the Company issued 804,196 shares of Series C preferred stock at a purchase price of $31.00 per share for gross proceeds of $24.9 million. The Company will reflect a deemed dividend of approximately $13.7 million in the first quarter of fiscal year 2000 in relation to the Series C financing. INITIAL PUBLIC OFFERING In March, 2000, the Board of Directors authorized management of the Company to file a registration statement with the Securities and Exchange Commission to sell shares of its common stock to the public. If the initial public offering is completed under the terms presently anticipated, all of the preferred stock outstanding will automatically convert into 4,073,573 shares of common stock. Unaudited pro forma stockholders' equity, as adjusted for the assumed conversion of the preferred stock, is set forth on the balance sheet. 2000 EMPLOYEE STOCK PURCHASE PLAN In March 2000, subject to stockholder approval, the Company adopted its 2000 Employee Stock Purchase Plan (the "Purchase Plan"). A total of 100,000 shares of the Company's common stock have been reserved for issuance under the Purchase Plan. In addition, the Purchase Plan provides for annual increases in the number of shares available for issuance under the Purchase Plan on each anniversary date of the effective date of the offering. The number of shares reserved automatically is equal to the lesser of 50,000 shares, 0.75% of the outstanding shares on the date of the annual increase or such amount as may be determined by the board. The Purchase plan permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock on the first day of the offering or 85% of the fair market value of the Company's common stock on the purchase date. The initial offering period will commence on the effective date of the offering. 2000 NON-EMPLOYEE DIRECTORS PLAN In March 2000, subject to stockholder approval, the Company adopted the 2000 Non-Employee Directors' Stock Option Plan and reserved 100,000 shares of common stock for issuance thereunder. Each non-employee director who becomes a director of the Company will be automatically granted a non-statutory stock option to purchase 2,500 shares of common stock on the date on which such person first becomes a director and will vest over four years. Beginning with the 2001 Annual Stockholders Meeting and each year thereafter, each non-employee director will automatically be granted a non-statutory option to purchase 1,250 shares of common stock which will vest in one year from the date of grant. The exercise price of options under the Directors' Plan will be equal to the fair market value of the common stock on the date of grant. The maximum term of the options granted under the Directors' Plan is ten years. The Directors' Plan will terminate in March 2010, unless terminated in accordance with the provisions of the Directors' Plan. F-20 YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF A COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. UNTIL , 2000 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING), ALL DEALERS THAT BUY, SELL OR, TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. TABLE OF CONTENTS Prospectus Summary.................... 2 Risk Factors.......................... 5 Forward-Looking Statements............ 15 Use of Proceeds....................... 15 Dividend Policy....................... 16 Dilution.............................. 16 Capitalization........................ 17 Selected Financial Data............... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 19 Business.............................. 23 Management............................ 33 Related Party Transactions............ 44 Principal Stockholders................ 46 Description of Capital Stock.......... 48 Shares Eligible for Future Sale....... 50 Underwriting.......................... 52 Legal Matters......................... 54 Change in Independent Accountants..... 54 Experts............................... 54 Where you can find more information... 54 Index to Financial Statements......... F-1
PRELIMINARY PROSPECTUS Shares [LOGO] COMMON STOCK Warburg Dillon Read LLC CIBC World Markets Prudential Vector Healthcare a unit of Prudential Securities PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the registrant in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee and the NASD filing fee.
AMOUNT TO BE PAID ---------- SEC Registration Fee........................................ 21,120 NASD Fee.................................................... 8,500 Nasdaq Listing Fee.......................................... * Legal Fees and Expenses..................................... * Accounting Fees and Expenses................................ * Blue Sky Fees and Expenses.................................. * Transfer Agent Fees......................................... * Printing Fees and Expenses.................................. * Miscellaneous............................................... * Total..................................................... $
- ------------------------ * To be filed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS As permitted by Section 145 of the Delaware General Corporation Law, the registrant's certificate of incorporation includes a provision that eliminates the personal liability of its directors for monetary damages for breach or alleged breach of their duty of care. In addition, as permitted by Section 145 of the Delaware General Corporation Law, the bylaws of the registrant provide that: (1) the registrant is required to indemnify its directors and executive officers and persons serving in such capacities in other business enterprises (including, for example, subsidiaries of the registrant) at the registrant's request, to the fullest extent permitted by Delaware law, including in those circumstances in which indemnification would otherwise be discretionary; (2) the registrant may, in its discretion, indemnify employees and agents in those circumstances where indemnification is not required by law; (3) the registrant is required to advance expenses, as incurred, to its directors and executive officers in connection with defending a proceeding (except that it is not required to advance expenses to a person against whom the registrant brings a claim for breach of the duty of loyalty, failure to act in good faith, intentional misconduct, knowing violation of law or deriving an improper personal benefit; (4) the rights conferred in the bylaws are not exclusive, and the registrant is authorized to enter into indemnification agreements with its directors, executive officers and employees; and (5) the registrant may not retroactively amend the bylaw provisions in a way that it adverse to such directors, executive officers and employees. The registrant's policy is to enter into indemnification agreements with each of its directors and executive officers that provide the maximum indemnity allowed to directors and executive officers by Section 145 of the Delaware General Corporation Law and the bylaws, as well as certain additional procedural protections. In addition, such indemnity agreements provide that directors and executive officers will be indemnified to the fullest possible extent not prohibited by law against all expenses (including attorney's fees) and settlement amounts paid or incurred by them in any action or proceeding, including any derivative action by or in the right of the registrant, on account of their II-1 services as directors or executive officers of the registrant or as directors or officers of any other company or enterprise when they are serving in such capacities at the request of the registrant. The registrant will not be obligated pursuant to the indemnity agreements to indemnify or advance expenses to an indemnified party with respect to proceedings or claims initiated by the indemnified party and not by way of defense, except with respect to proceedings specifically authorized by the registrant's board of directors or brought to enforce a right to indemnification under the indemnity agreement, the registrant's bylaws or any statute or law. Under the agreements, the registrant is not obligated to indemnify the indemnified party (1) for any expenses incurred by the indemnified party with respect to any proceeding instituted by the indemnified party to enforce or interpret the agreement, if a court of competent jurisdiction determines that each of the material assertions made by the indemnified party in such proceeding was not made in good faith or was frivolous; (2) for any amounts paid in settlement of a proceeding unless the registrant consents to such settlement; (3) with respect to any proceeding brought by the registrant against the indemnified party for willful misconduct, unless a court determines that each of such claims was not made in good faith or was frivolous; (4) on account of any suit in which judgment is rendered against the indemnified party for an accounting of profits made from the purchase or sale by the indemnified party of securities of the registrant pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and related laws; (5) on account of the indemnified party's conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest, or to constitute willful misconduct or a knowing violation of the law; (6) an account of any conduct from which the indemnified party derived an improper personal benefit; (7) on account of conduct the indemnified party believed to be contrary to the best interests of the registrant or its stockholders; (8) on account of conduct that constituted a breach of the indemnified party's duty of loyalty to the registrant or its stockholders; or (9) if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. The indemnification provision in the bylaws and the indemnification agreements entered into between the registrant and its directors and executive officers, may be sufficiently broad to permit indemnification of the registrant's officers and directors for liabilities arising under the 1933 Act. Reference is made to the following documents filed as exhibits to this registration statement regarding relevant indemnification provisions described above and elsewhere herein:
EXHIBIT DOCUMENT NUMBER - -------- -------- Form of Underwriting Agreement.............................. 1.1 Amended and Restated Articles of Incorporation of Registrant................................................ 3.1 Form of Certificate of Incorporation of Registrant, to be filed upon closing of the offering........................ 3.2 Bylaws of Registrant, to be filed upon closing of the offering.................................................. 3.3 Form of Indemnification Agreement entered into by the Registrant with each of its directors and executive officers.................................................. 4.1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since March 1997 or as otherwise indicated, the Registrant has issued and sold the following securities: From June 1996 to March 2000 we sold an aggregate of 701,439 shares of unregistered common stock to 43 directors, officers, employees, former employees and consultants at prices ranging from $0.25 to $1.10 per share, for aggregate consideration of approximately $677,000. These shares were sold pursuant to the exercise of options granted by the board of directors. As to each director, officer, employee, former employee and consultant of Kosan who was issued such securities, Kosan relied upon Rule 701 of the Securities Act of 1933, as amended (the "Securities Act"). Each such person purchased II-2 securities of Kosan pursuant to a written contract between such person and Kosan; in addition, Kosan met the conditions imposed under Rule 701(b). On April 3, 1998 and April 16, 1998, the registrant sold in the aggregate 1,818,182 shares of unregistered Series B preferred stock at a price per share of $8.25 to certain investors for aggregate cash consideration of approximately $15 million. The registrant relied upon Section 4(2) of the Securities Act in connection with the sale of these shares. Each investor who was not an accredited investor represented to the registrant that he or she had such knowledge and experience in financial and business matters that he or she was capable of evaluating the merits and risks of the investment. On March 30, 2000, the registrant sold in the aggregate 804,196 shares of unregistered Series C preferred stock at a price per share of $31.00 to certain investors for aggregate cash consideration of approximately $24.9 million. The registrant relied upon Regulation D, Rule 506, of the Securities Act in connection with the sale of these shares. The sale of the Series C preferred stock was made in compliance with all the terms of Rules 501 and 502 of Regulation D, there were no more than 35 investors (as calculated pursuant to Rule 501(e) of Regulation D), and each investor who was not an accredited investor represented to the registrant that he or she had such knowledge and experience in financial and business matters that he or she was capable of evaluating the merits and risks of the investment. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - --------------------- ----------- 1.1* Form of Underwriting Agreement. 3.1 Amended and Restated Articles of Incorporation of Registrant. 3.2 Form of Amended and Restated Certificate of Incorporation of Registrant to be filed upon the closing of the offering made under the Registration Statement. 3.3 Bylaws of Registrant to be filed upon the closing of the offering made under the Registration Statement. 4.1* Form of Registrant's Common Stock Certificate. 4.2 Third Amended and Restated Registration Rights Agreement, dated March 30, 2000 between Registrant and certain shareholders. 5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 10.1 Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers. 10.2 1996 Stock Option Plan, as amended. 10.3 Form of Stock Option Agreement under the 1996 Stock Option Plan, as amended. 10.3 2000 Employee Stock Purchase Plan and related agreements. 10.4 2000 Non-Employee Director Stock Option Plan and related agreements. 10.8+ License Agreement between the Registrant and The Board of Trustees of The Leland Stanford Junior University, dated March 11, 1996; Letter to Mona Wan to confirm the agreement between Registrant and the Board of Trustees of the Leland Stanford Junior University, dated September 21, 1998; and Amendment No. 3 to License Agreement, dated March 20, 2000.
II-3
EXHIBIT NUMBER DESCRIPTION - --------------------- ----------- 10.9+ Amendment No. 1 to License Agreement with the Board of Trustees of The Leland Stanford Junior University, dated March 1996. 10.10+ License Agreement between Registrant and President and Fellows of Harvard College, dated December 2, 1998. 10.11+ Research and License Agreement between Registrant and Ortho-McNeil Pharmaceutical Corporation and The R.W. Johnson Pharmaceutical Research Institute, dated September 28, 1998. 10.12+ Amendment No. 1 to the Research and License Agreement between the Registrant and Ortho-McNeil Pharmaceutical Corporation and The R.W. Johnson Pharmaceutical Research Institute, dated March 17, 2000. 10.13 Sublease Agreement between Registrant and Lynx Therapeutics, Inc., dated January 6, 1999. 10.14 Consent to Sublease Agreement between Spieker Properties L.P. and Lynx Therapeutics, Inc., dated September 17, 1999. 10.15 Master Equipment Lease between Registrant and Phoenix Leasing Incorporated, dated September 3, 1996. 10.16 Master Loan and Security Agreement between Registrant and Finova Technology Finance, Inc., dated August 25, 1998. 10.17 Commitment Letter between Registrant and Finova Technology Finance, Inc., dated August 25, 1998. 10.18 Commitment Letter between Registrant and Finova Capital Corporation, dated January 6, 2000 10.19 Restated Promissory Note from Shareholder by and between Registrant and Daniel V. Santi, M.D., Ph.D., dated December 23, 1998. 10.20* Promissory Note from Shareholder by and between Registrant and Chaitan Khosla, Ph.D., dated September 22, 1999. 10.21 Promissory Note from Shareholder by and between Registrant and Michael S. Ostrach, dated February 21, 2000. 10.22 Promissory Note from Shareholder by and between Registrant and Susan M. Kanaya, dated February 21, 2000. 10.23 Promissory Note from Shareholder by and between Registrant and Kevin Kaster, dated February 21, 2000. 10.24 Employment Agreement between Registrant and Daniel V. Santi, M.D., Ph.D., dated November 1, 1998. 10.25 Employment Agreement between Registrant and Kevin Kaster, dated July 20, 1998. 10.26 Employment Agreement between Registrant and Susan M. Kanaya, dated October 11, 1999. 10.27 Employment Agreement between Registrant and Brian W. Metcalf, Ph.D., dated March 15, 2000. 23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1). 23.2 Consent of Ernst & Young LLP, Independent Auditors.
II-4
EXHIBIT NUMBER DESCRIPTION - --------------------- ----------- 24.1 Power of Attorney (See page II-6). 27.1 Financial Data Schedule.
- ------------------------ * To be filed by amendment + Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. (B) FINANCIAL STATEMENT SCHEDULES Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS The undersigned hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this registration Statement or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hayward, State of California, on this 30th day of March 2000. KOSAN BIOSCIENCES, INC. By: /s/ DANIEL V. SANTI -------------------------------------------- Daniel V. Santi CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS
POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below constitutes and appoints, jointly and severally, Daniel V. Santi and Michael S. Ostrach and each one of them, his true and lawful attorney-in-fact and agents, each with full power of substitution, for his and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and any registration statement related to the offering contemplated by this registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933 and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE ---------- ----- ---- Chief Executive Officer and /s/ DANIEL V. SANTI Chairman of the Board of ------------------------------------------- Directors (Principal March 30, 2000 Daniel V. Santi Executive Officer) Vice President, Finance and /s/ SUSAN M. KANAYA Chief Financial Officer ------------------------------------------- (Principal Financial and March 30, 2000 Susan M. Kanaya Accounting Officer) ------------------------------------------- Director March , 2000 Peter Davis
II-6
SIGNATURES TITLE DATE ---------- ----- ---- ------------------------------------------- Director March , 2000 Jean Deleage /s/ CHAITAN KHOSLA ------------------------------------------- Director March 30, 2000 Chaitan Khosla /s/ CHRISTOPHER WALSH ------------------------------------------- Director March 30, 2000 Christopher Walsh /s/ RAYMOND WHITAKER ------------------------------------------- Director March 30, 2000 Raymond Whitaker
II-7 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - --------------------- ----------- 1.1* Form of Underwriting Agreement. 3.1 Amended and Restated Articles of Incorporation of Registrant. 3.2 Form of Amended and Restated Certificate of Incorporation of Registrant to be filed upon the closing of the offering made under the Registration Statement. 3.3 Bylaws of Registrant to be filed upon the closing of the offering made under the Registration Statement. 4.1* Form of Registrant's Common Stock Certificate. 4.2 Third Amended and Restated Registration Rights Agreement, dated March 30, 2000 between Registrant and certain shareholders. 5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 10.1 Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers. 10.2 1996 Stock Option Plan, as amended. 10.3 2000 Employee Stock Purchase Plan and related agreements. 10.4 2000 Non-Employee Director Stock Option Plan and related agreements. 10.8+ License Agreement between the Registrant and The Board of Trustees of The Leland Stanford Junior University, dated March 11, 1996. 10.9+ Amendment No. 1 to License Agreement with the Board of Trustees of The Leland Stanford Junior University, dated March 1996; Letter to Mona Wan to confirm the agreement between Registrant and the Board of Trustrees of The Leland Stanford Junior University, dated September 21, 1998; and Amendment No. 3 to License Agreement, dated March 10, 2000. 10.10+ License Agreement between Registrant and President and Fellows of Harvard College, dated December 2, 1998. 10.11+ Research and License Agreement between Registrant and Ortho-McNeil Pharmaceutical Corporation, and The R.W. Johnson Pharmaceutical Research Institute, dated September 28, 1998. 10.12+ Amendment No. 1 to the Research and License Agreement between the Registrant and Ortho-McNeil Pharmaceutical Corporation and The R.W. Johnson Pharmaceutical Research Institute, dated March 17, 2000. 10.13 Sublease Agreement between Registrant and Lynx Therapeutics, Inc., dated January 6, 1999. 10.14 Consent to Sublease Agreement between Spieker Properties L.P. and Lynx Therapeutics, Inc., dated September 17, 1999. 10.15 Master Equipment Lease between Registrant and Phoenix Leasing Incorporated, dated September 3, 1996. 10.16 Master Loan and Security Agreement between Finova Technology Finance, Inc., dated August 25, 1998. 10.17 Commitment Letter between Registrant and Finova Technology Finance, Inc., dated August 24, 1998. 10.18 Commitment Letter between Registrant and Finova Capital Corporation, dated January 6, 2000 10.19 Restated Promissory Note from Shareholder by and between Registrant and Daniel V. Santi, M.D., Ph.D., dated December 23, 1998.
EXHIBIT NUMBER DESCRIPTION - --------------------- ----------- 10.20* Promissory Note from Shareholder by and between Registrant and Chaitan Khosla, Ph.D., dated September 22, 1999. 10.21 Promissory Note from Shareholder by and between Registrant and Michael S. Ostrach, dated February 21, 2000. 10.22 Promissory Note from Shareholder by and between Registrant and Susan M. Kanaya, dated February 21, 2000. 10.23 Promissory Note from Shareholder by and between Registrant and Kevin Kaster, dated February 21, 2000. 10.24 Employment Agreement between Registrant and Daniel V. Santi, M.D., Ph.D., dated November 1, 1998. 10.25 Employment Agreement between Registrant and Kevin Kaster, dated July 20, 1998. 10.26 Employment Agreement between Registrant and Susan M. Kanaya, dated October 11, 1999. 10.27 Employment Agreement between Registrant and Brian W. Metcalf, Ph.D., dated March 15, 2000. 23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1). 23.2 Consent of Ernst & Young LLP, Independent Auditors. 24.1 Power of Attorney (See page II-6). 27.1 Financial Data Schedule.
- ------------------------ * To be filed by amendment + Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. EX-3.1 2 EXHIBIT 3.1 Exhibit 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF KOSAN BIOSCIENCES INCORPORATED Daniel V. Santi and Blair W. Stewart certify that: A. They are the Chief Executive Officer and Secretary, respectively, of Kosan Biosciences Incorporated, a California corporation (the "Corporation"). B. The Amended and Restated Articles of Incorporation of the Company are hereby amended and restated in their entirety to read as set forth below: * * * I. The name of this corporation is Kosan Biosciences Incorporated. II. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III. 1. AUTHORIZATION TO ISSUE TWO CLASSES. This Corporation is authorized to issue two classes of shares designated, respectively, Preferred Stock and Common Stock. The Corporation is authorized to issue 4,348,182 shares of Preferred Stock, $0.001 par value, 1,480,000 shares of which are designated "Series A Preferred Stock" (the "Series A Preferred"), 1,818,182 shares of which are designated "Series B Preferred Stock" (the "Series B Preferred") and 1,050,000 shares of which are designated "Series C Preferred Stock" (the "Series C Preferred", and together with the Series A Preferred and the Series B Preferred, the "Preferred Stock"), and 12,000,000 shares of Common Stock, $0.001 par value (the "Common Stock"). 2. PREFERRED STOCK. The rights, preferences, privileges and restrictions granted to and imposed upon the Preferred Stock are as follows: (a) DIVIDENDS. (i) PREFERRED STOCK. The holders of the Series A Preferred shall be entitled to receive, when and as declared by the Board of Directors, noncumulative dividends at the rate of $0.25 per share (as appropriately adjusted for any stock dividend, stock split, recapitalization, consolidation or the like of the Series A Preferred) per annum, payable quarterly as the Board of Directors may from time to time determine out of funds legally available therefor. The holders of the Series B Preferred shall be entitled to receive, when and as declared by the Board of Directors, noncumulative dividends at the rate of $0.49 per share (as appropriately adjusted for any stock dividend, stock split, recapitalization, consolidation or the like of the Series B Preferred) per annum, payable quarterly as the Board of Directors may from time to time determine out of funds legally available therefor. The holders of the Series C Preferred shall be entitled to receive, when and as declared by the Board of Directors, noncumulative dividends at the rate of $1.86 per share (as appropriately adjusted for any stock dividend, stock split, recapitalization, consolidation or the like of the Series C Preferred) per annum, payable quarterly as the Board of Directors may from time to time determine out of funds legally available therefor. No dividend shall be declared or paid with respect to Common Stock, the Series A Preferred or the Series B Preferred until the full dividend for the applicable period has been declared and paid on the Series C Preferred. After the payment of such preferential amounts to the holders of the Preferred Stock with respect to any year, any additional dividend which the Board of Directors may declare with respect to such year shall be declared simultaneously with respect to the Preferred Stock and the Common Stock, as if the Preferred Stock were converted to Common Stock. The right to any dividends under this subsection (i) shall not be cumulative and no right shall accrue to holders of Preferred Stock by reason of the fact that dividends on said shares are not declared. If less than full dividends are paid or declared and set apart for payment to the holders of the Series A or Series B Preferred Stock, then the amount to be paid or declared and set aside for payment shall be divided as between the holders of the Series A Preferred and the holders of the Series B Preferred in the same proportion as the aggregate preferential dividend payable to the holders of the Series A Preferred bears to the aggregate preferential dividend payable to the holders of the Series B Preferred. (ii) COMMON STOCK. No dividends (other than those payable solely in the Common Stock of the Corporation) shall be paid on any Common Stock of the Corporation during any fiscal year of the Corporation until dividends in the full preferential amounts set forth in Section 2(a)(i) hereof shall have been paid to the holders of Preferred Stock or declared and set apart for payment to the holders of Preferred Stock during such fiscal year. (b) LIQUIDATION PREFERENCE. (i) SERIES A PREFERRED, SERIES B PREFERRED AND SERIES C PREFERRED LIQUIDATION PREFERENCE AMOUNT. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the outstanding shares of Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock or the holders of any other capital stock of the Corporation by reason of their ownership thereof, (x) a per share amount equal to $4.20 per share (as appropriately adjusted for any stock dividend, stock split, recapitalization, consolidation or the like of the Series A Preferred) for each share of Series A Preferred then held by them plus an amount equal to all declared but unpaid dividends on the Series A Preferred (the "Series A Preferred Liquidation Preference Amount"), (y) a per share amount equal to $8.25 per -2- share (as appropriately adjusted for any stock dividend, stock split, recapitalization, consolidation or the like of the Series B Preferred) for each share of Series B Preferred then held by them plus an amount equal to all declared but unpaid dividends on the Series B Preferred (the "Series B Preferred Liquidation Preference Amount") and (z) a per share amount equal to $31.00 per share (as appropriately adjusted for any stock dividend, stock split, recapitalization, consolidation or the like of the Series C Preferred) for each share of Series C Preferred then held by them plus an amount equal to all declared but unpaid dividends on the Series C Preferred (the "Series C Preferred Liquidation Preference Amount"). If upon the occurrence of such event, the assets and funds to be distributed among the holders of the Preferred Stock shall be insufficient to permit the full payment of the Series A Preferred Liquidation Preference Amount, the Series B Preferred Liquidation Preference Amount and the Series C Preferred Liquidation Preference Amount, then the holders of each share of Series C Preferred shall be entitled to be paid first out of the assets and funds of the Corporation legally available for distribution up to an amount equal to the Series C Preferred Liquidation Preference Amount and then all remaining assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred and the Series B Preferred (both of which shall be junior to the Series C Preferred in liquidation) in proportion to the full preferential amount each such holder is entitled to receive. (ii) ADDITIONAL DISTRIBUTIONS. After the full liquidation preference has been paid to the holders of the Preferred Stock pursuant to subsection (b)(i) above, all remaining assets shall be distributed to the holders of the Preferred Stock and Common Stock on a pro rata basis, as if such Preferred Stock was converted to Common Stock; provided, that the holders of the Series A Preferred, the Series B Preferred and the Series C Preferred shall not be entitled to receive more than two times the Series A Preferred Liquidation Preference Amount, the Series B Preferred Liquidation Preference Amount or the Series C Preferred Liquidation Preference Amount, respectively, by reason of their ownership of Preferred Stock (which includes amounts paid pursuant to subsection (i) of subparagraph (b) above). (iii) MERGER OR SALE SHALL BE A LIQUIDATION. A consolidation or merger of the Corporation with or into any other entity, an acquisition by any other entity, or a sale of all or substantially all of the assets or voting control of the Corporation, in which the prior shareholders of the Corporation do not own a majority of the outstanding shares of the surviving entity after the transaction shall be deemed to be a liquidation, dissolution or winding up within the meaning of Sections 2(b)(i) and, (ii) above. (c) VOTING RIGHTS. (i) GENERALLY. Except as otherwise required by law or by subsection (iii) of this subparagraph (c) hereof, the holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Preferred Stock could be converted pursuant to subparagraph (d) hereof, and shall have full voting rights and powers equal to the voting rights and powers of the Common Stock (voting together with the Common Stock as a single class) and shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the Corporation and applicable law. In the event the Preferred Stock -3- is convertible into a non-integral number of shares of Common Stock, the aggregate number of votes to which such shareholder is entitled shall be rounded to the nearest whole vote. (ii) BOARD OF DIRECTORS. So long as at least 435,000 shares of Series A Preferred (as appropriately adjusted for any stock dividend, stock split, recapitalization, consolidation or the like of the Series A Preferred) remain outstanding, the holders of the Series A Preferred voting as a separate class shall be entitled to elect two directors and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors. So long as at least 545,454 shares of Series B Preferred (as appropriately adjusted for any stock dividend, stock split, recapitalization, consolidation or the like of the Series B Preferred) remain outstanding, the holders of the Series B Preferred voting as a separate class shall be entitled to elect two directors and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors. So long as at least 272,727 shares of Series B Preferred (as appropriately adjusted for any stock dividend, stock split, recapitalization, consolidation or the like of the Series B Preferred) but not more than 545,453 shares of Series B Preferred (as appropriately adjusted for any stock dividend, stock split, recapitalization, consolidation or the like of the Series B Preferred) remain outstanding, the holders of the Series B Preferred voting as a separate class shall be entitled to elect one director and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director. So long as at least 157,258 shares of Series C Preferred (as appropriately adjusted for any stock dividend, stock split, recapitalization, consolidation or the like of the Series C Preferred) remain outstanding, the holders of the Series C Preferred voting as a separate class shall be entitled to elect one director and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director. The holders of the Common Stock voting together as a single class shall be entitled to elect two directors and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors. If the holders of the Series A Preferred are no longer entitled to elect two directors voting separately as a series, the holders of the Common Stock, together with the holders of any series of Preferred Stock that are not otherwise then entitled to elect a director voting as a series pursuant to this Section, voting together as a single class on an as-if-converted to Common Stock basis, shall be entitled to elect such directors and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors. If the holders of the Series B Preferred are no longer entitled to elect two directors voting separately as a series but are entitled to elect one director voting separately as a series, the holders of the Common Stock, together with the holders of the Series B Preferred, the holders of the Series A Preferred if they are not otherwise then entitled to elect two directors as a series pursuant to this Section and the holders of the Series C Preferred, if they are not otherwise then entitled to elect one director as a series pursuant to this Section, voting together as a single class on an as-if-converted to Common Stock basis, shall be entitled to elect the director previously reserved for election by the holders of the Series B Preferred as a series, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director. If the holders of the Series B Preferred are no longer entitled to elect two directors as a series, the holders of the Common Stock, together with the holders of the Series B Preferred, the holders of the Series A Preferred, if they are not otherwise then entitled to -4- elect two directors as a series pursuant to this Section, and the holders of the Series C Preferred, if they are not otherwise then entitled to elect one director as a series pursuant to this Section, voting together as a single class on an as-if-converted to Common Stock basis, shall be entitled to elect both directors previously reserved for election by the holders of the Series B Preferred, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors. If the holders of the Series C Preferred are no longer entitled to elect one director voting separately as a series, the holders of the Common Stock, together with the holders of any series of Preferred Stock that are not otherwise then entitled to elect a director voting as a series pursuant to this Section, voting together as a single class on an as-if-converted to Common Stock basis, shall be entitled to elect such directors and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director. (iii) CERTAIN RESTRICTIONS AND LIMITATIONS. In addition to any other rights provided by law or herein: (1) So long as at least 800,000 shares of Preferred Stock (as appropriately adjusted for any stock dividend, stock split, recapitalization, consolidation or the like of the Preferred Stock) remain outstanding, consent of the holders of at least seventy five percent (75%) of the Preferred Stock voting as a single class shall be required for any action that: (A) alters or changes the rights, preferences or privileges of the Preferred Stock; (B) creates (by reclassification or otherwise) any new class or series of shares or any other securities convertible into equity securities of the Corporation having rights, preferences or privileges senior to or on a parity with the Preferred Stock; or (C) amends, waives or repeals any provision of, or adds any provision to, the Articles of Incorporation or Bylaws of the Corporation in a manner which adversely affects the Preferred Stock. (2) Consent of the holders of at least seventy percent (70%) of the Preferred Stock voting as a single class shall be required for any action that: (A) increases or decreases the total number of authorized shares of the Common Stock or the Preferred Stock; (B) results in the redemption of any shares of Common Stock (other than pursuant to equity incentive agreements with employees, consultants, officers, directors and other service providers that give the Corporation the right to repurchase shares of Common Stock upon the termination of services); (C) results in any merger, other corporate reorganization, sale of control, or sale or other conveyance of all or substantially all of the assets of the Corporation, as a result of which the shareholders of the Corporation immediately prior to the consummation of such transaction do not hold a majority of the voting power of the resulting entity; provided, that if a -5- holder of any equity security of the Corporation or an affiliate of such holder is a party to such transaction (other than as a shareholder of the Corporation or as an advisor to any party thereto), then the shares held by such holder shall not be deemed to be outstanding for the purposes of such approval; (D) results in the declaration or payment of any dividend on any shares of the Common Stock or the Preferred Stock of the Corporation (other than dividends on Common Stock payable in shares of Common Stock); or (E) increases or decreases the size of the Company's Board of Directors. (3) Consent of the holders of at least seventy percent (70%) of the Series B Preferred shall be required for any action that: (A) increases or decreases the total number of authorized shares of the Series B Preferred; or (B) changes the rights, preferences, privileges or restrictions of the Series B Preferred in a way that adversely affects the Series B Preferred in a different manner than the Series A Preferred. (4) Consent of the holders of at least fifty percent (50%) of the Series C Preferred shall be required for any action that: (A) increases or decreases the total number of authorized shares of the Series C Preferred; or (B) changes the rights, preferences, privileges or restrictions of the Series C Preferred in a way that adversely affects the Series C Preferred. (d) CONVERSION. The holders of the Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (i) RIGHT TO CONVERT. (1) VOLUNTARY CONVERSION. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock at a rate (the "Conversion Rate") as is determined by dividing (A) $4.20 in the case of the Series A Preferred, (B) $8.25 in the case of the Series B Preferred and (C) $31.00 in the case of the Series C Preferred, in each case by the then applicable Conversion Price for such series of Preferred Stock, determined as hereinafter provided, in effect at the time of the conversion. The Conversion Price of the Series A Preferred shall initially be $4.20. The Conversion Price of the Series B Preferred shall initially be $8.25. The Conversion Price of the -6- Series C Preferred shall be $31.00. Such initial Conversion Prices shall be subject to adjustment as hereinafter provided. (2) AUTOMATIC CONVERSION. Each share of Series A Preferred shall be automatically converted into shares of Common Stock at the then effective applicable Conversion Rate (A) upon the consent of the holders of at least seventy percent (70%) of the outstanding shares of the Series A Preferred, or (B) upon the closing of the sale of the Corporation's Common Stock in a firmly underwritten initial public offering registered under the Securities Act of 1933, as amended (the "Act"), at a public offering price equal to not less than $21.00 per share of Common Stock (as appropriately adjusted for any stock dividend, stock split or combination, recapitalization, consolidation or the like of the Common Stock) with expected aggregate proceeds to the Corporation of not less than $15,000,000 before deduction of any underwriters' commissions and expenses (a "Qualified IPO"). Each share of Series B Preferred shall be automatically converted into shares of Common Stock at the then effective applicable Conversion Rate (A) upon the consent of the holders of at least seventy percent (70%) of the outstanding shares of the Series B Preferred, or (B) upon the closing of a Qualified IPO. Each share of Series C Preferred shall be automatically converted into shares of Common Stock at the then effective applicable Conversion Rate (A) upon the consent of the holders of at least a majority of the outstanding shares of the Series C Preferred, or (B) upon the closing of an initial public offering at a Common Stock per share public offering price equal to not less than $40.30 per share of Common Stock (appropriately adjusted for any stock dividend, stock split or combination, recapitalization, consolidation or the like of the Common Stock) with expected aggregate proceeds to the Corporation of not less than $25,000,000 before deduction of any underwriters' commissions and expenses. (ii) MECHANICS OF CONVERSION. (1) EFFECTING CONVERSION. In order to effect a voluntary conversion of Preferred Stock, such holder shall provide written notice to the Corporation that he or she elects to convert the same into Common Stock and deliver such notice to the office of the Corporation or of any transfer agent for such shares. Such voluntary conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. In the case of an automatic conversion in connection with an underwritten offering of securities under the Act, the conversion may, at the option of any holder tendering shares of Preferred Stock for conversion, be conditioned upon the closing with the underwriter(s) of the sale of securities pursuant to such offering, in which case the person or persons entitled to receive the Common Stock issuable upon such conversion shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. (2) EXCHANGE OF CERTIFICATES. Before delivery to any person of certificates representing shares of Common Stock issued upon voluntary or automatic conversion of shares of the Preferred Stock, the holder of such Preferred Stock shall surrender the certificate or certificates for such Preferred Stock, duly endorsed, at the office of the Corporation or of any -7- transfer agent for such shares and shall provide a written declaration of the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he or she shall be entitled as aforesaid and a check payable to the holder for any cash amounts payable as the result of a conversion into fractional shares of Common Stock pursuant to subparagraph 2(d)(xii), and pay in cash or, to the extent sufficient funds are not then legally available therefor, in Common Stock (at the Common Stock's fair market value determined by the Board of Directors as of the date of such conversion), any declared and unpaid dividends on the shares of Preferred Stock being converted. (iii) ADJUSTMENT FOR SUBDIVISIONS AND CERTAIN DISTRIBUTIONS; ADJUSTMENTS FOR COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK AND STOCK DIVIDENDS. (1) In the event the outstanding shares of Common Stock shall be subdivided (by stock split or otherwise) into a greater number of shares of Common Stock, or a dividend or distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents" ) without payment of any consideration by such holder of the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price of the Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Preferred Stock shall be increased in proportion to such increase in the aggregate numbers of shares issuable with respect to Common Stock Equivalents, with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in subparagraph 2(d)(vi)(1)(E). (2) In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price of the Preferred Stock shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (iv) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event the Corporation at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive any distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subparagraph 2(d)(iii)(1) hereof, then in each such event provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation which they would have received had their Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities receivable by them as -8- aforesaid during such period, subject to all other adjustments called for during such period under this subparagraph 2(d) with respect to the rights of the holders of the Preferred Stock. (v) ADJUSTMENTS FOR REORGANIZATION, RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock or other securities or property, whether by reorganization (unless such reorganization is deemed a liquidation under subparagraph 2(b)(iii) hereof), reclassification or otherwise (other than a subdivision or combination of shares provided for above), the Conversion Price of the Preferred Stock then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock or other securities or property equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Preferred Stock immediately before such event; and, in any such case, appropriate adjustment (as determined by the Board) shall be made in the application of the provisions herein set forth with respect to the rights and interest thereafter of the holders of the Preferred Stock, to the end that the provisions set forth herein (including provisions with respect to change in and other adjustments of the Conversion Price of the Preferred Stock) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Preferred Stock. (vi) CONVERSION PRICE ADJUSTMENTS WITH RESPECT TO CERTAIN DILUTING ISSUANCES. The Conversion Price of each series of Preferred Stock shall be subject to adjustment from time to time as follows: (1) (A) If the Corporation shall issue or be deemed to issue any Additional Stock (as defined below) without consideration or for a consideration per share less than the Conversion Price of a series of Preferred Stock in effect immediately prior to the issuance of such Additional Stock, then the Conversion Price of such series of Preferred Stock in effect immediately prior to each such issuance shall (except as otherwise provided in this clause (1)) be adjusted to: a new Conversion Price determined by dividing (X) an amount equal to the sum of (a) the product derived by multiplying the Conversion Price of such series in effect immediately prior to such issuance times the number of shares of Common Stock (including shares of Common Stock issued or issuable upon conversion of the outstanding Preferred Stock or otherwise under Section 2(d)(vi)(1)(E)) outstanding immediately prior to such issue, plus (b) the consideration, if any, received by or deemed to have been received by the Corporation upon such issuance, by (Y) an amount equal to the sum of (c) the number of shares of Common Stock (including shares of Common Stock issued or issuable upon conversion of the outstanding Preferred Stock or otherwise under Section 2(d)(vi)(1)(E)) outstanding immediately prior to such issuance, plus (d) the number of shares of Common Stock issued or deemed to have been issued in such issuance; provided, however, that if in the -9- > Corporation's next financing transaction (i) consisting of a private placement of $7,500,000 or more of equity securities led and negotiated (including the negotiation of the terms, conditions and pricing) by a financial or venture capital investor, Additional Stock is issued without consideration or for consideration per share less than the then-applicable Series C Preferred Conversion Price, the Series C Conversion Price shall be adjusted to the consideration per share received by the Corporation with respect to such Additional Stock, or (ii) consisting of a public offering, Additional Stock is issued without consideration or for consideration per share less than the then-applicable Series C Preferred Conversion Price, the Series C Conversion Price shall be adjusted to eighty percent (80%) of the consideration per share paid by the public with respect to such Additional Stock, all to be calculated as though the securities issued in the public offering were issued immediately prior to the closing of the public offering and conversion of the Series C Preferred. (B) No adjustment of the Conversion Price for any series of Preferred Stock shall be made in an amount less than one cent ($0.01) per share, provided that any adjustment that is not required to be made by reason of this sentence shall be carried forward and taken into account in any subsequent adjustment to the Conversion Price for such series of Preferred Stock. Except to the limited extent provided for in Sections 2(d)(vi)(1)(E)(z) and 2(d)(vi)(1)(E)(aa), no adjustment of such Conversion Price shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (C) In the case of the issuance of securities of the Corporation for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by this Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. (D) In the case of the issuance of securities of the Corporation for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the Board of Directors. (E) In the case of the issuance of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities (where the shares of Common Stock issuable upon exercise of such options or rights or upon conversion or exchange of such securities are not excluded from the definition of Additional Stock), the following provisions shall apply: (x) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in Sections 2(d)(vi)(1)(C) and 2(d)(vi)(1)(D)), if any, received by the Corporation upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the Common Stock covered thereby; -10- (y) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the additional consideration, if any, to be received by the Corporation upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in Sections 2(d)(vi)(1)(C) and 2(d)(vi)(1)(D)); (z) In the event of any change in the number of shares of Common Stock deliverable upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price in effect at the time for each series of Preferred Stock shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment that was made upon the issuance of such options, rights or securities not converted prior to such change or the options or rights related to such securities not converted prior to such change been made upon the basis of such change, but no further adjustment shall be made for the actual issuance of Common Stock upon the exercise of any such options or rights or the conversion or exchange of such securities; (aa) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price for each series of Preferred Stock shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment which was made upon the issuance of such options, rights or securities or options or rights related to such securities been made upon the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities. (2) "Effective Date" with respect to each series of Preferred Stock means the first date on which shares of such series of Preferred Stock were issued. (3) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to Section 2(d)(vi)(1)(E)) by the Corporation after the Effective Date other than: (A) Common Stock issued pursuant to a transaction described in Section 2(d)(iii). -11- (B) Shares of Common Stock issued or issuable to employees, officers, or directors of, or consultants to, the Corporation, approved by at least sixty-five percent (65%) of the members of the Board of Directors. (C) Common Stock issued or issuable upon conversion of the shares of Preferred Stock. (vii) NO IMPAIRMENT. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this subparagraph 2(d) and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. (viii) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price of any series of Preferred Stock pursuant to this subparagraph 2(d), the Corporation at its expense shall promptly 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 (1) such applicable adjustments and readjustments, (2) the applicable Conversion Price at the time in effect, and (3) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of Preferred Stock. Any certificate sent to the holders of Preferred Stock pursuant to this subparagraph shall be signed by an officer of the Corporation. (ix) NOTICES OF RECORD DATE. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any security or right convertible into or entitling the holder thereof to receive Common Stock, or any right to subscribe for, purchase or otherwise acquire 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 record of Preferred Stock at least fifteen (15) 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, security or right, and the amount and character of such dividend, distribution, security or right. In addition, the Corporation shall mail to each holder of record of Preferred Stock a notice specifying that a liquidation, dissolution or winding up, or a merger, sale of assets or change of control transaction involving the Corporation is to occur (or so deemed pursuant to Section 2(b)(iii) hereof), such notice to be mailed at least fifteen (15) days prior to the date on which any such action is expected to be consummated. (x) ISSUE TAXES. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on -12- conversion of shares of Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (xi) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock then, in addition to such other remedies as shall be available to the holders of Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (xii) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion of any share or shares of Preferred Stock. If the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors of the Corporation). (e) NOTICES. The Corporation shall give each holder of Preferred Stock at least fifteen (15) days prior written notice of any date (i) for the determination of the distribution of assets in connection with any liquidation, dissolution or winding up of the Corporation, or (ii) on which automatic conversion is expected to occur. Any notice required by the provisions of these Articles to be given to the holders of shares of Preferred Stock shall be deemed given if delivered personally or deposited in the United States mail, first class postage prepaid (or, if to an international addressee, sent by express messenger specifying not more than three days' delivery), and addressed to each holder of record at his or her address appearing on the books of the Corporation. (f) CERTAIN REPURCHASES. Each holder of an outstanding share of Preferred Stock shall be deemed to have consented, for purposes of Sections 502, 503 and 506 of the General Corporation Law, to distributions made by the Corporation in connection with the repurchase, at the initial purchase price thereof, or at such other price as may be approved by the Board of Directors, of shares of Common Stock issued to or held by officers, directors, employees or consultants upon termination of their employment or services pursuant to agreements providing for the right of said repurchase between the Corporation and such persons. IV. 1. LIMITATION OF DIRECTORS' LIABILITY. The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. -13- 2. INDEMNIFICATION OF CORPORATE AGENTS. This corporation is authorized to provide indemnification of its agents (as defined in Section 317 of the California General Corporations Law) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors, or otherwise, in excess of the indemnification otherwise permitted by such Section 317, subject only to the limits set forth in Section 204 of the California General Corporations Law with respect to actions for breach of duty to the corporation and its shareholders. 3. REPEAL OR MODIFICATION. Any repeal or modification of the foregoing provisions of this Article IV shall not adversely affect any right of indemnification or limitation of liability of an agent of this corporation relating to acts or omissions occurring prior to such repeal or modification." * * * C. The foregoing amendment and restatement has been duly approved by the Board of Directors of the Company. D. The foregoing amendment has been duly approved by the required vote of shareholders in accordance with Sections 902 and 903 of the California General Corporations Law. The total number of outstanding shares is 2,159,148 shares of Common Stock, 1,451,195 shares of Series A Preferred Stock and 1,818,182 shares of Series B Preferred Stock. The number of shares voting in favor of the amendment equaled or exceeded the votes required. The percentage vote was more than 50% of the outstanding Common Stock and more than 75% of the outstanding Series A Preferred Stock and Series B Preferred Stock voting together as a single class. We further declare under penalty of perjury under the laws of California that the matters set forth in this amendment and restatement are true of our own knowledge. Executed at Palo Alto, California on March 17, 2000. /s/ Daniel V. Santi ----------------------------------------- Daniel V. Santi, Chief Executive Officer /s/ Blair W. Stewart ----------------------------------------- Blair W. Stewart, Jr., Secretary -14- EX-3.2 3 EXHIBIT 3.2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF KOSAN BIOSCIENCES, INC. A DELAWARE CORPORATION Daniel V. Santi and Blair W. Stewart hereby certify that: 1. They are the President and Secretary, respectively, of Kosan Biosciences, Inc., a Delaware Corporation (the "Corporation"). 2. The Certificate of Incorporation of the Corporation, filed with the Secretary of State of the State of Delaware on May __, 2000, is hereby amended and restated in its entirety to read as follows: "FIRST: The name of the corporation is Kosan Biosciences, Inc. (the "Corporation"). SECOND: The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware, 19801. 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 by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: This Corporation is authorized to issue two classes of shares designated Common Stock and Preferred Stock. 1. The Corporation is authorized to issue 200,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"), and 10,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock"). 2. The shares of Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors. The Board of Directors of the Corporation is expressly authorized, by filing a certificate pursuant to the applicable law of the State of Delaware, to: (i) establish from time to time the number of shares to be included in each such series; (ii) fix the rights, preferences, restrictions and designations of the shares of each such series, including but not limited to the fixing or alteration of the dividend rights, dividend rate, conversion rights, conversion rate, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, voting rights and liquidation preferences of any series of Preferred Stock for which no shares have been issued and are outstanding; (iii) increase number of shares of any series at any time; and (iv) decrease the number of shares of any series prior or subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. FIFTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend, or repeal the Bylaws of the Corporation. SIXTH. Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation. Election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. SEVENTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. No action that is required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders may be effected by written consent of stockholders in lieu of a meeting of stockholders. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. The directors of the Corporation need not be elected by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins, or unless the Bylaws so provide EIGHTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this right. NINTH: Subject to the provisions of the General Corporation Law of the State of Delaware, the number of Directors of the Corporation shall be determined as provided by the Bylaws. TENTH: The Board of Directors shall be divided into three classes consisting of as nearly equal numbers of directors as possible, and designated Class A, Class B, and Class C. The term of office of Class A shall expire at the first annual meeting of stockholders following the effectiveness of this Article, and each third annual meeting of stockholders thereafter; the term of office of Class B shall expire at the second annual meeting of stockholders following the effectiveness of this Article, and each third annual meeting of stockholders thereafter; and the term of office of Class C shall expire at the third annual meeting of stockholders following the effectiveness of this Article, and each third annual meeting of stockholders thereafter. Directors added to the board of directors between annual meetings of stockholders by reason of an increase in the authorized number of directors shall belong to the class designated by the Board of Directors; provided however that the number of board seats designated to belong to Class A, Class B and Class C must be as nearly equal in number as possible. Following the effectiveness of this Article, stockholders may effect the -2- removal of a director only for cause. This provision shall supersede any provision to the contrary in the Corporation's Bylaws. ELEVENTH: The Corporation shall indemnify and hold harmless any director, officer, employee or agent of the Corporation from and against any and all expenses and liabilities that may be imposed upon or incurred by him in connection with, or as a result of, any proceeding in which he may become involved, as a part or otherwise, by reason of the fact that he is or was such a director, officer, employee or agent of the Corporation, whether or not he continues to be such at the time such expenses and liabilities shall have been imposed or incurred, to the extent permitted by the laws of the State of Delaware, as they may be amended from time to time. TWELTH: The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under Delaware law. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for 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 Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of this TWELTH Article shall be prospective and shall not affect the rights under this Thirteenth Article in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification. 3. The foregoing Restated Certificate of Incorporation has been duly approved by the board of directors of the Corporation in accordance with the provisions of Sections 242 and 245 of the Delaware General Corporation Law. -3- 4. The foregoing Amended and Restated Certificate of Incorporation has been duly approved by the required vote of the stockholders in accordance with the Certificate of Incorporation and the provisions of Sections 242 and 245 of the Delaware General Corporation Law. The undersigned hereby acknowledges that the foregoing Amended and Restated Certificate of Incorporation is his act and deed and that the facts stated herein are true. Executed at Palo Alto, CA, this ____ day of May, 2000. - ---------------------------------- ----------------------------------- Daniel V. Santi, President Blair W. Stewart, Secretary -4- EX-3.3 4 EXHIBIT 3.3 Exhibit 3.3 BYLAWS OF KOSAN BIOSCIENCES INCORPORATED (a Delaware Corporation) ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the corporation shall be fixed in the certificate of incorporation of the corporation. 1.2 OTHER OFFICES The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the corporation. 2.2 ANNUAL MEETING The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of stockholders shall be held on the third Tuesday of May in each year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected, and any other proper business may be transacted. 2.3 SPECIAL MEETING Except as otherwise required by law, a special meeting of the stockholders may be called only by the Board of Directors, the Chairman of the Board, or the President; provided however, that if at any time no directors remain in office, then a special meeting for the purpose of electing directors may be called in accordance with the procedure set forth in the Bylaws. No business may be transacted at such special meeting otherwise than as specified in the notice of such meeting. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 2.6 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the purpose or purposes for which the meeting is called (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders (but any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, (a) nominations for the election of directors, and (b) business proposed to be brought before any stockholder meeting may be made by the board of directors or proxy committee appointed by the board of directors or by any stockholder entitled to vote in the election of directors generally if such nomination or business proposed is otherwise proper business before such meeting. However, any such stockholder may nominate one or more persons for election as directors at a meeting or propose business to be brought before a meeting, or both, only if such stockholder has given timely notice to the secretary of the corporation in proper written form of their intent to make such nomination or nominations or to propose such business. To be timely, such stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days in advance of the date of the corporation's proxy statement released to stockholders in connection with the previous year's annual meeting of stockholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received a reasonable time before the solicitation is made. To be in proper form, a stockholder's notice to the secretary shall set forth: (i) the name and address of the stockholder who intends to make the nominations or propose the business and, as the case may be, of the person or persons to be nominated or of the business to be proposed; -2- (ii) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and (v) if applicable, the consent of each nominee to serve as director of the corporation if so elected. The chairman of the meeting shall refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders shall be given either personally or by first-class mail or by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the stockholder at the address of that stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. An affidavit of the mailing or other means of giving any notice of any stockholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.7 QUORUM The holders of a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stock-holders for the transaction of business except as otherwise pro-vided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting in accordance with Section 2.7 of these bylaws. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought -3- before such meeting, unless the question is one upon which, by express provision of the laws of the State of Delaware or of the certificate of incorporation or these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of the question. If a quorum be initially present, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken is approved by a majority of the stockholders initially constituting the quorum. 2.8 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time and place, unless these bylaws otherwise require, 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. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners, and to voting trusts and other voting agreements). Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder with respect to any matter submitted to a vote of the stockholders and stockholders shall not be entitled to cumulate their votes in the election of directors. 2.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, 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 need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. -4- 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING For purposes of determining the stockholders entitled to notice of any meeting or to vote thereat, the board of directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting, and in such event only stockholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the corporation after the record date. If the board of directors does not so fix a record date, 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 business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. 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 unless the board of directors fixes a new record date for the adjourned meeting, but the board of directors shall fix a new record date if the meeting is adjourned for more than thirty (30) days from the date set for the original meeting. The record date for any other purpose shall be as provided in Section 8.1 of these bylaws. 2.12 PROXIES Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, telefacsimile or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the pro-visions of Section 212(e) of the General Corporation Law of Delaware. 2.13 ORGANIZATION The president, or in the absence of the president, the chair-man of the board, or, in the absence of the president and the chairman of the board, one of the corporation's vice presidents, shall call the meeting of the stockholders to order, and shall act as chairman of the meeting. In the absence of the president, the chairman of the board, and all of the vice presidents, the stockholders shall appoint a chairman for such meeting. The chairman of any meeting of stockholders shall deter-mine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and the conduct of business. The secretary of the corporation shall act as secretary of all meetings of the stockholders, but in the absence of the secretary at any meeting of the stockholders, the chairman of the meeting may appoint any person to act as secretary of the meeting. -5- 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (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 ten (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. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation and these bylaws relating to action required to be approved by the stockholders or by the out-standing shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS The board of directors shall consist of nine members. The board of directors may increase or decrease the number of directors constituting the board of directors upon the approval of a majority of the directors then in office. The number of directors so determined shall be the authorized number of directors of the corporation. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS Except as provided in Section 3.4 of these bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Each director, including a director elected or appointed to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. 3.4 RESIGNATION AND VACANCIES Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that -6- resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. All vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; provided, that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE Regular meetings of the board of directors may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of Delaware -that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting. 3.6 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice if the times of such meetings are fixed by the board of directors. If any regular meeting day shall fall on a legal holiday, then the meeting shall be held next succeeding full business day. 3.7 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not -7- specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.10 of these bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of the certificate of incorporation and other applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such directors. All such waivers, consents, and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors. 3.10 ADJOURNMENT A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. 3.11 NOTICE OF ADJOURNMENT Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.7 of these bylaws, to the directors who were not present at the time of the adjournment. 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board. -8- 3.13 FEES AND COMPENSATION OF DIRECTORS Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. 3.14 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or any of its subsidiaries, including any officer or employee who is a director of the corporation or any of its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing contained in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have and may exercise all the powers and authority of the board, but no such committee shall have the power of authority to: (a) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation); -9- (b) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware; (c) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets; (d) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution; or (e) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section 3.12 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. 4.3 COMMITTEE MINUTES. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and -10- such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 ELECTION OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any con-tract of employment, any officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be pre-scribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 PRESIDENT Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of -11- the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence or non-existence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be pre-scribed by the board of directors or these bylaws. 5.8 VICE PRESIDENTS In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.9 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. -12- The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, indemnify any person against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit, or proceeding in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was a director or officer of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation shall mean any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. The corporation shall be required to indemnify a director or officer in connection with an action, suit, or proceeding (or part thereof) initiated by such director or officer only if the initiation of such action, suit, or proceeding (or part thereof) by the director or officer was authorized by the Board of Directors of the corporation. The corporation shall pay the expenses (including attorney's fees) incurred by a director or officer of the corporation entitled to indemnification hereunder in defending any action, suit or proceeding referred to in this Section 6.1 in advance of its final disposition; provided, however, that payment of expenses incurred by a director or officer of the corporation in advance of the final disposition of such action, suit or proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should ultimately be determined that the director of officer is not entitled to be indemnified under this Section 6.1 or otherwise. The rights conferred on any person by this Article shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the corporation's Certificate of Incorporation, these bylaws, agreement, vote of the stockholders or disinterested directors or otherwise. -13- Any repeal or modification of the foregoing provisions of this Article shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, to indemnify any person (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reason-ably incurred in connection with any threatened, pending or completed action, suit, or proceeding, in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was an employee or agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) shall mean any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 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 the provisions of the General Corporation Law of Delaware. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books and other records of its business and properties. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose -14- reasonably related to such person's interest as a stock-holder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine (and to make copies of) the corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, if any, the president, any vice president, the chief financial officer, the secretary or any assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent and exercise on behalf of this corporation all rights incident to any and all shares of the stock of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. 7.5 CERTIFICATION AND INSPECTION OF BYLAWS The original or a copy of these bylaws, as amended or other-wise altered to date, certified by the secretary, shall be kept at the corporation's principal executive office and shall be open to inspection by the stockholders of the corporation, at all reasonable times during office hours. ARTICLE VIII GENERAL MATTERS 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING For purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action. In that case, only stockholders of -15- record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the General Corporation Law of Delaware. If the board of directors does not so fix a record date, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution. 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES The shares of the corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has 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. Certificates for shares shall be of such form and device as the board of directors may designate and shall state the name of the record holder of the shares represented thereby; its number; -16- date of issuance; the number of shares for which it is issued; a summary statement or reference to the powers, designations, preferences or other special rights of such stock and the qualifications, limitations or restrictions of such preferences and/or rights, if any; a statement or summary of liens, if any; a conspicuous notice of restrictions upon transfer or registration of transfer, if any; a statement as to any applicable voting trust agreement; if the shares be assessable, or, if assessments are collectible by personal action, a plain statement of such facts. Upon surrender to the secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.5 SPECIAL DESIGNATION ON CERTIFICATES If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences and the 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 that the corporation shall issue to represent such class or series of stock; provided, how-ever, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that 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, the designations, the preferences and the 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. 8.6 LOST CERTIFICATES Except as provided in this Section 8.6, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. -17- 8.7 TRANSFER AGENTS AND REGISTRARS The board of directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, each of which shall be an incorporated bank or trust company -- either domestic or foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the board of directors may designate. 8.8 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS 9.1 AMENDMENTS BY STOCKHOLDERS AND DIRECTORS The original or other bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote or by the board of directors of the corporation. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. Whenever an amendment or new bylaw is adopted, it shall be copied in the book of bylaws with the original bylaws, in the appropriate place. If any bylaw is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or the filing of the operative written consent(s) shall be stated in said book. 9.2 SUPERMAJORITY VOTE Notwithstanding anything to the contrary in the bylaws, neither Section 2.3 (special meeting), Section 2.5 (advance notice of stockholder nominees and stockholder business), nor this Section 9.2 (supermajority vote) of the bylaws shall be repealed or amended, nor shall any provision inconsistent with the aforementioned provisions be adopted and added to the bylaws except upon the affirmative vote of not less than two-thirds of the shares of the corporation issued and outstanding. Amended and Restated Bylaws adopted by the Board of Directors of the Corporation at Hayward, California, this day of March, 2000. -18- EX-4.2 5 EXHIBIT 4.2 KOSAN BIOSCIENCES INCORPORATED THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT DATED AS OF MARCH 30, 2000 TABLE OF CONTENTS
PAGE Section 1 Restrictions on Transferability of Securities; Compliance with Securities Act...........................2 1.1 CERTAIN DEFINITIONS......................................................................................2 1.2 RESTRICTIONS ON TRANSFERABILITY..........................................................................3 1.3 RESTRICTIVE LEGENDS......................................................................................3 1.4 NOTICE OF PROPOSED TRANSFERS.............................................................................4 1.5 REQUESTED REGISTRATION...................................................................................5 1.6 COMPANY REGISTRATION.....................................................................................7 1.7 REGISTRATION ON FORM S-3.................................................................................8 1.8 EXPENSES OF REGISTRATION.................................................................................9 1.9 INDEMNIFICATION.........................................................................................10 1.10 Information of Holder; Copies of Prospectus.............................................................12 1.11 OBLIGATIONS OF THE COMPANY..............................................................................12 1.12 RULE 144 REPORTING......................................................................................13 1.13 TRANSFER OF REGISTRATION RIGHTS.........................................................................14 1.14 STANDOFF AGREEMENT......................................................................................14 Section 2 Miscellaneous..........................................................................................14 2.1 TRANSFER; SUCCESSORS AND ASSIGNS........................................................................14 2.2 GOVERNING LAW...........................................................................................15 2.3 COUNTERPARTS............................................................................................15 2.4 TITLES AND SUBTITLES....................................................................................15 2.5 NOTICES.................................................................................................15 2.6 TERMINATION.............................................................................................15 -i- TABLE OF CONTENTS (CONTINUED) PAGE 2.7 SEVERABILITY............................................................................................15 2.8 ENTIRE AGREEMENT........................................................................................15 2.9 MODIFICATIONS AND AMENDMENTS............................................................................15 2.10 ADDITIONAL REGISTRATION RIGHTS..........................................................................16 EXHIBIT A - HOLDERS
-ii- THIS THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of the 30th day of March, 2000 by and among Kosan Biosciences Incorporated, a California corporation (the "Company") and the persons and entities listed on EXHIBIT A attached hereto. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in Section 1.1 hereof. WHEREAS, concurrently with the execution and delivery of this Agreement, certain of the Holders are acquiring shares of the Company's Series C Preferred Stock pursuant to a Series C Preferred Stock Purchase Agreement of even date herewith (the "Series C Purchase Agreement"); WHEREAS, the Company sold shares of its Series A Preferred Stock to certain of the Holders pursuant to a Series A Preferred Stock Purchase Agreement dated as of January 31, 1997 (the "Series A Purchase Agreement"); WHEREAS, in connection with the Series A Purchase Agreement, the Company and certain of the Holders entered into an Amended and Restated Registration Rights Agreement dated as of January 31, 1997, pursuant to which the Company granted such Holders certain registration rights with respect to the Company's Common Stock to be acquired upon the conversion of the Series A Preferred Stock; WHEREAS, the Company sold shares of its Series B Preferred Stock to certain of the Holders pursuant to a Series B Preferred Stock Purchase Agreement dated as of April 3, 1998 (the "Series B Purchase Agreement"); WHEREAS, in connection with the Series B Purchase Agreement, the Company and certain of the Holders entered into a Second Amended and Restated Registration Rights Agreement dated as of April 3, 1998 (the "Prior Registration Rights Agreement"), pursuant to which the Company granted such Holders certain registration rights with respect to the Company's Common Stock to be acquired upon the conversion of the Series B Preferred Stock; WHEREAS, the Company wishes to amend and restate the Prior Registration Rights Agreement to grant to those persons and entities that are purchasing Series C Preferred Stock pursuant to the Series C Purchase Agreement certain registration rights with respect to the Company's Common Stock; and WHEREAS, pursuant to Section 2.9 of the Prior Registration Rights Agreement, the Prior Registration Rights Agreement may be modified or amended only with the written consent of the Company and the Holders (as such term is defined in the Prior Registration Rights Agreement) holding at least seventy percent (70%) of the Registrable Securities (as such term is defined in the Prior Registration Rights Agreement) then subject to the Prior Registration Rights Agreement, and those persons and entities listed on the signature pages hereof constitute the Holders of at least seventy percent (70%) of the Registrable Securities now subject to the Prior Registration Rights Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT 1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "AFFILIATE" shall mean any person controlling, controlled by or under common control with another person. "Control" shall mean the right to direct the management or policies of the person or to elect or appoint a majority of its managerial body (such as the board of directors of a corporation, the managers of a limited liability company, the general partners of a partnership, the trustees of a trust, etc.), or the ownership of more than 50% of the equity interests of the person. "Person" shall mean any individual, corporation, company, partnership, trust, association or other legal entity. "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "CONVERSION SHARES" shall mean the shares of the Company's Common Stock issued or issuable upon the conversion of Shares that are convertible securities. "HOLDER" shall mean any holder of Registrable Securities listed on EXHIBIT A, including any person holding Registrable Securities to whom the rights under this Section 1 have been transferred in accordance with Section 1.13 hereof. "INITIATING HOLDERS" shall mean any Holders of at least twenty-five (25%) of the Registrable Securities. "REGISTRABLE SECURITIES" means (i) Conversion Shares and (ii) any Common Stock of the Company issued or issuable with respect to such Conversion Shares upon any stock split, stock dividend, recapitalization or similar event or any Common Stock otherwise issued with respect to the such shares; PROVIDED, HOWEVER, that Common Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold (other than pursuant to Section 1.13 hereof) after the Company's Common Stock is registered under the Securities Exchange Act of 1934, as amended, in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Rule 144 thereof (or any comparable exemption) so that all transfer restrictions and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale. "RESTRICTED SECURITIES" shall mean the Shares and the Conversion Shares. -2- The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement. "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in complying with Sections 1.5, 1.6 and 1.7 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "SELLING EXPENSES" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by any of the Holders and all fees and disbursements of counsel for such Holders (as limited by Section 1.8). "SHARES" shall mean the shares of the Company's Common Stock, the shares of the Company's Series A Preferred Stock, the shares of the Company's Series B Preferred Stock and the shares of the Company's Series C Preferred Stock, in each case listed opposite the name of each Holder on EXHIBIT A attached hereto. References in this Section 1 to the Company's "commercially reasonable efforts" with respect to a registration shall not be construed so as to permit the Company to delay or refuse to undertake a registration due to the (i) expense to the Company of such registration, (ii) timing of such registration, or (iii) involvement of the Company's management or other resources in such registration. 1.2 RESTRICTIONS ON TRANSFERABILITY. The Restricted Securities shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Section 1, which conditions are intended to ensure compliance with the provisions of the Securities Act. Each Holder will cause any proposed purchaser, assignee, transferee or pledgee of any of the Restricted Securities, to agree to take and hold such Restricted Securities subject to the provisions and upon the conditions specified in this Section 1, including without limitation those imposed upon Holders under Section 1.13. 1.3 RESTRICTIVE LEGENDS. (a) Each certificate representing (i) the Shares, (ii) the Conversion Shares and (iii) any other securities issued in respect of the Shares or the Conversion Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 1.4 below) be stamped or otherwise imprinted with a legend in substantially the following form (in addition to any legend required under applicable state securities laws): -3- THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT THERETO UNDER SUCH ACT UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT OR UNLESS THE SALE IS OTHERWISE EXEMPT FROM REGISTRATION. UNLESS SUCH SHARES ARE SOLD PURSUANT TO RULE 144 OF THE SECURITIES ACT, THE COMPANY MAY REQUEST A WRITTEN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL ARE ACCEPTABLE TO THE COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH ANY SUCH SALE, PLEDGE OR HYPOTHECATION OR OTHER TRANSFER. THIS CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, PLEDGE, HYPOTHECATION OR OTHER TRANSFER OF ANY INTEREST IN ANY OF THE SHARES REPRESENTED BY THIS CERTIFICATE. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER CONTAINED IN AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (b) Each Holder consents to the Company making a notation on its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer established in this Section 1. 1.4 NOTICE OF PROPOSED TRANSFERS. Each Holder by acceptance of Restricted Securities agrees to comply in all respects with the provisions of this Section 1.4. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail and, if the Company reasonably so requests, shall be accompanied at such holder's expense by either (i) an opinion of legal counsel which shall be reasonably satisfactory to the Company, which opinion shall be addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, or (ii) a "no action" letter from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. Each certificate or other writing evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 1.3 above, except that -4- such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and the Company such legend is not required in order to establish compliance with any provisions of the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144. Notwithstanding the provisions of this Section 1.4, no such opinion of counsel shall be necessary for a transfer by a Holder which is (A) a partnership to its partners or former partners in accordance with partnership interests, (B) a corporation to its shareholders in accordance with their interest in the corporation, (C) a limited liability company to its members or former members in accordance with their interest in the limited liability company, or (D) to the Holder's or Affiliate's family member or to a trust for the benefit of an individual Holder, provided, that in all cases the transferee will be subject to the terms of this Section 1.4 to the same extent as if such transferee were an original Holder hereunder. 1.5 REQUESTED REGISTRATION. (a) REQUEST FOR REGISTRATION. In case the Company shall receive from Initiating Holders a written request that the Company effect any registration, qualification or compliance with respect to the Registrable Securities, the anticipated aggregate offering price of which is at least $5,000,000, the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other holders of Registrable Securities; and (ii) as soon as practicable, use its commercially reasonable efforts to effect such registration, qualification or compliance (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder joining in such request as are specified in a written request received by the Company within thirty (30) days after receipt of such written notice from the Company; PROVIDED, HOWEVER, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 1.5: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (B) prior to the earlier of twelve (12) months from the date of this Agreement or one hundred and eighty (180) days immediately following the effective date of the registration statement pertaining to a firm commitment underwritten initial public offering of securities of the Company; -5- (C) beginning at any time when the Company delivers notice to the holders of Registrable Securities within thirty (30) days of any registration request of its bona fide intention to file a registration statement with the Commission pertaining to a firm commitment underwritten initial public offering of securities of the Company within ninety (90) days of such request and ending on the earlier of the abandonment or consummation of such offering; (D) during the one hundred and eighty (180) days immediately following the effective date of the registration statement pertaining to a firm commitment underwritten initial public offering of securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan); (E) after the Company has effected three such registrations pursuant to this subparagraph 1.5(a), such registrations have been declared or ordered effective and the securities offered pursuant to such registrations have been sold; or (F) if the Company shall furnish to Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed in the near future, provided that the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.5 shall be deferred for a period not to exceed ninety (90) days, and provided, further, that the Company shall not exercise its right under this clause to defer such obligation more than once in any twelve (12) month period. Subject to the foregoing clauses (A) through (F), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Initiating Holders. (b) UNDERWRITING. In the event that the Initiating Holders intend to distribute their Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as part of their request made pursuant to this Section 1.5 and the Company shall so advise the Holders as part of the notice given pursuant to Section 1.5(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.5 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 1.5(b) and the inclusion of such holder's Registrable Securities in the underwriting to the extent requested and to the extent provided herein. The Company (together with all Holders proposing to distribute their securities through such underwriting) shall, upon request by the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders (which managing underwriter shall be reasonably acceptable to the Company), enter into any reasonable agreement requested by the managing underwriter in connection with the offering including, but not limited to, an underwriting agreement in customary form with the managing underwriter. Notwithstanding any other provision of this Section 1.5, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit or exclude the securities to be included in such registration by any Holder exercising its rights pursuant to this Section 1.5; provided that if any exclusion or limitation of securities is so required, the securities to be included -6- shall be apportioned as follows: first, among the Holders of Registrable Securities participating in such registration pursuant to the exercise of their rights in this Section 1.5 in proportion to the number of shares of Registrable Securities held by such Holders, second, to the Company, and third, to any other holders of securities of the Company entitled to participate and participating in such registration ("Other Holders") in proportion to the number of shares of the Company's Common Stock (or equivalents thereof) held by such Other Holders. No securities or Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to ninety (90) days after the effective date of such registration; PROVIDED, HOWEVER, that, if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securi ties in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 1.5(b). 1.6 COMPANY REGISTRATION. (a) NOTICE OF REGISTRATION. If at any time or from time to time the Company shall determine to register any of its securities in connection with the sale thereof for cash, either for its own account or the account of a security holder or holders exercising their respective demand registration rights, other than (i) a registration relating solely to employee benefit plans, or (ii) a registration relating solely to a Commission Rule 145 transaction, the Company will: (A) promptly give to each Holder written notice thereof; and (B) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within thirty (30) days after receipt of such written notice from the Company by any Holder. (b) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.6(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.6 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company (or by the holders who have demanded such registration). Notwithstanding any other provision of this Section 1.6, if the managing underwriter determines that -7- marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit or exclude the Registrable Securities to be included in such registration prior to the exclusion from such registration of any securities to be sold by the Company or any party exercising demand registration rights with respect to such registration; provided that if any exclusion or limitation of Registrable Securities is so required, the securities to be included shall be apportioned as follows: first, to the Company, second, among the Holders of Registrable Securities participating in such registration in proportion to the number of shares of Registrable Securities held by such Holders, and third, among any Other Holders of securities of the Company entitled to participate and participating in such registration in proportion to the number of shares of the Company's Common Stock (or equivalents thereof) held by such Other Holders. In no event will shares of any Other Holders be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than seventy percent (70%) of the Registrable Securities proposed to be sold in the offering. If any Holder or Other Holder dis approves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. All priorities with respect to demand registrations shall be governed by Section 1.5 hereof. (c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to terminate or withdraw any registration initiated by the Company under this Section 1.6 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. 1.7 REGISTRATION ON FORM S-3. (a) If any Holder requests that the Company file a registration statement on Form S-3 (or any successor form to Form S-3) for a public offering of shares of the Registrable Securities the anticipated aggregate offering price of not less than $2,000,000, and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering, the Company shall use its commercially reasonable efforts to cause such Registrable Securities to be registered for the offering on such form; PROVIDED, HOWEVER, that the Company shall not be required to effect more than two such registration pursuant to this Section 1.7 in any twelve-month period. The Company will (i) promptly give written notice of the proposed registration to all other Holders and (ii) as soon as practicable, use its commercially reasonable efforts to effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within thirty (30) days after receipt of such written notice from the Company. If the registration is for a public offering involving an underwriting, the substantive provisions of Sec tion 1.5(b) shall be applicable to each registration initiated under this Section 1.7. -8- (b) Notwithstanding the foregoing, the Company shall not be obligated to take any action pursuant to this Section 1.7: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) beginning at any time when the Company delivers notice to the Holders of the Company's bona fide intention to effect the filing of a registration statement (other than with respect to a registration statement relating to a Rule 145 transaction, an offering solely to employees or any other registration which is not appropriate for the registration of Registrable Securities) with the Commission within ninety (90) days of such notice and ending on the earlier of the abandonment or consummation of such offering; (iii) during the period starting with the date forty-five (45) days prior to the filing of, and ending on a date sixty (60) days following the effective date of, a registration statement (other than with respect to a registration statement relating to a Rule 145 transaction, an offering solely to employees or any other registration which is not appropriate for the registration of Registrable Securities), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iv) if the Company shall furnish to such Holder a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for registration statements to be filed in the near future or for any disclosure to be made that, in the opinion of the Board of Directors duly advised by counsel, is required to be made in connection with the sale of Registrable Securities pursuant to such registration, provided that the Company's obligation to use its commercially reasonable efforts to file a registration statement shall be deferred for a period not to exceed ninety (90) days from the receipt of the request to file such registration by such Holder, and provided, further, that the Company shall not exercise its right under this clause to defer such obligation more than once in any twelve-month period. 1.8 EXPENSES OF REGISTRATION. (a) All Registration Expenses incurred in connection with any registration pursuant to Sections 1.5 or 1.6, and the reasonable cost of one special legal counsel to represent all of the Holders together, shall be borne by the Company. All Registration Expenses incurred in connection with the first two registrations pursuant to Section 1.7, excluding the expense of counsel for the Holders, shall be borne by the Company. The Company shall not be required to pay the Registration Expenses of any registration proceeding begun pursuant to Section 1.5 if the request for such registration has been subsequently withdrawn by the Initiating Holders, unless the Holders of at least seventy percent (70%) of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.5. Notwithstanding the foregoing, however, if at the time of the withdrawal the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request, of which the Company had knowledge at the time of the request, then the Holders shall not be required to pay any of said Registration Expenses or to forfeit the right to one demand registration. -9- (b) All Selling Expenses incurred in connection with a registration pursuant to Section 1.7 shall be borne pro-rata by the Holder or Holders requesting the registration on Form S-3 according to the number of Registrable Securities in such registration. (c) Notwithstanding the provisions of Section 1.8(a), if, as a condition of registration or qualification of any offering in any state or jurisdiction in which the Company or any underwriter determines in good faith that it wishes to offer securities registered in an offering to which this Agreement applies, it is required that offering expenses be allocated in a manner different from that provided in Section 1.8(a), the offering expenses shall be allocated in whatever permitted manner is most nearly in compliance with the provisions of this Agreement, so long as such allocation does not materially reduce the net proceeds received by any Holder. 1.9 INDEMNIFICATION. (a) To the extent permitted by law, the Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation (or alleged violation) by the Company of the Securities Act or any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse or pay for the account of each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred (as and when incurred) in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein. (b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the -10- Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse or pay for the account of the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred (as and when incurred) in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such-registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein; provided, however, that the liability of a Holder for indemnification under this Section 1.9(b) shall not exceed the net proceeds from the offering received by such Holder, unless such liability arises out of or is based on willful misconduct of such Holder. (c) Each party entitled to indemnification under this Section 1.9 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (which approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense; PROVIDED, HOWEVER, that an Indemnified Party shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnifying Party, if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between such Indemnified Party and any other party represented by such counsel in such proceeding. The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1 except to the extent that the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement (i) that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation, or (ii) that contains or requires any admission of fault on the part of an Indemnified Party. No Indemnifying Party shall be liable for indemnification hereunder with respect to any settlement or consent to judgment in connection with any claim or litigation to which these indemnification provisions apply that has been entered into without the prior consent of the Indemnifying Party (which consent will not be unreasonably withheld). -11- (d) If the indemnification provided for in this Section 1.9 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any losses, claims, damages or liabilities referred to herein, the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the untrue statement (or alleged untrue statement) or omission (or alleged omission) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder. (e) The obligations of the Company and the Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement pursuant to this Section 1. 1.10 INFORMATION OF HOLDER; COPIES OF PROSPECTUS. Each Holder of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder, the Registrable Securities held by such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be required and typically provided by selling shareholders in a like situation in connection with any registration, qualification or compliance referred to in this Section 1. In connection with any such registration, the Company shall furnish to such Holder or Holders such numbers of copies as may be reasonably requested in order to facilitate the disposition of Registrable Securities owned by such Holder, of any prospectus or preliminary prospectus prepared in conformity with the Securities Act. 1.11 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as soon as practicable: (a) Prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective, and upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or until the distribution contemplated in the Registration Statement has been completed. (b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. -12- (c) Use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to file a general consent to service of process in any such states or jurisdictions. (d) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (e) Furnish to the Holders participating in such registration and, if applicable, to the underwriters of the securities being registered, such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus, accountant's comfort letters, opinions of counsel and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities. (f) In the event of an underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (g) File such listing applications as may be reasonably necessary in connection with the sale of such Registrable Securities. 1.12 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission, which may permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its commercially reasonable effort to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act at all times after the effective date that the Company becomes subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; (c) So long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, a copy of the most recent annual or quarterly report of the Company and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as a Holder may reasonably request in availing itself of any -13- rule or regulation of the Commission allowing a Holder to sell any such securities without registration; and (d) Take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective. 1.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted Holders under Sections 1.5, 1.6, and 1.7 may be assigned or otherwise conveyed to a transferee or assignee in connection with any transfer or assignment of Registrable Securities by a Holder (together with any Affiliate) provided that such transfer may otherwise be effected in accordance with applicable securities laws, the Holder effecting such transfer shall comply with the requirements of Section 1.4 of this Agreement, the transferee shall agree to be bound by all of the provisions of this Section 1, such transfer does not violate any agreements by and among the Company and such Holders or any agreements among such Holders, and such transferee or assignee is a wholly owned subsidiary, constituent partner (including retired and limited partners) or Affiliate of such Holder, is any family member of any individual Holder, is a trust for the benefit of any individual Holder, or acquires from such Holder at least 150,000 shares of the Company's Registrable Securities subject to this Agreement (as adjusted for any stock split or combination), or a lesser amount provided such transferee or assignee acquires all of the shares of the Company's capital stock subject to this Agreement then held by such Holder, provided in each case that the Company is given written notice by such transferee at the time of said transfer stating the name and address of said transferee and said transferee's agreement to be bound by this Agreement. 1.14 STANDOFF AGREEMENT. So long as the Company has complied in all material respects with the terms of this Agreement, each Holder agrees in connection with the firm commitment initial underwritten public offering of the Company's securities, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of or otherwise dispose of any Registrable Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the Company or such managing underwriters, provided that each of the Company's officers, directors and holders of at least one percent (1%) of the Company's voting securities shall have agreed to be bound by the same restrictions in connection with the Company's initial public offering. SECTION 2 MISCELLANEOUS 2.1 TRANSFER; SUCCESSORS AND ASSIGNS. Except as the transferability of rights is expressly limited herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, -14- express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 2.2 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the state of California as applied to agreements among California residents entered into and to be performed entirely within California. 2.3 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 2.4 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 2.5 NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Holder, at such address as such Holder shall have furnished to the Company in writing, or (b) if to the Company, at such address as the Company shall have furnished in writing to the Holder to the attention of the President. A notice shall be effective when actually delivered by hand or messenger, or, if to a domestic addressee, five (5) business days after deposit in the mail as aforesaid, or, if to an international addressee, sent by express messenger specifying not more than three days' delivery. 2.6 TERMINATION. This Agreement shall terminate with respect to any Holder when such Holder may sell all of its Registrable Securities under Rule 144 without limitation as to volume. 2.7 SEVERABILITY. If any provision of this Agreement, or the application thereof, will for any reason and to any extent be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances will be interpreted so as to reasonably effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provision. 2.8 ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof. 2.9 MODIFICATIONS AND AMENDMENTS. This Agreement may be modified or amended only with the written consent of the Company and the Holders holding at least seventy percent (70%) of the Registrable Securities then subject to this Agreement. Any waiver by a party of its rights hereunder shall be effective only if evidenced by a written instrument executed by such party. In no event shall such waiver of any rights hereunder constitute the waiver of such rights in any future instance unless the waiver so specifies in writing. Each Holder acknowledges that by the operation of this Section 2.9 the Holders of seventy percent (70%) of the Registrable Securities interests may -15- have the right and power to diminish or eliminate all rights of such Holder under this Agreement. Each Holder agrees that its consent to amend this Agreement shall not be required in the event the Company desires to amend this Agreement to include in the definition of Holder suppliers, lessors or commercial lending institutions that acquire Registrable Securities after the date hereof, so long as the rights so granted are not inconsistent with or superior to any rights granted to the Holders under this Agreement. 2.10 ADDITIONAL REGISTRATION RIGHTS. Without the prior written consent of the Holders of at least seventy percent (70%) of the Registrable Securities, the Company shall not grant registration rights other than in compliance with Section 2.9 above and shall not enter into any agreement with respect to registration rights that is inconsistent with the terms of this Agreement. [Remainder of Page Intentionally Left Blank] -16- IN WITNESS WHEREOF, the parties have executed this Third Amended and Restated Registration Rights Agreement as of the date first above written. "COMPANY" KOSAN BIOSCIENCES INCORPORATED By: /s/ Daniel V. Santi ------------------------------ Title: Chief Executive Officer ------------------------------ (Signature Page to the Third Amended and Restated Registration Rights Agreement) "HOLDERS" ALTA CALIFORNIA PARTNERS, L.P. By: Alta California Management Partners, L.P. By: /s/ Jean Deleage ------------------------------ Title: General Partner ALTA EMBARCADERO PARTNERS, LLC By: /s/ Jean Deleage ------------------------------ Title: Member (Signature Page to the Third Amended and Restated Registration Rights Agreement) CV SOFINNOVA VENTURE PARTNERS III By: Sofinnova Management L.P. By: /s/ Michael F. Powell ------------------------------ Title: Managing Director ------------------------------ Sofinnova Management III, LLC (General Partner) SOFINNOVA CAPITAL II F.C.P.R. By: /s/ Michael F. Powell ------------------------------ Title: ------------------------------ (Signature Page to the Third Amended and Restated Registration Rights Agreement) WALDEN EDB PARTNERS, L.P. By: Walden Management, L.P., General Partner By: /s/ Lip Bu Tan ------------------------------ Title: General Partner ------------------------------ WALDEN TECHNOLOGY VENTURES II, L.P. By: Walden Technology Partners, L.P., General Partner By: [ILLEGIBLE] ------------------------------ Title: General Partner ------------------------------ WALDEN-SBIC, L.P. By: [ILLEGIBLE] ------------------------------ Title: General Partner ------------------------------ WALDEN EDB PARTNERS II, L.P. By: Walden Management LLC, General Partner By: /s/ Lip Bu Tan ------------------------------ Title: General Partner ------------------------------ (Signature Page to the Third Amended and Restated Registration Rights Agreement) THE GOLDMAN SACHS GROUP, INC. By: /s/ Eric M. Mindich ------------------------------ By: ------------------------------ Title: Attorney-in-Fact ------------------------------ (Signature Page to the Third Amended and Restated Registration Rights Agreement) LOMBARD ODIER & CIE By: /s/ Carmela Gokok ------------------------------ Title: Assistant Vice President ------------------------------ By: /s/ Alexander Meyer ------------------------------ Title: Assistant Vice President ------------------------------ (Signature Page to the Third Amended and Restated Registration Rights Agreement) S.R. ONE, LIMITED By: ------------------------------ By: /s/ Raymond Whitaker ------------------------------ Title: Vice President ------------------------------ (Signature Page to the Third Amended and Restated Registration Rights Agreement) /s/ Daniel V. Santi ------------------------------ DANIEL V. SANTI (Signature Page to the Third Amended and Restated Registration Rights Agreement) AG-BIOTECH CAPITAL, LLC By: Veridian Management, LLC ------------------------------ By: /s/ Helene S. Cohen ------------------------------ Title: President/Manager ------------------------------ (Signature Page to the Third Amended and Restated Registration Rights Agreement) DEUTSCHE ASSET MANAGEMENT (NAVAP) By: [ILLEGIBLE] ------------------------------- Title:[ILLEGIBLE] ------------------------------- DEUTSCHE ASSET MANAGEMENT INVESTMENT GESELLSCHAFT mbtt DEUTSCHE VERMOEGENSBILDUNGS GESELLSCHAFT m.b.H. By: /s/ Daniel Endrikat ------------------------------- Daniel Endrikat Title: ------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) THE FRANKLIN BIOTECHNOLOGY DISCOVERY FUND By: ------------------------------- By: /s/ Murray L. Simpson ------------------------------- Title: Vice President ------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) INVEMED FUND, L.P. By: ------------------------------- By: /s/ Cristina H. Kepner ------------------------------- Title:Executive Vice President of Invemed ------------------------------- Associates LLC and General Partner of Invemed Fund, L.P. (Signature Page to the Third Amended and Restated Registration Rights Agreement) CRISTINA H. KEPNER /s/ Cristina H. Kepner ------------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) G. ALLEN MEBANE /s/ G. Allen Mebane ------------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) THOMAS TEAGUE /s/ Thomas Teague by [ILLEGIBLE] ------------------------------------- Attorney-in-Fact (Signature Page to the Third Amended and Restated Registration Rights Agreement) BRUCE M. LANGONE /s/ Bruce M. Langone ------------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) JAMES MCGIBBON /s/ James McGibbon ------------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) ED HERLIHY /s/ Ed Herlihy ------------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) KENNETH LANGONE /s/ Kenneth Langone ------------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) JOHN BARAN /s/ John Baran ------------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) BALDWIN SMITH, JR. /s/ Baldwin Smith, Jr. ------------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) ADAM CHIN /s/ Adam Chin ------------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) ANDREW R. TAUSSIG /s/ Andrew R. Taussig ------------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) VIREN MEHTA /S/ Viren Mehta ------------------------------------- (Signature Page to the Third Amended and Restated Registration Rights Agreement) EXHIBIT A HOLDERS
"HOLDER" "REGISTRABLE SECURITIES" - ------------------------------------------------- --------------------------------------------------------------------- SERIES A SERIES B SERIES C COMMON PREFERRED PREFERRED PREFERRED STOCK STOCK STOCK STOCK ----------- ------------- ------------- ------------- Alta California Partners, L.P. 52,263 462,968 237,009 23,654 Alta Embarcadero Partners, LLC 1,552 13,224 5,415 540 Chiron Corporation 35,877 238,096 0 0 Daniel V. Santi 216,498 229,761 24,244 0 Chaitan Khosla 22,857 7,413 0 0 Walden-SBIC, L.P. 0 178,572 24,793 5,499 Walden Technology Ventures II, L.P. 0 35,714 4,960 1,100 Walden EDB Partners, L.P. 0 47,619 6,611 1,466 CV Sofinnova Venture Partners III 0 190,476 24,242 0 Sofinnova Capital II F.C.P.R. 0 0 36,364 0 Parvin Anand 1,794 11,905 0 0 Joseph T. Fitzpatrick, Trustee of the Joseph T. Fitzpatrick Trust U/A/D 9/8/88 717 4,762 0 0 Jeffrey A. Golden 538 3,572 0 0 John F. Hamilton and Carol Leonard, as community property 538 3,572 0 0 Kathryn M. Ivanetich 179 1,191 0 0 "HOLDER" "REGISTRABLE SECURITIES" - ------------------------------------------------- --------------------------------------------------------------------- SERIES A SERIES B SERIES C COMMON PREFERRED PREFERRED PREFERRED STOCK STOCK STOCK STOCK ----------- ------------- ------------- ------------- Jacobson, Silverstein, Winslow Architects 359 2,381 0 0 George Robert Johnson 359 2,381 0 0 Deborah Kass 359 2,381 0 0 James Huger Richardson 538 3,572 0 0 Kathy Houser Richardson 359 2,381 0 0 Howard J. Schaeffer 359 2,381 0 0 Robert M. Stroud 359 2,381 0 0 WS Investment Company '96A 717 4,762 0 0 The Goldman Sachs Group, Inc. One New York Plaza, 50th Floor New York, NY 10004 Attn: Robert Granovsky WITH A COPY TO: The Goldman Sachs Group, Inc. One New York Plaza, 37th Floor New York, NY 10004 Attn: John Berton 0 0 303,030 0 Lombard Odier & Cie 0 0 363,636 58,065 S.R. One, Limited 0 0 303,030 16,129 Ag-Biotech Capital, LLC 0 0 484,848 16,129 Deutsche Asset Management 0 0 0 161,291 Deutsche Vermoegensbildungs Gesellschaft m.b.H. 96,774 The Franklin Biotechnology Discovery Fund 0 0 0 387,097 "HOLDER" "REGISTRABLE SECURITIES" - ------------------------------------------------- --------------------------------------------------------------------- SERIES A SERIES B SERIES C COMMON PREFERRED PREFERRED PREFERRED STOCK STOCK STOCK STOCK ----------- ------------- ------------- ------------- Invemed Fund, L.P. 0 0 0 12,904 Cristina H. Kepner 0 0 0 2,420 G. Allen Mebane 0 0 0 806 Thomas Teague 0 0 0 645 Bruce M. Langone 0 0 0 806 James McGibbon 0 0 0 968 Ed Herlihy 0 0 0 806 Kenneth Langone 0 0 0 8,873 John Baran 0 0 0 806 Baldwin Smith, Jr. 0 0 0 806 Adam Chin 0 0 0 806 Andrew R. Taussig 0 0 0 1,612 Viren Mehta 0 0 0 3,226 TOTAL 336,222 1,451,195 1,818,182 803,228 ======= ========= ========= =======
EX-10.1 6 EXHIBIT 10.1 KOSAN BIOSCIENCES INCORPORATED INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this __ day of ___________, 199__ by and between Kosan Biosciences Incorporated, a California corporation (the "Company") and ____________ ("Indemnitee"). WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors' and officers' liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other officers and directors of the Company may not be willing to continue to serve as officers and directors without additional protection; and WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as officers and directors of the Company and to indemnify its officers and directors so as to provide them with the maximum protection permitted by law. NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. INDEMNIFICATION. (a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presump- tion that (i) Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or (ii) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee believed to be in the best interests of the Company and its shareholders. 2. EXPENSES; INDEMNIFICATION PROCEDURE. (a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding referenced in Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. (b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to his right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received three business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) PROCEDURE. Any indemnification provided for in Section 1 shall be made no later than forty-five (45) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within forty-five (45) days after a written request for payment thereof has first been received by the Company, Indemnitee may, -2- but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 13 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Subsection 2(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 2(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. (e) SELECTION OF COUNSEL. In the event the Company shall be obligated under Section 2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. -3- 3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. (a) SCOPE. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a California corporation to indemnify a member of its board of directors, an officer or other corporate agent, such changes shall be, IPSO FACTO, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its Board of Directors, an officer or other corporate agent, such changes, to the extent required by such law, statute or rule to be applied to this Agreement, shall have the effect on this Agreement and the parties' rights and obligations hereunder as is required by such law, statute or rule. (b) NONEXCLUSIVITY. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested directors, the California General Corporation Law, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action or other covered proceeding. 4. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 5. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 6. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other -4- considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 7. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 7. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 8. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) EXCLUDED ACTS. To indemnify Indemnitee for any acts or omissions or transactions from which a director may not be relieved of liability under the California General Corporation Law. (b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or (c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or -5- (d) INSURED CLAIMS. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors' and officers' liability insurance maintained by the Company; or (e) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 9. EFFECTIVENESS OF AGREEMENT. To the extent that the indemnification permitted under the terms of certain provisions of this Agreement exceeds the scope of the indemnification expressly permitted by Section 317 of the California General Corporation Law, such provisions shall not be effective unless and until the Company's Articles of Incorporation authorize such additional rights of indemnification. In all other respects, the balance of this Agreement shall be effective as of the date set forth on the first page and may apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was an officer, director, employee or other agent of the Company, or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred. 10. CONSTRUCTION OF CERTAIN PHRASES. (a) For purposes of this Agreement, references to the "Company" shall also include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries. 11. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. -6- 12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 13. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, a court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 14. NOTICE. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California. 16. CHOICE OF LAW. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of California as applied to contracts between California residents entered into and to be performed entirely within California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. KOSAN BIOSCIENCES INCORPORATED By:_________________________________ Daniel V. Santi, President AGREED TO AND ACCEPTED: INDEMNITEE: ___________________________ -7- EX-10.2 7 EXHIBIT 10.2 KOSAN BIOSCIENCES INCORPORATED 1996 STOCK OPTION PLAN AMENDED AS OF OCTOBER 1998, OCTOBER 1999 AND MARCH 2000 1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or nonstatutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "ADMINISTRATOR" means the Board or any of its Committees appointed pursuant to Section 4 of the Plan. (b) "APPLICABLE LAWS" means the legal requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code and the applicable laws of any foreign country or jurisdiction. (c) "BOARD" means the Board of Directors of the Company. (d) "CODE" means the Internal Revenue Code of 1986, as amended. (e) "COMMITTEE" means a Committee appointed by the Board of Directors in accordance with Section 4 of the Plan. (f) "COMMON STOCK" means the Common Stock of the Company. (g) "COMPANY" means Kosan Biosciences Incorporated (h) "CONSULTANT" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services and is compensated for such services, and any director of the Company whether compensated for such services or not. (i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the employment or consulting relationship with the Company, any Parent, or Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. (j) "EMPLOYEE" means any person, including Officers and directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (l) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, or; (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (o) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "OPTION" means a stock option granted pursuant to the Plan. (q) "OPTIONED STOCK" means the Common Stock subject to an Option. (r) "OPTIONEE" means an Employee or Consultant who receives an Option. (s) "PARENT" means a "parent corporation", whether now or hereafter existing, as defined in Section 424(e) of the Code. -2- (t) "PLAN" means this 1996 Stock Option Plan. (u) "SECTION 16(b)" means Section 16(b) of the Exchange Act. (v) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 11 below. (w) "SUBSIDIARY" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 1,700,000, Shares, plus an annual increase to be added on January 1 of each year (beginning in 2001), equal to the lesser of (i) 375,000 Shares, (ii) 5% of the outstanding Shares on such date or (iii) such lesser number of Shares as approved by the Board of Directors. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); PROVIDED, however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are repurchased by the Company at their original purchase price, and the original purchaser of such Shares did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership. 4. ADMINISTRATION OF THE PLAN. (a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a committee appointed by the Board. (b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE COMPANY BECOMES SUBJECT TO THE EXCHANGE ACT. (i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With respect to grants of Options to Employees who are also Officers or directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with the rules under Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made, or (B) a Committee designated by the Board to administer the Plan, which Committee shall be constituted to comply with the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the -3- Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. (ii) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect to directors, non-director Officers and Employees who are neither directors nor Officers. (iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER EMPLOYEES. With respect to grants of Options to Employees or Consultants who are neither directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a committee designated by the Board, which committee shall be constituted in such a manner as to satisfy Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. (c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan; (ii) to select the Consultants and Employees to whom Options may from time to time be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions of any award granted hereunder; (vii) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(f) instead of Common Stock; -4- (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; and (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options. 5. ELIGIBILITY. (a) Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if otherwise eligible, be granted additional Options. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 6. TERM OF PLAN. The Plan shall become effective upon its adoption by the Board of Directors. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. 7. TERM OF OPTION. The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. -5- 8. OPTION EXERCISE PRICE AND CONSIDERATION. (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option (A) granted to a person who, at the time of the grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant. (B) granted to any person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option have been owned by the Optionee for more than six months on the date of surrender and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and -6- as shall be permissible under the terms of the Plan, but in no case at a rate of less than 20% per year over five(5) years from the date the Option is granted. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the date three (3) months and one day from the date of such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator and set forth in the Notice of Grant, of at least thirty (30) days, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (c) DISABILITY OF OPTIONEE. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her disability, Optionee may, but only within six (6) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option one day following the end of the exercise period determined pursuant to Section 9(b) of the Plan. To the extent that Optionee is not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time -7- specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the Option may be exercised at any time within six (6) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) RULE 16b-3. Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. (f) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. -8- (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify the Optionee at least fifteen(15) days prior to such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action. (c) MERGER. In the event of a merger of the Company with or into another corporation, the Option may be assumed or an equivalent option may be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If, in such event, the Option is not assumed or substituted, the Option shall terminate as of the date of the closing of the merger. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger, the option confers the right to purchase, for each Share of Optioned Stock subject to the Option immediately prior to the merger, the consideration (whether stock, cash, or other securities or property) received in the merger by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option for each Share of Optioned Stock subject to the Option to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger. 12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 13. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. 14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such -9- Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 16. AGREEMENTS. Options shall be evidenced by written agreements in such form as the Administrator shall approve from time to time. 17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws and the rules of any stock exchange upon which the Common Stock is listed. 18. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to each Optionee, not less frequently than annually, copies of annual financial statements. The Company shall also provide such statements to each individual who acquires Shares pursuant to the Plan while such individual owns such Shares. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. -10- EX-10.3 8 EX-10.3 KOSAN BIOSCIENCES, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. DEFINITIONS. (a) "BOARD" shall mean the Board of Directors of the Company. (b) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" shall mean the Common Stock of the Company. (d) "COMPANY" shall mean Kosan Biosciences, Inc., a Delaware corporation, and any Designated Subsidiary of the Company. (e) "COMPENSATION" shall mean all base straight time gross earnings and commissions, exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation. (f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary that has been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (g) "EMPLOYEE" shall mean any individual who is an Employee of the Company for tax purposes whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. (h) "ENROLLMENT DATE" shall mean the first day of each Offering Period. (i) "EXERCISE DATE" shall mean the last day of each Offering Period. (j) "FAIR MARKET VALUE" shall mean, as of any date, the value of Common Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day on the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable, or; (2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable, or; (3) For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Common Stock (the "Registration Statement"). (k) "OFFERING PERIOD" shall mean a period of approximately six (6) months during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after June 1 and terminating on the last Trading Day in the period ending the following November 30, or commencing on the first Trading Day on or after December 1 and terminating on the last Trading Day in the period ending the following May 31; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before November 1. The duration of Offering Periods may be changed pursuant to Section 4 of this Plan. (l) "PLAN" shall mean this Employee Stock Purchase Plan. (m) "PURCHASE PRICE" shall mean an amount equal to 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided, however, that the Purchase Price may be adjusted by the Board pursuant to Section 20. (n) "RESERVES" shall mean the number of shares of Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option. (o) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. (p) "TRADING DAY" shall mean a day on which national stock exchanges and the Nasdaq System are open for trading. -2- 3. ELIGIBILITY. (a) Any Employee who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. OFFERING PERIODS. The Plan shall be implemented by consecutive Offering Periods with a new Offering Period commencing on the first Trading Day on or after June 1 and December 1 each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 20 hereof; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before November 1, 2000. The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter. 5. PARTICIPATION. (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office prior to the applicable Enrollment Date. (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof. 6. PAYROLL DEDUCTIONS. (a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding fifteen percent (15%) of the Compensation which he or she receives on each pay day during the Offering Period. -3- (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account. (c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to zero percent (0%) at any time during an Offering Period. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Offering Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof. (e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but shall not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee. 7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on the Exercise Date of such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be permitted to purchase during each Offering Period more than 5,000 shares (subject to any adjustment pursuant to Section 19), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The Option shall expire on the last day of the Offering Period. 8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as provided in Section 10 hereof, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her -4- account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be retained in the participant's account for the subsequent Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. 9. DELIVERY. As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, the shares purchased upon exercise of his or her option. 10. WITHDRAWAL. (a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his or her account shall be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement. (b) A participant's withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws. 11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an Employee for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, and such participant's option shall be automatically terminated. The preceding sentence notwithstanding, a participant who receives payment in lieu of notice of termination of employment shall be treated as continuing to be an Employee for the participant's customary number of hours per week of employment during the period in which the participant is subject to such payment in lieu of notice. 12. INTEREST. No interest shall accrue on the payroll deductions of a participant in the Plan. 13. STOCK. (a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 100,000 shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2001 equal to the -5- lesser of (i) 50,000 shares, (ii) .75% of the outstanding shares on such date, or (iii) a lesser amount determined by the Board. If, on a given Exercise Date, the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. (b) The participant shall have no interest or voting right in shares covered by his option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse. 14. ADMINISTRATION. The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties. 15. DESIGNATION OF BENEFICIARY. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. TRANSFERABILITY. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof. -6- 17. USE OF FUNDS. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 18. REPORTS. Individual accounts shall be maintained for each participant in the Plan. Statements of account shall be given to participating Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. 19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION, MERGER OR ASSET SALE. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the stockholders of the Company, the Reserves, the maximum number of shares each participant may purchase per Offering Period (pursuant to Section 7), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Board. The New Exercise Date shall be before the date of the Company's proposed dissolution or liquidation. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. (c) MERGER OR ASSET SALE. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date"). The New Exercise Date shall be before the date of the Company's proposed sale or merger. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the -7- participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. 20. AMENDMENT OR TERMINATION. (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its stockholders. Except as provided in Section 19 and Section 20 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any other applicable law, regulation or stock exchange rule), the Company shall obtain shareholder approval in such a manner and to such a degree as required. (b) Without stockholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. (c) In the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to: (1) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price; (2) shortening any Offering Period so that Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and (3) allocating shares. Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants. 21. NOTICES. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form -8- specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 23. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 20 hereof. -9- EXHIBIT A KOSAN BIOSCIENCES, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT Original Application Enrollment Date: - ---------- --------- Change in Payroll Deduction Rate - ---------- Change of Beneficiary(ies) - ---------- 1. hereby elects to participate in the Kosan Biosciences, Inc. 2000 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan. 2. I hereby authorize payroll deductions from each paycheck in the amount of % of my Compensation on each payday (from 0 to %) during the Offering Period in accordance with the Employee Stock Purchase Plan. (Please note that no fractional percentages are permitted.) 3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option. 4. I have received a copy of the complete Employee Stock Purchase Plan. I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to stockholder approval of the Employee Stock Purchase Plan. 5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse only): . 6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares), I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON STOCK. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year holding period, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain. 7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan. 8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan: NAME: (Please print) -------------------------------------- (First) (Middle) (Last) --------------------------- -------------------------------------- Relationship -------------------------------------- (Address) Employee's Social Security Number: -------------------------------------- Employee's Address: -------------------------------------- -------------------------------------- -2- I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME. Dated: ----------------------------- ------------------------------------- Signature of Employee ------------------------------------- Spouse's Signature (If beneficiary other than spouse) -3- EXHIBIT B KOSAN BIOSCIENCES, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL The undersigned participant in the Offering Period of the Kosan Biosciences, Inc. 2000 Employee Stock Purchase Plan which began on , (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement. Name and Address of Participant: ------------------------------------- ------------------------------------- ------------------------------------- Signature: ------------------------------------- Date: -------------------------------- EX-10.4 9 EX-10.4 KOSAN BIOSCIENCES, INC. 2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1. PURPOSES OF THE PLAN. The purposes of this 2000 Non-Employee Director Stock Option Plan are to attract and retain the best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be nonstatutory stock options. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "BOARD" means the Board of Directors of the Company. (b) "CODE" means the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" means the common stock of the Company. (d) "COMPANY" means Kosan Biosciences, Inc., a Delaware corporation. (e) "DIRECTOR" means a member of the Board. (f) "DISABILITY" means total and permanent disability as defined in section 22(e)(3) of the Code. (g) "EMPLOYEE" means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (i) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of grant as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock for the last market trading day prior to the time of grant, as reported in THE WALL STREET JOURNAL or such other source as the Board deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (j) "INSIDE DIRECTOR" means a Director who is an Employee. (k) "IPO EFFECTIVE DATE" means the date upon with the Securities and Exchange Commission declares the initial public offering of the Company's common stock as effective. (l) "OPTION" means a stock option granted pursuant to the Plan. (m) "OPTIONED STOCK" means the Common Stock subject to an Option. (n) "OPTIONEE" means a Director who holds an Option. (o) "OUTSIDE DIRECTOR" means a Director who is not an Employee. (p) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (q) "PLAN" means this 2000 Non-Employee Director Stock Option Plan. (r) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan. (s) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 100,000 Shares (the "Pool"), plus an annual increase to be added on January 1 of each year, beginning in 2001, equal to the lesser of (i) 50,000 shares, (ii) .75% of the outstanding shares on such date, or (iii) a lesser amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan. -2- 4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN. (a) PROCEDURE FOR GRANTS. All grants of Options to Outside Directors under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: (i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options. (ii) Each Outside Director shall be automatically granted an Option to purchase 2,500 Shares (the "First Option") on the date on which the later of the following events occurs: (A) the IPO Effective Date, or (B) the date on which such person first becomes an Outside Director, whether through election by the shareholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option. (iii) Each Outside Director shall be automatically granted an Option to purchase 1,250 Shares (a "Subsequent Option") on the date of the annual stockholders meeting of each year provided he or she is then an Outside Director and if as of such date, he or she shall have served on the Board for at least the preceding six (6) months. (iv) Notwithstanding the provisions of subsections (ii) and (iii) hereof, any exercise of an Option granted before the Company has obtained shareholder approval of the Plan in accordance with Section 16 hereof shall be conditioned upon obtaining such shareholder approval of the Plan in accordance with Section 16 hereof. (v) The terms of a First Option granted hereunder shall be as follows: (A) the term of the First Option shall be ten (10) years. (B) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the First Option. (D) subject to Section 10 hereof, the First Option shall become exercisable as to 25% percent of the Shares subject to the First Option on each anniversary of its date of grant, provided that the Optionee continues to serve as a Director on such dates. (vi) The terms of a Subsequent Option granted hereunder shall be as follows: (A) the term of the Subsequent Option shall be ten (10) years. -3- (B) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Subsequent Option. (D) subject to Section 10 hereof, the Subsequent Option shall become exercisable as to 100% percent of the Shares subject to the Subsequent Option on the anniversary of its date of grant, provided that the Optionee continues to serve as a Director on such date. (vii) In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the shareholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. 5. ELIGIBILITY. Options may be granted only to Outside Directors. All Options shall be automatically granted in accordance with the terms set forth in Section 4 hereof. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate the Director's relationship with the Company at any time. 6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the shareholders of the Company as described in Section 16 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 11 of the Plan. 7. FORM OF CONSIDERATION. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (v) any combination of the foregoing methods of payment. 8. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted hereunder shall be exercisable at such times as are set forth in Section 4 hereof; provided, however, that no -4- Options shall be exercisable until shareholder approval of the Plan in accordance with Section 16 hereof has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7 of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. Subject to Section 10 hereof, in the event an Optionee's status as a Director terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option, but only within three (3) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (c) DISABILITY OF OPTIONEE. In the event Optionee's status as a Director terminates as a result of Disability, the Optionee may exercise his or her Option, but only within twelve (12) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (d) DEATH OF OPTIONEE. In the event of an Optionee's death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and only to the extent that the Optionee was entitled to exercise it on the date of death (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of death, and to the extent that the Optionee's estate or a person who acquired the right to -5- exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET SALE. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option, the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, and the number of Shares issuable pursuant to the automatic grant provisions of Section 4 hereof shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it shall terminate immediately prior to the consummation of such proposed action. (c) MERGER OR ASSET SALE. In the event of a merger of the Company with or into another corporation or the sale of substantially all of the assets of the Company, outstanding Options may be assumed or equivalent options may be substituted by the successor corporation or a Parent or Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or substituted for, the Option or equivalent option shall continue to be exercisable as provided in Section 4 hereof for so long as the Optionee serves as a Director or a director of the Successor Corporation. Following such assumption or substitution, if the Optionee's status as a Director or director of the Successor Corporation, as applicable, is terminated other than upon a voluntary resignation by the Optionee, the Option or option shall become fully exercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Sections 8(b) through (d) above. If the Successor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall become fully vested and exercisable, including as to Shares for which it would not otherwise be exercisable. In such event the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and upon the expiration of such period the Option shall terminate. -6- For the purposes of this Section 10(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). If such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 11. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated. 12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the date determined in accordance with Section 4 hereof. 13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful -7- issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 14. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 15. OPTION AGREEMENT. Options shall be evidenced by written option agreements in such form as the Board shall approve. 16. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and any stock exchange rules. EX-10.8 10 EXHIBIT-10.8 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EXHIBIT 10.8 LICENSE AGREEMENT Effective as of March 11, 1996 (the "Effective Date"), THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of California ("STANFORD"), and KOSAN Biosciences, Inc., a California corporation having a principal place of business at 211 Belgrave Avenue, San Francisco, California 94117 ("LICENSEE"), agree as follows: 1 BACKGROUND 1.1 STANFORD has an assignment of "Recombinant Production of Novel Polyketides" from the laboratory of Dr. Chaitan Khosla ("Invention(s)"), as described in STANFORD Docket S93-098 and any Licensed Patent(s), as hereinafter defined, which may issue on such Invention(s). 1.2 STANFORD desires to have the Invention(s) perfected and marketed at the earliest possible time in order that products resulting therefrom may be available for public use and benefit. 1.3 LICENSEE desires a license under said Invention(s), Licensed Patent(s) and Licensed Materials to develop, manufacture, have made, use, and sell Licensed Product(s) in the Licensed Field of Use. 1.4 The Invention(s) were made in the course of research supported by the National Institutes of Health. 1.5 STANFORD has entered into agreements with John Innes Institute and Brown University Research Foundation ("BURF") which provide STANFORD the exclusive right to act on behalf of such parties in connection with the licensing of their entire right, title and interest with respect to the Inventions and Licensed Patents. 1.6 LICENSEE and STANFORD have entered into an Option Agreement effective as of April 1, 1995 pursuant to which STANFORD granted KOSAN an exclusive option to acquire an exclusive license to the Inventions and Licensed Patents. 2 DEFINITIONS 2.1 "Affiliate" means any corporation or other entity that is directly or indirectly controlling, controlled by or under common control with LICENSEE. For the purpose of this definition, "control" shall mean the direct or indirect beneficial ownership of at least forty-nine percent (49%) in the income or stock of such corporation or business. 2.2 "Exclusive" means that, subject to Article 4, STANFORD shall not grant further licenses to the Invention(s), Licensed Materials, and Licensed Patent(s) in the Licensed Territory. 2.3 "Licensed Materials" shall mean the biological materials listed on Exhibit A hereto, and such other agreed materials as STANFORD may provide to LICENSEE during the term of this Agreement, which shall be added to Exhibit A. 2.4 "Licensed Patent(s)" means (i) the U.S. and foreign patent applications listed on Exhibit B hereto, (ii) all U.S. or foreign patent applications filed after the Effective Date which name Chaitan Khosla as an inventor and which claim one or more inventions which would be dominated by any patent issuing on a patent application within the Licensed Patents pending as of the Effective Date (or a division, substitution or continuation of such a pending application), (iii) all divisions, substitutions and continuations of any of the preceding, (iv) all foreign patent applications corresponding to or claiming priority from any of the preceding, and (v) all U.S. and foreign patents issuing on any of the preceding, including patents of addition, reexaminations, reissues and extensions. 2.5 "Licensed Product" will mean any product (i) the manufacture or sale of which is within a Valid Claim within the Licensed Patents in the country which the product is made or sold; or (ii) containing a composition of matter that was first invented using a method within the scope of a Valid Claim within the Licensed Patents in the country in which such use occurred. 2.6 "Licensed Territory" means worldwide. 2.7 "LICENSEE" shall mean KOSAN Biosciences, Inc. and its Affiliates. 2.8 "Net Sales" means the gross revenue received by LICENSEE and/or sublicensee(s) from sales of Licensed Product(s), less the following items but only insofar as they are included in such gross revenue and are separately stated on the invoice: (a) Import, export, value added, excise and sales taxes, tariffs, and custom duties; (b) Credit for returns, damaged goods, allowances, or trades; (c) Charges for packaging, shipping and insurance; and (d) Customary rebates, cash and trade discounts, actually taken. 2.9 "Valid Claim" means a claim of (i) an issued, unexpired patent which has not been held unenforceable of invalid by a court or other governmental entity of competent jurisdiction, and which has not been disclaimed, or rejected or found invalid or unenforceable in a reissue application or re-examination proceeding; or (ii) a patent application, provided that not more than five (5) years have elapsed from the date the claim takes priority for filing purposes. -2- 3 GRANT 3.1 STANFORD hereby grants and LICENSEE hereby accepts an Exclusive license under the Inventions, Licensed Patents and Licensed Materials to make, have made, import, use, lease, sell and offer for sale and otherwise commercialize and exploit Licensed Products and Licensed Materials, and practice any method, process or procedure within the Licensed Patents in the Licensed Territory. 3.2 The license granted in Section 3.1 shall be Exclusive, and include the right to grant sublicenses pursuant to Article 14 during the period that LICENSEE holds an Exclusive license, for a term commencing as of the Effective Date, and ending upon the expiration of the last to expire of the issued Licensed Patent(s), on a country-by-country basis, or if no patent within the Licensed Patent(s) issues in a country, shall terminate on the tenth anniversary of the first sale of a Licensed Product in such country. Notwithstanding the above, (i) the parties may with written agreement convert the exclusive license to a non-exclusive license, on a country-by-country basis, or (ii) at any time prior to two (2) years before the expiration of the last to expire of the Licensed Patents in a particular country, on a country-by-country basis, LICENSEE may elect to convert the exclusive license granted herein to a non-exclusive license in such country with notice to STANFORD. 3.3 Notwithstanding Sections 3.1 and 3.2 above, STANFORD shall retain the nontransferable right to practice the Licensed Patents and use the Licensed Materials for its internal, academic, non-commercial research. STANFORD agrees not to provide or grant any third party any of the Licensed Materials or any rights to any compound developed in Dr. Chaitan Khosla's laboratory with the use of the Licensed Materials. 3.4 Upon execution of this Agreement, STANFORD shall transfer to LICENSEE a sufficient quantity of the Licensed Materials as is necessary for LICENSEE to establish a viable culture of such Licensed Materials. LICENSEE agrees to reimburse Stanford for its out-of-pocket costs of preparing such Licensed Materials for LICENSEE, up to a maximum of [**] ($[**]). LICENSEE agrees to make such Licensed Materials available for academic not-for-profit research to researchers at academic and not-for-profit institutions which enter into a Material Transfer Agreement with LICENSEE in substantially the form attached hereto as Exhibit C. 4 GOVERNMENT RIGHTS This Agreement is subject to all of the terms and conditions of Title 35 United States Code Sections 200 through 204, including an obligation that products within the scope of a claim of an issued U.S. Licensed Patent sold in the United States be "manufactured substantially in the United States," and LICENSEE agrees to take all reasonable action necessary on its part as licensee to enable STANFORD to satisfy its obligation thereunder, relating to Invention(s), provided that STANFORD has provided LICENSEE with written notice of each such obligation STANFORD must meet and a description of each act LICENSEE must take to comply with such obligation at least 90 days in advance of any required act. STANFORD acknowledges that Licensed Products are -3- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. anticipated to be comprised of multiple technologies and agrees that only those components within the scope of the Licensed Patent(s) need be manufactured substantially in the United States. 5 DILIGENCE 5.1 LICENSEE agrees to use reasonable efforts and diligence to proceed with the development, manufacture, or sale of Licensed Product(s) and shall endeavor to achieve the following: (a) receive financing of at least [**] dollars ($[**]) within [**] following the Effective Date; (b) establish a facility at which it will practice the Licensed Patents within [**] following the Effective Date; (c) sequence at least [**] base pairs of DNA from one or more [**] within [**] from the Effective Date; (d) generate a polyketide library of at least [**] polyketide compounds within [**] of the Effective Date; (e) generate a polyketide library of at least [**] polyketide compounds within [**] of the Effective Date; and (f) file an IND for a Licensed Product within [**] from the Effective Date. For purposes of determining whether LICENSEE has met its diligence obligations, Sections 5.1 (c)-(f) above may be satisfied by LICENSEE or its sublicensees. In the event that LICENSEE has not achieved any one or more of the foregoing milestones but has exercised reasonable efforts to accomplish the same, STANFORD and LICENSEE shall negotiate in good faith an extension of time in which LICENSEE may accomplish such milestone and all subsequent milestones. 5.2 STANFORD may terminate LICENSEE's rights under this Agreement with respect to a particular Licensed Product if, after final FDA approval of a NDA for such Licensed Product, LICENSEE has not sold the Licensed Product for a continuous period of [**] after such final approval. 5.3 On or before [**] of each year during the term of this Agreement until LICENSEE markets a Licensed Product, LICENSEE shall make a written annual report to STANFORD covering the preceding year ending [**], regarding the progress of LICENSEE toward commercialization of Licensed Product(s). Such report shall include, as a minimum, -4- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. information sufficient to enable STANFORD to satisfy reporting requirements of the U.S. Government and for STANFORD to ascertain progress by LICENSEE toward meeting the diligence requirements of this Article 5. 6 PAYMENTS 6.1 LICENSEE agrees to pay to STANFORD a nonrefundable, license issue fee of [**] Dollars ($[**]) within [**] days of the Effective Date. [**] ($[**]) of the option fee paid by KOSAN to STANFORD pursuant to the Option Agreement shall be credited against such license issue fee. 6.2 Within thirty (30) days of the Effective Date, LICENSEE shall reimburse STANFORD for legal fees in the amount of [**]Dollars ($[**]), and for patent-related expenses in the amount of [**] Dollars ($[**]) incurred by STANFORD prior to the Effective Date with respect to the Licensed Patents. The amount paid by LICENSEE for legal fees shall be fully creditable against the first annual maintenance fee due pursuant to Section 6.3, and the amount paid by LICENSEE for patent-related expenses shall be fully creditable against royalties due pursuant to Section 6.5. 6.3 During the term of the Agreement, LICENSEE shall pay to STANFORD an annual maintenance fee on the anniversary of the Effective Date, in accordance with the following schedule: $[**] $[**] $[**] Such annual maintenance fees shall be fully creditable against earned royalties up to [**] percent ([**]%) of such royalties due STANFORD in any year. 6.4 Unless the Agreement is terminated earlier, within thirty (30) days following the first achievement by LICENSEE or a sublicensee of the following milestones, LICENSEE shall pay STANFORD one-time milestone payments according to the following schedule:
EVENT PAYMENT ----- ------- [**] $ [**] [**] $ [**] -5- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] $[**] [**] $[**] $[**] [**] [**] $[**] [**] $[**]
All such payments shall be fully creditable against royalties due STANFORD hereunder. 6.5 In addition to the payments of Sections 6.2 and 6.3, LICENSEE shall pay STANFORD royalties on annual Net Sales as follows: (a) on Net Sales by LICENSEE: (i) a royalty of [**] percent ([**]%) of Net Sales of a Licensed Product containing a polyketide compound [**], which compound has not been modified further; (ii) a royalty of [**] percent ([**]%) of Net Sales of a Licensed Product containing a polyketide compound [**], but not structurally characterized in such laboratory, which compound has not been modified further; (iii) a royalty of [**] percent ([**]%) of Net Sales of a Licensed Product containing a compound derived from a polyketide compound [**], which polyketide compound has been modified through medicinal chemistry or otherwise; (iv) a royalty of [**] percent ([**]%) of Net Sales of a Licensed Product containing a compound derived from a polyketide compound [expressed, but not structurally characterized in Dr. Khosla's laboratory at STANFORD], which polyketide compound has been modified through medicinal chemistry; and (v) a royalty of [**] percent ([**]%) of Net Sales of all other Licensed Products sold by LICENSEE. -6- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (b) on Net Sales by sublicensees: (i) a royalty of [**] percent ([**]%) of Net Sales of a Licensed Product containing a polyketide compound [**], which compound has not been modified further; (ii) a royalty of [**] percent ([**]%) of Net Sales of a Licensed Product containing a polyketide compound [**], but not structurally characterized in such laboratory, which compound has not been modified further; (iii) a royalty of [**] percent ([**]%) of Net Sales of a Licensed Product containing a compound derived from a polyketide compound [**], which polyketide compound is modified through medicinal chemistry or otherwise; and (iv) a royalty of [**] percent ([**]%) of Net Sales of all other Licensed Products sold by a sublicensee. (c) The royalties due STANFORD pursuant to Subsections 6.5(a) (i)-(iii) and (b) (i)-(iii) above shall be reduced by [**] percent ([**]%) in the event that the pertinent polyketide compound was [**] in the course of sponsored research conducted with funds provided by LICENSEE or a sublicensee. (d) As used in this Section 6.5, "structurally characterized" means the determination of the complete structure of the compound (e.g., by nuclear magnetic resonance and mass spectroscopy), such that sufficient information has been obtained that a patent disclosure can be made which would fully enable a patent claim with respect to the pertinent composition of matter. 6.6 The above royalty rates will be reduced by [**] percent ([**]%) if the Licensed Product is not within the scope of an issued Valid Claim but is within the scope of a pending Valid Claim. 6.7 The royalty rates set forth in Sections 6.5 and 6.6 above take into account that LICENSEE may become obligated to pay royalties to third parties on sales of Licensed Products. Consequently, no reduction shall be made to the royalties due to STANFORD, except if the royalty or other amount is paid in respect of a valid claim of a patent that would dominate the practice of the Licensed Patents, such royalty or other amount may be offset against the royalties due to STANFORD hereunder. However, in such event the royalty paid to STANFORD be reduced to less than [**] percent ([**]%) of the amount that would otherwise be due to STANFORD; provided, in no event shall the royalty due STANFORD pursuant to this Section be less than [**] percent ([**]%). 6.8 In the event that a Licensed Product under this Agreement is sold in a combination product containing other active components, then subject to Sections 6.5 and 6.6, Net Sales on the combination product shall be calculated using one of the following methods: -7- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (a) By multiplying the net selling price of the combination product by the fraction A/A+B, where A is the gross selling price, during the royalty-paying period being considered, of the Licensed Product sold separately, and B is the gross selling price, during the royalty period in question, of the other active components sold separately; or (b) In the event that no such separate sales are made of the Licensed Product, Net Sales on the combination product for royalty determination shall be as reasonably allocated between such Licensed Product and the other active components, based on their relative importance and proprietary protection, as agreed by the parties. If the parties fail to reach agreement such allocation shall be submitted to binding arbitration. 6.9 In the event that in any country all the Valid Claims within the Licensed Patent(s) which cover a particular Licensed Product are held invalid or unenforceable, then LICENSEE's obligation to pay royalties on Net Sales with respect to such Licensed Product shall terminate in such country. LICENSEE's obligation to pay royalties on Net Sales shall terminate on a country-by-country basis upon the expiration of the last to expire of any issued Licensed Patent(s) in each country; provided, in the event that LICENSEE elects to maintain exclusivity for the life of the issued patents within the Licensed Patents in any country, then until [**] ([**]) years following the expiration of the Licensed Patents in such country, LICENSEE shall pay to STANFORD royalties equivalent to the amount of royalties due on Net Sales of Licensed Products in such country at the royalty rate set forth in Section 6.6, subject to the other provisions of this Article 6. The parties agree that for the convenience of the parties such royalty shall be paid in consideration for the use of the Licensed Materials. 6.10 The royalty on Net Sales made in currencies other than U.S. Dollars shall be calculated using the appropriate foreign exchange rate for such currency quoted by the Bank of America (San Francisco) foreign exchange desk, on the close of business on the last banking day of each calendar quarter. Royalties and payments to STANFORD shall be made in U.S. Dollars. All non-U.S. taxes related to royalty payments shall be paid by LICENSEE and are not deductible from the payments due STANFORD. 6.11 In addition to the foregoing, LICENSEE shall pay to STANFORD: (a) [**] percent ([**]%) of any amounts (excluding royalties) received by LICENSEE from sublicensees with respect to a sublicense to make [**] compounds using methods claimed in the Licensed Patents; and (b) the lesser of (i) [**] dollars ($[**]), or (ii) [**] percent ([**]%) of any amounts (excluding royalties) received by LICENSEE from sublicensees with respect to a sublicense to screen [**] compound libraries made by LICENSEE using methods claimed in the Licensed Patents. -8- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. It is understood and agreed that LICENSEE shall have no obligation to pay STANFORD any amount with respect to payments received by LICENSEE from a sublicensee for the purchase of equity, debt financing, research and development, library generation and preparation, the license of intellectual property or technology other than the Licensed Patents, or reimbursement for patent or other expenses. LICENSEE's obligation under subsection (b) above shall only apply to amounts received in excess of the reasonably fully burdened (direct and indirect) costs incurred by LICENSEE in developing such polyketide compound libraries, and shall not apply to any payments received by LICENSEE with respect to the first sublicenses granted by LICENSEE of rights to screen polyketide compound libraries made by LICENSEE and the second such sublicense if it is entered within [**] of the Effective Date of the first such sublicense. 6.12 In the event that LICENSEE's rights under this Agreement become non-exclusive in any country, the amounts due STANFORD pursuant to the provisions of this Article 6 shall be reduced by [**]. 6.13 In the event that LICENSEE sells any Licensed Material which has not been materially altered or modified by or on behalf of LICENSEE to any third party, LICENSEE shall pay to STANFORD [**] percent ([**]%) of all amounts received from such third party therefore, excluding any amounts paid for the preparation, packaging and shipping of such Licensed Material. 7 ROYALTY REPORTS, PAYMENTS AND ACCOUNTING 7.1 Beginning with the first sale of a Licensed Product, LICENSEE shall make written reports (even if there are no further sales) of royalty payments due, if any, to STANFORD within [**] ([**]) days after the end of each [**]. This report shall state the number, description, and aggregate Net Sales of Licensed Product(s) during such completed [**], and resulting calculations of earned royalty payments due STANFORD pursuant to Sections 6.5 through 6.8 for such completed [**]. Concurrent with the submission of each such report, LICENSEE shall pay STANFORD any royalties due for the [**] covered by such report. 7.2 LICENSEE agrees to keep and maintain records for a period of [**] ([**]) years showing the manufacture, sale, use and other disposition of products sold or otherwise disposed of under the license herein granted. Such records will include sufficient detail to enable the royalties payable hereunder by LICENSEE to be determined. LICENSEE further agrees to permit its books and records to be examined by an independent certified public accountant selected by STANFORD and acceptable to LICENSEE once per [**] during the term of this Agreement, for the sole purpose of verifying the reports and royalty payments made by LICENSEE. Such examination shall be made at LICENSEE'S place of business during ordinary business hours with at least thirty (30) days prior written notice. The accountant shall report to STANFORD only whether there has been a royalty underpayment and, if so, the amount thereof. Such examination is to be at the expense of STANFORD except in the event that the results of the audit reveal an under reporting of royalties -9- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. due STANFORD of [**] percent ([**]%) or more, then the audit costs shall be paid by LICENSEE within [**] ([**]) days of notice by STANFORD to LICENSEE. 8 NEGATION OF WARRANTIES 8.1 Nothing in this Agreement is or shall be construed as: (a) A warranty or representation by STANFORD as to the validity or scope of any Licensed Patent(s); (b) A warranty or representation that anything made, used, sold, or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents, copyrights, and other rights of third parties; (c) An obligation to bring or prosecute actions or suits against third parties for infringement, except to the external and in the circumstances described in Article 13; (d) Granting by implication, estoppel, or otherwise any licenses or rights under patents or other rights of STANFORD or other persons other than to the Invention(s) and Licensed Patent(s), regardless of whether such patents or other rights are dominant or subordinate to any Licensed Patent(s); or (e) An obligation to furnish any technology or technological information, except as expressly set forth in this Agreement. 8.2 Except as expressly set forth in this Agreement, STANFORD AND BURF MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE LICENSED PRODUCT(S) WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OR ANY OTHER EXPRESS OR IMPLIED WARRANTIES. 8.3 LICENSEE agrees that nothing in this Agreement grants LICENSEE any express or implied license or right under or to: (a) U.S. Patent No. 4,237,224, "Process for Producing Biologically Functional Molecular Chimeras"; U.S. Patent No. 4,468,464 and U.S. Patent No. 4,740,470, both entitled, "Biologically Functional Molecular Chimeras" (collectively known as the Cohen/Boyer patents), or reissues thereof; or -10- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (b) U.S. Patent No. 4,656,134 "Amplification of Eukaryotic Genes" or any patent application corresponding thereto. 9 REPRESENTATIONS AND WARRANTIES 9.1 STANFORD represents and warrants that it has the power to enter into this Agreement and to the best of its knowledge has the right to grant the rights granted herein to LICENSEE. 9.2 LICENSEE represents and warrants that it has the power to enter into this Agreement and meet its obligations under this Agreement. 10 INDEMNITY 10.1 LICENSEE agrees to indemnify, hold harmless, and defend STANDFORD, STANFORD Health Services, Brown University and BURF and their respective trustees, officers, employees, students, and agents (the "Indemnitees") against any and all liability, damage, loss or expense incurred by or imposed on the Indemnittees or any one of them, arising out of third party claims for death, illness, personal injury, property damage, and fraudulent business practices arising out of the manufacture, use, sale, or other disposition of Invention(s), Licensed Patent(s), Licensed Materials or Licensed Product(s) by LICENSEE or its sublicensee(s), or the exercise of the license granted herein. 10.2 STANFORD, STANFORD Health Services and Brown University and BURF shall not be liable for any indirect, special, consequential, or other damages whatsoever, whether grounded in tort (including negligence), strict liability, contract or otherwise. STANFORD, STANFORD Health Services, Brown University and BURF shall not have any responsibilities or liabilities whatsoever with respect to Licensed Product(s). 10.3 In addition to the foregoing, LICENSEE (or its sublicensee) shall maintain, during the term of this Agreement after the commencement of clinical trials, Comprehensive General Liability Insurance, including if appropriate, Products Liability Insurance, to cover the activities of LICENSEE and its sublicensee(s). Such insurance shall provide minimum limits of liability of: (a) [**] Dollars ($[**]) per occurrence during Phase I clinical trials; (b) [**] Dollars ($[**]) per occurrence during Phase II clinical trials; (c) [**] Dollars ($[**]) per occurrence during Phase III clinical trials; and -11- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (d) [**] Dollars ($[**]) per occurrence during marketing of Licensed Product(s) to the public 10.4 In order to meet the obligations of Section 10.3, insurance shall be procured and maintained with a reputable and financially secure insurance carrier. Such insurance shall include STANFORD, STANFORD Health Services, Brown University, BURF and their respective trustees, directors, officers, employees, students, and agents as additional insureds. Such insurance shall be written to cover claims incurred, discovered, manifested, or made during the term of this Agreement. At STANFORD's request, LICENSEE shall furnish a Certificate of Insurance evidencing primary coverage and requiring thirty (30) days prior written notice of cancellation or material change to STANFORD. All such insurance of LICENSEE shall be primary coverage; insurance of STANFORD or STANFORD Health Services shall be excess and noncontributory. 11 MARKING Prior to the issuance of patents on the Invention(s), LICENSEE agrees to mark Licensed Product(s) (or their containers or labels) made, sold, or otherwise disposed of by it under the license granted in this Agreement with the words "Patent Pending," and following the issuance of one or more patents, with the numbers of any applicable Licensed Patent(s). 12 STANFORD NAMES AND MARKS 12.1 LICENSEE agrees not to identify STANFORD in any promotional advertising or other promotional materials to be disseminated to the public to use the name of any STANFORD faculty member, employee, or student or any trademark, service mark, trade name, or symbol of STANFORD or the STANFORD Health Services, or that is associated with either of them, without STANFORD's prior written consent, which consent shall not be unreasonably withheld. 12.2 Notwithstanding Section 12.1, LICENSEE may issue a press release containing mention of STANFORD, subject to STANFORD's prior written consent, which consent shall not be unreasonably withheld. LICENSEE may also later issue press releases containing information previously approved for release by STANFORD. 12.3 STANFORD and LICENSEE agree that reports in scientific literature and presentations of research and development work are not considered promotional materials. Promotional materials shall also not include disclosures required under any laws or government regulations or by the rules of any stock exchange of any country. -12- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 13 PATENT PROSECUTION AND INFRINGEMENT 13.1 LICENSEE shall have the primary responsibility for the prosecution, filing and maintenance of all Licensed Patents, including the conduct of all interference, opposition, nullity and revocation proceedings, using counsel of its choice; provided, however, that STANFORD shall have reasonable opportunity to advise and consult with LICENSEE on such matters and may instruct LICENSEE to take such action as STANFORD reasonably believes necessary to protect the Licensed Patent(s). Counsel shall concurrently provide STANFORD and LICENSEE with copies of all material correspondence related to the prosecution of the patent applications within the Licensed Patent(s). Invoices for legal services incurred in connection with the prosecution, filing and maintenance of all Licensed Patents shall be sent directly to STANFORD with a copy directed to LICENSEE. Should LICENSEE elect to abandon any patent or patent application in any country, it shall give timely notice to STANFORD, who may continue prosecution or maintenance, at its sole expense and LICENSEE shall have no further rights with respect to such patent application or patent in such country. In the event that a conflict arises with respect to patent counsel selected by LICENSEE, STANFORD may, with just cause and after consulting with LICENSEE, select new patent counsel reasonably acceptable to LICENSEE. 13.2 Payment of all reasonable fees and costs relating to the filing, prosecution and maintenance of all patent applications and patents with the Licensed Patent(s), including interference and/or opposition, nullity and revocation proceedings, shall be the responsibility of LICENSEE. STANFORD shall direct the patent counsel to send invoices for such fees and costs directly to LICENSEE, with a copy to STANFORD, and LICENSEE shall pay such patent counsel directly amounts due. All patent-related expenses paid by LICENSEE pursuant to this Agreement shall be fully creditable against earned royalties due under Section 6.5. 13.3 STANFORD shall promptly inform LICENSEE of any suspected infringement of any Licensed Patent by a third party and any declaratory judgment filed with respect to any Licensed Patent. LICENSEE shall have the initial right but not the obligation, at its expense, to initiate and control any proceeding relating to any infringement by a third parry of any Licensed Patents, any declaratory action alleging invalidity or noninfringement of any Licensed Patents, or any interference, opposition, nullity or revocation proceeding relating to any Licensed Patents ("a Protective Action"). In pursuing any such Protective Action, LICENSEE shall provide STANFORD with material information related to the Protective Action and shall have the right, but not the obligation, to join STANFORD as a party to the Protective Action, at LICENSEE'S expense. STANFORD shall have the right to participate in the Protective Action with its own counsel at its own expense. If LICENSEE brings a Protective Action it may enter into a settlement, consent judgment or other voluntary final disposition of such Protective Action, at its sole option, and any damages recovered by a Protective Action shall be used first to reimburse LICENSEE for the costs (including attorney's and expert fees) of such Protective Action actually paid by LICENSEE, and the remainder, if any, shall be retained by LICENSEE, except LICENSEE shall pay STANFORD [**] percent ([**]%) of said remainder; provided, if STANFORD joins in any Protective Action at its inception and shares equally in the costs (including attorneys and expert fees) incurred in its conduct, in the event of any recovery -13- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. each party shall be reimbursed for its expenses incurred in such Protective Action and STANFORD and LICENSEE shall equally share any remainder. 13.4 If LICENSEE, or its sublicensee pursuant to Section 14.4, decides not to bring a Protective Action after LICENSEE receives notice from STANFORD pursuant to Section 13.3, LICENSEE shall inform STANFORD and STANFORD may institute a Protective Action. In such event, STANFORD shall control such Protective Action, including any settlement, consent judgment or other voluntary final disposition thereof at its sole option, and shall bear the entire cost of such Protective Action and shall be entitled to retain the entire amount of any recovery or settlement. STANFORD may, at its expense, join LICENSEE as a party to such a Protective Action and LICENSEE shall cooperate reasonably with STANFORD in any such Protective Action, at STANFORD'S expense. 13.5 Should either party commence a Protective Action under this Section 13 and thereafter elect to abandon the same, it shall give timely notice to the other party who may continue prosecution of such Protective Action; provided, however, that the sharing of past and future expenses and any recovery in such Protective Action shall be as mutually agreed by the parties. 13.6 In any Protective Action under this Section 13, the other party hereto shall, at the request and expense of the party initiating such Protective Action, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples and the like. 14 SUBLICENSES 14.1 LICENSEE may grant sublicenses under the Invention(s) and Licensed Patent(s) to make, have made, use, and sell Licensed Product(s) in the Licensed Territory. 14.2 If LICENSEE is unable or unwilling to serve or develop a potential market or market territory, STANFORD may notify LICENSEE of potential sublicensee(s) of the Invention(s) and Licensed Patent(s), and LICENSEE, at STANFORD's request, will in good faith discuss granting a sublicense(s) to such a third party on reasonable terms acceptable to LICENSEE. 14.3 Any sublicense(s) granted by LICENSEE under this Agreement shall be subject and subordinate to the terms and conditions of this Agreement, except: (a) Sublicense terms and conditions shall reflect that any sublicensee(s) shall not further sublicense without the written consent of STANFORD, which consent shall not be unreasonably withheld; (b) The earned royalty rate specified in the sublicense(s) may be at higher rates than the rates in this Agreement; and -14- (c) All reports required by sublicensee(s) shall be made to LICENSEE. Any such sublicense(s) also shall expressly include the provisions of Articles 8 and 10 for the benefit of STANFORD. Such sublicenses shall remain in effect in the event of any termination of this Agreement and provide for the assignment of such sublicenses to STANFORD or its designee, in the event that this Agreement is terminated. 14.4 With the prior consent of LICENSEE, and the prior consent of STANFORD, which consent shall not be unreasonably withheld, a sublicensee may bring a Protective Action, subject to the provisions of Section 13.3. 14.5 LICENSEE agrees to provide to STANFORD copies of the portions of any sublicenses granted under this Agreement which relate to royalty reporting, confidentiality, diligence obligations and indemnification obligations. 15 TERMINATION 15.1 LICENSEE may terminate this Agreement with respect to any country or any Licensed Patent by giving STANFORD notice in writing at least [**] ([**]) days in advance of the effective date of termination selected by LICENSEE. 15.2 STANFORD may terminate this Agreement if LICENSEE: (a) Is in default in payment of royalty or providing of reports; (b) Is in material breach of any provision hereof; or (c) Provides any materially incorrect report; and LICENSEE fails to remedy any such default, breach, or materially incorrect report, or fails to act reasonably to remedy any default, breach, or materially incorrect report within [**] ([**]) days after receipt of written notice thereof by STANFORD. 15.3 Surviving any termination are: (a) LICENSEE'S obligation to pay royalties accrued; (b) Any cause of action or claim of LICENSEE or STANFORD, accrued, because of any breach or default by the other party; and (c) The provisions of Articles 7, 8, 9, 17 and 19. -15- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 16 ASSIGNMENT Neither party may assign this Agreement or any part hereof without the express written consent of the other, which consent shall not be unreasonably withheld; provided, however, LICENSEE may assign this Agreement or any portion hereof to an Affiliate or to a successor of all or substantially all its business relating to the Licensed Patent(s) without the written consent of STANFORD and shall provide STANFORD notice of any such assignment. Assignees of this Agreement may also assign this Agreement or any portion hereof to an Affiliate or to a successor of all or substantially all its business relating to the Licensed Patent(s) without the written consent of STANFORD, and shall provide STANFORD notice of any such assignment. 17 ARBITRATION 17.1 Any controversy arising under or related to this Agreement, and any disputed claim by either party against the other under this Agreement excluding any dispute relating to patent validity or infringement arising under this Agreement, shall be settled by arbitration in accordance with the Rules of Commercial Arbitration of the American Arbitration Association. 17.2 Upon request by either party, arbitration will be initiated by a third party arbitrator mutually agreed upon in writing by LICENSEE and STANFORD within [**] ([**]) days of such arbitration request. Judgment upon the award rendered by the arbitrator shall be final and nonappealable and may be entered in a court having jurisdiction thereof. The parties agree that any provision of applicable law notwithstanding, they will not request and the arbitrators shall have no authority to award punitive or exemplary damages against any party. The costs of the arbitration, including administrative fees and fees of the arbitrators shall be shared equally by the parties. Each party shall bear the cost of its own attorneys' fees and expert fees. 17.3 The parties shall be entitled to discovery in like manner as if the arbitration were a civil suit in the California Superior Court; provided, however, the arbitrator may limit the scope, time and/or issues involved in discovery. 17.4 Any arbitration shall be held at STANFORD, California, unless the parties hereto mutually agree in writing to another place. 18 NOTICES All notices under this Agreement shall be deemed to have been fully given when done in writing and deposited in the United States mail, registered or certified, or overnight deliver service (e.g., DHL, Federal Express) and addressed as follows: -16- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. To STANFORD: Office of Technology Licensing Stanford University 900 Welch Road, Suite 350 Palo Alto, California 94304-1850 Attention: Director To LICENSEE: KOSAN Biosciences, Inc. 211 Belgrave Avenue San Francisco, California 94117 Attention: President Either party may change its address upon written notice to the other party. 19 CONFIDENTIALITY STANFORD shall maintain this Agreement and the reports and any information provided by LICENSEE to STANFORD pursuant to Sections 5.3, 7 and 14.5 in confidence and not disclose such information or reports to any third party, except as required by law and disclosed after notice to LICENSEE and after requesting confidential treatment and a protective order, if available. STANFORD may, however, disclose to third parties total annual royalty payments and general statistical information regarding payments made hereunder in the context of disclosing statistical information pertaining to the performance of the STANFORD Office of Technology Licensing. 20 WAIVER None of the terms of this Agreement can be waived except by the written consent of the party waiving compliance. 21 APPLICABLE LAW This Agreement shall be governed by the laws of the State of California, without reference to principles of conflicts of laws. 22 ENTIRE AGREEMENT This Agreement constitutes the entire agreement between LICENSEE and STANFORD and supersedes all prior communications, understandings and agreements with respect to the subject -17- matter of this Agreement. This Agreement may not be amended except with a written agreement signed by LICENSEE and STANFORD. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the Effective Date set forth above. BOARD OF TRUSTEES OF THE LELAND KOSAN BIOSCIENCES, INC. STANFORD JUNIOR UNIVERSITY ("LICENSEE") ("STANFORD") By: /s/ KATHARINE KU By: /s/ DANIEL V. SANTI -------------------------------------- ------------------------------- Katharine Ku, Director of Technology Daniel V. Santi, President Licensing 3/12/96 -18- EXHIBIT A LICENSED MATERIALS -19- [**] [**] [**]
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] [**] [**]
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] [**]
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EXHIBIT B LICENSED PATENTS U.S. Patent Application Serial No. 8/238,811 08/486,645 60/003,338 PCT/US94/10643 -20- EXHIBIT C MATERIAL TRANSFER AGREEMENT -21- MATERIAL TRANSFER AGREEMENT This Material Transfer Agreement (the "Agreement") effective as of _____________ , 199_ (the "Effective Date") is made by and between KOSAN Biosciences, Inc., with an address at 211 Belgrave Avenue, San Francisco, California 94117 (the "Company") and ___________________, with an address at ___________________ (the "Recipient") and sets forth the terms and conditions on which the Company will transfer biological materials to Recipient and Scientist and Recipient's and Scientist's use thereof. 1. MATERIALS. The Company is willing to transfer to Recipient and Scientist the biological materials specified on Exhibit A hereto ("Materials"), for the sole purpose of conducting the research described on Exhibit B hereto ("Research") in the laboratory of ___________________ (the "Scientist") at ____________________. Materials include the original biological materials transferred to Recipient, as well as any derivatives, progeny, or improvements developed by Recipient or Scientist therefrom. 2. LIMITATION OF USE. The Materials may be used only for Research solely by the Scientist in Scientist's laboratory, at Recipient under suitable containment conditions. The Materials shall not be used for commercial or other purposes. 3. CONFIDENTIALITY. All oral or written communications received by Recipient and Scientist relating to the Materials are, and shall remain, proprietary and confidential information of the Company. The Recipient and Scientist agree to hold all such information in confidence and not to disclose such information to any third party or use it for any, purpose except the conduct of the Research, except that the Recipient and Scientist shall not be required to keep confidential information that (i) is already known to the Recipient or Scientist at time of disclosure by the Company, as evidenced by written records of the Recipient and Scientist, (ii) has become publicly known and generally available through no wrongful act of Recipient or Scientist or (iii) has been received by the Recipient or Scientist from a third party authorized to make such disclosure. 4. CONTROL OF MATERIALS. Recipient and Scientist agree to retain control over the Materials and not to transfer the Materials to any person or entity without the prior written approval of the Company. The Company reserves the right to distribute similar Materials to others and to use such Materials for its own purposes. Recipient and Scientist agree to return any remaining Materials and products or materials derived from such Materials, to the Company upon completion of the Research or at any earlier time that the Company may request. 5. NO WARRANTY. The Materials are being made available in order to further research concerning it. THE MATERIALS ARE BEING SUPPLIED TO RECIPIENT "AS IS" WITH NO WARRANTIES, EXPRESS OR IMPLIED, AND THE COMPANY EXPRESSLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. The Company makes no representations that the use of the Materials will not infringe any patent or other proprietary right of any third party. Recipient and Scientist agree that the Materials will not be used in humans under any circumstances. 6. REPORTS. Recipient and Scientist will supply to the Company a written report detailing the results obtained in its study within thirty (30) days after the Research is concluded. The final report may be in the form of a manuscript, abstract, or other publication submission. Recipient and Scientist agree to not disclose these results, their underlying data and/or any conclusions drawn from the study, orally or in writing (e.g., by submission of a manuscript, abstract, patent application, etc.), unless the Company has had thirty (30) days in which to review the intended disclosure and make recommendations or comments. The Company will treat information disclosed by Recipient and Scientist as confidential, upon request, by entering into a Confidentiality Agreement to be negotiated by the parties. 7. OPTION. In consideration for the rights granted herein, the Recipient and Scientists hereby grant to the Company an exclusive option to acquire an exclusive worldwide license, with the right to grant and authorize sublicenses, under all intellectual property conceived, reduced to practice or otherwise developed by the Recipient or Scientist with the use of the Materials, on reasonable and customary terms to be negotiated in good faith by the parties. 8. NO CONFLICT. The Materials will not be used in any research that is subject to consulting, licensing or similar obligations to any third party, unless written permission is first obtained from the Company. The rights and obligations provided by Recipient herein do not, and during the term of the Agreement, will not conflict with any other right or obligation provided under any other agreement that Recipient or Scientist has with any third party, including any sponsor or government entity. 9. CARE IN USE OF MATERIALS. Recipient and Scientist acknowledge that the Materials are experimental in nature and may have unknown characteristics and therefore agrees to use prudence and reasonable care in the use, handling, storage, transportation and disposition and containment of the Materials and all derivatives thereof. 10. HOLD HARMLESS. Recipient shall indemnify the Company and hold the Company harmless from any claims, liabilities and/or expenses which arise out of or in connection with a result of Scientist's or Recipient's use of the Materials. 11. COMPLIANCE WITH LAWS. Recipient and Scientists shall use the Materials in compliance with all applicable national, state and local laws and regulations, including all applicable National Institutes of Health guideline. 12. MISCELLANEOUS. This Agreement including its Exhibits sets forth the entire agreement between the parties with respect to the subject matter contained herein and supersedes any previous understandings, commitments or agreements, oral or written. This Agreement may only be amended with a writing signed by authorized representatives of the parties hereto. This Agreement shall be governed by and construed under California law as applied to agreements entered into and performed in California by California residents. RECIPIENT KOSAN BIOSCIENCES, INC. By: By: ------------------------------- ------------------------------- Title: Title: ---------------------------- ---------------------------- Acknowledged and Agreed to: - ---------------------------------- [Scientist's Signature] - ---------------------------------- [Print Name] -2- EX-10.9 11 EXHIBIT-10.9 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EXHIBIT 10.9 AMENDMENT NO. 1 TO LICENSE AGREEMENT This Amendment No. 1 to License Agreement (the "Amendment") is effective as of March ___, 1996 between KOSAN Biosciences, Inc. ("Licensee") and THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY ("STANFORD") concerning the License Agreement between Licensee and STANFORD effective March 11, 1996 (the "Agreement"). 1. Section 1.3 is hereby amended to provide in its entirety as follows: LICENSEE desires a license under said Invention(s), Licensed Patent(s)and Licensed Materials to develop, manufacture, have made, use, and sell Licensed Product(s). 2. Section 14.l is hereby amended to provide in its entirety as follows: Licensee may grant sublicenses under the Invention(s), Licensed Materials and Licensed Patent(s) to make, have made, import, use, lease, sell and offer for sale and otherwise commercialize and exploit Licensed Products and Licensed Materials, and practice any method, process or procedure within the Licensed Patents in the Licensed Territory. 3. Section 14.3 (a) is hereby amended to provide in its entirety as follows: (a) Sublicense terms and conditions shall reflect that any sublicensee(s) shall not further sublicense without the written consent of STANFORD, which consent shall not be unreasonably withheld; provided, however, sublicensees may grant further sublicenses with respect to any Licensed Product within the scope of Section 2.5 (ii) without the consent of STANFORD; 4. The last sentence of Section 14.3 is amended to provide in its entirety as follows: Such sublicenses (including, without limitation, any non-exclusive sublicenses) shall remain in effect in the event of any conversion of the exclusive license granted herein to a non-exclusive license pursuant to Section 3.2 or any termination of this Agreement and shall provide for the assignment of such sublicenses to STANFORD or its designee, in the event that the Agreement is terminated; provided, the financial obligations of each sublicensee to STANFORD shall be limited to the amounts Licensee shall be obligated to pay to STANFORD for the activities of such sublicensee pursuant to this Agreement. 5. Except as specifically modified or amended hereby, the License Agreement shall remain in full force and effect and, as so modified or amended, is hereby ratified, confirmed and approved. No provision of this Amendment may be modified or amended except expressly in a writing signed by both parties nor shall any terms be waived except expressly in a writing signed by the party charged therewith. This Amendment shall be governed in accordance with the laws of the State of California, without reference to principles of conflicts of laws. IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the date shown above. THIE BOARD OF TRUSTEES OF THE KOSAN BIOSCIENCES, INC. THE LELAND STANFORD JUNIOR UNIVERSITY By: /s/ Katharine Ku By: /s/ Daniel V. Santi ---------------------------------- ------------------------- Print Name: Katharine Ku Print Name: Daniel V. Santi --------------------------- ----------------- Title: DIRECTOR, TECHNOLOGY LICENSING Title: PRESIDENTE ------------------------------- ---------------------- KOSAN BIOSCIENCES, INC. 1450 Rollins Road Burlingame, CA 94010 Tel: 650-343-8673, ext. 207 Fax: 650-343-2931 E-Mail: ostrach@kosan.com - -------------------------------------------------------------------------------- September 21, 1998 Ms. Mona Wan Stanford University Office of Technology Licensing 900 Welch Road, Suite 3500 Palo Alto, CA 94304 Dear Mona: This letter will confirm the agreement of Kosan Biosciences, Inc. ("Kosan") and the Board of Trustees of the Leland Stanford Jr. University ("Stanford") that Article 11 of the License Agreement entered by Kosan and Stanford effective March 11, 1996, shall be amended to read in its entirety as follows: Prior to the issuance of patents on the Invention(s), LICENSEE agrees to use reasonable efforts to mark Licensed Product(s) (or their containers or labels) made, sold, or otherwise disposed of by it under the license granted in this Agreement with the words "Patent Pending" and following the issuance of one or more patents, with the numbers of any applicable Licensed Patent(s). Except as expressly provided above, the Agreement, as amended, shall remain in full force and effect. MS. MONA WAN SEPTEMBER 21, 1998 PAGE 2 Please indicate Stanford's agreement to the foregoing by having this letter countersigned below. Yours sincerely, /s/ Michael S. Ostrach Michael S. Ostrach Vice President, Corporate Development UNDERSTOOD AND AGREED: TRUSTEES OF THE LELAND STANFORD UNIVERSITY By: /s/ Katharine Ku ---------------------------------------- Name: KATHARINE KU --------------------------------------- Title: DIRECTOR TECHNOLOGY LICENSING -------------------------------------- Date: Sept. 24, 1998 -------------------------------------- AMENDMENT NO. 3 TO LICENSE AGREEMENT This Amendment No. 3 to License Agreement (the "Amendment") is effective as of March 10, 2000 (the "Effective Date"), between Kosan Biosciences, Inc. ("Licensee") and The Board of Trustees of the Leland Stanford Junior University ("Stanford") and amends the license agreement between Licensee and Stanford effective March 11,1996, as amended pursuant to that certain Amendment No. 1 effective March 11, 1996, and that certain Amendment No. 2 effective September 21, 1998 (together the "Agreement") for "Recombinant Production of Novel Polyketides" as described in Stanford Docket S93-098. WHEREAS, Licensee has acquired an Exclusive license to the Licensed Patents listed in Appendix A pursuant to the Agreement; Stanford owns patent applications claiming technology related to Licensed Patents, listed in Appendix B; Both parties anticipate that there may be future inventions from the laboratory of Dr. Chaitan Khosla that Stanford may offer to add to Appendix B and that Licensee may wish to license; Both parties desire to determine the conditions under which the future inventions may be added to Appendix B and subsequently licensed; and Stanford and Licensee believe that both parties and the public will benefit by licensing patent applications listed in Appendix B to Licensee and entering into this Amendment; NOW, THEREFORE, Stanford and Licensee agree as follows: SECTION 1 DEFINITIONS A. "Proposed Invention" means a patent application or invention disclosure that Stanford offers to Licensee for inclusion in Appendix B. B. "Optioned Patent" means a Proposed Invention that Licensee agrees to include in Appendix B, any patent application filed on an invention disclosure that is a Proposed Invention, and any divisions, continuations, reissues and foreign counterparts claiming priority to the Proposed Invention. C. "New Licensed Patent" means an Optioned Patent for which Licensee chooses to take an Exclusive license. D. "New Non-Exclusive Patent" means an Optioned Patent for which Licensee chooses to take a non-exclusive license. Page 1 of 5 SECTION 2. GRANT OF OPTION FOR EXCLUSIVE OR NON-EXCLUSIVE LICENSE Stanford hereby grants Licensee and Licensee hereby accepts an Exclusive option to acquire an Exclusive or non-exclusive license to Optioned Patents on the terms and conditions set forth herein If a future patent application or an invention disclosure: a) names Dr. Chaitan Khosla as an inventor; and b) describes technology relating to polyketides or the production thereof by recombinant DNA technology or technology disclosed in Licensed Patents, Stanford will determine if that patent application or invention disclosure will become a Proposed Invention. If Stanford decides that a patent application or invention disclosure will be a Proposed Invention, then Stanford shall provide notice thereto to Licensee. The Proposed Invention shall be subject to this Amendment SECTION 3 OPTION TERM The "Option Term" shall begin when Stanford provides notice in writing to Licensee of the Proposed Invention and shall end EARLIER of: a) [**] years after the date Stanford offers the Proposed Invention to Licensee in writing; or b) [**] after Stanford notifies Licensee in writing that either: i) it has received a Notice of Allowance from the US. Patent and Trademark Office for an Optioned Patent; or ii) a third party has offered or requested licensing terms for the Optioned Patent. SECTION 4 EXERCISE OF OPTION Licensee may exercise its option at any time during the Option Term by providing Stanford Written notice of its determination to acquire an Exclusive or non-exclusive license to the Optioned Patent set forth in such notice. Upon such notification, the Optioned Patent will become either a New Licensed Patent or a New Non-Exclusive Patent as appropriate. A New Licensed Patent will be subject to the terms and conditions of this Amendment and those of any Licensed Patent in the Agreement. A New Non-Exclusive Patent will be subject to the terms and conditions of this Amendment and those of any Licensed Patent in the Agreement, except that: a.) the grant is not Exclusive; and b.) New Non-Exclusive Patent may not be sublicensed. SECTION 5 PAYMENTS A. AMENDMENT OF ISSUE FEE. Within [**] of the Effective Date of this Amendment No. 3, Licensee shall [**]. B. OPTION FEE. within [**] of the Effective Date of this Amendment No. 3, Licensee shall pay Stanford [**] dollars ($[**]) as an option fee for the patent applications listed in Appendix B. To include future Page 2 of 5 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Proposed Inventions in Appendix B, Licensee shall pay Stanford [**] dollars ($[**]) as the option fee for each Proposed Invention. If a patent application is filed on a Proposed Invention the option fee shah be paid by the LATER of: (i) [**] from Stanford's notifying Licensee of a Proposed Invention; and (ii) [**] from the date a provisional patent application is filed on a Proposed Invention. If no patent application is filed on a Proposed Invention the option fee shall be paid by [**] from Stanford's notifying Licensee of a Proposed Invention. After the option fee is received a Proposed Invention will become an Optioned Patent. If Licensee does not pay the option fee, it relinquishes all rights to such Proposed Invention under the Agreement. Only one such option fee is due for each Proposed Invention. C. NON-EXCLUSIVE LICENSE FEE. If Licensee exercises its option by acquiring a non-exclusive license to an Optioned Patent, then Licensee shall pay Stanford a non-exclusive license fee of [**] dollars ($[**]) within [**] of the issuance of the first patent claiming priority to an Optioned Patent. The non-exclusive license fee is due only one time for each New Non-Exclusive Patent. D. EXCLUSIVE LICENSE FEE. If Licensee decides to exercise its option to acquire an Exclusive license to an Optioned Patent, then Licensee shall pay Stanford an Exclusive license fee of [**]dollars ($[**]) within [**] of the issuance of the first patent claiming priority to such New Licensed Patent. The amount of the Exclusive license fee shall be determined by Stanford. Stanford agrees that reductions in the Exclusive license fee (to not less than [**] dollars ($[**])) may be appropriate when (i) third party technology licensed to Licensee is used in conjunction with the invention claimed in the patent; or (ii) the claims of the patent are method claims or are composition of matter claims that do not encompass the product to be sold or its method of manufacture. The Exclusive license fee is due only once for each New Licensed Patent. Licensee may convert a New Licensed Patent to a New Non-Exclusive Patent upon written notice to Stanford at any time. E. ANNUAL FEE FOR PATENTS SUBJECT TO DILIGENCE PLAN. For each New Licensed Patent subject to a Diligence Plan, as defined in Ss.6, Licensee shall pay an annual fee of [**] dollars ($[**]). The annual fee is due beginning on the first [**] after such Diligence Plan is accepted in writing and every [**] thereafter, for so long as such Diligence Plan is effective. The amount of the annual fee shall be determined by Stanford. Stanford agrees that reductions in the fee (to not less than [**] dollars ($[**]) per New Licensed Patent) may be appropriate when (i) third party technology licensed to Licensee is used in conjunction with the invention claimed in the patent; or (ii) the claims of the patent are method claims or are composition of matter claims that do not encompass the product to be sold or its method of manufacture. In no event shall the cumulative amount of annual fees due under this Amendment and annual maintenance fees due under paragraph 6.3 of the Agreement exceed: [**]. F. ROYALTIES. For all Optioned Patents, New Non-Exclusive Patents, and New Licensed Patents, royalties shall be due and payable as set forth in paragraphs 6.5 Page 3 of 5 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. through 6.13 of the Agreement. If a Licensed Product is encompassed by claims from multiple Licensed Patents, Optioned Patents, New Licensed Patents or New Non-Exclusive patents, as mended hereby, then Licensee shall pay only one royalty. G. PATENT EXPENSES. Licensee shall pay all patent costs for Optioned Patents, New Licensed Patents and New Non-Exclusive Patents. Patent costs paid by Licensee for New Non-Exclusive Patents shall be reimbursable as follows: i) If Stanford licenses the patent to a third party and Licensee submits a written request to Stanford, then Stanford shall reimburse Licensee for [**]% of the past patent costs paid by Licensee. ii) Patent expenses that are not reimbursed are creditable against royalties due under paragraph 6.5 of the Agreement. iii) If Licensee chooses to convert a New Licensed Patent to a New Non-Exclusive Patent, then patent expenses incurred prior to conversion are not reimbursable or creditable. SECTION 6 DILIGENCE PLAN Licensee shall submit to Stanford a plan (the "Diligence Plan"), acceptable to Stanford, for developing a New Licensed Patent; such Diligence Plan will be submitted within [**] of the date Stanford offers a Proposed Invention to the Licensee in writing. If Licensee does not submit a Diligence Plan or notifies Stanford in writing that it will no longer adhere to a Diligence Plan accepted by Stanford, then the New Licensed Patent will be converted to a New Non-Exclusive Patent. SECTION 7 MISCELLANEOUS A. GOOD-STANDING. Stanford and Licensee agree that neither party is known to be in breach of the Agreement and that both parties are in good-standing with one another. Both parties agree that prior to this Amendment, the patents and patent applications licensed to Licensee pursuant to the Agreement are listed on Appendix A. B. LICENSES TO THIRD PARTIES. In the event Stanford licenses a New Non-Exclusive Patent to a third party, then Stanford shall make good faith efforts to notify Licensee and to include in such license a statement that the license does not include rights to Licensed Patents or New Licensed Patents. C. RELEASE OF OPTION OR LICENSE. Licensee may release its option or license rights to a Proposed Invention, Optioned Patent, New Licensed Patent or New Non-Exclusive Patent at any time by giving Stanford [**] written notice of the release. Upon such release, Licensee shall have neither further payment obligations pursuant to such license other than those previously incurred nor any rights in such Proposed Invention, Optioned Patent, New Licensed Patent, or New Non-Exclusive Patent. Page 4 of 5 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. D. AGREEMENT IN FULL FORCE AND EFFECT. Except as specifically amended hereby, the Agreement shall remain in full force and effect and as so amended is hereby ratified, confirmed, and approved. No provision of this Amendment may be amended except expressly in writing signed by both parties nor shall any terms be waived except expressly in writing signed by the party charged therewith. This Amendment shall be governed in accordance with the laws of the State of California without reference to principles of conflicts of laws. IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the Effective Date shown above. By: /s/ Katherine Ku By: /s/ DANIEL V. SANTI ------------------------------------ ----------------------------------------- Name: KATHERINE KU Daniel V. Santi ---------------------------------- President & CEO Title: DIRECTOR TECHNOLOGY LICENSING Date: 15 MAR 00 --------------------------------- -------------------------------------- Date: Mar 10, 2000 ----------------------------------
Page 5 of 5 APPENDIX A PATENTS LICENSED
[**] [**] [**]
Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] [**] [**] [**]
Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. APPENDIX B PATENTS OPTIONED [**] [**] [**]
Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EX-10.10 12 EXHIBIT-10.10 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EXHIBIT 10.10 LICENSE AGREEMENT BETWEEN PRESIDENT AND FELLOWS OF HARVARD COLLEGE AND KOSAN BIOSCIENCES, INC. Effective as of December, 1998 Re: Harvard Case No 1185-95 In consideration of the mutual promises and covenants set forth below, the parties hereto agrees as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: 1.1 AFFILIATE: any company, corporation, or business in which LICENSEE owns or controls at least fifty percent (50%) of the voting stock or other ownership. Unless otherwise specified, the term LICENSEE includes AFFILIATES. 1.2 FIELD: polyketide production, drug discovery and screening of polyketides and [**], manufacture of compounds developed as a result of such activities, and commercialization of such compounds for any and all purposes. 1.3 HARVARD: President and Fellows of Harvard College, a nonprofit Massachusetts educational corporation having offices at the Office for Technology and Trademark Licensing, 124 Mt. Auburn Street, Suite 410 South, Cambridge, Massachusetts 02138. 1.4 LICENSED PROCESSES: the processes covered by a VALID CLAIM in the country where such process is used, or in the country where the resulting product is manufactured or sold. 1.5 LICENSED PRODUCTS: products covered by a VALID CLAIM in the country of manufacture, use or sale, or products made or services provided in accordance with or by the practice of LICENSED PROCESSES. 1.6 LICENSEE: Kosan Biosciences, Inc. (Kosan) a corporation organized under the laws of California having its principal offices at 1450 Rollins Road, Burlingame, CA 94010. 1.7 NET SALES: the amount billed, invoiced, or received (whichever occurs first) by LICENSEE or its sublicensees, for sales, leases, or other transfers of LICENSED PRODUCTS, less: (a) customary trade, quantity or cash discounts and non-affiliated brokers' or agents' commissions actually allowed and taken; (b) amounts repaid or credited by reason of rejection or return; and [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (c) to the extent separately stated on purchase orders, invoices, or other documents of sale, duties, taxes levied on and/or other governmental charges made as to production, sale, transportation, delivery or use and paid by or on behalf of LICENSEE or sublicensees. (d) reasonable charges for delivery or transportation provided by third parties, if separately stated. NET SALES also includes the fair market value of any non-cash consideration received by LICENSEE or sublicensees for the sale, lease, or transfer of LICENSED PRODUCTS. In the event LICENSEE negotiates in good faith a sublicense with a definition of NET SALES which differs from the above, and provided the negotiated definition does not cause material changes in the royalties due HARVARD, such negotiated definition shall control royalties due HARVARD hereunder for such sublicense, provided that HARVARD shall have thirty (30) days to review and approve the proposed negotiated definition, which approval shall not be unreasonably withheld. 1.8 ACADEMIC RESEARCH PURPOSES: use of PATENT RIGHTS for academic research or other not-for-profit scholarly purposes which are undertaken at a non-profit or governmental institution, that does not use the PATENT RIGHTS in the production or manufacture of products for sale or the performance of services for a fee, or in the performance of research sponsored by another for-profit entity. LICENSEE acknowledges that HARVARD is currently receiving research support from a foundation entity for cloning the biosynthetic genes for a particular natural product and for the expression of genes once cloned to test for activity, and such research shall be deemed to be for ACADEMIC RESEARCH PURPOSES hereunder, and HARVARD represents that the foundation sponsor has no right to manufacture or commercialize products under the PATENT RIGHTS. 1.9 NON-ROYALTY SUBLICENSE INCOME: Sublicense issue fees, sublicense maintenance fees, sublicense milestone payments, and similar non-royalty payments made by sublicensees to LICENSEE on account of sublicenses pursuant to this Agreement, including any initial option or license fees for any sublicense which includes the PATENT RIGHTS, and rights to the LICENSED PROCESSES or LICENSED PRODUCTS. Notwithstanding the above, it is understood and agreed that NON-ROYALTY SUBLICENSEE INCOME shall not include any amounts received by LICENSEE from sublicensees for: the purchase of equity in LICENSEE, debt financing, research and development, the license or sublicense of any intellectual property other than the PATENT RIGHTS, products other than LICENSED PRODUCTS, reimbursement for patent or other expenses, or sublicense milestone payments and other payments for milestones achieved or other events that did not result from the use of LICENSED PROCESSES or are not for LICENSED PRODUCTS. 1.10 PATENT RIGHTS: United States patent application [**], the inventions described and claimed therein, and any divisions, substitutions, continuations thereof, and continuations-in-part thereof to the extent the claims are directed to subject matter specifically described in [**], patents issuing on any of the preceding, and reexaminations, reissues and extensions thereof, and any and all foreign patent applications and patents corresponding thereto, or corresponding to PCT patent application No. US96/16202, all to the extent owned or controlled by HARVARD. 1.11 TERRITORY: Worldwide. [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 1.12 VALID CLAIM: means an issued claim of any unexpired patent or a claim of any pending patent application within the PATENT RIGHTS which has not been held unenforceable, unpatentable or invalid by a decision of a court or governmental body of competent jurisdiction, in a ruling that is unappealable or unappealed within the time allowed for appeal, which has not been rendered unenforceable through disclaimer or otherwise, and which has not been lost through an interference proceeding. Notwithstanding the foregoing, a claim of a pending patent application shall cease to be a VALID CLAIM if no patent has issued on such claim on or prior to the seventh anniversary of the date of filing of the corresponding parent patent application, provided that such claim shall once again become a VALID CLAIM on the issue date of a patent that subsequently issues and covers such claim. 1.13 The terms 'Public Law 96-517" and 'Public Law 98-620" include all amendments to those statutes. 1.14 The terms 'sold' and 'sell' include, without limitation, leases and other transfers and similar transactions. ARTICLE II REPRESENTATIONS 2.1 HARVARD and the Regents of the University of California ('The Regents') are joint owners by assignment from Ralph H. Lambalot, Amy M. Gehring and Christopher T. Walsh (to HARVARD) and Ralph Reid (to The Regents)of certain rights, title and interest in United States Patent Application [**] entitled 'Acyl Carrier Protein Synthases and Uses Thereof' (H.U. Case $$1185-95), in the foreign patent applications corresponding thereto, and in the inventions described and claimed therein. The Regents have authorized HARVARD to act as their sole patent and licensing agent for said patent applications under a letter of Agreement dated April 10, 1997, a copy of which is included in Appendix A. 2.2 HARVARD represents and warrants that: (i) the execution, delivery and performance of this Agreement have been duly authorized by all necessary institutional action on the part of HARVARD and The Regents; (ii)the PATENT RIGHTS are free and clear of any lien, encumbrance, security interest or restriction on license, other than those specified in Article III of this Agreement; (iii) it has not previously granted, and will not grant during the term of this Agreement, any right, license or interest in or to the PATENT RIGHTS, or any portion thereof, inconsistent with the license granted to LICENSEE herein; and (iv)there are no threatened or pending actions, suits, investigations, claims or proceedings in any way relating to the PATENT RIGHTS. 2.3 HARVARD has the authority to issue licenses under PATENT RIGHTS with respect to the entire interest of The Regents and HARVARD therein. 2.4 HARVARD is committed to the policy that ideas or creative works produced at HARVARD should be used for the greatest possible public benefit, and believes that every reasonable incentive should be provided for the prompt introduction of such ideas into public use, all in a manner consistent with the public interest. [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2.5 LICENSEE intends to diligently develop the invention and to bring LICENSED PRODUCTS to market which are subject to this Agreement. 2.6 LICENSEE is desirous of obtaining an exclusive license in the TERRITORY in order to practice the above-referenced invention covered by PATENT RIGHTS in the United States and in certain foreign countries, and to manufacture, use and sell in the commercial market the LICENSED PRODUCTS made in accordance therewith, and HARVARD is desirous of granting such a license to LICENSEE in accordance with the terms of this Agreement. ARTICLE III GRANT OF RIGHTS 3.1 HARVARD hereby grants to LICENSEE and LICENSEE accepts, subject to the terms and conditions hereof, in the TERRITORY and in the FIELD: an exclusive commercial license under PATENT RIGHTS to make and have made, to import, have imported, to use and have used, to offer for sale, to sell and have sold the LICENSED PRODUCTS, and to practice the LICENSED PROCESSES, for the life of the PATENT RIGHTS. Such licenses shall include the right to grant sublicenses under the terms outlined in this Agreement. In order to provide LICENSEE with commercial exclusivity for so long as the license under PATENT RIGHTS remains exclusive, HARVARD agrees that it will not grant licenses under PATENT RIGHTS to others except as required by HARVARD's obligations in paragraph 3.2(a) or as permitted in paragraph 3.2(b). 3.2 The granting and exercise of this license is subject to the following conditions: (a) HARVARD's "Statement of Policy in Regard to Inventions, Patents and Copyrights," dated August 10, 1998, Public Law 96-517, Public Law 98-620, and HARVARD's obligations under agreements with other non-profit sponsors of research. Any right granted in this Agreement greater than that permitted under Public Law 96-517, or Public Law 98-620, shall be subject to modification as may be required to conform to the provisions of those statutes. (b) HARVARD reserves the right to make and use, and grant to others researchers at non-profit or governmental institutions non-exclusive licenses to make and use for ACADEMIC RESEARCH PURPOSES only the subject matter described and claimed in PATENT RIGHTS. (c) LICENSEE shall use diligent efforts to effect introduction of the LICENSED PRODUCTS into the commercial market as soon as practicable, consistent with sound and reasonable business practice and judgment; thereafter, until the expiration of this Agreement, LICENSEE shall endeavor to keep LICENSED PRODUCTS reasonably available to the public. (d) At any time after three (3) years from the effective date of this Agreement, HARVARD may terminate or render this license non-exclusive if, in HARVARD's reasonable judgment, the Progress Reports furnished by LICENSEE do not demonstrate that LICENSEE: (i) has put the PATENT RIGHTS into commercial use in the country or countries hereby licensed, directly or through a sublicense, and is keeping products resulting from the use of the PATENT RIGHTS reasonably available to the public, or (ii) is engaged in research, development, manufacturing, marketing or sublicensing activity reasonably appropriate to achieving the objectives of 3.2(d)(i). Such activity shall include, but not necessarily be limited to, achievement of the following milestones by LICENSEE: (i) within twelve (12) months from the effective date of this Agreement, initiate or sponsor experiments designed to demonstrate heterologous expression of an [**] polyketide, using a LICENSED PROCESS or LICENSED PRODUCT; (ii) within eighteen (18) months from the effective date of this Agreement, initiate or sponsor experiments designed to demonstrate heterologous expression of a [**] polyketide, using a LICENSED PROCESS or LICENSED PRODUCT; (iii) within eight (8) years from the effective date of this Agreement, file or have a sublicensee file an IND or other regulatory permit for a LICENSED PROCESS or LICENSED PRODUCT; (e) In all sublicenses granted by LICENSEE hereunder, LICENSEE shall include a requirement that the sublicensee use reasonable efforts to bring the subject matter of the sublicense into commercial use in a timely manner. LICENSEE shall further provide in such sublicenses that such sublicenses are subject and subordinate to the terms and conditions of this Agreement, except (i): the sublicensee may not further sublicense, except to its agents, AFFILIATES, and distributors; and (ii) the rate of royalty on NET SALES paid by the sublicensee to the LICENSEE. Copies of all sublicense agreements shall be provided promptly to HARVARD; such copies shall be treated as confidential consistent with the provisions of Article 5.4(d). (f) If LICENSEE is unable or unreasonably unwilling to grant sublicenses, either as suggested by HARVARD or by a potential sublicensee or otherwise, and LICENSEE has not previously granted an exclusive license to a third party, then HARVARD may directly license such potential sublicensee unless, in HARVARD's reasonable judgment, such license would be contrary to sound and reasonable business practice, and the granting of such license would not materially increase the availability to the public of LICENSED PRODUCTS. In making any such determination, HARVARD agrees to take into serious consideration LICENSEE's reasons for being unwilling to grant the sublicense, including LICENSEE's belief that the sublicense would have a material adverse impact on LICENSEE's business. In any such event LICENSEE shall have the right of last refusal, to be exercised within sixty (60) days after notice in writing from Harvard, to sublicense such rights to such sublicensee(s) on terms no less favorable to such sublicensee(s) than those negotiated by Harvard. (g) A license in any other territory or field of use in addition to the TERRITORY and/or FIELD shall be the subject of a separate agreement and shall require LICENSEE's submission of evidence, satisfactory to HARVARD, demonstrating LICENSEE's willingness and ability to develop and commercialize in such other territory and/or field [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. of use the kinds of products or processes likely to be encompassed in such other territory and/or field. (h) During the period of exclusivity of this license in the United States, LICENSEE shall cause any LICENSED PRODUCT produced for sale by LICENSEE in the United States to be manufactured substantially in the United States. In the event that LICENSEE cannot obtain this guarantee from a sublicensee, HARVARD agrees to cooperate with LICENSEE in requesting the appropriate exemption from the United States Government. 3.3 All rights reserved to the United States Government and others under Public Law 96-517, and Public Law 98-620, shall remain and shall in no way be affected by this Agreement. ARTICLE IV ROYALTIES 4.1 LICENSEE shall pay to HARVARD a non-refundable license issue fee of [**] dollars ($[**]). [**] of this sum ($[**]) shall be payable upon execution of this Agreement and the balance of the sum ($[**]) on the first anniversary of the date of execution. 4.2 (a) LICENSEE shall pay to HARVARD during the term of this Agreement with respect to LICENSED PRODUCTS within the scope of an issued VALID CLAIM in the country of manufacture, use or sale, a royalty of [**] percent ([**]%) of NET SALES made by LICENSEE. In the case of sublicenses, LICENSEE shall pay to HARVARD a royalty of [**] percent ([**]%) of NET SALES made by sublicensees with respect to LICENSED PRODUCTS within the scope of an issued VALID CLAIM in the country of manufacture use or sale. In the case of sublicenses, LICENSEE shall also pay to HARVARD a royalty of [**] percent ([**]%)of NON-ROYALTY SUBLICENSE INCOME, provided however, that this sum shall not exceed [**] dollars ($[**]) for any given sublicense. (b) The royalty rates set forth in Paragraph 4.2(a) above shall be reduced by [**] percent ([**]%) if the applicable LICENSED PRODUCTS are not within the scope of an issued VALID CLAIM of a patent within the PATENT RIGHTS in the country such LICENSED PRODUCTS are manufactured, used or sold, but are within the scope of a pending VALID CLAIM of a patent application within the PATENT RIGHTS in the country such LICENSED PRODUCTS are manufactured used or sold. However, this provision shall not apply to NON-ROYALTY SUBLICENSE INCOME payable under Paragraph 4.2 (a) above. (c) on sales between LICENSEE and its AFFILIATES or sublicensees for resale, the royalty shall be paid on the NET SALES of the AFFILIATE or sublicensee. (d) In the event that a LICENSED PRODUCT is sold in combination as a single product with another product, active component or service whose sale and use are not covered by a VALID CLAIM of the LICENSED PRODUCT in the country for which the combination product is sold, NET SALES from such sales for purposes of calculating the amounts due under Paragraph 4.2(a) and (b) above shall be calculated by [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. multiplying the NET SALES of that combination by the fraction A/(A + B), where A is the gross selling price of the LICENSED PRODUCT sold separately and B is the gross selling price of the other product, active component or service sold separately; provided that pursuant to this adjustment provision the applicable percentage royalty (based on NET SALES or NON-ROYALTY SUBLICENSE INCOME) shall not be reduced to below [**] ([**]%) of the original rate specified. In the event that no such separate sales are made by LICENSEE or its sublicensee, NET SALES for royalty determination shall be as reasonably allocated by agreement of HARVARD and LICENSEE between such LICENSED PRODUCT and such other product, active component or service, based upon their relative importance and proprietary protection. (e) No more than one royalty payment shall be due with respect to a sale of a particular LICENSED PRODUCT. No multiple royalties shall be payable because any LICENSED PRODUCT, or its manufacture, sale or use is covered by more than one VALID CLAIM. No royalty shall be payable under this Paragraph 4.2 with respect to LICENSED PRODUCTS distributed for use in research and/or development, or in clinical trials. (f) Royalties due under this Paragraph 4.2 shall be payable on a country-by-country and LICENSED PRODUCT-by-LICENSED PRODUCT basis until the expiration of the last-to-expire issued VALID CLAIM covering such LICENSED PRODUCT in such country. 4.3 No later than January 1 of each calendar year after the first commercial sale of a LICENSED PRODUCT, LICENSEE shall pay to HARVARD a minimum annual royalty of [**] dollars ($[**]). This minimum royalty payment shall be included in the Royalty Reports under Paragraph 5.4 and credited against earned royalties for that calendar year only. 4.4 No later than January 1 of each calendar year after the effective date of this Agreement, and until the first commercial sale of a LICENSED PRODUCT, LICENSEE shall pay to HARVARD the following non-refundable license maintenance royalty and/or advance on royalties. [**] percent ([**]%) Of such payments may be credited against royalties on sales due for that calendar year or any subsequent calendar year and Royalty Reports shall reflect such a credit. However, such credits shall not reduce the amount of minimum royalties, royalties on sales or other payments due in any calendar year by more than [**] percent ([**]%) in any one year. [**] [**] dollars ($[**]) [**] [**] dollars ($[**]) [**] [**] dollars ($[**]) [**] [**] dollars ($[**])
4.5 No later than January 1 of the calendar year following achievement of the following milestones LICENSEE shall pay to HARVARD the following non-refundable milestone payments: [**] $[**] No second milestone payment for an IND filing shall be made if the LICENSED PRODUCT for which the second IND filing is made contains an active ingredient that was a component of [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. another LICENSED PRODUCT for which a previous IND filing was made and the milestone payment therefor paid. [**] $[**] Such payments shall be fully credited against royalties on sales due for any subsequent calendar year or running royalties due for that calendar year and Royalty Reports shall reflect such a credit. However, such credits shall not reduce the amount of minimum royalties, royalties on sales or other payments due in any calendar year by more than [**] percent ([**]%) in any one year. 4.6 LICENSEE shall be responsible for the payment of any amounts due to third parties to obtain and practice any rights necessary to exploit the PATENT RIGHTS. Up to [**] percent ([**]%) of any such payments by LICENSEE may be credited against any amounts due to HARVARD, except that such credits shall not reduce the amount of minimum royalties, royalties on sales or other payments due in any calendar year by more than [**] percent ([**]%) in any one year. 4.7 The total of all credits against minimum royalties, royalties on sales or other payments under Article IV shall not reduce the total amount of minimum royalties, royalties on sales or other payments due to HARVARD in any calendar year by more than [**] percent ([**]%) in any one year. Any credit which is unexpended may be carried forward until applied. ARTICLE V REPORTING 5.1 Prior to signing this Agreement, LICENSEE has provided to HARVARD a written research and development plan under which LICENSEE intends to bring the subject matter of the licenses granted hereunder into commercial use upon execution of this Agreement. Such plan includes projections of sales and proposed marketing efforts. 5.2 No later than [**] after June 30 of each calendar year, LICENSEE shall provide to HARVARD a written annual Progress Report describing progress on research and development, regulatory approvals, manufacturing, sublicensing, marketing and sales during the most recent twelve (12) month period ending June 30 and plans for the forthcoming year. This Progress Report may be combined with the Royalty Report due under Paragraph 5.4 (a). If progress differs from that anticipated in the plan required under Paragraph 5.1, LICENSEE shall explain the reasons for the difference and propose a modified research and development plan for HARVARD's review. LICENSEE shall also provide any reasonable additional data HARVARD requires to evaluate LICENSEE's performance. 5.3 LICENSEE shall report to HARVARD the date of first sale of LICENSED PRODUCTS (or results of LICENSED PROCESSES) in each country within [**] of occurrence. 5.4 (a) LICENSEE shall submit to HARVARD within [**] after each [**], a Royalty Report setting forth for such [**] at least the following information: [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (i) the number of LICENSED PRODUCTS sold by LICENSEE, its AFFILIATES and sublicensees in each country, as reported to LICENSEE, and any subsequent corrections to the initial report to LICENSEE; (ii) total billings for such LICENSED PRODUCTS; (iii) an accounting for all LICENSED PROCESSES used or sold; (iv) deductions applicable to determine the NET SALES thereof; (v) the amount of NON-ROYALTY SUBLICENSE INCOME received by LICENSEE, until the amount due under Paragraph 4.2 (a) has been paid; and (vi) the amount of royalty due thereon, or the amount of license maintenance or milestone payments due. If no royalties or other payments are due to HARVARD for any reporting period, the Royalty Report shall include the statement that no royalties are due. Such report shall be certified as correct by an officer of LICENSEE and shall include a detailed listing of all deductions from royalties. (b) LICENSEE shall pay to HARVARD with each such Royalty Report the amount of royalty due with respect to such half year. If multiple technologies are covered by the license granted hereunder, LICENSEE shall specify which PATENT RIGHTS are utilized for each LICENSED PRODUCT and LICENSED PROCESS included in the Royalty Report. (c) All payments due hereunder shall be deemed received when funds are credited to HARVARD's bank account and shall be payable by check or wire transfer in United States dollars. Conversion of foreign currency to U.S. dollars shall be made at the conversion rate existing in the United States (as reported in the New York Times or the Wall Street Journal) on the last working day of each royalty period. No transfer, exchange, collection or other charges shall be deducted from such payments. (d) All such royalty reports and other reports containing LICENSEE'S business terms and information shall be maintained in confidence by HARVARD except as required by law, or by specific reporting requirements to the Federal Government; however, HARVARD may include in its usual reports annual amounts of royalties paid. (e) Late payments shall be subject to a charge of [**] percent ([**]) per month, or [**] dollars ($[**]), whichever is greater. ARTICLE VI RECORD KEEPING 6.1 LICENSEE shall keep, and shall require its AFFILIATES and sublicensees to keep, accurate records (together with supporting documentation) of LICENSED PRODUCTS made, used or sold under this Agreement, appropriate to determine the amount of royalties due to HARVARD [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. hereunder. Such records shall be retained for at least [**] following the end of the reporting period to which they relate. They shall be available during normal business hours for examination by an accountant selected by HARVARD, reasonably acceptable to LICENSEE for the sole purpose of verifying reports and payments hereunder. In conducting examinations pursuant to this paragraph, HARVARD's accountant shall have access to all records which HARVARD reasonably believes to be relevant to the calculation of royalties under Article IV. 6.2 HARVARD's accountant shall not disclose to HARVARD any information other than information relating to the accuracy of reports and payments made hereunder. 6.3 Such examination by HARVARD's accountant shall be at HARVARD's expense, except that if such examination shows an underreporting or underpayment in excess of [**] percent ([**]%) for any [**] period, then LICENSEE shall pay the cost of such examination as well as any additional sum that would have been payable to HARVARD had the LICENSEE reported correctly, plus interest on said sum at the rate of [**] percent ([**] %) per month. ARTICLE VII DOMESTIC AND FOREIGN PATENT FILING AND MAINTENANCE 7.1 Upon execution of this Agreement, LICENSEE shall reimburse HARVARD for all reasonable expenses HARVARD has incurred for the preparation, filing, prosecution and maintenance of PATENT RIGHTS. Thereafter, subject to Paragraph 7.4, LICENSEE shall reimburse HARVARD, within forty five (45) days from receipt of an invoice, for all reasonable amounts for such future expenses agreed upon by the parties under this Article VII, which invoice shall not precede the accrual of such future expenses by more than sixty (60) days. Late payment of these invoices shall be subject to interest charges of [**] percent ([**]%) per month. HARVARD shall, in its sole discretion, using patent counsel reasonably acceptable to LICENSEE, be responsible for the preparation, filing, prosecution and maintenance of any and all patent applications and patents included in PATENT RIGHTS. HARVARD shall consult with LICENSEE as to the preparation, filing, prosecution and maintenance of such patent applications and patents and any interference or opposition relating thereto and shall furnish to LICENSEE copies of documents relevant to any such preparation, filing, prosecution or maintenance. 7.2 HARVARD shall promptly provide to LICENSEE copies of any and all patent applications within the PATENT RIGHTS filed by HARVARD during the term of this Agreement and all material documents received from or sent to any patent office relating thereto which relate to the scope, term, maintenance, validity, or enforceability of any of the PATENT RIGHTS, or any challenge to or change to any of the preceding. 7.3 HARVARD and LICENSEE shall cooperate fully in the preparation, filing, prosecution and maintenance of PATENT RIGHTS and of all patents and patent applications licensed to LICENSEE hereunder, executing all papers and instruments or requiring members of HARVARD to execute such papers and instruments so as to enable HARVARD to apply for, to prosecute and to maintain patent applications and patents in HARVARD's name in any country. Each party shall provide to the other prompt notice as to all matters which come to its attention and which may affect the preparation, filing, prosecution or maintenance of any such patent applications or patents. [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 7.4 LICENSEE may elect to surrender its PATENT RIGHTS in any country upon [**] written notice to HARVARD. Such notice shall not relieve LICENSEE from responsibility to reimburse HARVARD for patent-related expenses incurred prior to the expiration of the [**] notice. However, LICENSEE shall not have responsibility to reimburse HARVARD for patent-related expenses incurred subsequent to expiration of the notice, and HARVARD shall make an effort to minimize patent-related expenses during the [**] notice period. ARTICLE VIII INFRINGEMENT 8.1 With respect to any PATENT RIGHTS that are exclusively licensed to LICENSEE pursuant to this Agreement, LICENSEE shall have the right but not the obligation to prosecute in its own name and at its own expense any suit relating to the infringement of such patent, so long as such license is exclusive at the time of the commencement of such action. LICENSEE shall have the right to authorize sublicensees to conduct such actions. HARVARD agrees to notify LICENSEE promptly of each infringement of such patents of which HARVARD is or becomes aware, providing all available details relating thereto. Before LICENSEE commences an action with respect to any infringement of such patents, LICENSEE shall give careful consideration to the views of HARVARD and to potential effects on the public interest in making its decision whether or not to sue. 8.2 (a) If LICENSEE elects to commence an action as described above, HARVARD may, to the extent permitted by law, elect to join as a party in that action. Regardless of whether HARVARD elects to join as a party, HARVARD shall cooperate fully with LICENSEE in connection with any such action. (b) If HARVARD elects to join as a party pursuant to subparagraph (a), HARVARD shall jointly control the action with LICENSEE. (c) If HARVARD is required to join LICENSEE as a party pursuant to subparagraph (a) for LICENSEE to maintain such activity, HARVARD shall join and LICENSEE shall reimburse HARVARD for any costs HARVARD incurs, including reasonable attorneys' fees, as part of an action brought by LICENSEE, irrespective of whether HARVARD becomes a co-plaintiff. 8.3 No settlement, consent judgment or other voluntary final disposition of the suit which imposes any obligations or costs on HARVARD may be entered into without the prior written consent of HARVARD, which consent shall not be unreasonably withheld. 8.4 Recoveries or reimbursements from actions commenced pursuant to this Article shall first be applied to reimburse LICENSEE and HARVARD for any costs of the action not previously reimbursed under Paragraph 8.2(c) above. Any remaining recoveries or reimbursements which are paid in replacement of lost or forfeited sales by LICENSEE or a sublicensee shall be retained by LICENSEE and treated as NET SALES of LICENSED PRODUCTS, subject to the royalty obligations to HARVARD outlined in Paragraph 4.2 above. Any additional recoveries or reimbursements which are payments for wilful infringement or punitive damages shall be [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. shared by LICENSEE and HARVARD in proportion to the expenses each, without reimbursement from the other, incurred in conducting the suit. 8.5 If LICENSEE elects not to exercise its right to prosecute an infringement of the PATENT RIGHTS pursuant to this Article, HARVARD may do so at its own expense, controlling such action and retaining all recoveries therefrom. LICENSEE shall cooperate fully with HARVARD in connection with any such action, and subsequent to determination of recoveries or reimbursements, costs incurred by LICENSEE shall be reimbursed by HARVARD. 8.6 In the event the recoveries or reimbursements are not sufficient to cover the parties' costs, reimbursements shall be allocated in proportion to the expenses LICENSEE and HARVARD incurred in conducting the suit. 8.7 Without limiting the generality of Paragraph 8.5, HARVARD may, at its election and by notice to LICENSEE, establish a time limit of one hundred and twenty (120) days for LICENSEE to decide whether to prosecute any infringement of which HARVARD is or becomes aware. If, by the end of such period, LICENSEE has not commenced such an action, HARVARD may prosecute such an infringement at its own expense, controlling such action and retaining all recoveries therefrom. With respect to any such infringement action prosecuted by HARVARD in good faith, LICENSEE shall pay over to HARVARD any payments (whether or not designated as 'royalties') made by the alleged infringer to LICENSEE under any existing sublicense, where sublicensee has been notified that they are in default under the terms of the sublicense, or future sublicense entered into as a result of such infringement action authorizing LICENSED PRODUCTS, up to the amount of HARVARD's unreimbursed litigation expenses (including, but not limited to, reasonable attorneys' fees). 8.8 If a declaratory judgment action is brought naming LICENSEE as a defendant and alleging invalidity of any of the PATENT RIGHTS, and requiring LICENSEE to respond within [**], HARVARD may, with notice to LICENSEE within [**] of the commencement of such an action, elect to take over the sole defense of the action at its own expense. LICENSEE shall cooperate fully with HARVARD in connection with any such action. Otherwise, LICENSEE shall have the right to conduct such action, subject to Paragraph 8.1 above. ARTICLE IX TERMINATION OF AGREEMENT 9.1 This Agreement, unless terminated as provided herein, shall remain in effect until the last patent or patent application in PATENT RIGHTS has expired or been abandoned. 9.2 HARVARD may terminate this Agreement with [**] notice and without cure by LICENSEE or within such other period expressly provided in this Paragraph 9.2, as follows: (a) If LICENSEE does not make a payment due hereunder and fails to cure such non-payment (including the payment of interest in accordance with Paragraph 5.4(e)) within [**] days after the date of notice in writing of such non-payment by HARVARD. [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (b) If LICENSEE defaults in its obligations under Paragraph 10.4(c) and (d) to procure and maintain insurance. (c) If, at any time after [**] from the date of this Agreement, HARVARD determines that the Agreement should be terminated pursuant to Paragraph 3.2(d). (d) If LICENSEE shall become insolvent, shall make an assignment for the benefit of creditors, or shall have a petition in bankruptcy filed for or against it. Such termination shall be effective immediately upon HARVARD giving written notice to LICENSEE. (e) If an examination by HARVARD's accountant pursuant to Article VI shows an underreporting or underpayment by LICENSEE in excess of [**] percent ([**]%) for any [**] period, and LICENSEE fails to cure such non-payment within [**] after the date of notice in writing of such non-payment by HARVARD. (f) If LICENSEE is convicted of a felony relating to the manufacture, use, or sale of LICENSED PRODUCTS. (g) Except as provided in subparagraphs (a), (b), (c), (d), (e) and (f) above, if LICENSEE defaults in the performance of any obligations under this Agreement and the default has not been remedied within ninety (90) days after the date of notice in writing of such default by HARVARD. 9.3 Notwithstanding Paragraph 9.2 above, if either party materially breaches this Agreement, the other party may elect to give the breaching party written notice describing the alleged breach. If the breaching party has not cured such breach after receipt of such notice within the applicable period specific above, the notifying party will be entitled, in addition to any other rights it may have under this Agreement, to terminate this Agreement effective immediately; provided, however, if either party receives notification from the other of a material breach and if the party alleged to be in default notifies the other party in writing within [**] of receipt of such default notice that it disputes the asserted default, the matter will be submitted to binding arbitration as provided in Paragraph 11.15 of this Agreement. In such event, the nonbreaching party shall not have the right to terminate this Agreement until it has been determined in such arbitration proceeding that the other party materially breached this Agreement, and the breaching party fails to cure such breach within [**] after the conclusion of such arbitration proceeding. 9.4 (a) Termination of this Agreement for any reason shall not release any party hereto from any liability which, at the time of such termination, has already accrued to the other party or which is attributable to a period prior to such termination, nor preclude either party from pursuing any rights and remedies it may have hereunder or at law or in equity which accrued or are based upon any event occurring prior to such termination. (b) In the event this Agreement is terminated for any reason, LICENSEE and sublicensees, shall for a period not to exceed [**] or [**], have the right to sell or otherwise dispose of the stock of any LICENSED PRODUCTS then on hand, subject to Article III. (c) LICENSEE may terminate this Agreement by giving [**] advance written notice of termination to HARVARD, and paying a termination fee of [**] dollars ($[**]). Upon termination, LICENSEE shall submit a final Royalty Report to [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. HARVARD and any royalty payments and unreimbursed patent expenses invoiced by HARVARD shall become immediately payable. (d) In the event of any termination of this Agreement any sublicenses granted by LICENSEE shall remain in force and effect and shall be assigned by LICENSEE to HARVARD, provided, that such sublicensee is currently in good standing with regard to its obligations under the sublicense or has cured any default or breach within the period provided in such sublicense, and further provided, that the financial obligations of each such sublicensee shall be limited to those due HARVARD hereunder for the practice of such a sublicense, and further provided that no added obligations are imposed on HARVARD as a result of this assignment. 9.5 Article X and Paragraphs 6.1, 6.2, 6.3, 8.4, 8.5, 9.4 and 9.5 of this Agreement shall survive termination. ARTICLE X GENERAL 10.1 HARVARD does not warrant the validity of the PATENT RIGHTS licensed hereunder and makes no representations whatsoever with regard to the scope of the licensed PATENT RIGHTS or that such PATENT RIGHTS may be exploited by LICENSEE, an AFFILIATE, or sublicensee without infringing other patents. 10.2 HARVARD EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED OR EXPRESS WARRANTIES AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE PATENT RIGHTS OR INFORMATION SUPPLIED BY HARVARD, LICENSED PROCESSES OR LICENSED PRODUCTS CONTEMPLATED BY THIS AGREEMENT. 10.3 (a) LICENSEE shall indemnify, defend and hold harmless HARVARD and The Regents and their current or former directors, governing board members, trustees, officers, faculty, medical and professional staff, employees, students, and agents and their respective successors, heirs and assigns (collectively, the 'Indemnitees'), against any liability, damage, loss or expenses (including reasonable attorneys' fees and expenses of litigation) incurred by or imposed upon the Indemnitees or any of them in connection with any claims, suits, actions, demands or judgments arising out of any theory of product liability (including, but not limited to, actions in the form of tort, warranty, or strict liability) concerning any product, process or service made, used or sold pursuant to any right or license granted under this Agreement. (b) LICENSEE shall, at its own expense, provide attorneys reasonably acceptable to HARVARD to defend against any actions brought or filed against any Indemnitee hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought. (c) Beginning at the time any such product, process or service is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by LICENSEE or by a sublicensee, AFFILIATE or agent of LICENSEE, LICENSEE shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than [**] dollars ($[**]) per incident and [**] dollars ($[**]) annual aggregate and naming the Indemnitees as additional insureds. During clinical trials of any such product, process or service, LICENSEE shall, at its sole cost and expense, procure and maintain commercial general liability insurance in such equal or lesser amount as HARVARD shall reasonably require, naming the Indemnitees as additional insureds. Such commercial general liability insurance shall provide (i) product liability coverage and (ii) broad form contractual liability coverage for LICENSEE's indemnification under this Agreement. If LICENSEE elects to self-insure all or part of the limits described above (including deductibles or retentions which are in excess of [**] dollars ($[**]) annual aggregate) such self-insurance program must be acceptable to HARVARD and the Risk Management Foundation of the Harvard Medical Institutions, Inc. in their sole discretion. The minimum amounts of insurance coverage required shall not be construed to create a limit of LICENSEE's liability with respect to its indemnification under this Agreement. (d) LICENSEE shall provide HARVARD with written evidence of such insurance upon request of HARVARD. LICENSEE shall provide HARVARD with written notice at least [**] prior to the cancellation, non-renewal or material change in such insurance; if LICENSEE does not obtain replacement insurance providing comparable coverage within such [**] period, HARVARD shall have the right to terminate this Agreement effective at the end of [**] period without notice or any additional waiting periods. (e) LICENSEE shall maintain such commercial general liability insurance beyond the expiration or termination of this Agreement during (i) the period that any product, process, or service, relating to, or developed pursuant to, this Agreement is being commercially distributed or sold by LICENSEE or by a sublicensee, AFFILIATE or agent of LICENSEE and (ii) a reasonable period after the period referred to in (e)(i) above which in no event shall be less than fifteen (15) years. 10.4 LICENSEE shall not use HARVARD's or The Regents' name or insignia, or any adaptation of them, or the name of any of HARVARD's or The Regents' inventors in any advertising, promotional or sales literature without the prior written approval of HARVARD. 10.5 Without the prior written approval of HARVARD in each instance, which approval shall not be unreasonably withheld, neither this Agreement nor the rights granted hereunder shall be assigned in whole or in part by LICENSEE to any person whether voluntarily or involuntarily, by operation of law or otherwise, except that LICENSEE may assign this Agreement and the rights granted hereunder, in whole or in part, without such consent, to a successor to substantially all of the business or assets relating to the LICENSED PRODUCTS, and such succession may include but not be limited to one by acquisition, merger, change of corporate name or change in make-up, organization, state of incorporation, or identity. Any such assignment shall occur without any further consideration to HARVARD. This Agreement shall be binding upon the respective successors, legal representatives and assignees of HARVARD and LICENSEE. 10.6 The interpretation and application of the provisions of this Agreement shall be governed by the laws of the Commonwealth of Massachusetts. 10.7 LICENSEE shall comply with all applicable laws and regulations. In particular, it is understood and acknowledged that the transfer of certain commodities and technical data is [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. subject to United States laws and regulations controlling the export of such commodities and technical data, including all Export Administration Regulations of the United States Department of Commerce. These laws and regulations among other things, prohibit or require a license for the export of certain types of technical data to certain specified countries. LICENSEE hereby agrees and gives written assurance that it will comply with all United States laws and regulations controlling the export of commodities and technical data, that it will be solely responsible for any violation of such by LICENSEE or its AFFILIATES or sublicensees, and that it will defend and hold HARVARD and The Regents harmless in the event of any legal action of any nature occasioned by such violation. 10.8 LICENSEE agrees (i) to use reasonable efforts to obtain all regulatory approvals required for the manufacture and sale of LICENSED PRODUCTS and LICENSED PROCESSES and (ii) to utilize appropriate patent marking on such LICENSED PRODUCTS, as required by applicable law. LICENSEE also agrees to register or record this Agreement as is required by law or regulation in any country where the license is in effect. 10.9 Any notices to be given hereunder shall be sufficient if signed by the party (or party's attorney) giving same and either (a) delivered in person, or (b) mailed certified mail return receipt requested, or (c) faxed to the other party if the sender has evidence of successful transmission and if the sender promptly sends the original by ordinary mail, in any event to the following addresses: If to LICENSEE: KOSAN Biosciences, Inc. 1450 Rollins Road Burlingame, CA 94010 Attention: Chief Executive Officer Fax No.: 650-343-2931 If to Harvard to: Office for Technology and Trademark Licensing Harvard University 124 Mt. Auburn Street, Suite 410 South Cambridge, MA 02138 Fax No.: 617-495-9568 and to: Harvard Medical School Office of Technology Licensing and Industry-Sponsored Research 220 Longwood Avenue Room 159 Boston, MA 02115 Fax No.: 617-432-2788 By such notice either party may change their address for future notices. Notices delivered in person shall be deemed given on the date delivered. Notices sent by fax shall be deemed given on the date faxed. Notices mailed shall be deemed given on the date postmarked on the envelope. 10.10 Should a court of competent jurisdiction later hold any provision of this Agreement to be invalid, illegal, or unenforceable, and such holding is not reversed on appeal, it shall be considered severed from this Agreement. All other provisions, rights and obligations shall continue without regard to the severed provision, provided that the remaining provisions of this Agreement are in accordance with the intention of the parties. 10.11 Neither party shall lose any rights hereunder or be liable to the other party for damages or losses (except for payment obligations) on account of failure of performance by the defaulting party if the failure is occasioned by war, strike, fire, Act of God, earthquake, flood, lockout, embargo, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party and the nonperforming party has exerted all reasonable efforts to avoid or remedy such force majeure; provided, however, that in no event shall a party be required to settle any labor dispute or disturbance. 10.12 Each party shall furnish to the other party any information related to the subject matter of this Agreement requested or required by that party during the term of this Agreement or any extensions hereof to enable that party to comply with the requirements of any U.S. or foreign federal, state and/or government agency. 10.13 NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES ARISING OUT OF THE PERFORMANCE OF THIS AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY. 10.14 In the event of any controversy or claim arising out of or relating to any provision of this Agreement or the breach thereof, the parties shall try to settle such conflict amicably between themselves. Subject to the limitation stated in the final sentence of this section, any such conflict which the parties are unable to resolve promptly shall be settled through arbitration conducted in accordance with the rules of the American Arbitration Association. The demand for arbitration shall be filed within a reasonable time after the controversy or claim has arisen, and in no event after the date upon which institution of legal proceedings based on such controversy or claim would be barred by the applicable statute of limitation. Such arbitration shall be held in Boston, Massachusetts. The award through arbitration shall be final and binding. Either party may enter any such award in a court having jurisdiction or may make application to such court for judicial acceptance of the award and an order of enforcement, as the case may be. Notwithstanding the foregoing, either party may, without recourse to arbitration, assert against the other party a third-party claim or cross-claim in any action brought by a third party, to which the subject matter of this Agreement may be relevant. 10.15 This Agreement constitutes the entire understanding between the parties and neither party shall be obligated by any condition or representation other than those expressly stated herein or as may be subsequently agreed to by the parties hereto in writing. 10.16 At any time or from time to time on and after the date of this Agreement, HARVARD shall at the written request of LICENSEE (i) deliver to LICENSEE such records, data or other documents consistent with the provisions of this Agreement, (ii) execute, and deliver or cause to be delivered, all such consents, documents or further instruments of transfer or license, and (iii) take or cause to be taken all such actions, as LICENSEE may reasonably deem necessary or desirable in order for LICENSEE to obtain the full benefits of this Agreement and the transactions contemplated hereby. 10.17 This Agreement may be executed in two (2) counterparts, each of which shall be deemed an original and which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives. PRESIDENT AND FELLOWS OF HARVARD COLLEGE Signature: /s/ Joyce Brinton 11/20/98 --------------------------------------------------- Name: Joyce Brinton Title: Director Office for Technology and Trademark Licensing Date: 11/20/98 -------------------------------------------------------- LICENSEE Signature: /s/ Michael Ostrach --------------------------------------------------- Name: Michael Ostrach Title: Chief Operating Officer KOSAN Biosciences Inc Date: 12/2/98 -------------------------------------------------------- APPENDIX A INTERINSTITUTIONAL ADMINISTRATION AGREEMENT HARVARD CASE # 1185 U.C. CASE # SF-97-133 N.D. 4/18/97 Effective this 10TH day of APRIL 1997, (the "Effective Date") the President and Fellows of Harvard College, a charitable corporation of the Commonwealth of Massachusetts, having an address at University Place, Fourth Floor South, 124 Mt. Auburn Street, Cambridge, MA 02138, hereinafter referred to as "Harvard," and The Regents of the University of California, a California corporation having its corporate offices located at 300 Lakeside Drive, 22nd floor, Oakland, CA 94612 acting through its offices located at Office of Technology Management, University of California San Francisco, 745 Parnassus Ave. Box 1209, San Francisco, CA 94143-1209, hereinafter referred to as "The Regents" agree as follows: 1. BACKGROUND 1.1 Harvard and The Regents, with support from the National Institutes of Health, have conducted certain research in the field of isolated and purified natural and recombinant phosphopantethenyl transferases. Such research resulted in an invention, generally characterized as "Phosphopantethenyl Transferases and Uses Thereof", (hereinafter the "Invention"), and is covered by Patent Rights, as defined below. 1.2 The Invention was invented jointly by Ralph H. Lambalot, Amy M. Gehring and Christopher T. Walsh of Harvard and Ralph Reid of The Regents, hereinafter referred to as the "Inventors." Lambalot, Gehring and Walsh have assigned or will assign their undivided Patent Rights and interest in the Invention to Harvard, and Reid has assigned or will assign his undivided Patent Rights and interest in the Invention to The Regents. 1.3 It is the mutual desire of the parties to this Agreement that the Patent Rights be administered by Harvard, subject to any overriding obligations to the aforesaid sponsors of the research, and that Harvard manage the marketing and licensing efforts of said Patent Rights. 2. DEFINITIONS 2.1 "Patent Rights" means the subject matter of a United States patent application filed October 11, 1996 entitled "Phosphopantethenyl Transferases and Uses Thereof" (Serial No. to be determined), assigned to The Regents (Case No. SF 97-133) and to Harvard (Harvard Case No. 1185); any continuations, divisions or extensions; any patents issuing on said applications including reissues and reexaminations; any continuations-in-part for which Inventors are legally listed among the legal inventors on the U.S. patent application and any foreign (non-U.S.) counterparts including continuations, divisions or extensions and all patents which issue therefrom in any country; all of which will be automatically incorporated in and added to this Agreement from time to time, and to the extent now existing are identified in Appendix A attached to the Agreement and made a part thereof. 2.2 "Sponsor" means NIH under Grant Nos. HL-43821 awarded to The Regents and the National Institutes of Health under Grant Nos. GM 20011 and GM 16583 awarded to Harvard. 2.3 "Revenues" mean every receipt, royalty, commission, fee or reimbursement of patent prosecution costs (previously split with The Regents) by licensees arising from the ownership or licensing of Patent Rights, but excludes recoveries resulting from infringement litigation, less any direct expenses incurred by Harvard or The Regents in the licensing or marketing of Patent Rights. 2.4 "Patent Costs" mean all reasonable and actual out-of-pocket past, present and future costs incurred for the preparation, filing, prosecution, maintenance and litigation (other than infringement litigation) of Patent Rights, exclusive of any salaries, administrative or other indirect costs. 3. PATENT PROSECUTION AND PROTECTION 3.1 Upon execution of this Agreement, Harvard shall assume responsibility for the prosecution and maintenance of the Patent Rights. Such Patent Rights shall be held in the names of Harvard and The Regents and shall be obtained with counsel of Harvard's choice. Harvard shall promptly provide to The Regents all serial numbers and filing dates, together with copies of all such applications or patents, including copies of all Office Actions, Responses and all other Patent Office communications to allow The Regents to comment on such prior to filing. Any comments or suggestions by The Regents shall be given due consideration by Harvard. 3.2 Notwithstanding any other provision of this Agreement, Harvard shall not abandon the prosecution of any patent application (except for purposes of filing continuation or continuation-in-part applications) or the maintenance of any patent contemplated by this Agreement without sixty (60) days prior written notice to The Regents. Within thirty (30) days of receipt of notice of proposed abandonment, The Regents must, in writing, either (a) concur in the abandonment or (b) elect to assume responsibility for the prosecution and maintenance of all Patent Rights that Harvard proposes to abandon. Lack of written response to Harvard within thirty (30) days shall be deemed to constitute concurrence. 3.3 All Patent Costs shall be shared on a [**] proprtionate basis by The Regents and Harvard, respectively. Harvard shall submit quarterly itemized statements [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. to The Regents of Patent Costs incurred by Harvard. The Regents shall reimburse Harvard for [**] percent ([**]%) of the incurred Patent Costs within [**] of receipt of such itemized statements. 3.4 Upon execution of this Agreement, Harvard shall submit statements of itemized Patent Costs incurred by Harvard (and not previously reimbursed by an optionee or licensee) prior to the Effective Date. The Regents shall reimburse Harvard for [**] percent ([**]%) of the Patent Costs within [**] of receipt of such itemized statements. 3.5 If The Regents should fail to reimburse Harvard for its share of Patent Costs according to Paragraph 3.3 or 3.4, Harvard may give written notice of default to The Regents pursuant to Article 7 (Governing Laws, Settling Disputes) of this Agreement. If The Regents should fail to repair such default within thirty (30) days from the receipt of such notice, Harvard may construe such default as termination pursuant to Article 13 (Termination by Harvard), provided that in the case where The Regents has identified discrepancies in billing, payment for the contested item(s) may be delayed pending resolution. All such disputes shall be resolved by good faith negotiation between the parties and, if that fails, then by arbitration in accordance with Article 7 (Governing Laws, Settling Disputes). 3.6 In the event that Harvard anticipates the possibility of any extraordinary expenditures arising from the preparation, filing, prosecution, licensing or defense of any patent application or patent contemplated by this Agreement, Harvard shall provide The Regents with full particulars and shall discuss with The Regents a mutually acceptable course of action prior to incurrence of such expenditures. 4. LICENSING 4.1 Harvard shall use reasonable efforts to seek licensee(s) for the commercial development of the Patent Rights and shall administer the Patent Rights for the mutual benefit of the parties and in the best public interest. The parties shall consult and mutually agree prior to the granting of any licenses, which shall be signed by Harvard on behalf of Institution. Harvard shall promptly provide copies of all fully executed licenses issued on said Patent Rights to The Regents. 4.2 Harvard shall not negotiate any paid-up licenses, other than pursuant to the patent provisions of Sponsor's grant as cited in Paragraph 1.1 or unless restricted to research use only. Further, Harvard shall not assign patent rights to any third party, notwithstanding any other provision of this Agreement or Sponsor consent, without prior written notice to The Regents. [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 4.3 Harvard shall distribute Revenues on the basis of [**] percent ([**]%) to the Regents and [**] percent ([**]%) to Harvard not later than [**] for Revenues received in the preceding calendar year. 4.4 Each party shall be solely responsible for calculating and distributing to its respective Inventors a share of Revenues in accordance with its respective patent policy. 5. RECORDS AND REPORTS 5.1 Harvard shall keep complete, true and accurate accounts of all Patent Costs and of all Revenues received by it from each licensee and, at the request of The Regents, shall permit a reasonably acceptable certified public accounting firm to examine its books and records in order to verify the payments due or owing under this Agreement. 6. INFRINGEMENT 6.1 In the event Harvard or The Regents learns of the substantial infringement of any patent contemplated by this Agreement, the party who learned of the infringement shall promptly inform the other party in writing and shall provide the other party with evidence of such infringement. Harvard, in cooperation with The Regents and any licensee(s), shall attempt to terminate such infringement without litigation. If the efforts of Harvard are not successful in abating the infringement within ninety (90) days after the infringer has been formally notified of the infringement, the parties shall confer among themselves regarding mutually acceptable possible courses of action, with or without any licensee(s), at the discretion of Harvard. Harvard shall not be obligated to bring any infringement action; however, The Regents may not unilaterally prevent Harvard from bringing such an action. Any recovery resulting from a settlement or judgment on such an infringement action shall be divided between Harvard and The Regents based on the percentage of involvement by the respective parties. Both parties agree to do all things reasonably necessary to assist with litigation. In the event the terms of a license agreement conflict with this clause, the terms of the license agreement will prevail. 7. GOVERNING LAWS, SETTLING DISPUTES 7.1 This Agreement shall be governed and interpreted according to the laws of the Commonwealth of Massachusetts, but the scope and validity of any patent or patent application shall be governed by the applicable laws of the country of such patent or patent application. 7.2 Any controversy or any disputed claim by either party against the other arising under or related to this Agreement shall be settled by arbitration, upon the [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. request of either party, in accordance with the then current Licensing Agreement Arbitration Rules of the American Arbitration Association. Judgment upon the award rendered by the Arbitrator(s) shall be binding on the parties. Any arbitration under Paragraph 7.2 shall be held at a place chosen by the party receiving the request for arbitration, and judgment upon the award rendered by the arbitration may be entered by any court having jurisdiction thereof. The costs of such arbitration shall be shared by the parties. 8. NOTICES 8.1 Any notice required or permitted to be given to the parties shall be deemed to have been properly given if delivered, in writing, in person or by facsimile, airmail or air express delivery to the following addresses: To Harvard: Office for Technology and Trademark Licensing University Plase, Fourth Floor South 124 Mt. Auburn Street Cambridge, MA 02138 ATTENTION: Director with a copy to: Office of Technology Licensing and Industry-Sponsored Research Harvard Medical School 333 Longwood Avenue, Suite 640 Boston, MA 02115 ATTENTION: Nan Doyle To The Regents: Office of Technology Management University of California, San Francisco 745 Parnassus Ave., Box 1209 San Francisco, CA 94143-1209 ATTENTION: Director 9. WAIVER 9.1 It is agreed that no waiver by any party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 10. ASSIGNABILITY 10.1 This Agreement is binding upon and shall inure to the benefit of the parties hereto, their successors or assigns, but this Agreement may not be assigned by any party without the prior notification of the other parties and the Sponsor. 11. TERM OF AGREEMENT 11.1 This Agreement shall be in full force and effect from the Effective Date and shall remain in effect for the life of the last-to-expire patent contemplated by this Agreement, unless otherwise terminated by operation of law or by acts of the parties in accordance with the terms of this Agreement or Sponsor's requirements. 12. USE OF NAMES 12.1 No party may use the name of the other party in any way for advertising or publicity without the express written consent of the other party, provided, however, that Harvard has the right to use The Regents' name within the context of a licensing agreement. 13. TERMINATION BY HARVARD 13.1 Harvard may terminate this Agreement upon at least [**] written notice to The Regents, but in any event not less than [**] prior to the date on which action upon any pending Patent Office action needs to be taken to preserve Patent Rights. 13.2 If Harvard terminates this Agreement, The Regents may elect to assume responsibility for administration of Patent Rights and any licenses. The Regents shall advise Harvard in writing of its election within [**] after receipt of notice of termination; Harvard shall thereupon convey to The Regents any licenses and shall do all things necessary to transfer the wrappers and other files related to the Patent Rights and licenses. In the event The Regents elects not to assume responsibility for administration of Patent Rights and any licenses, then Harvard shall be free to dispose of said Patent Rights in accordance with any obligations to the Sponsor, and this Agreement shall terminate, with Harvard having no further obligation to The Regents. [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 13.3 Upon termination of this Agreement, Harvard shall have no further rights or obligations under this Agreement, except that The Regents shall reimburse Harvard, pursuant to Paragraph 3.3, for The Regents' twenty-percent share of Patent Costs incurred prior to the termination date and for which Harvard has not yet received reimbursement. 14. TERMINATION BY THE REGENTS 14.1 The Regents may terminate this Agreement for any reason upon [**] written notice to Harvard. Thereafter, The Regents shall have no further rights or obligations under this Agreement, except that The Regents shall be obligated to reimburse Harvard for The Regents' share of Patent Costs incurred prior to the termination date, and for which The Regents has not yet made reimbursement, and to make any necessary assignments of patent and/or license rights to Harvard. 15. COMPLETE AGREEMENT 15.1 It is understood and agreed by Harvard and The Regents that this Agreement embodies the entire understanding of the parties and shall supersede all previous communications, representations or understanding, either oral or written, between the parties relating to the subject matter hereof. This Agreement shall not be amended except by written consent of both parties in the form of an Addendum to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate originals by their respective officers. PRESIDENT AND FELLOWS THE REGENTS OF HARVARD COLLEGE /s/ Joyce Brinton /s/ Jeffrey Labovitz - ---------------------------------------------- ----------------------------------- Joyce Brinton, Director Signature Office for Technology and Trademark Licensing Jeffrey Labovitz ----------------------------------- Name Senior Licensing Officer OTM. UCSF ----------------------------------- Title 3/7/97 4/10/97 ------------------------------------- ----------------------------------- Date Date
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EX-10.11 13 EXHIBIT-10.11 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EXHIBIT 10.11 RESEARCH AND LICENSE AGREEMENT BETWEEN KOSAN BIOSCIENCES, INC. AND ORTHO-MCNEIL PHARMACEUTICAL CORPORATION AND THE R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE September 28, 1998 TABLE OF CONTENTS
PAGE ---- ARTICLE 1 -- DEFINITIONS -2- ARTICLE 2 -- RESEARCH -11- ARTICLE 3 -- SCREENING BY LICENSEE -19- ARTICLE 4 -- LICENSES -24- ARTICLE 5 -- DEVELOPMENT AND COMMERCIALIZATION -29- ARTICLE 6 -- LICENSE FEES AND MILESTONE PAYMENTS -32- ARTICLE 7 -- ROYALTIES, RECORDS AND REPORTS -34- ARTICLE 8 -- SUPPLY OF PRODUCTS -37- ARTICLE 9 -- CONFIDENTIALITY -38- ARTICLE 10 -- REGULATORY MATTERS -40- ARTICLE 11 -- PATENT INFRINGEMENT -41- ARTICLE 12 -- INTELLECTUAL PROPERTY -42- ARTICLE 13 -- PUBLICITY -45- ARTICLE 14 -- WARRANTIES AND REPRESENTATIONS -45- ARTICLE 15 -- STANFORD LICENSE -47- ARTICLE 16 -- TRADEMARKS -47- ARTICLE 17 -- INDEMNIFICATION -48- ARTICLE 18 -- BANKRUPTCY -49- ARTICLE 19 -- TERM AND TERMINATION -49- ARTICLE 20 -- ASSIGNMENT -53- ARTICLE 21 -- DISPUTE RESOLUTION -54- ARTICLE 22 -- MISCELLANEOUS -57-
RESEARCH AND LICENSE AGREEMENT This RESEARCH AND LICENSE AGREEMENT (hereinafter called the "AGREEMENT"), made as of September 28, 1998 by and between KOSAN BIOSCIENCES, INC., a corporation organized under California law having its principal office at 1450 Rollins Road, Burlingame, California 94010 (hereinafter called "KOSAN"); ON THE ONE HAND, AND: ORTHO-MCNEIL PHARMACEUTICAL, INCORPORATED (hereinafter called "ORTHO"), a company organized under Delaware law, having its principal office at U.S. Route 202, Raritan, New Jersey 08869; and the R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE (hereinafter called "RWJPRI"), a division of Ortho-McNeil Pharmaceutical, Incorporated, having its principal office at U.S. Route 202, Raritan, New Jersey 08869 (ORTHO and RWJPRI hereinafter collectively called "LICENSEE") ON THE OTHER HAND, WITNESSETH: A. WHEREAS, KOSAN has an on-going RESEARCH PROGRAM in the FIELD (as defined below) and has developed certain technology useful in the FIELD to which it has the right to grant licenses; B. WHEREAS, patent applications have been filed in the name of KOSAN in the United States and other territories for the granting of letters patent relating to certain polyketides which may have activity within the FIELD; C. WHEREAS, LICENSEE has been engaged in research efforts focused on the development of new antibacterials and has certain research, development and commercialization capabilities in the FIELD; D. WHEREAS, KOSAN and RWJPRI desire to engage in collaborative research to conduct a drug discovery program as generally described in the RESEARCH PLAN attached hereto as Exhibit A; E. WHEREAS, LICENSEE is prepared to undertake a program for the development, manufacture and sale of PRODUCTS developed from the collaborative research, provided that LICENSEE is able to obtain a license under the KOSAN PATENT RIGHTS and KOSAN KNOW-HOW (as hereinafter defined) with exclusivity to protect its investment in such program; F. WHEREAS, KOSAN recognizes that LICENSEE requires such a license in order to justify the investment in funding and personnel needed to develop and market products developed from the collaborative research and is willing to grant such rights. NOW, THEREFORE, in consideration of the premises and the performance of the covenants herein contained, IT IS AGREED AS FOLLOWS: ARTICLE 1 -- DEFINITIONS For the purposes of this AGREEMENT and solely for such purposes, the terms hereinafter set forth shall have the following respective meanings: 1.1 "AFFILIATE" or "AFFILIATES" shall mean any corporation(s) or organization(s) which directly or indirectly CONTROLS, is (are) CONTROLLED by, or is (are) under common CONTROL with LICENSEE or KOSAN. 1.2 "ANTIBIOTIC ACTIVITY" shall mean [**]. 1.3 "ANTI-INFLAMMATORY ACTIVITY" shall mean [**]. 1.4 "AROMATIC POLYKETIDE" shall mean [**]. 1.5 "BULK PRODUCT" shall mean the purified active ingredient, or purified intermediate for manufacture of any PRODUCT, as the case may be, in bulk form. 1.6 "CLOSE STRUCTURAL ANALOG" shall mean, with respect to a [**] which is designated a LICENSED COMPOUND pursuant to Section 3.5, another [**] , as the case may be, which (i) is claimed in a patent application or patent within the PATENT RIGHTS which claims the applicable LICENSED COMPOUND, and is in the same chemical genus as the applicable LICENSED COMPOUND and (ii) has activity against the same molecular target as the LICENSED COMPOUND, which activity shall be (x) if activity other than [**], at a level agreed by the parties at the time the corresponding [**] -2- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] is designated a LICENSED COMPOUND, or (y) if [**], shall be at the level specified in the RESEARCH PLAN, at the time the corresponding [**] is designated a LICENSED COMPOUND. 1.7 "COMMITTED FTEs" shall mean, with respect to a particular PROJECT, those KOSAN FTEs for which LICENSEE will provide RESEARCH FUNDING as set forth in the RESEARCH PLAN to conduct such PROJECT until the applicable DECISION POINT for such PROJECT as set forth in Section 2.6. 1.8 "CONTINGENT FTEs" shall mean, with respect to a particular PROJECT, those KOSAN FTEs for which LICENSEE will provide RESEARCH FUNDING as set forth in the RESEARCH PLAN to conduct CONTINGENT WORK for such PROJECT if the LICENSEE makes a GO DECISION at the applicable DECISION POINT(s), or otherwise elects to proceed with the CONTINGENT WORK for such PROJECT as set forth in Section 2.6. 1.9 "CONTINGENT WORK" shall mean research conducted by CONTINGENT FTEs. 1.10 "CONTRACT YEAR" shall mean any twelve (12) consecutive month period beginning with the EFFECTIVE DATE of the AGREEMENT. 1.11 "CONTROL", "CONTROL(S)" or "CONTROLLED" shall refer to direct or indirect beneficial ownership of at least fifty percent (50%) of the voting stock of a corporation or other business entity, or a fifty percent (50%) or greater interest in the income of such corporation or other business entity, or the power to direct or cause the direction of the management or policies of such corporation or other business entity whether by ownership of voting securities, by contract or otherwise, or such other relationship as, in fact, constitutes actual control. 1.12 "CPI" shall mean the Consumer Price Index, All Urban Consumers, as published by the U.S. Bureau of Labor Statistics. 1.13 "DECISION POINT(S)" shall mean with respect to a particular PROJECT, the point at which LICENSEE must elect by notice to KOSAN to provide for funding the CONTINGENT WORK for such PROJECT (a "GO DECISION"), or discontinue the PROJECT and not support further research with respect to such PROJECT (a "NO-GO DECISION"), subject to Section 2.6.3. 1.14 "DERIVATIVE" shall mean a compound which (i) results from a chemical synthesis program based on a LICENSED COMPOUND, or (ii) is based on structure-function data derived from one or more LICENSED COMPOUNDS, which data is not in the public -3- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. domain as a result of a disclosure (x) by a THIRD PARTY, (y) by KOSAN (solely or jointly with LICENSEE), or (z) in a patent application owned solely by LICENSEE, in each case prior to the time the applicable compound is synthesized or acquired, or (iii) is synthesized or acquired by LICENSEE using KOSAN KNOW-HOW or KOSAN PATENT RIGHTS or any biological materials provided to LICENSEE by KOSAN or any progeny or derivative thereof, or (iv) is claimed or contained within a chemical genus, as defined in any issued VALID CLAIM within the PATENT RIGHTS, or in a VALID CLAIM within the PATENT RIGHTS of a pending application for such a patent which application is being prosecuted in good faith, and as to which one member of such chemical genus is within (i), (ii) or (iii) above. For purposes of determining whether a given composition is a DERIVATIVE, it is understood that a compound which meets one or more of the foregoing criteria and is discovered, identified, synthesized or acquired on or before the CUTOFF DATE, shall be included as a DERIVATIVE notwithstanding whether the composition was identified by LICENSEE as being active after the end of the RESEARCH PROGRAM. For purposes of this Section 1.14, the CUTOFF DATE shall mean: (i) if the RESEARCH PROGRAM continues for at least two (2) years, the date two (2) years after the end of the NON-EXCLUSIVE SCREENING PERIOD, (ii) if the EXCLUSIVE SCREENING PERIOD and the NON-EXCLUSIVE SCREENING PERIOD terminate pursuant to Section 19.1.3, the date two (2) years after the effective date of any such termination, and (iii) if the entire AGREEMENT terminates prior to the second anniversary of the EFFECTIVE DATE, the date two years after the effective date of any such termination. "DERIVATIVE" shall include any compound synthesized based on, or derived from, another DERIVATIVE, as described in subsections (i) through (iv) above. Notwithstanding the above, DERIVATIVE shall not include any compound which is conceived and synthesized by or on behalf of LICENSEE after the CUTOFF DATE, unless such compound is within the scope of a patent within the KOSAN PATENT RIGHTS or RWJPRI PATENT RIGHTS which (i) was issued as of the CUTOFF DATE, or (ii) issued from a patent application pending as of the CUTOFF DATE (or a division or continuation of such an application), and issued after such date. 1.15 "DESIGNATION NOTICE" shall have the meaning set forth in Section 3.5. 1.16 "DEVELOPMENT" shall mean all work involved in STAGES O, I, II, and III for a PRODUCT in any country or territory. 1.17 "DEVELOPMENT PLAN" shall mean the plan for DEVELOPMENT of a PRODUCT pursuant to Article 5. 1.18 "EFFECTIVE DATE" shall mean the date at the head of this AGREEMENT. 1.19 "EXCLUDED TECHNOLOGY" shall mean any intellectual property owned or controlled by KOSAN or its AFFILIATES relating to the creation, or generation of [**] or their genes, the practice of combinatorial biosynthesis or cell-free enzymatic synthesis to make [**] -4- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**]. It is understood that EXCLUDED TECHNOLOGY shall not include intellectual property necessary for RWJPRI to make chemical modifications of the [**] prepared by KOSAN or for RWJPRI to otherwise carry out its activities pursuant to the RESEARCH PLAN during the RESEARCH TERM, to conduct process development and strain selection research with cells provided to RWJPRI by KOSAN for the production of [**], to produce LICENSED PRODUCTS for DEVELOPMENT and commercialization purposes, and to characterize, evaluate and test such LICENSED PRODUCTS. 1.20 "EXCLUSIVE SCREENING PERIOD" shall mean the period commencing on the EFFECTIVE DATE and ending one (1) year after the end of the RESEARCH PROGRAM. 1.21 "FDA" shall mean the United States Food and Drug Administration. 1.22 "FIELD" shall mean the treatment of bacterial infections for all human and animal pharmaceutical applications. 1.23 "FINISHED PRODUCT" shall mean the finished pharmaceutical form, in any formulation, of a PRODUCT packaged for sale to a THIRD PARTY. 1.24 "FTE" shall mean a full time scientific person with appropriate academic credentials and training dedicated to the RESEARCH PROGRAM or in the case of less than a full-time dedicated scientific person, a full-time, equivalent scientific person year (based upon a total of fifty-two (52) weeks or two thousand eighty (2080) hours per year, with the foregoing including all working days and vacations, paid holidays, sick days, etc., consistent with KOSAN's normal business practices) of scientific work, on or directly related to the RESEARCH, carried out by such a person. Included are research scientists (Ph.D. or equivalent) and their associates (MS or BS). Excluded are project management personnel, administrative facilities support, general information and computer support, laboratory support and other internal or external support personnel involved in the RESEARCH PROGRAM. 1.25 "IND" shall mean an Investigational New Drug Application filed pursuant to the requirements of the FDA as more fully defined in 21 C.F.R. Section 312.3 or its equivalent in any MAJOR MARKET COUNTRY or in the European Economic Community. 1.26 "JDAC" shall mean the Joint Development Advisory Committee described in Section 5.1.1 below. 1.27 "JRC" shall mean the Joint Research Committee described in Section 2.3.1 below. 1.28 "KNOW-HOW" shall mean all information, not generally known to the public, including techniques and data, including but not limited to, screens, models, methods, assays, -5- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. inventions, discoveries, trade secrets, improvements, and technical information, together with all experience, data, formulas, procedures and results, and including all chemical, pharmacological, toxicological, clinical, analytical and quality control data, in each case, which is necessary or materially useful in the development, manufacturing or use of LICENSED COMPOUNDS or PRODUCTS. Notwithstanding the foregoing, KNOW-HOW shall not include any biological materials or the subject matter covered by any published patent or patent application. 1.29 "KOSAN KNOW-HOW" shall mean all KNOW-HOW which (i) KOSAN owns as of the EFFECTIVE DATE, and which relates to the FIELD, or (ii) is developed by KOSAN in performance of the RESEARCH PROGRAM during the RESEARCH TERM. It is understood and agreed that the KOSAN KNOW-HOW shall not include any EXCLUDED TECHNOLOGY. 1.30 "KOSAN PATENT RIGHTS" shall mean (i) the patents and patent applications identified in Exhibit C hereof, and in respect of such letters patent, and patent applications, all corresponding Patent Co-operation Treaty applications, European Patent Convention applications or applications under similar administrative international conventions and corresponding national patents and patent applications, together with any divisional, continuation, (but not a continuation-in-part except to the extent described in (ii) or (iii) below), substitution, reissue, extension, supplementary protection certificate or other application based thereon; and (ii) other patents or patent applications to the extent they disclose and claim inventions made by KOSAN in performance of the RESEARCH PROGRAM, and (iii) any other patents or patent applications containing one or more claims covering the manufacture, use or sale of a PRODUCT to the extent such patents or patent applications disclose and claim inventions made by KOSAN during the EXCLUSIVE SCREENING PERIOD, in each case, which is necessary or materially useful for the development, manufacture or use of LICENSED COMPOUNDS or PRODUCTS, and which KOSAN has rights to grant licenses to (e.g., have not been developed in the course of an exclusive collaboration with a THIRD PARTY or exclusively licensed to a THIRD PARTY). It is understood and agreed that the KOSAN PATENT RIGHTS shall not include any EXCLUDED TECHNOLOGY. 1.31 "LICENSED COMPOUND" shall mean a particular [**], as the case may be, with respect to which RWJPRI has provided a DESIGNATION NOTICE and acquired an exclusive license pursuant to Section 3.5. For purposes of this AGREEMENT, each CLOSE STRUCTURAL ANALOG of any such LICENSED COMPOUND shall also be deemed to be a LICENSED COMPOUND. 1.32 "MACROLIDE(S)" shall mean [**], in each case, which are actually -6- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. utilized in connection with the RESEARCH PROGRAM that (i) exist in KOSAN's proprietary compound library as of the EFFECTIVE DATE; or (ii) are synthesized or acquired by or on behalf of KOSAN or LICENSEE in connection with the RESEARCH PROGRAM. 1.33 "MAJOR MARKET COUNTRY" shall mean each of the United States, United Kingdom, Germany, France, Italy, Spain or Japan. 1.34 "MARKETING AUTHORIZATION" shall mean all allowances and approvals (including pricing and reimbursement approvals) granted by the appropriate federal, state and local regulatory agencies, departments, bureaus or other governmental entities within a country necessary to market and SELL PRODUCT. 1.35 "MOTILIDE ACTIVITY" shall mean [**]. 1.36 "NCE" shall mean a MACROLIDE which has ANTIBIOTIC ACTIVITY in accordance with criteria set forth in the RESEARCH PLAN. 1.37 "NDA" shall mean a New Drug Application and any supplements filed pursuant to the requirements of the FDA, including all documents, data and other information concerning the PRODUCT which are necessary for or included in, FDA approval to market such PRODUCT as more fully defined in 21 C.F.R. section 314.50 ET SEQ., as well as equivalent submissions to the appropriate health authorities in other countries. 1.38 "NET SALES" shall mean the revenue billed by ORTHO or an AFFILIATE or SUBLICENSEE from the sale of PRODUCTS to independent THIRD PARTIES, less the following amounts: (i) discounts, including cash discounts, or rebates, including rebates to governmental agencies such as Medicaid rebates and the like, actually allowed or granted, (ii) credits or allowances actually granted upon claims or returns regardless of the party requesting the return, (iii) freight charges paid for delivery, (iv) taxes or other governmental charges levied on or measured by the billed amount, when included in billing, as adjusted for rebates and refunds, and (v) provisions for uncollectible amounts determined in accordance with U.S. Generally Accepted Accounting Practices, consistently applied to all products of the selling party. A "sale" shall include any transfer or other disposition for consideration, and NET SALES shall include the fair market value of all other consideration received by LICENSEE or its AFFILIATES or SUBLICENSEES in respect of any grant of rights to make, use, sell or otherwise distribute PRODUCTS, whether such consideration is in cash, payment in kind, exchange or another form. In the case of discounts on "bundles" of products or services which include PRODUCTS, ORTHO may with notice to KOSAN calculate NET SALES by discounting the bona fide list -7- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. price of a PRODUCT by the average percentage discount of all products of ORTHO and/or its AFFILIATES or SUBLICENSEES in a particular "bundle", calculated as follows: Average percentage discount on a = (1 - A/B) x 100 particular "bundle" where A equals the total discounted price of a particular "bundle" of products, and B equals the sum of the undiscounted bona fide list prices of each unit of every product in such "bundle." ORTHO shall provide KOSAN documentation, reasonably acceptable to KOSAN, establishing such average discount with respect to each "bundle." If ORTHO cannot so establish the average discount of a "bundle", NET SALES shall be based on the undiscounted list price of the PRODUCT in the "bundle." If a PRODUCT in a "bundle" is not sold separately and no bona fide list price exists for such PRODUCT, the parties shall negotiate in good faith an imputed list price for such PRODUCT, and NET SALES with respect thereto shall be based on such imputed list price. In the event that PRODUCTS are sold in the form of combination products containing one or more active ingredients other than the PRODUCT, NET SALES for such combination products will be calculated by multiplying actual NET SALES of such combination products by the fraction A/(A+B) where A is the invoice price of the PRODUCT if sold separately, and B is the total invoice price of any other active component or components in the combination, if sold separately by LICENSEE or an AFFILIATE OR SUBLICENSEE. If on a country-by-country basis the other active component or components in the combination are not sold separately in said country by the LICENSEE or an AFFILIATE or SUBLICENSEE, NET SALES, for the purpose of determining royalties on the combination products shall be calculated by multiplying actual NET SALES of such combination products by the fraction A/C where A is the invoice price of the PRODUCT if sold separately and C is the invoice price of the combination product. If on a country-by-country basis neither the PRODUCT nor the combination product is sold separately in said country by the LICENSEE or an AFFILIATE or SUBLICENSEE, NET SALES for purposes of determining royalties on the combination products shall be reasonably allocated between the LICENSED PRODUCT and the other active components based on their relative value as determined by the parties in good faith. 1.39 "NON-EXCLUSIVE SCREENING PERIOD" shall mean the period commencing on the EFFECTIVE DATE and continuing until three (3) years after the end of the EXCLUSIVE SCREENING PERIOD. -8- 1.40 "PATENT RIGHTS" shall mean all United States and foreign patents (including all reissues, extensions, substitutions, confirmations, re-registrations, re-examinations, revalidations and patents of addition) and patent applications (including, without limitation, all continuations, continuations-in-part and divisions thereof) in each case, claiming an invention which is necessary or useful for the design, development, testing, use, manufacture or sale of LICENSED COMPOUNDS or PRODUCTS. 1.41 "PHASE I", "PHASE II", and "PHASE III" shall mean Phase I (or Phase I/II), Phase II, and Phase III clinical trials, respectively, in each case as prescribed by the regulations of the applicable government agency or other regulatory entity. 1.42 "PRODUCT" shall mean any pharmaceutical product containing a LICENSED COMPOUND or a DERIVATIVE thereof which is selected for DEVELOPMENT and/or marketing by LICENSEE or its AFFILIATES or SUBLICENSEES. 1.43 "PROJECT" shall mean each of the Fast Track Project and the SAR Project. 1.44 "RESEARCH FUNDING" shall mean the funding to be paid by RWJPRI to KOSAN for the conduct of the RESEARCH PROGRAM. 1.45 "RESEARCH PLAN" shall have the meaning described in Section 2.2 hereof and shall be attached as Exhibit A. 1.46 "RESEARCH PROGRAM" shall mean all research and development performed in the course of performing the PROJECTS pursuant to the RESEARCH PLAN during the RESEARCH TERM. 1.47 "RESEARCH TERM" shall mean the period set forth in Section 2.5 hereunder, unless this AGREEMENT or the RESEARCH TERM is earlier terminated under Article 19 below. 1.48 "RESERVED COMPOUND" shall mean a [**] that is designated by RWJPRI pursuant to Section 3.5.6 below. 1.49 "RWJPRI KNOW-HOW" shall mean such KNOW-HOW which RWJPRI or ORTHO or its AFFILIATE discloses to KOSAN under this AGREEMENT. 1.50 "RWJPRI PATENT RIGHTS" shall mean any patents and patent applications, including all corresponding Patent Co-operation Treaty applications, European Patent Convention applications or applications under similar administrative international conventions, and corresponding national patents and patent applications, together with any divisional, continuation, continuation-in-part, substitution, reissue, extension, supplementary protection -9- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. certificate or other application based thereon, owned or controlled by LICENSEE or its AFFILIATES, and to which LICENSEE or its AFFILIATES has the ability to grant a license or sublicense to without violating the terms of any agreement with any THIRD PARTY. 1.51 "SELLER" shall mean one who SELLS. 1.52 "SOLD," "SALE," "SALES," "SELL," "SELLING" and "SELLS" shall refer to the act of selling or disposing of for value. 1.53 "STAGE O" shall mean that portion of the DEVELOPMENT program which starts with the selection of a LICENSED COMPOUND for development into a PRODUCT under Article 5 hereunder and which generally provides for toxicological and pharmacological studies as well as drug substance and drug product formulation and manufacturing development necessary to obtain the permission of regulatory authorities to begin and continue human clinical testing. 1.54 "STAGE I" shall mean that portion of the DEVELOPMENT program which provides for the first introduction into humans of a PRODUCT with the purpose of determining safety, metabolism, absorption, elimination and other pharmacological action in humans as well as additional development work on animal toxicity, metabolism, drug substance and drug product formulation and manufacturing development to ensure continuation of human clinical testing. 1.55 "STAGE II" shall mean that portion of the DEVELOPMENT PROGRAM which provides for the initial trials of PRODUCT on a limited number of patients for the purposes of determining dose and evaluating safety and preliminary efficacy data in the proposed therapeutic indication as well as additional development work on animal toxicity, metabolism, drug substance and drug product formulation and manufacturing development to ensure continuation of human clinical testing. 1.56 "STAGE III" shall mean that portion of the DEVELOPMENT PROGRAM which provides for continued trials of PRODUCT on sufficient numbers of patients to establish the safety and efficacy of a PRODUCT to support MARKETING AUTHORIZATION in the proposed indication. In addition, all other development work on animal toxicity, metabolism, drug substance and drug product formulation and manufacturing development will be finalized in STAGE III. 1.57 "STANFORD LICENSE" shall mean that certain License Agreement effective as of March 11, 1996, as amended March 31, 1996, entered by and between KOSAN and the Board of Trustees of Leland Stanford Jr. University. -10- 1.58 "SUBLICENSEE" shall mean, with respect to a particular PRODUCT, a THIRD PARTY to whom LICENSEE has granted a licensee or sublicense to make and sell such PRODUCT. As used in this AGREEMENT, "SUBLICENSEE" shall also include a THIRD PARTY to whom LICENSEE has granted the right to distribute such PRODUCT, provided that such THIRD PARTY is responsible for marketing or promoting such PRODUCTS within the applicable territory. 1.59 "THIRD PARTY" shall mean any party other than KOSAN or LICENSEE or AFFILIATES of either of them. 1.60 "USE," "USES" and "USED" shall refer to the act of using for any commercial purposes whatsoever. 1.61 "VALID CLAIM" shall mean a claim of an issued, unexpired patent, or a claim being prosecuted in a pending patent application, in each case, which is within the PATENT RIGHTS. A claim of an issued, unexpired patent shall be presumed to be valid unless and until it has been held to be invalid by a final judgement of a court of competent jurisdiction from which no appeal can be or is taken. For the purposes of royalty determination and payment under Article 6 hereof, any claim being prosecuted in a pending patent application for a period of up to five (5) years from the filing date of such application shall be deemed to a VALID CLAIM, provided, that each claim in such an application shall again become a VALID CLAIM when and if a patent issues thereon. ARTICLE 2 -- RESEARCH 2.1 RESEARCH PROGRAM. Subject to the terms and conditions herein, KOSAN hereby agrees to conduct the RESEARCH PROGRAM in collaboration with RWJPRI with a goal of discovering, identifying and synthesizing LICENSED COMPOUNDS for DEVELOPMENT by RWJPRI into one or more PRODUCTS for commercialization by ORTHO, an AFFILIATE or SUBLICENSEE. 2.2 RESEARCH PLAN. The RESEARCH PROGRAM shall be conducted in accordance with the overall RESEARCH PLAN attached hereto as Exhibit A, as may be amended from time to time with the agreement of the parties. 2.3 MANAGEMENT. 2.3.1 JRC. The parties shall establish a Joint Research Committee ("JRC") within thirty (30) days of the EFFECTIVE DATE to administer the RESEARCH PROGRAM. Each party shall present one consolidated view and have one vote on any issue. All decisions of the JRC must be unanimous. -11- 2.3.2 MEMBERSHIP. The JRC shall include three (3) representatives of each of LICENSEE and KOSAN, each Party's members selected by that party. KOSAN and LICENSEE may each replace its JRC representatives at any time, upon written notice to the other party. From time to time, the JRC may establish subcommittees, to oversee particular projects or activities, and such subcommittees will be constituted as the JRC agrees. 2.3.3 MEETINGS; MINUTES. During the EXCLUSIVE SCREENING PERIOD, the JRC shall meet at least quarterly, or more frequently as agreed by the parties, at such locations as the parties agree, and will otherwise communicate regularly by telephone, electronic mail, facsimile and/or video conference. With the consent of the parties, other representatives of KOSAN or LICENSEE may attend JRC meetings as nonvoting observers. Each party shall be responsible for all of its own expenses associated with attendance of such meetings. The first meeting of the JRC shall occur within forty-five (45) days after the EFFECTIVE DATE. The JRC shall prepare written minutes of each JRC meeting and a written record of all JRC decisions, whether made at a JRC meeting or otherwise. A written record shall be provided to each party by the presenting party of all materials presented at meetings of the JRC. 2.3.4 FUNCTIONS OF THE JRC. The JRC shall be responsible for managing the RESEARCH PROGRAM. In carrying out this function, the JRC will: (i) oversee directed research activities to be undertaken under the RESEARCH PROGRAM in accordance with the RESEARCH PLAN, which will specify the details by which the parties will conduct the Research; (ii) review progress of the RESEARCH PROGRAM, revise the RESEARCH PLAN as it deems appropriate, set priorities for research activities, review results achieved, and provide general guidance to assist the overall program in meeting its objective of fostering successful identification of LICENSED COMPOUNDS for DEVELOPMENT by RWJPRI; (iii) advise RWJPRI regarding the selection of LICENSED COMPOUNDS for full DEVELOPMENT under Article 5; (iv) attempt to settle disputes or disagreements between the parties regarding the performance of the RESEARCH PROGRAM hereunder; (v) approve any material agreements with THIRD PARTIES to be made by KOSAN related to performance of the RESEARCH PROGRAM under this AGREEMENT; and (vi) perform such other functions as are appropriate to further the purposes of this AGREEMENT as determined by the parties. -12- 2.3.5 DISPUTE RESOLUTION. If the JRC fails to reach unanimous agreement on any issue being considered by the JRC, and which after a reasonable amount of discussion between the JRC representatives of RWJPRI and KOSAN cannot be resolved, the issue will be referred to the Chief Executive Officer of KOSAN and the Vice President, Drug Discovery, RWJPRI, for resolution. If there is no resolution of the issue at that level, and the issue pertains to the RESEARCH PLAN, the status quo as reflected in the last previous approved RESEARCH PLAN shall remain in effect. If the issue pertains to making a Go/No-GO DECISION for a given PROJECT, RWJPRI shall make the final determination. 2.3.6 INFORMATION AND ACCESS. KOSAN and RWJPRI shall provide the JRC, its members and authorized representatives with reasonable access during regular business hours to all records and documents relating to the performance of this AGREEMENT which it reasonably may request in order to perform its obligations hereunder; provided that if such documents are under a bona fide obligation of confidentiality to a THIRD PARTY, KOSAN or RWJPRI, as the case may be, may withhold access thereto to the extent necessary to satisfy such obligation. 2.4 RESPONSIBILITIES. 2.4.1 REASONABLE EFFORTS. RWJPRI and KOSAN shall each use reasonable efforts to conduct the RESEARCH PROGRAM in a professional manner in accordance with the applicable RESEARCH PLAN within the time schedules contemplated therein. 2.4.2 RESOURCES. Each party agrees to commit the personnel, facilities, expertise and other resources necessary to perform its obligations under the RESEARCH PLAN; provided, however, that neither party warrants that the RESEARCH PROGRAM shall achieve any of the research objectives contemplated by them. 2.4.3 KOSAN RESEARCH EFFORTS. KOSAN agrees to commit to the RESEARCH PROGRAM such efforts as are specified in the RESEARCH PLAN, to maintain and utilize the scientific staff, laboratories, offices and other facilities consistent with such undertaking, and to reasonably cooperate with RWJPRI in the conduct of the RESEARCH PROGRAM. KOSAN agrees that, on average for each twelve (12) month period during the RESEARCH TERM, KOSAN shall dedicate FTEs to each phase of each PROJECT and the RESEARCH PROGRAM as specified the RESEARCH PLAN. 2.4.4 SUBCONTRACTORS. KOSAN may have work performed by THIRD PARTY collaborators as provided in the RESEARCH PLAN or otherwise approved by the JRC. 2.4.5 INFORMATION AND REPORTS. (a) DISCLOSURES. -13- (i) Each party will make available and use all reasonable efforts to disclose to the other party the information necessary to conduct the other party's responsibilities under the RESEARCH PLAN and all KNOW-HOW relating to (a) [**] which are RESERVED COMPOUNDS, and (b) all [**] that are designated as LICENSED COMPOUNDS, and (c) the activity of such [**], including information regarding compounds synthesized or discovered, initial leads, activities of leads, derivatives, results of IN VITRO and IN VIVO studies, assay techniques and new assays. Significant discoveries or advances shall be communicated as soon as practical after such KNOW-HOW is obtained or its significance is appreciated. (ii) Subject to its obligations to THIRD PARTIES, KOSAN will make available and use all reasonable efforts to disclose to RWJPRI KNOW-HOW necessary for RWJPRI to make chemical modifications of the MACROLIDE scaffolds provided by KOSAN to RWJPRI in accordance with the RESEARCH PLAN, to conduct process development and strain selection research with respect to LICENSED COMPOUNDS, to make PRODUCTS for DEVELOPMENT and commercialization purposes, to characterize, evaluate and test such PRODUCTS and to otherwise carry out its activities pursuant to the RESEARCH PLAN and DEVELOPMENT PLAN. (iii) RWJPRI will make available and use all reasonable efforts to disclose to KOSAN such RWJPRI KNOW-HOW necessary or materially useful in evaluating [**] and DERIVATIVES of the preceding. (b) REPORTS. The JRC shall periodically and not less often than semiannually during the RESEARCH TERM, request and the parties shall have the obligation to prepare and provide to the JRC, written reports summarizing the progress of the research performed by or sponsored by the parties pursuant to the RESEARCH PLAN during the preceding half-year. In addition, the parties will exchange at least quarterly verbal or written reports presenting a meaningful summary of their activities performed in connection with the RESEARCH PROGRAM. (c) PROJECT COORDINATOR. Each party shall designate a single project coordinator whose duties shall be to oversee matters arising under the provisions of this AGREEMENT and to facilitate the communication of research results. Such project coordinator shall be responsible for day-to-day worldwide coordination of the RESEARCH PROGRAM and will serve to facilitate communication between the parties relating to the RESEARCH PROGRAM. Each party may change its designated project coordinator upon notice to the other party. (d) RECORDS. Personnel working on the RESEARCH PROGRAM shall use all reasonable efforts to make accurate laboratory notebook records of the RESEARCH -14- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PROGRAM in a manner suitable for use in United States patent prosecution and litigation. Each party shall be permitted to review such laboratory notebooks and records at any reasonable time and to obtain copies thereof for further review by the other party. Each party shall make reasonable effort to safeguard such notes and records against theft and loss by fire, flood or other damage. (e) ASSIGNMENT AGREEMENTS. To the extent permitted by applicable law, KOSAN shall require all persons, agents, contractors, and consultants employed or retained by KOSAN to work on the RESEARCH PROGRAM, prior to beginning such employment, to be bound in writing to (i) assign to KOSAN all rights, title and interest in and to any ideas, discoveries, improvements, inventions, KNOW-HOW, patents, patent applications, and the like which were made or conceived in performing the RESEARCH PROGRAM, and to sign all documents and give lawful assistance necessary for filing, and defending patents, and patent applications in all countries, whether such filing is by KOSAN, or designees or assignees thereof, and (ii) to be bound in writing to provisions of confidentiality substantially similar to those of Article 9 hereof. 2.5 RESEARCH TERM. The RESEARCH PROGRAM shall commence on the EFFECTIVE DATE and continue for two (2) years thereafter (such period and any extension thereof referred to as the "RESEARCH TERM"). The RESEARCH TERM may be extended as follows: (i) the RESEARCH TERM shall automatically be emended to include any CONTINGENT WORK undertaken by the parties pursuant to Section 2.6.4; (ii) RWJPRI shall have the one-time option, exercisable by written notice to KOSAN not later than ninety (90) days prior to the expiration of the then-current RESEARCH TERM, to extend the RESEARCH TERM for one additional period of up to six (6) months at the level of funding and FTE rate applicable to the preceding six (6) month period, unless otherwise agreed by the JRC; and (iii) the RESEARCH PROGRAM may be extended by mutual written agreement of KOSAN and LICENSEE. 2.6 GO/NO-GO DECISIONS. 2.6.1 RESEARCH FUNDING. At each DECISION POINT for each PROJECT, RWJPRI shall have the right to elect whether to proceed with the CONTINGENT WORK for such PROJECT consequent to such DECISION POINT. It is understood and agreed that RWJPRI must provide RESEARCH FUNDING as set forth in the RESEARCH PLAN until at least the second anniversary of the EFFECTIVE DATE subject to the provisions of Article 19. RWJPRI shall provide RESEARCH FUNDING (i) for the Fast Track PROJECT, until the earlier of (a) identification of a [**] as an NCE in the Fast Track PROJECT ("N1" in Exhibit A) or (b) twelve (12) months from the EFFECTIVE DATE, and (ii) for the SAR PROJECT, until the earlier of (x) identification of [**] as NCEs in the SAR PROJECT ("N2" and "N3" in Exhibit A) or (y) twenty-four (24) months from the EFFECTIVE DATE. -15- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2.6.2 DECISION POINTS. The DECISION POINTS for the PROJECTS will be as follows:
PROJECT DECISION EVENTS DECISION TIME ------- --------------- ------------- Fast Track Identification of a [**] 15 months from the as an NCE ("N1" in EFFECTIVE DATE Exhibit A) SAR Identification of a [**] 24 months from the as an NCE ("N2" in EFFECTIVE DATE for "N2" Exhibit A) Identification of [**] 36 months from the as an NCE ("N3" in EFFECTIVE DATE for N3 Exhibit A)
A DECISION POINT for a PROJECT shall occur upon the earlier of (i) the occurrence of the applicable Decision Event, or (ii) the applicable Decision Time; provided, at any time RWJPRI with notice to KOSAN may elect to proceed with the CONTINGENT WORK for either PROJECT, and in such case such election shall be deemed a GO DECISION, subject to Sections 2.6.4 and 2.7.4. Upon reaching a DECISION POINT, RWJPRI shall notify KOSAN whether RWJPRI wishes to proceed with the applicable CONTINGENT WORK. 2.6.3 EXTENSION OF DECISION POINTS. RWJPRI shall have the right to extend the DECISION POINT of the Fast Track PROJECT for [**]and/or the SAR PROJECT for [**], in each case, with at least [**] advance notice to KOSAN. In any such event, RWJPRI agrees to fund the applicable PROJECT during the extension period at the FTE level required under the RESEARCH PLAN for the [**] period preceding the applicable DECISION POINT, and any such extension shall constitute an extension of the RESEARCH TERM subject to Section 2.5. The parties may, but shall have no obligation to, agree on additional extensions of the DECISION POINT(S) for each or both PROJECTS. 2.6.4 CONSEQUENCE OF A GO DECISION. In the event that a GO DECISION is made with respect to a particular PROJECT, the parties shall immediately commence the CONTINGENT WORK with respect to such PROJECT, and RWJPRI shall fund the CONTINGENT FTEs therefore for the periods set forth in the RESEARCH PLAN. In the event of a GO DECISION in the Fast Track PROJECT, then RWJPRI will provide further RESEARCH FUNDING for the Fast Track PROJECT for an [**]. In the event of a GO DECISION with respect to the first NCE ("N2") and/or second NCE ("N3") in the SAR PROJECT, then RWJPRI will provide further RESEARCH FUNDING for the SAR PROJECT for an [**] period for each NCE with respect to which there has been a GO DECISION. -16- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2.6.5 CONSEQUENCE OF A NO-GO DECISION. In the event that a NO-GO DECISION is made with respect to a particular PROJECT at a DECISION POINT for that PROJECT, that PROJECT shall terminate and cease to be part of the RESEARCH PROGRAM. In the event of termination of both research PROJECTS, LICENSEE's rights and license to the [**] made in such PROJECTS, and the corresponding intellectual property rights shall terminate concurrently, subject to RWJPRI's non-exclusive right pursuant to Section 3.2.1 to continue screening the [**] other than [**]. In any such event, at KOSAN's request, RWJPRI shall grant to KOSAN an exclusive, worldwide, royalty-free license to RWJPRI's interest in any RWJPRI KNOW-HOW and RWJPRI PATENT RIGHTS to make, use and sell the [**] thereof conceived or reduced to practice in connection with such PROJECTS. Notwithstanding the foregoing, RWJPRI shall retain ownership of the RWJPRI PATENT RIGHTS and RWJPRI KNOW-HOW, and the right to practice the RWJPRI KNOW-HOW and RWJPRI PATENT RIGHTS to conduct internal research, and, subject to its obligations under this AGREEMENT, to make, use and sell compounds (other than the [**] that were conceived or reduced to practice in connection with the terminated PROJECTS, or their DERIVATIVES). 2.6.6 PROJECT MANAGEMENT. Each PROJECT shall be managed by the parties independently of the other PROJECT. DECISIONS impacting the continuation of any individual PROJECT (e.g., Go/No-GO DECISIONS with respect any given PROJECT) will not affect the continuation of the other PROJECT. So long as any one of the PROJECTS is on-going, the RESEARCH PROGRAM shall be deemed to be in effect. 2.7 RESEARCH PROGRAM FUNDING. 2.7.1 FTE FUNDING. For the conduct of the RESEARCH PROGRAM by KOSAN, RWJPRI shall pay KOSAN RESEARCH FUNDING on an annualized FTE basis (FTE-years). FTE positions will be paid at an annual rate of $[**] per FTE during the [**] CONTRACT YEARS of the RESEARCH PROGRAM, and thereafter shall be revised annually to reflect increases in the CPI, using 1998 as the base year, according to the following formula: [**] Where CPI is a fraction, the numerator of which is the difference between the Consumer Price Index (All Urban Consumers, U.S. City Average for All Items, with 1982-84 = 100) as of the last month of the research year immediately preceding the research year to be adjusted and the Consumer Price Index as of the last month before the EFFECTIVE DATE, and the denominator of which is the Consumer Price Index as of the last month before the EFFECTIVE DATE. -17- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2.7.2 TIMING OF PAYMENTS. Research funding shall be paid in four (4) equal quarterly installments during each Calendar Year, payable in advance on or about January 1, April 1, July 1, and October 1; provided that the first quarterly payment for the first CONTRACT YEAR shall be due ten (10) days after the EFFECTIVE DATE. Any payment for a portion of a quarter shall be made on a pro rata basis. 2.7.3 USE OF RESEARCH FUNDS. All funds provided by RWJPRI under this Section 2.7 shall be used by KOSAN in the conduct of the RESEARCH PROGRAM, except as expressly provided in Section 2.7.4. Subject to the approval of the JRC and minimum FTE commitments for each PROJECT set forth in the RESEARCH PLAN, RWJPRI-funded KOSAN FTE's may be used in either of the PROJECTS. RWJPRI shall be under no obligation to provide FTE support to KOSAN beyond the levels stated above except at RWJPRI's sole discretion. KOSAN shall have no obligation to expend any amount on the RESEARCH PROGRAM except the amounts paid by RWJPRI. 2.7.4 EARLY SUCCESS. In the event that an NCE is designated in the Fast Track Project and/or both NCEs are designated in the SAR Project, or RWJPRI elects to initiate the CONTINGENT WORK for either PROJECT prior to the applicable DECISION POINT, then within [**] RWJPRI shall pay to KOSAN any remaining FTE support allocated in the RESEARCH PLAN for such PROJECT for research which was to be conducted prior to the commencement of the applicable CONTINGENT WORK for the applicable PROJECT. KOSAN may, but shall have no obligation to, expend such amounts on the RESEARCH PROGRAM. 2.7.5 SUPPLIES AND EQUIPMENT. The purchase of any item including, but not limited to, equipment, materials and cell lines reasonably required by KOSAN to carry out the RESEARCH PROGRAM shall be paid for by KOSAN and shall be owned by KOSAN. KOSAN may, but shall not be required to, purchase items including, but not limited to, equipment, materials and cell lines that would be useful, but are not required by KOSAN to carry out the RESEARCH PROGRAM, and any such items shall be owned by KOSAN. With the approval of the JRC, such items may be purchased with RESEARCH FUNDING. RWJPRI shall inform KOSAN if it has equipment available which it believes would be useful for the conduct of the RESEARCH PROGRAM, and discuss with KOSAN the possible use of such equipment by KOSAN for such purpose. 2.7.6 THIRD PARTY LICENSES. In the event that KOSAN or LICENSEE becomes aware that it is necessary for KOSAN to acquire a license from any THIRD PARTY specifically for the conduct of the RESEARCH PROGRAM, such party shall inform the JRC, and the JRC shall discuss which party will be responsible for acquiring such license and how the costs of negotiating and preparing such license, as well as any payments thereunder, shall be allocated. Notwithstanding the above, it is understood that KOSAN shall be responsible for [**] due (i) under the STANFORD LICENSE, and (ii) to any THIRD PARTY for intellectual -18- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. property rights which are necessary for the practice by KOSAN of the KOSAN PATENT RIGHTS existing as of the EFFECTIVE DATE for the creation or preparation of [**], and which are within the scope of an issued patent or published patent application owned by a THIRD PARTY as of the EFFECTIVE DATE. 2.8 AUDIT. KOSAN will maintain complete and accurate records which are relevant to its expenditure of Research funding provided to it by RWJPRI pursuant to Section 2.7 hereof. Such records shall be open during regular business hours for a period of [**] from creation of individual records for examination at RWJPRI's expense for the sole purpose of verifying that KOSAN has devoted to the RESEARCH PROGRAM the FTE's required by Section 2.4.3 above; provided however, that such right may not be exercised more than once in any calendar year. RWJPRI shall be entitled to a credit against future research payments or a refund in the event such audit reveals that the proper FTE's were not allocated in accordance with Section 2.4.3 above. ARTICLE 3 -- SCREENING BY LICENSEE 3.1 EXCLUSIVE SCREENING. 3.1.1 ANTIBIOTIC ACTIVITY. During the EXCLUSIVE SCREENING PERIOD, RWJPRI shall have the exclusive right to screen [**] provided by KOSAN for ANTIBIOTIC ACTIVITY in accordance with the RESEARCH PLAN. Until the termination of the EXCLUSIVE SCREENING PERIOD, KOSAN agrees that during the EXCLUSIVE SCREENING PERIOD (i) it shall not grant a THIRD PARTY the right to screen or develop the [**], and (ii) except in connection with the RESEARCH PROGRAM, shall not itself screen or develop the [**]. Following the expiration of the EXCLUSIVE SCREENING PERIOD, KOSAN may screen and/or develop and allow others to screen the [**]; provided, that so long as LICENSEE retains rights hereunder to a particular LICENSED COMPOUND, KOSAN shall not grant any THIRD PARTY a license to such LICENSED COMPOUND or its CLOSE STRUCTURAL ANALOGS and, if reasonably feasible, will not provide such compounds to THIRD PARTIES for screening. 3.1.2 OTHER ACTIVITIES. On a [**] basis, KOSAN shall not (i) allow THIRD PARTIES to screen [**] provided to RWJPRI hereunder, or (ii) itself screen such [**] until [**] following the date that KOSAN delivers the applicable [**] to RWJPRI. -19- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 3.2 NON-EXCLUSIVE SCREENING. 3.2.1 MACROLIDES. During the NON-EXCLUSIVE SCREENING PERIOD, RWJPRI and its AFFILIATES shall have the non-exclusive right to screen the [**] in any biological test system for any therapeutic indication; provided, however, RWJPRI may not screen the [**] until the [**] of the EFFECTIVE DATE and then only subject to the following conditions. If LICENSEE wishes to screen the [**], it shall provide KOSAN notice thereof by the [**] of the EFFECTIVE DATE, and by [**] KOSAN shall notify LICENSEE whether it has entered into an exclusive agreement with a THIRD PARTY for screening for such activities, or initiated research and development in such regard to such activities on its own behalf. If KOSAN has not entered into an exclusive agreement with a THIRD PARTY for screening for the relevant activity, or initiated research and development tin such regard to such activity on its own behalf as evidenced by prior written records, then RWJPRI may screen the [**], as the case may be, on a non-exclusive basis during the NON-EXCLUSIVE SCREENING PERIOD. To notify RWJPRI of targets relating to [**], KOSAN may periodically provide LICENSEE notice of any targets which are reported in the scientific literature to be involved in inflammation. 3.2.2 AROMATIC POLYKETIDES. During the NON-EXCLUSIVE SCREENING PERIOD, RWJPRI shall have a non-exclusive right to screen the [**] for any biological activity in any biological test system for any therapeutic indication. 3.3 DELIVERY OF EXTRACTS AND CELLS. 3.3.1 MACROLIDES. (a) During the EXCLUSIVE SCREENING PERIOD, KOSAN will deliver to RWJPRI agreed quantities of [**] sufficient to conduct IN VITRO screening for [**], as specified in the RESEARCH PLAN. (b) During the NON-EXCLUSIVE SCREENING PERIOD, at RWJPRI's request, KOSAN (or its designee) shall provide RWJPRI with agreed quantities of extracts of [**]. For expenses incurred by KOSAN in preparing such [**], RWJPRI shall pay to KOSAN a reasonable rate to be agreed to by the parties, provided, however, if the parties are unable to agree on such payments, KOSAN shall have no obligation to provide any such extracts or cells producing such [**] to RWJPRI. -20- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 3.3.2 [**]. During the NON-EXCLUSIVE SCREENING PERIOD, at RWJPRI's request, KOSAN (or its designee) shall provide RWJPRI with agreed quantities of extracts of such [**]. For expenses incurred by KOSAN in preparing such [**], RWJPRI shall pay to KOSAN an amount to be agreed upon by the parties; provided, however, if the parties are unable to agree on such payments, KOSAN shall have no obligation to provide such extracts or cells producing such [**] to RWJPRI. KOSAN shall provide to RWJPRI, without charge, a set of plates containing the [**] which KOSAN has in stock as of the EFFECTIVE DATE. Exhibit B describes the estimated numbers and concentrations of the [**] in stock as of the EFFECTIVE DATE. It is understood that Exhibit B is provided for general identification of the [**] KOSAN has in stock as of the EFFECTIVE DATE, and that KOSAN makes no representations or warranties regarding the accuracy of the information contained in Exhibit B concerning [**]. 3.3.3 NO TRANSFER; LIMITED USE. Except as expressly provided herein, RWJPRI shall not (i) transfer any of the [**] supplied to LICENSEE to any THIRD PARTY other than an AFFILIATE without the express prior written consent of KOSAN, or (ii) use or permit any other person or entity to use any of the [**] supplied to LICENSEE for any purpose other than for screening or development and/or commercialization as expressly permitted in this AGREEMENT. 3.4 SCREENING RESULTS. LICENSEE shall provide KOSAN with written quarterly summary reports within thirty (30) days of the end of each calendar quarter with respect to RWJPRI's non-exclusive screening activities, identifying all assays in which any of the [**]demonstrated activity and the level of such activity for the [**], all assays in which the [**] did not demonstrate activity, and a summary of all other results of RWJPRI's non-exclusive screening activities. 3.5 DESIGNATION OF RESERVED COMPOUNDS AND LICENSED COMPOUNDS. 3.5.1 DESIGNATION NOTICE. (a) MACROLIDES. Until the end of the NON-EXCLUSIVE SCREENING PERIOD, RWJPRI may notify KOSAN with notice ("DESIGNATION NOTICE") that RWJPRI wishes to designate [**] as LICENSED COMPOUNDS by notice to KOSAN identifying the [**] and the activity thereof. It is understood that designation of a LICENSED COMPOUND shall be in RWJPRI's sole discretion. Further, all decisions concerning the selection of a LICENSED COMPOUND for DEVELOPMENT shall be in RWJPRI's sole discretion. -21- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (b) [**]. During the NON-EXCLUSIVE SCREENING PERIOD, RWJPRI may notify KOSAN that RWJPRI wishes to designate one or more [**] as LICENSED COMPOUNDS by notice to KOSAN ("DESIGNATION NOTICE") identifying the [**] and the activity thereof. 3.5.2 LICENSED COMPOUND STATUS. Within thirty (30) days following receipt of any DESIGNATION NOTICE from LICENSEE pursuant to Section 3.5.1 above, KOSAN shall notify LICENSEE if KOSAN has granted a THIRD PARTY any rights or a license with respect to the same [**] before KOSAN's receipt of such DESIGNATION NOTICE; provided, KOSAN shall have no obligation to disclose to LICENSEE the identity of the THIRD PARTY, the structure of such compound or the activity(s) with respect to which such THIRD PARTY identified such activity. Unless KOSAN has previously granted a THIRD PARTY rights to such a [**], or elected to develop such [**] itself, in each case, as shown by prior written records, upon KOSAN's receipt of DESIGNATION NOTICE from RWJPRI, such [**] shall be deemed to be a LICENSED COMPOUND for all purposes of this AGREEMENT. 3.5.3 NCE STATUS. It is understood and agreed that each [**] designated by LICENSEE in a DESIGNATION NOTICE which becomes a LICENSED COMPOUND shall be deemed to be an NCE for the purposes of Section 6.2.1 hereunder. It is further understood and agreed that a [**] which meets the criteria for an NCE shall be deemed to be an NCE for the purposes of Section 6.2.1 hereunder without any further affirmative action on the part of KOSAN or LICENSEE. 3.5.4 NOTICE TO THIRD PARTIES. Once a [**] has become a LICENSED COMPOUND pursuant to Section 3.5.2 above, KOSAN shall notify any THIRD PARTIES who attempt to subsequently designate or claim rights to such LICENSED COMPOUND of the existence of LICENSEE's prior claim with respect to such compound without disclosing LICENSEE's identity, the structure of such compound (unless earlier disclosed) or the activity(s) with respect to which LICENSEE has identified such activity. LICENSEE hereby consents to such notice. KOSAN shall promptly inform LICENSEE of such THIRD PARTY'S designation or claim; provided KOSAN shall have no obligation to disclose to LICENSEE the identity of such THIRD PARTY or the activity(s) with respect to which such THIRD PARTY identified such activity. If the THIRD PARTY desires to negotiate with LICENSEE, KOSAN shall transmit notice of such intent (including the THIRD PARTY'S identity) to LICENSEE. In addition, once a [**] has become a LICENSED COMPOUND pursuant to Section 3.5.2 above, if -22- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. reasonably feasible, KOSAN shall not provide such LICENSED COMPOUND to THIRD PARTIES for screening. 3.5.5 CLOSE STRUCTURAL ANALOGS. At the time that each [**] becomes a LICENSED COMPOUND, a non-binding, written list identifying the compounds which are CLOSE STRUCTURAL ANALOGS of such [**] will be prepared by the parties. Any compounds determined to be CLOSE STRUCTURAL ANALOGS shall remain CLOSE STRUCTURAL ANALOGS until and unless such compounds have been actually synthesized and tested and found not to have the level of activity specified in the RESEARCH PLAN or agreed by the parties at the time the compound became a LICENSED COMPOUND. In the event that either party, determines that such compound does not have the required level of activity it shall notify, the other providing the relevant data and unless the other party, disputes the validity of such data, the applicable compound shall cease to be a CLOSE STRUCTURAL ANALOG thirty (30) days thereafter. In the event of any dispute regarding the status of whether a particular compound should become, is or will remain a CLOSE STRUCTURAL ANALOG, the matter shall be settled by the dispute resolution procedure set forth in Article 21. 3.5.6 RESERVED COMPOUNDS. (a) DESIGNATION. Subject to Section 3.5.6(b) and (c), until the end of the RESEARCH TERM, RWJPRI may give KOSAN written notice that RWJPRI wishes to designate as RESERVED COMPOUNDS one or more [**], which notice shall identify, such [**]. (b) LIMITATIONS. Notwithstanding the foregoing, RWJPRI may not designate more than [**] RESERVED COMPOUNDS at any time without the written consent of KOSAN. RWJPRI may, with notice to KOSAN discontinue the RESERVED COMPOUND status of any [**], and thereafter such MACROLIDE shall no longer be a RESERVED COMPOUND. If RWJPRI has designated RESERVED COMPOUNDS such that there exist more than [**] RESERVED COMPOUNDS at any time, then RWJPRI shall pay to KOSAN, for each RESERVED COMPOUND beyond [**], a fee of [**] dollars ($[**]) per RESERVED COMPOUND, as set forth in Section 6.6. (c) EFFECT OF RESERVATION. Until the end of the RESEARCH TERM, KOSAN shall not grant a license to any THIRD PARTY with respect to any RESERVED COMPOUND except as follows: if KOSAN receives a request from a THIRD PARTY to obtain a LICENSE for any RESERVED COMPOUND, it shall notify RWJPRI and RWJPRI shall have [**] days to notify. KOSAN whether RWJPRI will designate such RESERVED COMPOUND as a LICENSED COMPOUND and pay concurrently the fee required under Section 6.3. In such event, such RESERVED COMPOUND shall become a LICENSED COMPOUND for all purposes of this AGREEMENT. If RWJPRI fails to provide such notice to -23- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. KOSAN during the [**] period, then such COMPOUND shall cease to be a RESERVED COMPOUND and KOSAN shall have the right to grant such THIRD PARTY a license to such [**] during the EXCLUSIVE SCREENING PERIOD. 3.6 SELECTION OF LICENSED COMPOUNDS. Following the expiration of the NON-EXCLUSIVE SCREENING PERIOD, all rights to [**] for which LICENSEE does not have a LICENSED COMPOUND in DEVELOPMENT or commercialization shall lapse and KOSAN shall have the right to develop, market and commercialize such [**] independently and all rights and licenses thereto shall revert to KOSAN at the conclusion of such period. 3.7 RESERVED RIGHTS. At all times, KOSAN shall have the right to use the [**] for screening of any and all activities other than [**], and for its internal research programs, including without limitation, the preparation and synthesis of [**], as intermediates and otherwise. Nothing in this AGREEMENT shall restrict or limit KOSAN from using all or any portion of any [**] which is used in connection with the RESEARCH PROGRAM in any research or development not subject to this AGREEMENT. 3.8 RIGHT OF FIRST NEGOTIATION. Until January 10, 1999, if a THIRD PARTY wishes to enter into an exclusive agreement with KOSAN to screen the [**] or develop or commercialize [**], before entering into an agreement with such a THIRD PARTY granting a license for such rights, KOSAN shall notify RWJPRI, and for a period of [**] (or such longer period as the parties may agree) from the date of such notice (the "Negotiation Period") KOSAN and RWJPRI shall negotiate the terms of such an agreement. In the event that the parties do not agree on terms within the Negotiation Period, KOSAN may grant any THIRD PARTY rights with respect to screening [**] and developing and commercializing [**]; provided, however, prior to January 10, 1999 or the end of the Negotiation Period, KOSAN shall not enter into an agreement with a THIRD PARTY on terms less favorable to KOSAN, when taken as a whole, than those last offered in writing by RWJPRI to KOSAN. It is understood and agreed that KOSAN shall have the unrestricted rights itself to screen, develop and/or commercialize [**]. ARTICLE 4 -- LICENSES 4.1 RESEARCH LICENSES. 4.1.1 TO RWJPRI. Subject to the terms and conditions of this AGREEMENT, KOSAN hereby grants RWJPRI a non-exclusive paid-up license, with no right to grant -24- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. sublicenses, under KOSAN PATENT RIGHTS and KOSAN KNOW-HOW to make and use methods and materials to carry, out the RESEARCH PROGRAM during the RESEARCH TERM. 4.1.2 TO KOSAN. Subject to the terms and conditions of this AGREEMENT, LICENSEE hereby grants KOSAN a non-exclusive paid-up license, with no right to grant sublicenses, under RWJPRI PATENT RIGHTS and RWJPRI KNOW-HOW to make and use methods and materials to carry out the RESEARCH PROGRAM during the RESEARCH TERM. 4.2 SCREENING LICENSES. KOSAN hereby grants to RWJPRI the following fully paid, non-transferable licenses, with the right to grant sublicenses to RWJPRI AFFILIATES, under the KOSAN PATENT RIGHTS and KOSAN KNOW-HOW to conduct screening pursuant to Article 3: 4.2.1 an exclusive, worldwide license during the EXCLUSIVE SCREENING PERIOD to use the [**]; 4.2.2 a non-exclusive, worldwide license during the NON-EXCLUSIVE SCREENING PERIOD: (a) to use the [**] to conduct screening for [**]; (b) to use the [**] to conduct screening for [**]; and 4.2.3 Subject to the terms and conditions of Section 3.2.1, a non-exclusive, worldwide license during the EXCLUSIVE SCREENING PERIOD and NON-EXCLUSIVE SCREENING PERIOD to use the [**]. 4.3 DEVELOPMENT AND COMMERCIALIZATION LICENSE. 4.3.1 GRANT. Subject to the terms and conditions of this AGREEMENT, KOSAN hereby grants to LICENSEE, and LICENSEE hereby accepts from KOSAN, a worldwide, exclusive license, with the right to grant sublicenses, under the KOSAN PATENT RIGHTS and KOSAN KNOW-HOW, to make, use and develop LICENSED COMPOUNDS, and, to make, have made, USE, import, offer for SALE, SELL and have SOLD PRODUCTS. -25- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 4.3.2 TERM. Unless LICENSEE's rights are terminated earlier as provided in Section 2.6.5 or Article 19, the foregoing license in Section 4.3.1 shall remain exclusive on a LICENSED COMPOUND-by-LICENSED COMPOUND and PRODUCT-by-PRODUCT basis (i) as to the applicable KOSAN PATENT RIGHTS, for their respective lives on a country-by-country basis, and (ii) as to the KOSAN KNOW-HOW, until the termination of LICENSEE's obligation to make royalty payments under Section 7.1 hereof, at which time the license under the KOSAN KNOW-HOW shall automatically become a [**], non-exclusive license. Notwithstanding the foregoing, however, with respect to any country of the European Union, the license to the KOSAN KNOW-HOW shall remain exclusive until the earlier of (i) the date on which the KOSAN KNOW-HOW becomes published or generally known to the public through no fault on the part of LICENSEE, its AFFILIATES or SUBLICENSEES or (ii) the [**], of the first commercial sale of the first PRODUCT in any country of the European Union, at which time the license under the KOSAN KNOW-HOW shall automatically become a [**], non-exclusive license. 4.4 DELIVERY OF CELLS; LIMITED USE. For each [**] designated by LICENSEE in a DESIGNATION NOTICE which becomes a LICENSED COMPOUND pursuant to Section 3.5, and for which LICENSEE pays the amounts set forth in Section 6.2.1, KOSAN will, if available, deliver to LICENSEE a viable sample of clonal cells which produces such [**] for use in PRODUCT manufacture. Except as expressly provided herein, LICENSEE shall not (i) transfer any cells or other biological materials supplied by KOSAN (or any derivatives or progeny thereof) to any THIRD PARTY other than an AFFILIATE or SUBLICENSEE without the express prior written consent of KOSAN, or (ii) use or permit others to use any of the cells or other biological materials supplied by KOSAN (or any derivatives or progeny thereof) for research use relating to drug discovery or any other purpose, except the manufacture of LICENSED COMPOUNDS for clinical trials and commercial sale as expressly provided in this AGREEMENT. 4.5 LIMITATIONS ON LICENSES. Notwithstanding any other provision of this AGREEMENT, it is understood and agreed that nothing in this AGREEMENT grants LICENSEE the right to practice any aspect of the EXCLUDED TECHNOLOGY. 4.6 AFFILIATE LICENSES. In the event LICENSEE wishes to manufacture PRODUCT or SELL in a country where its AFFILIATE is unable to pay royalties to ORTHO or where payment of royalties to ORTHO are limited as to their tax deductibility, KOSAN hereby agrees, at the request of ORTHO, to grant direct licenses containing the same terms, conditions and provisions as this AGREEMENT to any AFFILIATE under KOSAN PATENT RIGHTS and KOSAN KNOW-HOW to make, have made use and sell PRODUCTS. Any such licensed AFFILIATE shall thereafter report NET SALES directly to KOSAN and the activities of any such AFFILIATE shall not be includable in any reports made by ORTHO to KOSAN. -26- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 4.7 SUBLICENSES. RWJPRI and its AFFILIATES shall have the right to grant to THIRD PARTIES sublicenses under the licenses granted to LICENSEE in Section 4.3 (or to its AFFILIATES under Section 4.6) with respect to PRODUCTS developed by or on behalf of RWJPRI, but shall have no right to grant sublicenses to THIRD PARTIES with respect to any technology licensed by KOSAN from Stanford University without the written consent to KOSAN, which consent will not be unreasonably withheld; provided, such sublicense under the STANFORD LICENSE is necessary to develop and/or commercialize PRODUCTS pursuant to the license granted in Section 4.3 and limited to such activities. 4.8 STANFORD LICENSE. LICENSEE acknowledges that it has received a sublicense under the STANFORD LICENSE. LICENSEE has received a copy of the STANFORD LICENSE and, having read and understood the same, agrees to comply with the provisions thereof, including without limitation, Articles 4, 5.3, 8 and 10 thereof. KOSAN agrees that in the event of a termination of the STANFORD LICENSE, in accordance with the provisions of Section 14.3 of the STANFORD LICENSE, the sublicense granted LICENSEE herein shall be assigned to STANFORD. 4.9 NO COMPETING RESEARCH. During the RESEARCH TERM, KOSAN shall not knowingly conduct, have conducted or fund any research or development activity specifically directed at discovery or developing products intended for use in the FIELD derived from expression of the [**], except pursuant to this AGREEMENT. 4.10 LICENSED COMPOUND EXCLUSIVITY. During the term of this AGREEMENT, KOSAN shall not develop, commercialize or sublicense to any THIRD PARTY any LICENSED COMPOUND to which LICENSEE retains commercial license rights, without the prior written consent of LICENSEE. 4.11 MODE OF COMMERCIALIZATION. ORTHO may SELL PRODUCTS through its AFFILIATES, SUBLICENSEES or agents in any country. ORTHO agrees to be responsible and liable for the performance hereunder by its AFFILIATES, agents and SUBLICENSEES to which the license and rights hereunder shall have been extended. For the purposes of reporting and making payments of earned royalties under this AGREEMENT, the manufacture, SALE or USE of PRODUCTS by any AFFILIATE, or SUBLICENSEE to which such license rights shall have been extended shall be considered the manufacture, SALE or USE of such PRODUCT by ORTHO and any such AFFILIATE or SUBLICENSEE may make the pertinent reports and royalty payments specified in Article 7 hereof directly to KOSAN on behalf of ORTHO; otherwise, such reports and payments on account of SALES of PRODUCTS by each AFFILIATE and SUBLICENSEE shall be made by ORTHO; and, in any event, the SALES of PRODUCT by each such AFFILIATE and SUBLICENSEE shall be separately shown in the reports to KOSAN if such information is readily available to ORTHO. -27- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 4.12 THIRD PARTY RIGHTS. 4.12.1 KOSAN THIRD PARRY ACTIVITIES. It is understood that KOSAN provides [**] to THIRD PARTIES, and that KOSAN will grant such THIRD PARTIES rights after the EFFECTIVE DATE to acquire licenses for compounds derived from such libraries similar to LICENSEE's rights under this Article 4, subject to the provisions of Section 3. I. Notwithstanding the licenses granted to LICENSEE under Section 4.3 above, it is possible that a THIRD PARTY may acquire rights from KOSAN with respect to one or more compounds of which KOSAN is a sole or joint owner, which compounds were made and designed independently of KOSAN's activities and knowledge gained under the RESEARCH PROGRAM; accordingly, KOSAN's grant of rights under Section 4.3 is limited to the extent that (i) a THIRD PARTY (either alone or jointly with KOSAN) has filed a patent application with respect to such a compound prior to the filing by LICENSEE (either alone or jointly with KOSAN) of a patent application with respect to such a compound, or (ii) KOSAN has previously granted a THIRD PARTY a license or other rights with respect to such a compound, and subject to any such grant of rights to a THIRD PARTY. 4.12.2 NO LIABILITY. It is understood and agreed that, even if KOSAN complies with its obligations under this AGREEMENT, compounds provided to THIRD PARTIES in the course of KOSAN's other business activities may result in THIRD PARTY patent applications and patents, including patent applications and patents owned by such THIRD PARTIES, or owned jointly by KOSAN and such THIRD PARTIES, which could conflict with patent applications and patents owned by LICENSEE, or jointly owned by LICENSEE and KOSAN hereunder. KOSAN shall use its reasonable efforts to avoid such conflict. It is understood that, unless LICENSEE is damaged as a proximate result of a material breach by KOSAN of Section 3.1 or 4.3 then KOSAN shall have no liability, under this AGREEMENT with respect to any such conflict. 4.13 RETAINED RIGHTS. It is understood and agreed that, KOSAN shall retain the exclusive right to develop (including pre-clinical and clinical development), make, have made, use and sell all products other than PRODUCTS. It is understood and agreed that KOSAN may practice and use the KOSAN PATENT RIGHTS and KOSAN KNOW-HOW to facilitate the exercise of its rights. 4.14 NO IMPLIED RIGHTS. No other, further or different license or right, except as expressly provided in this Article 4 hereof, is hereby granted or implied. -28- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. ARTICLE 5 -- DEVELOPMENT AND COMMERCIALIZATION 5. 1 DEVELOPMENT. 5.1.1 JDAC. Promptly after selection by RWJPRI of a LICENSED COMPOUND or a DERIVATIVE for DEVELOPMENT, the parties shall establish a Joint Development Advisory. Committee (the "JDAC") to oversee the DEVELOPMENT of PRODUCTS. 5.1.2 MEMBERSHIP. The JDAC shall include three (3) representatives from each of KOSAN and RWJPRI, each Party's members to be selected by that party. KOSAN and LICENSEE may each replace its JDAC representatives at any time, upon written notice to the other party. One of the RWJPRI members of the JDAC, chosen at the sole discretion of RWJPRI, shall serve as chair of the JDAC. 5.1.3 MEETINGS; MINUTES. The JDAC shall meet at least quarterly, or more frequently as agreed by the parties, at such locations as the parties agree, and will otherwise communicate regularly by telephone, electronic mail, facsimile and/or video conference. Meetings of the JDAC shall be held at least quarterly and may be called by either party with not less than ten (10) working days notice to the other unless such notice is waived, and meetings shall be held at the office of the party not calling the meeting, unless otherwise agreed. The JDAC may be convened, polled or consulted from time to time by means of telecommunication or correspondence. Each party will disclose to the other proposed agenda items reasonably in advance of each meeting of the JDAC. With the consent of the parties, other representatives of KOSAN or LICENSEE may attend JDAC meetings as observers. Each party shall be responsible for all of its own expenses associated with attendance of such meetings. The JDAC shall prepare written minutes of each JDAC meeting and a written record of all JDAC recommendations, whether made at a JDAC meeting or otherwise. A written record shall be provided by the presenting party, to each party of all materials presented at meetings of the JDAC. 5.1.4 FUNCTIONS OF THE JDAC. The JDAC shall serve in an advisory capacity concerning the management of the DEVELOPMENT of PRODUCTS as well as related pre-market activities performed under the provisions of this AGREEMENT. In carrying out this function, the JDAC will: (a) Promptly upon selection of a PRODUCT for DEVELOPMENT, advise RWJPRI in the preparation of a written DEVELOPMENT PLAN, including appropriate timelines for DEVELOPMENT, for such PRODUCT, which DEVELOPMENT PLAN shall be provided by RWJPRI to the parties; -29- (b) review progress of the DEVELOPMENT work at least quarterly, and advise RWJPRI concerning changes or modifications to the DEVELOPMENT PLAN; (c) oversee and direct the transfer of LICENSED COMPOUNDS from KOSAN to LICENSEE; and (d) review progress reports as to the performance of the DEVELOPMENT PLAN, the first such report to be submitted by RWJPRI [**] following selection of such LICENSED COMPOUND for DEVELOPMENT and at [**] intervals thereafter until the SALE of PRODUCT is approved and PRODUCT is being marketed on a regular commercial basis in the United States and each MAJOR MARKET COUNTRY and such approval and marketing is reported in writing to KOSAN. Minutes of meetings of the JDAC may serve as such. progress reports. The parties agree to maintain information in such reports in confidence in accordance with the confidentiality, provisions of Article 9 hereof. 5.1.5 DEVELOPMENT PROGRAM. RWJPRI shall be [**] and have [**] in consultation with the JDAC, to select LICENSED COMPOUNDS which shall then be designated PRODUCTS for further DEVELOPMENT by RWJPRI and marketing by ORTHO and its AFFILIATES. RWJPRI shall provide KOSAN with written notice of its decision to select a LICENSED COMPOUND for DEVELOPMENT. Once a PRODUCT has been selected for further DEVELOPMENT, RWJPRI, with the advice of the JDAC, shall have the [**] right to develop the PRODUCT through STAGES O, I, II and III and shall have the [**] right to prepare and file, and shall be the owner of, all applications for MARKETING AUTHORIZATION throughout the world. During such DEVELOPMENT efforts, KOSAN will assist RWJPRI as may be mutually agreed, at RWJPRI's expense, in chemical development, formulation development, production of labeled material and production of sufficient quantities of material for STAGE O and initial STAGE I studies. RWJPRI shall exercise diligent efforts, commensurate with the efforts it would normally exercise for products with similar potential sales volume and consistent with its overall business strategy, in developing such PRODUCT in accordance with the DEVELOPMENT PLAN established by RWJPRI. In the course of such efforts RWJPRI shall, either directly or through an AFFILIATE or SUBLICENSEE to which the license shall have been extended, take appropriate steps including the following: (i) in consultation with the JDAC, select certain LICENSED COMPOUNDS for STAGE O DEVELOPMENT; and (ii) establish and maintain a program reasonably designed, funded and resourced to obtain information adequate to enable the preparation and filing with an appropriate and properly empowered national regulatory authority all necessary documentation, data and -30- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. other evidence required for IND non-rejection to commence and conduct human clinical trials of such PRODUCT. (iii) proceed following IND non-rejection to commence PHASE I, II, and III clinical trials, associated studies and such other work which RWJPRI reasonably deems to be required for subsequent inclusion in filings for MARKETING AUTHORIZATION; (iv) after such submissions are filed prosecute such submissions and file all reasonably necessary, reports and respond to all reasonable requests from the pertinent regulatory, authorities for information, data, samples, tests and the like. 5.2 DELIVERY. For each [**] in DEVELOPMENT, if available, KOSAN will provide to RWJPRI the clone producing the LICENSED COMPOUND or an intermediate therefor, and all information related to fermentation conditions, process development, scale-up, etc. 5.3 MARKETING AUTHORIZATION. MARKETING AUTHORIZATION applications shall be compiled by ORTHO based on information generated during the DEVELOPMENT program. Subject to Section 19.3.4, ORTHO shall own such MARKETING AUTHORIZATIONS. KOSAN shall prepare supporting documentation requested by ORTHO. At ORTHO's request and expense, KOSAN shall further assist ORTHO with the preparation of supporting data to apply for and pursue MARKETING AUTHORIZATIONS. 5.4 COMMERCIALIZATION STATUS. If LICENSEE is developing a LICENSED COMPOUND, or any PRODUCT, during the period from the end of the RESEARCH TERM to the first commercial sale of such PRODUCT, LICENSEE shall keep KOSAN informed of its development activities with respect to such LICENSED COMPOUND and PRODUCT, including without limitation, the achievement of the milestones set forth in Section 6.4 and the commercialization of such LICENSED COMPOUND and PRODUCT, by [**] providing KOSAN with a written report stating the status of development of each such LICENSED COMPOUND and PRODUCT. It is understood that the report provided to the JDAC under Section 5.1.4(d) may serve to fulfill LICENSEE's obligation to KOSAN hereunder. 5.5 COMMERCIALIZATION. Once a PRODUCT has been approved for marketing, ORTHO shall exercise reasonable efforts, commensurate with the efforts it would normally exercise for products with similar potential sales volume and consistent with its overall business strategy, in promoting, advertising and SELLING such PRODUCT under this AGREEMENT. 5.6 PERFORMANCE OBLIGATIONS. 5.6.1 LACK OF DILIGENCE. Non-performance of this Article 5, or any subparagraph thereof by LICENSEE, shall be a breach of this AGREEMENT, subject to -31- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. KOSAN's right to terminate this AGREEMENT pursuant to Section 19.2. In such event, KOSAN agrees that (except in the case of a breach of Section 5.7) subject to the terms of Section 19.3, such termination shall be KOSAN's sole and complete remedy for such a breach. 5.6.2 ACKNOWLEDGMENT. Notwithstanding any other provision hereunder, LICENSEE makes no representation or warranty, that development and marketing of PRODUCT shall be the exclusive means by which LICENSEE will participate in the FIELD. Furthermore, all business decisions concerning the DEVELOPMENT, marketing and SALES of PRODUCT(S) including, without limitation, the design, sale, price and promotion of PRODUCTS covered under this AGREEMENT shall be within the sole discretion of LICENSEE. KOSAN realizes that LICENSEE already sells products for the treatment of [**], and acknowledges that LICENSEE may now or in the future develop or acquire other products for the treatment and prevention of such conditions. 5.7 NO OTHER PRODUCTS OTHER THAN PRODUCTS. Except as otherwise agreed in writing or specifically provided in the terms of this AGREEMENT, neither LICENSEE nor its SUBLICENSEES shall commercialize any LICENSED COMPOUND or DERIVATIVE thereof; other than as a PRODUCT in accordance with this AGREEMENT. ARTICLE 6 -- LICENSE FEES AND MILESTONE PAYMENTS 6.1 INITIAL FEE. In consideration of the rights and licenses granted to LICENSEE under this AGREEMENT on EFFECTIVE DATE, ORTHO shall pay KOSAN an initial fee of [**] dollars ($[**]) to reimburse KOSAN for past research and development. Such fee shall not be refundable nor creditable against other amounts due KOSAN under this AGREEMENT. 6.2 RESEARCH MILESTONE PAYMENTS. 6.2.1 NCE IDENTIFICATION. RWJPRI shall pay the following amounts to KOSAN within [**] following accomplishment of the following Research Milestones in connection with the Research PROJECTS: $[**] Identification of a [**] in the FAST TRACK PROJECT $[**] Identification of each [**] in the SAR PROJECT 6.2.2 DELIVERY OF FIRST MACROLIDES. LICENSEE shall pay to KOSAN a [**] fee of [**] dollars ($[**]) [**]following the delivery to RWJPRI of -32- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] from the Fast Track PROJECT, provided that any such payment shall not be made prior to [**]. 6.3 LICENSED COMPOUND FEE. Within [**] after any compound becomes a LICENSED COMPOUND, RWJPRI shall pay [**]dollars ($[**]) for each such LICENSED COMPOUND (other than the [**] for which RWJPRI has already paid the $[**] set forth in Section 6.2.1). 6.4 DEVELOPMENT MILESTONE PAYMENTS. Within [**] following the occurrence of the relevant events specified below with respect to the each PRODUCT, LICENSEE shall pay to KOSAN the following amounts:
DEVELOPMENT MILESTONE PAYMENT --------------------- ------- [**] $[**]
6.5 BACKUP PRODUCTS. In the event one or more of the aforesaid milestone payments have been paid in respect of a given PRODUCT for which DEVELOPMENT or commercialization is subsequently discontinued, LICENSEE shall receive a credit for such milestone payments against milestone payments due for the next PRODUCT to meet such milestone. It is understood that in no event shall LICENSEE be obligated to make the payment due on any milestone event more than once with respect to the same PRODUCT, regardless of the number of indications for which such PRODUCT is developed. If at the time a milestone is achieved by a PRODUCT any prior milestones have not been achieved for such PRODUCT, the payments for such prior milestones for such PRODUCT shall then be due. 6.6 RESERVED COMPOUND FEE. If RWJPRI has designated more than [**] as RESERVED COMPOUNDS at any time, for each such RESERVED COMPOUND in excess of [**], RWJPRI shall pay [**] dollars ($[**]) within [**] after the date of the designation of the applicable RESERVED COMPOUND. 6.7 NO WITHHOLDING. All amounts paid to KOSAN pursuant to this Article 6 shall be made without withholding for taxes or any other charge. -33- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. ARTICLE 7 -- ROYALTIES, RECORDS AND REPORTS 7.1 EARNED ROYALTIES; ROYALTY TERM. For the rights and privileges granted under this AGREEMENT, subject to Article 19, ORTHO shall pay to KOSAN, on a country-by-country and PRODUCT-by-PRODUCT basis, earned royalties on NET SALES as follows: 7.1.1 where the manufacture, USE or SALE of the PRODUCT falls within the scope of a VALID CLAIM which is (i) owned sorely by KOSAN, (ii) owned jointly by KOSAN and LICENSEE, or (iii) filed during the RESEARCH TERM or claims priority to a patent application filed during the RESEARCH TERM and in connection with the RESEARCH PROGRAM which is owned solely by LICENSEE or its AFFILIATES or SUBLICENSEES, ORTHO shall pay to KOSAN a royalty on the NET SALES of all such PRODUCTS that are SOLD by or for ORTHO or AFFILIATES or SUBLICENSEES under this AGREEMENT until the expiration of the last to expire of such patents in the PATENT RIGHTS in such country., as follows: Annual Cumulative NET SALES/PRODUCT ROYALTY RATE ------------- ------------ [**] [**]% 7.1.2 where the manufacture, USE or SALE of the applicable PRODUCT is not within the scope of a VALID CLAIM subject to Section 7.1.1, ORTHO shall pay to KOSAN a royalty on NET SALES equal to [**] the royalties in (a) above with respect to such PRODUCTS that are SOLD by or for ORTHO or AFFILIATES or SUBLICENSEES under this AGREEMENT in such country, for a period of the longer of (i) [**] from the date of first commercial sale of such PRODUCT in such country, or (ii) so long as there is a VALID CLAIM in such country. 7.1.3 It is understood and agreed that the increased royalty rates due pursuant to Sections 7.1.1 and 7.1.2 on higher levels of NET SALES shall only be due on the incremental NTT SALES over the lower tier. 7.l.4 It is understood and agreed that regardless of any credits or offsets to which LICENSEE is entitled under the terms of this AGREEMENT, the royalty, payments due KOSAN under Article 7 shall not be less than [**] of the royalties due pursuant to Sections 7.1.1 or 7.1.2 as applicable, on NET SALES of any PRODUCT in the applicable quarter. Any such royalty credits or offsets may be carried forward until applied. 7.2 ROYALTY ON NET SALES TO THIRD PARTIES. Earned royalties shall be paid pursuant to Section 7.1 hereof on all PRODUCTS SOLD under this AGREEMENT and the -34- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. earned royalty payable on a given PRODUCT made hereunder shall not become due and owing until such PRODUCT is SOLD. Except where LICENSEE or its AFFILIATES or SUBLICENSEE is an end-user of a PRODUCT, the earned royalty for any particular PRODUCT shall be due upon the first bona fide arm's length SALE to a THIRD PARTY other than an AFFILIATE or SUBLICENSEE thereof and any subsequent SALE of such PRODUCT by a THIRD PARTY that is not an AFFILIATE or SUBLICENSEE shall be royalty-free. 7.3 THIRD-PARTY ROYALTIES. KOSAN shall be responsible for paying [**] royalties due Stanford University on PRODUCTS pursuant to the STANFORD LICENSE and for [**] THIRD PARTY royalties for which KOSAN is responsible pursuant to Section 2.7.6. Except as provided in the preceding sentence, LICENSEE shall be responsible for procuring such licenses as it deems, in its sole discretion, appropriate for the manufacture, use, marketing, sale or distribution of PRODUCTS by LICENSEE and its AFFILIATES and SUBLICENSEES, and for the payment of any amounts due THIRD PARTIES under such licenses; provided that with regard to licenses entered by RWJPRI with THIRD PARTIES for intellectual property rights which are necessary, for the practice of the KOSAN PATENT RIGHTS existing as of the EFFECTIVE DATE for the creation or preparation of MACROLIDES and/or AROMATIC POLYKETIDES, which licenses have been approved by the JRC, LICENSEE may offset against the royalties owed to KOSAN up to [**] percent ([**]%) of royalties owed such THIRD PARTY, up to a maximum of [**] percent ([**]%) of the royalty owed to KOSAN in any quarter with respect to the applicable PRODUCT. Any such amounts which are uncredited in a quarter may be carried forward until expended. 7.4 ONE ROYALTY. Notwithstanding the provisions of Section 7.2 hereof, in the case of transfers or SALES of any PRODUCT among ORTHO, AFFILIATES and SUBLICENSEE or between AFFILIATES for re-sale to THIRD PARTIES, one and only one royalty shall be payable thereon and such royalty, shall become payable upon the SALE thereof to a THIRD PARTY. 7.5 AUDIT RIGHTS. ORTHO shall keep, and shall cause its AFFILIATES and SUBLICENSEES to keep, full, true and accurate books of account containing all particulars in accordance with ORTHO's normal accounting procedures then in effect for the purpose of showing the amount payable to KOSAN by way of royalty as aforesaid or by way of any other provision hereunder. Said books of account shall be kept at ORTHO's (or if sales by a SUBLICENSEE, at the SUBLICENSEE's) principal place of business. Said books and the supporting data shall be maintained and kept open during reasonable business hours, for [**] following the end of the calendar year to which they pertain (and access shall not be denied thereafter, if reasonably available), to the inspection of an independent certified public accountant retained by KOSAN and reasonably acceptable to ORTHO or such SUBLICENSEE for the purpose of verifying ORTHO's royalty statements, or ORTHO's compliance in other respects with this AGREEMENT, but this right to inspect may not be exercised more than once in any year and once a calendar period is audited, it may not be re-audited unless a payment -35- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. discrepancy is identified. Said accountant shall disclose to KOSAN only information relating to the accuracy of the royalty reports and the royalties paid under this AGREEMENT. Names of customers and other confidential information shall not be disclosed to KOSAN by such independent accountant. Such accountant shall be retained at KOSAN's sole expense. Notwithstanding the foregoing, inspections of the records of SUBLICENSEES shall be limited to the extent that ORTHO has the right to authorize KOSAN to make such inspection; provided that if ORTHO does not have the right to authorize KOSAN to make such an inspection, upon KOSAN's request, ORTHO, at its expense, using an independent certified accountant reasonably acceptable to KOSAN, shall inspect the SUBLICENSEE's records and shall provide to KOSAN the results of such inspection. In any audit, if an underpayment of more than five percent (5%) is established for a quarter, LICENSEE shall pay the costs of the audit of such period and shall promptly pay to KOSAN any amounts due together with interest as provided in Section 7.7. 7.6 ROYALTY REPORTS. ORTHO within [**] of each year (the "Reporting Date") shall deliver to KOSAN a true and accurate report, giving such particulars of the PRODUCTS SOLD by ORTHO, AFFILIATES, and SUBLICENSEES and the NET SALES due during the [**] preceding the Reporting Date ("Accounting Period") under this AGREEMENT as are pertinent to an accounting for royalty under this AGREEMENT. Each such report shall state, separately for LICENSEE and each AFFILIATE and SUBLICENSEE, the number, description, and aggregate NET SALES, by country, of each PRODUCT sold during the calendar quarter upon which a royalty is payable under this AGREEMENT. Simultaneously with the delivery of each such report, ORTHO shall pay to KOSAN the royalty due under this AGREEMENT for the period covered by such report. If no royalties are due, it shall be so reported. 7.7 PAYMENT METHOD; LATE PAYMENTS. All amounts due KOSAN hereunder shall be paid in U.S. dollars by wire transfer in immediately available funds to a bank account designated by KOSAN. Any payments or portions thereof due hereunder which are not paid on the date such payments are due under this AGREEMENT shall bear interest at a rate equal to the lesser of [**], or the maximum rate permitted by law, calculated on the number of days such payment is delinquent, compounded monthly. This Section 7.7 shall in no way limit any other remedies available to KOSAN. 7.8 CURRENCY CONVERSION. All royalty, payments by ORTHO to KOSAN shall be converted into U.S. Dollars in accordance with ORTHO's current customary and usual procedures for calculating same which are the following: the rate of currency conversion shall be calculated using a [**], or if such rate is not available, the [**]. ORTHO shall give KOSAN prompt written notice of any changes to ORTHO's customary and usual procedures for currency conversion, which shall only apply after -36- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. such notice has been delivered and provided that such changes continue to maintain a set methodology for currency conversion. If the transfer or the conversion into U.S. Dollars in any such instance is not lawful or possible, the payment of each pan of the royalties due as is necessary, shall be made by the deposit thereof, in whatever currency is allowable, to the credit and account of KOSAN in any commercial bank or trust company of KOSAN's choice located in that country. Prompt notice of said deposit shall be given by ORTHO to KOSAN and ORTHO shall use reasonable efforts to assist KOSAN in securing the payment of such funds to KOSAN's U.S. bank account. 7.9 TAXES. Any tax required to be withheld on royalties payable to KOSAN under the laws of any foreign country shall be promptly paid by ORTHO for and on behalf of KOSAN to the appropriate governmental authority, and ORTHO shall furnish KOSAN with proof of payment of such tax together with official documents issued by the appropriate governmental authority and other appropriate evidence sufficient to enable KOSAN to support a claim for a tax credit in respect of any sum so withheld, and at KOSAN's request, provide reasonable assistance to KOSAN in recovering such amounts, if possible. 7.10 LEGAL LIMIT ON ROYALTIES. In any country where the rate of royalty is limited by applicable law, the royalty payment shall be made to KOSAN at the highest rate permitted by law in that country for licenses of the type herein granted, provided that such rate is equal to or less than the rate specified in this AGREEMENT. 7.11 RESTRICTIONS ON PAYMENTS. The obligation to pay royalties to KOSAN under this AGREEMENT shall be waived and excused to the extent that applicable statutes, laws, codes or government regulations in a particular country prevent such royalty payments; provided, however, in such event, if legally permissible, LICENSEE shall pay the royalties owed to KOSAN by depositing such amounts, to the credit and account of KOSAN or its nominee in any commercial bank or trust company of KOSAN's choice located in that country, prompt notice of which shall be given by ORTHO to KOSAN. ARTICLE 8 -- SUPPLY OF PRODUCTS 8.1 ORTHO RESPONSIBILITY. ORTHO shall be solely responsible for making or having made PRODUCTS for DEVELOPMENT and commercialization. During DEVELOPMENT or commercialization of the PRODUCTS, the parties may agree that KOSAN shall manufacture and supply to ORTHO quantities of certain compounds. 8.2 CONSIDERATION OF KOSAN. If KOSAN wishes to be responsible for production of and purification of [**] for preclinical and clinical testing and manufacture of bulk PRODUCTS for commercial sale it may notify LICENSEE and demonstrate that KOSAN (or its designee) is able to manufacture PRODUCTS meeting the relevant LICENSEE specifications with respect to cost and quality in a timely -37- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. manner, then, subject to the approval of LICENSEE, KOSAN may conduct such manufacturing. In such event, the parties shall enter into a separate supply agreement on terms to be mutually agreed by the parties. 8.3 TECHNOLOGY TRANSFER. Upon LICENSEE's request, KOSAN shall provide reasonable technical assistance, and, to the extent that KOSAN has a right to do so without incurring additional expense, licenses, as may reasonably be requested by LICENSEE to transfer such technology as needed for LICENSEE or its designee to commence or continue manufacturing under Section 8.1. All such technical assistance shall be provided at LICENSEE's expense. ARTICLE 9 -- CONFIDENTIALITY 9.1 CONFIDENTIAL INFORMATION. Except as expressly provided herein, the parties agree that, for the term of this AGREEMENT and for [**] thereafter, the receiving party, shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose except for the purposes contemplated by this AGREEMENT, any confidential information of the other party, or any data, samples, technical and economic information (including the economic terms hereof), commercialization, clinical and research strategies and KNOW-HOW and other information provided by the other party (the "Disclosing Party") during the TERM of this AGREEMENT or during the negotiation of this AGREEMENT, or in connection with the transactions contemplated thereby, or any RESEARCH PROGRAM Technology and all other data, results and information developed pursuant to the RESEARCH PROGRAM and solely owned by the Disclosing Party (collectively, the "Confidential Information") furnished to it by the Disclosing Party hereto pursuant to this AGREEMENT or the transactions contemplated thereby. Notwithstanding the above, Confidential Information shall not include information that: (i) is or hereafter becomes generally available to the public other than by reason of any default with respect to a confidentiality, obligation under this AGREEMENT; or (ii) was already known to the recipient as evidenced by prior written documents in its possession; or (iii) is disclosed to the recipient by a THIRD PARTY who is not in default of any confidentiality, obligation to the disclosing party hereunder; or (iv) is developed by or on behalf of the receiving party, without reliance on Confidential Information received from the other party hereunder; or -38- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (v) is used with the consent of the Disclosing Party (which consent shall not be unreasonably withheld) in applications for patents or copyrights under the terms of this AGREEMENT; or (vi) has been approved in writing for publication by the Disclosing Party; or (vii) is PRODUCT-related information which is reasonably required to be disclosed in connection with marketing of PRODUCT covered by this AGREEMENT. Confidential Information shall be safeguarded by the recipient, shall not be disclosed to THIRD PARTIES and shall be made available only to recipient's employees or independent contractors who agree in writing to equivalent conditions and who have a need to know the information for the purposes specified under this AGREEMENT; however, the recipient may disclose Confidential Information to the extent such disclosure is required in compliance with applicable laws or regulations in connection with the manufacture or sale of products covered by this AGREEMENT, or is otherwise required to be disclosed in compliance with applicable laws or regulations or order by a court or other regulatory body having competent jurisdiction, provided that in the event such disclosure is required, the recipient (i) shall, unless prohibited by law, give reasonable advance notice of such disclosure to the other party and (ii) shall use reasonable efforts to secure confidential treatment of such information (whether by protective order or otherwise). Notwithstanding the foregoing, Confidential Information may be provided to THIRD PARTIES under appropriate terms and conditions including confidentiality provisions equivalent to those in this AGREEMENT for consulting, manufacturing development, manufacturing, external testing and marketing trials with respect to the products covered by this AGREEMENT. 9.2 PUBLICATION. The parties shall cooperate in appropriate publication of the results of research and development work performed pursuant to this AGREEMENT, but subject to the predominating interest to obtain patent protection for any patentable subject matter. To this end, it is agreed that prior to any public disclosure of such results, the party proposing disclosure shall send the other party a copy of the information to be disclosed, and shall allow the other party [**] from the date of receipt in which to determine whether the information to be disclosed contains subject matter for which patent protection should be sought prior to disclosure, or otherwise contains Confidential Information of the reviewing party which such party desires to maintain as a trade secret. Each party shall designate a representative for receipt of proposed publications from the other party. Confidential Information of the reviewing party which such party desires to maintain as a trade secret shall not be published if the reviewing party objects in writing within such [**] period. If notification is not received during the [**] period, the party proposing disclosure shall be free to proceed with the disclosure. If due to a valid business reason or a reasonable belief by the non-disclosing party that the disclosure contains subject matter for which a patentable invention should be sought, then prior to the expiration of the [**] period, the non-disclosing party shall so notify -39- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. the Disclosing Party, who shall then delay public disclosure of the information for an additional period of up to [**] to permit the preparation and filing of a patent application on the subject matter to be disclosed or other action to be taken. The party proposing disclosure shall thereafter be free to publish or disclose the information. Notwithstanding the foregoing, if the publication discloses a LICENSED COMPOUND, either party may delay publication until such time as the applicable patent application disclosing the LICENSED COMPOUND is published in the normal course of events. The determination of authorship for any paper shall be in accordance with accepted scientific practice. 9.3 ACQUISITION. In the event a party hereto is acquired, such party shall take reasonable efforts to ensure that the Confidential information of the other party hereto is used only for the purposes of this AGREEMENT, and is not disclosed to the acquiror. ARTICLE 10 -- REGULATORY MATTERS 10.1 ADVERSE EVENT REPORTING. Each party shall promptly inform the other in writing within twenty-four (24) hours of its receipt of any information which it receives regarding or related to any serious, unexpected adverse reaction in humans to PRODUCT. Each party shall comply with each Adverse Drug Experience reporting requirement of it in the United States Federal Food Drug and Cosmetic Act, as amended (21 U.S.C. Section 301 ET SEQ.) and the similar requirements of international regulatory authorities. In addition, on an on-going basis, each party agrees to make a good faith effort to promptly provide the other party with any additional information in its possession which indicates adverse effects in humans associated with PRODUCT. The obligations of this article shall survive termination of this AGREEMENT as to PRODUCT continued to be sold by ORTHO, or its AFFILIATES or SUBLICENSEES. 10.2 REGULATORY AND OTHER INQUIRIES. In the event KOSAN is manufacturing pursuant to Article 8 hereof, then upon being contacted by the FDA or any drug regulatory Agency for any regulatory purpose pertaining to this AGREEMENT or to a PRODUCT, KOSAN and LICENSEE shall promptly (within two (2) business days) notify and consult with one another and LICENSEE shall provide a response as it deems appropriate. LICENSEE shall have sole responsibility for responding to all inquiries to LICENSEE or KOSAN regarding the benefits, side effects and other characteristics of PRODUCTS. The party which is responsible for manufacturing the BULK PRODUCT form of the pertinent PRODUCT shall have the sole responsibility for responding to all inquiries regarding the manufacture of such BULK PRODUCT after consultation with the other party. 10.3 PRODUCT RECALL. In the event that LICENSEE or KOSAN determines that an event, incident or circumstance has occurred which may result in the need for a recall or other removal of any PRODUCT, or any lot or lots thereof, from the market, it shall advise and consult with the other party with respect thereto. LICENSEE shall make the final determination to recall or otherwise remove the PRODUCT or any lot or lots thereof from the market. KOSAN shall be -40- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. responsible for the costs of any recall due to defects in BULK PRODUCTS manufactured by KOSAN, and LICENSEE shall be responsible for the costs of other recalls. ARTICLE 11 -- PATENT INFRINGEMENT 11.1 NOTICE. In the event that there is infringement on a commercial scale by a THIRD PARTY of any patent licensed to LICENSEE hereunder that covers the manufacture, USE or SALE of a PRODUCT. LICENSEE shall notify KOSAN in writing to that effect, including with said written notice evidence establishing a prima facie case of infringement by such THIRD PARTY. 11.2 SOLELY OWNED INVENTIONS. 11.2.1 KOSAN ACTION. With respect to patents solely owned by KOSAN, KOSAN shall after any such notification, at its option, take action to obtain a discontinuance of such infringement or bring suit against the THIRD PARTY infringer. KOSAN shall bear all the expenses of any suit brought by it. In the event damages or other monies are awarded or received in settlement of such suit, KOSAN shall be entitled to deduct an amount to cover its out-of-pocket expenses, including attorneys' and professional fees, and including a reasonable allocation for in-house attorney's time, incurred for such suit. The balance of any recoveries shall then be shared by the parties with KOSAN receiving [**] percent ([**]%) and [**] percent ([**]%). LICENSEE and its AFFILIATES will cooperate with KOSAN in any such suit and shall have the right to consult with KOSAN and be represented by its own counsel at its own expense. KOSAN shall incur no liability to LICENSEE and its AFFILIATES as a consequence of such litigation or any unfavorable decision resulting therefrom, including any decision holding KOSAN's patent invalid or unenforceable. 11.2.2 ORTHO ACTION. If, after the expiration of one hundred eighty (180) days from the date of a request by ORTHO to do so, KOSAN has not overcome the prima facie case of infringement, obtained a discontinuance of such infringement, or brought suit against the THIRD PARTY infringer, then after such one hundred eighty (180) days notice period, ORTHO shall have the right, but not the obligation, to bring suit against such infringer and join KOSAN as a party plaintiff with respect to infringements relating to patents claiming compositions of matter which are LICENSED COMPOUNDS and/or the method of commercial manufacture thereof used by ORTHO (but not with respect to patents relating to the creation or production of polyketides more generally), provided that ORTHO shall bear all the expenses of such suit. In the event ORTHO brings such suit, and damages or other monies are awarded or received in settlement of such suit. ORTHO shall be entitled to deduct an amount to cover its out-of-pocket expenses, including attorneys' and professional fees, and including a reasonable allocation for in-house attorney's time. incurred for such suit. The balance of any recoveries shall be shared by the parties with ORTHO receiving [**] percent ([**]%) and [**] percent ([**]%). KOSAN will cooperate with ORTHO in any suit for infringement of a -41- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. licensed patent brought by ORTHO against a THIRD PARTY, and shall have the right to consult with ORTHO and to participate in and be represented by independent counsel in such litigation at its own expense. ORTHO shall incur no liability to KOSAN as a consequence of such litigation or any unfavorable decision resulting therefrom, including any decision holding KOSAN's patent invalid or unenforceable; provided, ORTHO shall not enter into any settlement which (i) makes any admission of wrongdoing on the part of KOSAN, or (ii) admits that any of KOSAN PATENT RIGHTS are invalid, unenforceable or not infringed, without the prior written consent of KOSAN. 11.3 JOINT INVENTIONS. In the event KOSAN or LICENSEE becomes aware of any actual or threatened infringement of any PATENT RIGHT which claims a Joint Invention that party shall promptly notify the other and the parties shall promptly discuss how to proceed in connection with such actual or threatened infringement. In the event only one party wishes to participate in such proceeding, it shall have the right to proceed alone, at its expense, and may retain any recovery; provided, at the request and expense of the participating party, the other party agrees to cooperate and join in any proceedings in the event that a THIRD PARTY asserts that the co-owner of such Joint Invention is necessary or indispensable to such proceedings. 11.4 COOPERATION. In the event either party hereto shall initiate or carry on legal proceedings to enforce the PATENT RIGHTS against an alleged infringer, as provided herein, the other party hereto shall fully co-operate with the party initiating or carrying on such proceedings. ARTICLE 12 -- INTELLECTUAL PROPERTY 12.1 OWNERSHIP. 12.1.1 OWNERSHIP OF INVENTIONS. KOSAN will own any inventions, and patents claiming such inventions, conceived or reduced to practice by KOSAN personnel in connection with the performance of the RESEARCH PROGRAM, subject to the licenses granted in Article 4 above. RWJPRI will own any inventions, and patents claiming such inventions, conceived and reduced to practice solely by RWJPRI personnel in connection with the RESEARCH PROGRAM. The parties will jointly own any inventions, and patent claiming such inventions, conceived and reduced to practice jointly by RWJPRI and KOSAN personnel in connection with the RESEARCH PROGRAM ("Joint Inventions"); provided, KOSAN shall have sole ownership of all [**] transferred to LICENSEE hereunder and all EXCLUDED TECHNOLOGY and intellectual property relating thereto, and LICENSEE shall and hereby assigns to KOSAN any interest that LICENSEE may have in or to the foregoing. 12.1.2 U.S. LAW. Inventorship and rights of ownership shall be determined in accordance with U.S. patent law. The laws of the United States with respect to joint ownership -42- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. of inventions shall apply in all jurisdictions, and each party hereby waives any right (other than as set forth in this AGREEMENT) to obtain an accounting of profits or approve any license or exploitation thereof. 12.2 PATENT PROSECUTION. 12.2.1 KOSAN shall file, maintain and prosecute the patent applications within the KOSAN PATENT RIGHTS to obtain patents thereon in such countries it deems appropriate, at its own expense. KOSAN does not represent or warrant that any such patent will be obtained, and KOSAN shall, in its sole discretion, be responsible for determining whether to abandon any or all of said patent applications or any portions thereof. 12.2.2 KOSAN shall promptly notify LICENSEE in the event KOSAN decides not to file, or decides to abandon or discontinue prosecution or maintenance of any one or more patents or patent applications included in the KOSAN PATENT RIGHTS. Such notification will be given as early as possible which in no event will be less than [**] prior to the date on which said application(s) will become abandoned. LICENSEE shall have the option, exercisable upon written notification to KOSAN, to assume full responsibility for the filing, prosecution or maintenance of the affected patents or patent application(s), in LICENSEE's name, at its expense. Royalty obligations with respect to such affected patents or patent applications shall be governed by, and at the royalty rate, set forth in Section 7.1.2 hereinabove for the life of such patent. 12.2.3 LICENSEE shall file, maintain and prosecute the patent applications within the PATENT RIGHTS solely owned by LICENSEE to obtain patents thereon in such countries it deems appropriate, at its own expense. LICENSEE does not represent or warrant that any such patent will be obtained, and LICENSEE shall, in its sole discretion be responsible for determining whether to abandon any or all of said patent applications or any portions thereof. 12.3 CONSULTATION. LICENSEE shall have the right to consult with KOSAN regarding the content of said patent applications, prior art searches and correspondence, and to comment thereon. KOSAN shall consider all such comments offered by LICENSEE, it being agreed, however, that all final decisions respecting conduct of the prosecution of said patent applications shall rest solely in the discretion of KOSAN. KOSAN agrees to promptly provide LICENSEE with copies of: 12.3.1 All patent applications included in KOSAN PATENT RIGHTS which claim LICENSED COMPOUNDS; 12.3.2 All prior art searches conducted on behalf of KOSAN related to said patent applications and the subject matter of this AGREEMENT; and -43- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 12.3.3 All correspondence to and from the United States Patent and Trademark Office related to said patent applications as well as all requested correspondence relating to corresponding national and international patent applications. 12.4 JOINT INVENTIONS. 12.4.1 The parties will cooperate to file, prosecute and maintain patent applications covering the Joint Invention(s) within the RESEARCH PROGRAM in the United States, Japan and the European Union (in Europe through a European Patent Convention application) (collectively, the "Core Countries") and other countries agreed by the parties. The parties will share equally all expenses and fees associated with the filing, prosecution, issuance and maintenance of any patent application and resulting patent for a Joint Invention in the Core Countries and other agreed countries. Subject to Section 12.4.3 below, it is understood that, after the termination of the RESEARCH PROGRAM, the parties shall share equally the expenses and fees associated with the filing, prosecution, issuance and maintenance of any patent application and resulting patent for a Joint Invention in the Core Countries and other agreed countries. 12.4.2 In the event that either party wishes to seek patent protection with respect to any Joint Invention outside the Core Countries, it shall notify the other party hereto. If both parties wish to seek patent protection with respect to such Joint Invention in such country or countries, activities shall be subject to Section 12.4.1 above. If only one party wishes to seek patent protection with respect to such Joint Invention in such country or countries, it may file, prosecute and maintain patent applications and patents with respect thereto, at its own expense. Whenever possible, the parties shall cooperate to obtain the benefit of international treaties, conventions and/or agreements (e.g., the Patent Cooperation Treaty.) in order to obtain the benefits afforded thereby. In any such case, the party declining to participate in such activities shall not grant any THIRD PARTY a license under its interest in the applicable joint invention in the applicable country or countries without the prior written consent of the other party, which shall not be unreasonably withheld. KOSAN agrees to provide its written consent, if necessary, for LICENSEE to sublicense any joint invention in any country pursuant to the terms of this AGREEMENT. 12.5 PATENT TERM EXTENSIONS. LICENSEE shall cooperate with KOSAN, and unless KOSAN has previously applied for such an extension on its own behalf or on behalf of a THIRD PARTY with respect to the applicable patent, KOSAN agrees to diligently seek any extension under the U.S. Drug Price Competition and Patent Term Restoration Act of 1984, the Supplementary Certificate of Protection of the Member States of the European Community or other similar measure in any other country that is available or that becomes available in respect of the term of any patent within the KOSAN PATENT RIGHTS including any patent that may issue on a patent application within the KOSAN PATENT RIGHTS. LICENSEE shall diligently advise KOSAN in a timely manner of approval by the Food and Drug Administration of the United States of America to USE, SELL or market PRODUCTS or any other governmental -44- approval obtained by or on behalf of LICENSEE or an AFFILIATE that is pertinent to any such extension and LICENSEE shall supply KOSAN with any pertinent information and data in its possession or control or that is in the possession or control of any AFFILIATE or SUBLICENSEE and shall cooperate fully in assisting KOSAN to obtain any such extension that it may seek and LICENSEE shall supply KOSAN in a timely manner with any information and data and any supporting affidavits or documents required to comply with 35 U.S.C. Section 156 Extension of Patent Term (and any successor legislation) and any administrative rules or regulation thereunder or required to comply with any corresponding laws and regulations that are or shall be in effect in any country within the KOSAN PATENT RIGHTS, all without further consideration. ORTHO shall require its AFFILIATES to comply with this Section 12.5. ARTICLE 13 -- PUBLICITY Neither party shall originate any publicity, news release or public announcement, written or oral, whether to the public or press, stockholders or otherwise, relating to this AGREEMENT, including its existence, the subject matter to which it relates, performance under it or any of its terms, to any amendment hereto or performances hereunder without the written consent of the other party save only (i) such announcements as in the opinion of counsel for the party making such announcement is required by applicable law to be made, or (ii) announcements to KOSAN's private advisors, present investors, and bona fide prospective investors so long as such disclosure is made under a binder of confidentiality wherein such advisor or investor agrees not to disclose the information contained in the announcement to any THIRD PARTY or to use the information for any purpose other than to evaluate its investment or prospective investment in KOSAN. Such announcements shall be factual and as brief as reasonable. If a party decides to make an announcement required by law or otherwise permitted under this AGREEMENT, it will give the other party [**] advance written notice of the text of the announcement so that the other party will have an opportunity to comment upon the announcement. Upon request by a party for approval of any other disclosures, such approval or disapproval shall be given in writing within [**] of its receipt. Upon request by either party, the parties agree to prepare a mutually agreed press release and related Question and Answer document with respect to this AGREEMENT. Once information has been approved for disclosure, no further consent or approval shall be required under this Article with respect to such information. ARTICLE 14 -- WARRANTIES AND REPRESENTATIONS 14.1 KOSAN warrants that as of the EFFECTIVE DATE it owns or exclusively controls by agreement, assignment or license right, title and interest in the KOSAN PATENT RIGHTS and KOSAN KNOW-HOW and that it has full power and authority to execute, deliver and perform this AGREEMENT and the obligations hereunder. 14.2 KOSAN expressly warrants and represents that it has no outstanding encumbrances or agreements, either written, oral, or implied, in connection herewith that are -45- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. inconsistent with the rights granted herein, and that it has not granted and will not grant during the term of this AGREEMENT or any renewal hereof, any rights, license, consent or privilege that conflict with the rights granted herein. 14.3 LICENSEE expressly warrants and represents that it has no outstanding encumbrances or agreements, either written, oral, or implied, in connection herewith that are inconsistent with the obligations undertaken by LICENSEE herein, and that it has not entered into, and during the term of this AGREEMENT or any renewal hereof will not enter into, any agreements, either written, oral, or implied, that conflict with the rights granted, and obligations undertaken, by LICENSEE herein. 14.4 Each party expressly represents and warrants that it has the full power and authority to enter into this AGREEMENT and to carry out the transactions contemplated hereby. 14.5 Each party hereby warrants that the execution, delivery and performance of this AGREEMENT has been duly approved and authorized by all necessary corporate or partnership actions of both parties: do not require any shareholder or partnership approval which has not been obtained or the approval and consent of any trustee or the holders of any indebtedness of either party; do not contravene any law, regulation, rules or order binding on either party, and do not contravene the provisions of or constitute a default under any indenture, mortgage, contract or other agreement or instrument to which either party is a signatory. 14.6 Each party hereby represents and warrants that to the extent the United States government has any interest in the KOSAN PATENT RIGHTS as a result of government funded research, that it will continue to make good faith efforts to comply in all respects with the applicable provisions of any applicable law, regulation, or requirement by the U.S. Government relating to the KOSAN PATENT RIGHTS and shall make reasonable efforts to ensure that such laws, regulations and requirements are fulfilled with respect to the KOSAN PATENT RIGHTS including without limitation the provisions of 35 U.S.C. Section 202. Each party agrees that it will make good faith efforts to ensure that all necessary steps are taken to comply with the requirements of 35 U.S.C. Section 202 ET SEQ. and 37 C.F.R. Section 401.1 ET SEQ. to retain the maximum rights under the KOSAN PATENT RIGHTS allowable by law. LICENSEE and KOSAN agree that it will provide the necessary reports and information required to comply with 35 U.S.C. Sec. 202 et seq. and 37 C.F.R. Section 401.1 et seq., including periodic reports on utilization or efforts at utilization of the inventions covered by the KOSAN PATENT RIGHTS. 14.7 KOSAN and LICENSEE each specifically disclaim that the RESEARCH PROGRAM or the DEVELOPMENT will be successful, in whole or part or that any clinical or other studies undertaken by it will be successful. KOSAN AND LICENSEE EXPRESSLY DISCLAIM ANY WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE CONFIDENTIAL INFORMATION, OR KOSAN PATENT RIGHTS OR KNOW-HOW, LICENSED COMPOUNDS, RESERVED -46- COMPOUNDS, NCEs OR PRODUCTS, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF ANY INTELLECTUAL PROPERTY, PATENTED OR UNPATENTED, OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. ARTICLE 15 -- STANFORD LICENSE 15.1 KOSAN represents that as of the EFFECTIVE DATE the STANFORD LICENSE is in full force and effect. KOSAN shall use its reasonable efforts to not cause the termination and shall not seek to terminate the STANFORD LICENSE during the term of this AGREEMENT without the express written consent of LICENSEE. 15.2 KOSAN shall use its reasonable efforts to perform all duties and obligations required under the STANFORD LICENSE. KOSAN shall notify LICENSEE within [**] of its receipt of any termination notices from STANFORD of the STANFORD LICENSE and at LICENSEE's option shall seek to avoid said termination or shall subrogate LICENSEE to KOSAN's rights under the STANFORD LICENSE to enable LICENSEE to seek to avoid such termination. 15.3 KOSAN shall inform LICENSEE of any renegotiation of the STANFORD LICENSE, and shall not modify any terms or provisions of the STANFORD License, if such renegotiation or modification will adversely affect LICENSEE's rights under this AGREEMENT, without LICENSEE's written consent. KOSAN shall promptly provide LICENSEE with a copy of such renegotiated or modified STANFORD LICENSE. 15.4 In order to provide adequate protection of LICENSEE's interest in avoiding the termination of the STANFORD LICENSE, KOSAN agrees that should KOSAN default or receive a notice from STANFORD of default under the STANFORD LICENSE for failure to timely pay royalties which KOSAN does not intend to cure within the applicable period provided by the STANFORD LICENSE, KOSAN shall notify LICENSEE within [**] of its receipt of such notice and, LICENSEE may cure any such default on KOSAN's behalf, including paying any delinquencies. LICENSEE may credit any such payments made to STANFORD to cure KOSAN's delinquency against future payments due to KOSAN hereunder. ARTICLE 16 -- TRADEMARKS 16.1 ORTHO TRADEMARKS. ORTHO, at its expense, shall be responsible for the selection, registration and maintenance of all trademarks which it employs in connection with PRODUCTS and shall own and control such trademarks. KOSAN recognizes the exclusive ownership by ORTHO of any proprietary ORTHO name, logotype or trademark furnished by ORTHO (including ORTHO's AFFILIATES) for use in connection with the PRODUCT. KOSAN shall -47- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. not, either while this AGREEMENT is in effect or at any time thereafter, register, use or attempt to obtain any right in or to any such name. logotype or trademark or in and to any name, logotype or trademark confusingly similar thereto. ARTICLE 17 -- INDEMNIFICATION 17.1 BY ORTHO. ORTHO agrees to indemnity and hold harmless, KOSAN, its AFFILIATES and their respective officers, directors, employees and agents, and The Leland Stanford Jr. University, Stanford Health Services, Brown University, Brown University Research Foundation, and their respective, trustees, officers, employees, students and agents (each a "KOSAN Indemnitee") from and against any and all liability, damages, losses, claims, suits, proceedings, demands, recoveries or expenses, including reasonable attorney's fees and expenses, incurred or rendered against such KOSAN Indemnitees which arise out of or result from the use, testing, manufacture, processing, packaging, labeling, sale or distribution of PRODUCTS by ORTHO or its AFFILIATES or SUBLICENSEE; except to the extent such liability, damages, losses, claims, suits, proceedings, demands, recoveries or expenses, incurred by or rendered against KOSAN are based upon the gross negligence or wilful misconduct by KOSAN or its AFFILIATES. 17.2 BY KOSAN. KOSAN agrees to indemnify and hold harmless, LICENSEE, its AFFILIATES, and SUBLICENSEES and their respective officers, directors, employees and agents (each a "LICENSEE Indemnitee") from and against any and all THIRD PARTY liability, damages, losses, claims, suits, proceedings, demands, recoveries or expenses, including reasonable attorney's fees and expenses, incurred or rendered against such LICENSEE Indemnitee(s) which arise out of or result from (i) the negligence or wilful misconduct by KOSAN or its AFFILIATES in carrying out the RESEARCH PROGRAM under this AGREEMENT, or (ii) personal injury to KOSAN's employees or agents or damage to KOSAN's property resulting from acts performed by, under the direction of, or at the request of LICENSEE in carrying out activities contemplated by this AGREEMENT; except to the extent such liability, damages, losses, claims, suits, proceedings, demands, recoveries or expenses, incurred by or rendered against LICENSEE are based upon the gross negligence or wilful misconduct of a LICENSEE Indemnitee. 17.3 CONTROL. A party or person (the "Indemnitee") that intends to claim indemnification under this Article 17 shall promptly notify the other party (the "Indemnitor") in writing of any loss, claim, damage, liability, or action in respect of which the Indemnitee or any of its AFFILIATES, SUBLICENSEES or their directors, officers, employees, agents or counsel intend to claim such indemnification, and the Indemnitor shall have the right to participate in, and, to the extent the Indemnitor so desires, to assume the defense thereof with counsel chosen by Indemnitor, with consent of Indemnitee, which consent shall not be unreasonably withheld. The Indemnitee shall not enter into negotiations or enter into any agreement with respect to the settlement of any claim without the prior written approval of the Indemnitor, and the indemnity -48- agreement in this Article 17 shall not apply to amounts paid in settlement of any loss, claim, damage, liability, or action if such settlement is made without the consent of the Indemnitor, which consent shall not be withheld unreasonably. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 17. At the Indemnitor's request, the Indemnitee under this Article 17, and its employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigation and defense of any action, claim or liability covered by this indemnification and provide full information with respect thereto. ARTICLE 18 -- BANKRUPTCY All rights and licenses granted under or pursuant to this AGREEMENT by each party are, and shall otherwise be deemed to be, for purposes of Section 365(n) of Title 11, United States Code (the "Bankruptcy Code"), licenses of rights to "intellectual property" as defined under Section 101(60) of the Bankruptcy Code. The parties agree that LICENSEE shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. ARTICLE 19 -- TERM AND TERMINATION 19.1 TERM. 19.1.1 TERM OF AGREEMENT. This AGREEMENT shall commence upon the EFFECTIVE DATE and shall, unless sooner terminated pursuant to any other provision of this AGREEMENT, continue in full force and effect until the latest of (i) the end of the RESEARCH TERM, or (ii) the date upon which LICENSEE ceases to have one or more PRODUCTS in active DEVELOPMENT or commercialization, or (iii) for as long as royalties are payable according to the provisions of Article 7 herein. The licenses granted herein to LICENSEE shall expire on a country-by-country and PRODUCT-by-PRODUCT basis, once ORTHO has paid royalties for the full period under which such royalty payments are due under Section 7.1 hereunder, and ORTHO and its AFFILIATES shall thereafter have a [**], irrevocable, non-exclusive license under the KOSAN KNOW-HOW to make, have made, USE, SELL and HAVE SOLD PRODUCTS. 19.1.2 TERM AND TERMINATION OF RESEARCH PROGRAM. (a) TERM. Unless earlier terminated as set forth in Section 19.1.2(b), the term of the RESEARCH PROGRAM shall be as set forth in Section 2.5, above. (b) PERMISSIVE TERMINATION. With [**]prior written notice to KOSAN, LICENSEE may terminate the RESEARCH PROGRAM; provided, however, that no -49- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. such termination shall be effective prior to the date twenty-four (24) months following the EFFECTIVE DATE. (c) WIND-DOWN PAYMENT. At the end of the RESEARCH TERM, ORTHO shall pay to KOSAN a "wind-down" payment equal to [**] percent ([**]%) of the amount of RESEARCH FUNDING paid to KOSAN by LICENSEE in the twelve (12) months prior to the expiration of the RESEARCH TERM; provided, however, that if LICENSEE gave KOSAN prior written notice that the RESEARCH PROGRAM would not be extended (by exercise of the option in Section 2.5(ii) or otherwise), then the amount of the "wind-down" payment shall be reduced as follows: (i) if such prior notice was given at least [**] prior to the end of the RESEARCH TERM, then ORTHO shall not owe any "wind-down" payment, and (ii) if such notice was given less than [**] prior to the end of the RESEARCH PROGRAM, then the wind-down payment shall be reduced by [**] for each full month between the date KOSAN receives such written notice and the expiration or termination of the RESEARCH TERM. Notwithstanding the above, it is understood that if the Fast Track PROJECT is not extended beyond the first anniversary of the AGREEMENT, then payments made by RWJPRI for the Fast Track Project shall not be included in the calculation of the "wind-down" payment. It is further understood and agreed that no "wind-down" payment shall be due if the RESEARCH TERM remains in effect until the fourth anniversary of the EFFECTIVE DATE. 19.1.3 TERMINATION OF SCREENING. With [**] prior written notice to KOSAN, RWJPRI may terminate the EXCLUSIVE SCREENING PERIOD and/or the NON-EXCLUSIVE SCREENING PERIOD. In the former case, RWJPRI's right to exclusively screen the [**] shall terminate as of the effective date of such notice, and in the latter case RWJPRI's right to screen the [**] for any activity shall terminate as of the effective date of such notice. 19.2 TERMINATION OF THE AGREEMENT. 19.2.1 PERMISSIVE TERMINATION FOLLOWING RESEARCH TERM. After the end of the RESEARCH TERM, LICENSEE may (i) terminate this AGREEMENT in its entirety or (ii) terminate this AGREEMENT as to any PRODUCT, upon [**] written notice to KOSAN. At its sole discretion, KOSAN may on receipt of such notice from LICENSEE immediately accelerate such termination of this AGREEMENT or PRODUCT, as the case may be, at any time within such [**] period. 19.2.2 FAILURE TO DESIGNATE [**]. In the event that LICENSEE has not designated at least one [**] as a LICENSED COMPOUND prior to the end of the NON-EXCLUSIVE SCREENING PERIOD, then the AGREEMENT shall automatically terminate concurrently with the end of the NON-EXCLUSIVE SCREENING PERIOD. -50- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 19.2.3 MATERIAL BREACH. Notwithstanding any other provisions of this AGREEMENT either party, at its option, may terminate this AGREEMENT on [**] prior written notice served by one party should the other party fail to comply with or perform its obligations hereunder, unless such failure or non-performance is corrected within the [**] period following notification, or such extended period as may be agreed between the parties. In the event that KOSAN fails to comply with or perform its obligations hereunder during the RESEARCH TERM, LICENSEE may, at its option, terminate the RESEARCH PROGRAM, and not the AGREEMENT, on [**] prior written notice, unless such failure or non-performance is corrected within the [**] period following notification or such extended period as may be agreed by the parties. Failure to terminate this AGREEMENT following breach or failure to comply with this AGREEMENT shall not constitute a waiver of a party's defenses, rights or causes of action arising from such or any future breach or noncompliance. 19.2.4 BANKRUPTCY. If either party should be adjudicated bankrupt, file a voluntary petition in bankruptcy, have filed against it a petition for bankruptcy or reorganization unless such petition is dismissed within [**] of filing, make a general assignment for the benefit of creditors, enter into a procedure of winding up to dissolution, or should a Trustee or Receiver be appointed for its business assets or operations, the other party shall be entitled to terminate this AGREEMENT forthwith by giving written notice to the first party. 19.3 EFFECT OF TERMINATION. 19.3.1 ACCRUED RIGHTS AND OBLIGATIONS. Termination of this AGREEMENT for any reason shall not release any party hereto from any liability which, at the time of such termination, has already accrued to the other party or which is attributable to a period prior to such termination, nor preclude either party from pursuing any rights and remedies it may have hereunder or at law or in equity which accrued or are based upon any event occurring prior to such termination. 19.3.2 RETURN OF CONFIDENTIAL INFORMATION. Upon any termination of this AGREEMENT, LICENSEE and KOSAN shall promptly return to the other party all Confidential Information received from the other party (except one copy of which may be retained by legal counsel solely for purposes of monitoring compliance with the provisions of Article 9 and archival purposes). 19.3.3 LICENSES. (a) In the event that the AGREEMENT terminates for any reason prior to the end of the RESEARCH PROGRAM other than pursuant to Section 19.1.2(b), the AGREEMENT and the licenses granted to LICENSEE in Sections 4.1 and 4.3 (and any license to its AFFILIATES under Section 4.6) shall terminate concurrently. -51- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (b) In the event of any termination pursuant to Section 19.1.2(b), 19.1.3 or 19.2.2, the licenses granted to LICENSEE in Sections 4.1 and 4.2.1 shall terminate concurrently, and the license granted to LICENSEE in Section 4.3 (and any license to its AFFILIATES under Section 4.6) shall terminate concurrently with respect to all [**] other than those designated as LICENSED COMPOUNDS pursuant to Section 3.5 prior to the effective date of such termination. In the event of any termination of this AGREEMENT pursuant to Section 19.2.1(ii) only with respect to one or more PRODUCTS, the licenses granted to LICENSEE shall terminate only with respect to such PRODUCT and the LICENSED COMPOUNDS and/or DERIVATIVES contained in such PRODUCTS. (c) In the event of any termination of this AGREEMENT in its entirety by LICENSEE pursuant to Section 19.2.1(i), 19.2.3 or 19.2.4, the licenses granted in Article 4 shall terminate concurrently. (d) In the event of any termination of this AGREEMENT by KOSAN pursuant to Section 19.2.3 or 19.2.4, the licenses granted to LICENSEE (and to its AFFILIATES) under this AGREEMENT shall terminate concurrently. (e) It is understood that, except as provided in Section 19.3.3(a), (c) and (d) above, the licenses granted in Section 4.2.2 and 4.2.3 shall survive until the end of the NON-EXCLUSIVE SCREENING PERIOD. (f) In the event of any termination of the RESEARCH PROGRAM (but not the AGREEMENT) by LICENSEE pursuant to Section 19.2.3 due to uncured material breach by KOSAN, or a termination pursuant to Section 19.1.3, any licenses then in effect with respect to LICENSED COMPOUNDS designated as LICENSED COMPOUNDS pursuant to section 3.5.1, or identified as CLOSE STRUCTURAL ANALOGS pursuant to Section 3.5.5, before the date of such termination shall remain in effect pursuant to the terms and conditions of this AGREEMENT, but RWJPRI shall not receive any further licenses under this AGREEMENT. 19.3.4 REVERSION. in the event that the licenses to LICENSEE (and its AFFILIATES) terminate as described in Section 19.3.3 above, then LICENSEE undertakes the following: (a) to deliver to KOSAN any KOSAN KNOW-HOW in its possession; (b) not to use the KOSAN KNOW-HOW as long as it has to be kept confidential pursuant to Article 9 hereunder; (c) at KOSAN's request, to transfer (and grant the right to access, cross-reference and use, without charge) all RWJPRI KNOW-HOW, MARKETING -52- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. AUTHORIZATIONS. pre-clinical and clinical data, and regulatory filings relating to LICENSED COMPOUNDS and PRODUCTS (including clinical studies and other supporting information, and any written communications to and with the FDA and other comparable agencies), and any data relating to reportable adverse events in respect of PRODUCTS for use in connection with developing and commercializing, and submitting regulatory filings for, PRODUCTS for which LICENSEE does not retain rights under this AGREEMENT and other products; (d) to the extent requested by KOSAN, to transfer to KOSAN responsibility for and control of ongoing DEVELOPMENT work, including contracts with THIRD PARTIES for such work, in an expeditious and orderly manner with the costs for such work assumed by KOSAN as of the date such contracts are transferred; and (e) to grant to KOSAN an irrevocable, exclusive, worldwide paid-up license under RWJPRI PATENT RIGHTS and RWJPRI KNOW-HOW owned or controlled by LICENSEE, with the right to grant and authorize sublicenses, to make, have made, USE, SELL and HAVE SOLD LICENSED COMPOUNDS and PRODUCTS, and provide KOSAN with all reasonable assistance to transfer the RWJPRI KNOW-HOW and enable KOSAN to continue DEVELOPMENT and to make, have made, USE, SELL and HAVE SOLD LICENSED COMPOUNDS and PRODUCTS. (f) It is understood that, in the event of a termination of licenses pursuant to Sections 19.3.3(b) or (f) wherein LICENSEE retains certain licenses, the foregoing provisions of Section 19.3.4 shall apply only to the terminated rights and licenses. 19.4 SURVIVAL. Sections 2.4.5(d), 2.6.5, 2.8, 3.3.3, 3.4, 3.5.5, 3.7, 4.5, 4.12, 4.13, 4.14, 7.1, 7.5, 7.6, 7.7, 7.9, 7.10, 7.11, 10.1, 11.3, 11.4, 12.1, 12.4, 14.7, 18, 19.3 and 19.4 and the last sentence of Section 4.4, and Articles 9, 13, 17, 21 and 22 shall survive the expiration and any termination of the AGREEMENT for any reason. ARTICLE 20 -- ASSIGNMENT 20.1 PERMITTED ASSIGNMENTS. This AGREEMENT or any interest herein shall not be assigned or transferred, in whole or in part, by either party hereto without the prior written consent of the other party hereto. However, without securing such prior written consent, either party may assign this AGREEMENT to an AFFILIATE or a successor of all or substantially all of its business to which this AGREEMENT relates provided, that no such assignment shall be binding and valid until and unless the assignee shall have assumed in a writing, delivered to the non-assigning party, all of the duties and obligations of the assignor, and, provided, further, that the assignor shall remain liable and responsible to the non-assigning party hereto for the performance and observance of all such duties and obligations. -53- 20.2 BINDING EFFECT. This AGREEMENT shall be binding upon, and inure to, the benefit of the parties hereto, and to the benefit of any permitted assignee or successor. LICENSEE shall also have the right, whether or not it elects to terminate this AGREEMENT, to require that all reasonable steps it may reasonably specify be taken to prevent disclosure of its confidential information to an acquiror or assignee of KOSAN in any way reasonably adverse to its interests. ARTICLE 21 -- DISPUTE RESOLUTION 21.1 DISCUSSION. The parties shall attempt in good faith to resolve any dispute arising out of or relating to this AGREEMENT promptly by negotiations between the Chief Executive Officer of KOSAN and LICENSEE (who shall be the Chairman of RWJPRI for issues relating primarily to research and development, and the President of ORTHO for issues relating to PRODUCT commercialization), who each have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility for administration of this AGREEMENT. Any party may give the other party written notice of any dispute not resolved in the normal course of business. Within [**] after receipt of the notice, the receiving party shall submit to the other a written response. The notice and the response shall include a detailed statement of each party's position and a summary of arguments supporting that position. Within [**] after delivery of the response, Chief Executive Officer of KOSAN and LICENSEE (who shall be the Chairman of RWJPRI for issues relating primarily to research and development and the President of ORTHO for issues relating to PRODUCT commercialization) shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. All reasonable requests for information made by one party to the other will be honored. All negotiations pursuant to this clause will be confidential and shall be treated as compromise and settlement negotiations for the purposes of the Federal Rules of Evidence and all other evidentiary purposes. 21.2 MEDIATION. If the matter has not been resolved within [**] of the disputing party's notice, or if the Chief Executive Officer of KOSAN and LICENSEE (who shall be the Chairman of RWJPRI for issues relating primarily to research and development and the President of ORTHO for issues relating to PRODUCT commercialization) fail to meet within the time frame set forth in Section 21.1, either party may initiate mediation of the dispute as set forth in Section 21.2 of this AGREEMENT. (a) Any dispute, controversy or claim arising out of or related to this AGREEMENT, or the interpretation, application, breach, termination or validity thereof, including any claim of inducement by fraud or otherwise, shall, before submission to arbitration, first be mediated through non-binding mediation in accordance with the Model Procedures for the Mediation of Business Disputes promulgated by the Center for Public Resources ("CPR") then in effect, except where those rules conflict with these provisions, in which case these provisions control. The mediation shall be conducted in New York, New York and shall be -54- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. attended by a senior executive with authority, to resolve the dispute from each of the operating companies that are parties. (b) The mediator shall be an attorney specializing in business litigation who has at least fifteen (15) years of experience as a lawyer with a law firm of over twenty-five (25) lawyers or was a judge of a court of general jurisdiction and who shall be appointed from the list of neutrals maintained by CPR. (c) The parties shall promptly confer in an effort to select a mediator by mutual agreement. In the absence of such an agreement, the mediator shall be selected from a list generated by CPR with each party, having the right to exercise challenges for cause and two peremptory challenges within three business days of receiving the CPR list. (d) The mediator shall confer with the putties to design procedures to conclude the mediation within no more than [**] after initiation. Unless agreed upon by the parties in writing, under no circumstances shall the commencement of arbitration under Section 21.3 be delayed more than [**] by the mediation process specified herein. (e) Each party, agrees to toll all applicable statutes of limitation during the mediation process and not to use the period or pendency of the mediation to disadvantage the other party procedurally or otherwise. All negotiations pursuant to this clause will be confidential and shall be treated as compromise and settlement negotiations for the purposes of the Federal Rules of Evidence and all other evidentiary purposes. 21.3 ARBITRATION. (a) Following the mediation procedures set forth in Section 21.2, Any dispute, claim or controversy arising from or related in any way to this AGREEMENT or the interpretation, application, breach, termination or validity, thereof, including any claim of inducement of this AGREEMENT by fraud or otherwise, will be submitted for resolution to arbitration pursuant to the commercial arbitration rules then pertaining of the Center for Public Resources ("CPR"), except where those rules conflict with these provisions, in which case these provisions control. The arbitration will be held in San Francisco, California. (b) The panel shall consist of three (3) arbitrators chosen from the CPR Panels of Distinguished Neutrals each of whom (i) is a lawyer specializing in business litigation, with experience in litigation relating to development and commercialization of pharmaceutical products and whom has never represented any party hereto or any of its Affiliates and whom has at least fifteen (15) years experience with a law from of over twenty-five (25) lawyers, or (ii) was a judge of a court of general jurisdiction and who has never represented either party hereto or any of its Affiliates. -55- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (c) The parties agree to cooperate (l) to obtain selection of the arbitrators within [**] of initiation of the arbitration, (2) to meet with the arbitrators within [**] of selection and (3) to agree at that meeting or before upon procedures for discovery and as to the conduct of the hearing which will result in the hearing being concluded within no more than [**] after selection of the arbitrators and in the award being rendered within [**] of the conclusion of the hearings, or of any post-hearing briefing, which briefing will be completed by both parties within [**] after the conclusion of the hearings. In the event no such agreement is reached, the CPR will select arbitrators, allowing appropriate strikes for reasons of conflict or other cause and three (3) peremptory challenges for each side. The arbitrators shall set a date for the hearing, commit to the rendering of the award within [**] of the conclusion of the evidence at the hearing, or of any post-hearing briefing (which briefing will be completed by both sides in no more than [**] after the conclusion of the hearings), and provide for discovery according to these time limits, giving recognition to the understanding of the parties hereto that they contemplate reasonable discovery, including document demands and depositions, but that such discovery be limited so that the time limits specified herein may be met without undue difficulty. In no event will the arbitrators allow either side to obtain more than a total of [**] of deposition testimony from all witnesses, including both fact and expert witnesses. In the event multiple hearing days are required, they will be scheduled consecutively to the greatest extent possible. (d) The arbitrators shall render their award following the substantive law of California, without reference to principles of conflicts of law. The arbitrators shall render an opinion setting forth findings of fact and conclusions of law with the reasons therefor stated. A transcript of the evidence adduced at the hearing shall be made and shall, upon request, be made available to either party. (e) To the extent possible, the arbitration hearings and award will be maintained in confidence. (f) Any United States District Court having jurisdiction of the matter may enter judgment upon any award. In the event the panel's award exceeds [**] Dollars ($[**]) in monetary, damages or includes or consists of equitable relief, then the court shall vacate, modify or correct any award where the arbitrators' findings of fact are clearly erroneous, and/or where the arbitrators' conclusions of law are erroneous; in other words, it will undertake the same review as if it were a federal appellate court reviewing a district court's findings of fact and conclusions of law rendered after a bench trial. An award for less than [**] Dollars ($[**]) in damages and not including equitable relief may be vacated, modified or corrected only upon the grounds specified in the Federal Arbitration Act. The parties consent to the jurisdiction of the District Court for the enforcement of these provisions, the entry of judgment on any award, and the vacatur, modification and correction of any award as above specified. -56- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (g) Each party has the right before or during the arbitration to seek and obtain from the appropriate court provisional remedies such as attachment, preliminary injunction, replevin, etc. to avoid irreparable harm, maintain the status quo, or preserve the subject matter of the arbitration. (h) EACH PARTY HERETO WAIVES ITS RIGHT TO TRIAL OF ANY ISSUE BY JURY. (i) SUBJECT TO THE PROVISIONS OF ARTICLE 17, EACH PARTY HERETO WAIVES ANY CLAIM TO PUNITIVE, EXEMPLARY AND CONSEQUENTIAL DAMAGES FROM THE OTHER. ARTICLE 22 -- MISCELLANEOUS 22.1 ENTIRE AGREEMENT. Before signing this AGREEMENT the parties have had numerous conversations, including preliminary discussions, formal negotiations and informal conversations at meals and social occasions, and have generated correspondence and other writings, in which the parties discussed the transaction which is the subject of this AGREEMENT and their aspirations for its success. In such conversations and writings, individuals representing the parties may have expressed their judgments and beliefs concerning the intentions, capabilities, and practices of the parties, and may have forecasted future events. The parties recognize that such conversations and writings often involve an effort by both sides to be positive and optimistic about the prospects for the transaction. It is also recognized, however, that all business transactions contain an element of risk, as does the transaction contemplated by this AGREEMENT and that it is normal business practice to limit the legal obligations of contracting parties to only those promises and representations which are essential to their transaction so as to provide certainty as to their respective future rights and remedies. Accordingly, it is agreed that this AGREEMENT constitutes the entire agreement and understanding between the parties as to the legal undertakings hereunder. All prior negotiations, representations, agreements, contracts, offers and earlier understandings of whatsoever kind, whether written or oral between KOSAN and LICENSEE in respect of this AGREEMENT, are superseded by, merged into, extinguished by and completely expressed by this AGREEMENT. No aspect, part or wording of this AGREEMENT may be modified except by mutual agreement between the KOSAN and LICENSEE taking the form of an instrument in writing signed and dated by duly authorized representatives of both KOSAN and LICENSEE. 22.2 NOTICES. All communications, reports, payments and notices required by this AGREEMENT by one party to the other shall be addressed to the parties at their respective addresses set forth below or to such other address as requested by either party by notice in writing to the other. -57- If to KOSAN: KOSAN BIOSCIENCES, INC. 1450 Rollins Road Burlingame, California 94010 Attn: President Telefax No.: (650) 343-2931 With a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304 Arm: Michael S. Rabson Telefax No.: (415) 496-4006 If to RWJPRI, ORTHO or LICENSEE: ORTHO-MCNEIL PHARMACEUTICAL CORPORATION 1000 U.S. Route 202, Raritan. New Jersey 08869 Attention: President Telefax No.: (908) 218-1416 With a copy to: Chief Patent Counsel Johnson & Johnson One Johnson & Johnson Plaza New Brunswick, New Jersey 08903 Telefax No.: (908) 524-2808 AND R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE 920 U.S. Route 202 Raritan. New Jersey 08869 Attention: Chairman Telefax No.: (908) 704-9486 -58- All such notices, reports, payments and communications shall be made in writing by telefax to the numbers set forth above or by First Class mail, postage prepaid, and shall be considered made as of the date of deposit with the United States Post Office or when received by telefax. 22.3 GOVERNING LAW. All matters affecting the interpretation, validity, and performance of this AGREEMENT, including any arbitration proceeding conducted pursuant to Article 21, shall be governed by the internal laws of the State of California without regard to its conflict of law principles, except as to any issue which by California law depends upon the validity, scope or enforceability of any patent within the PATENT RIGHTS, which issue shall be determined in accordance with the applicable patent laws of the country of such patent. 22.4 SEVERABILITY. Should any part or provision of this AGREEMENT be held unenforceable or in conflict with the law of any jurisdiction, the validity of the remaining part or provisions shall not be affected by such holdings; provided that the parties shall use their best efforts to negotiate an enforceable provision that most nearly reflects the parties original intentions. 22.5 WAIVER. The waiver by either party, whether express or implied, of any provisions of this AGREEMENT, or of any breach or default of either party, shall not be construed to be a continuing waiver of such provision, or of any succeeding breach or default or of a waiver of any other provisions of this AGREEMENT. 22.6 NO REPRESENTATIONS. Notwithstanding anything to the contrary, in this AGREEMENT, nothing herein contained shall be construed as a representation by KOSAN that the PATENT RIGHTS can be or will be used to prevent the importation by a THIRD PARTY hereto of a product into or the SALE or USE by a THIRD PARTY hereto of a product in any country within the PATENT RIGHTS where such product shall have been placed in commerce under circumstances which preclude the use of the PATENT RIGHTS to prevent such importation or SALE or USE by reason of any applicable law or treaty. 22.7 FORCE MAJEURE. Notwithstanding any other provisions of this AGREEMENT, neither of the parties hereto shall be liable in damages or have the right to terminate this AGREEMENT for any delay or default in performing hereunder if such delay or default is caused by conditions beyond its control including, but not limited to acts of God, governmental restrictions, wars, or insurrections, strikes, floods, earthquakes, work stoppages and/or lack of materials, and any time for performance hereunder shall be extended for the actual time of delay caused by such occurrence; provided, however, that the party suffering such delay or default shall notify the other party in writing of the reasons for the delay or default and shall diligently seek to correct such conditions, if such reasons for delay or default continuously exist for [**], this AGREEMENT may be terminated by either party. -59- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 22.8 INDEPENDENT CONTRACTORS. It is understood that both parties hereto are independent contractors and are engaged in the operation of their own respective businesses, and neither hereto is to be considered the agent or partner of the other for any purpose whatsoever. Neither party has any authority to enter into any contracts or assume any obligations for the other party or make any warranties or representations on behalf of the other party. 22.9 ADVICE OF COUNSEL. KOSAN and LICENSEE have each consulted counsel of their choice regarding this AGREEMENT, and each acknowledges and agrees that this AGREEMENT shall not be deemed to have been drafted by one party or another and will be construed accordingly. 22.10 PATENT MARKING. LICENSEE agrees to mark and have its AFFILIATES and SUBLICENSEES mark all PRODUCTS they sell or distribute pursuant to this AGREEMENT in accordance with the applicable statute or regulations in the country, or countries of manufacture and sale thereof. 22.11 COMPLIANCE WITH LAWS. Each party, shall furnish to the other party any information requested or required by that party during the term of this AGREEMENT or any extensions hereof to enable that party, to comply with the requirements of any U.S. or foreign federal, state and/or government agency. Each party shall comply with all applicable U.S., foreign, state, regional and local laws, rules and regulations relating to its activities to be performed pursuant to this AGREEMENT, including without limitation, the United States Foreign Corrupt Practices Act, United States export regulations and such other United States and foreign laws and regulations as may be applicable, and to obtaining all necessary approvals, consents and permits required by the applicable agencies of the government of the United States and foreign jurisdictions. 22.12 FURTHER ASSURANCES. At any time or from time to time on and after the date of this AGREEMENT, each party shall at the request of the other party (i) deliver to such party such records, data or other documents consistent with the provisions of this AGREEMENT, (ii) execute, and deliver or cause to be delivered, all such consents, documents or further instruments of transfer or license, and (iii) take or cause to be taken all such actions, as the requesting party may reasonably deem necessary or desirable in order for the requesting party to obtain the full benefits of this AGREEMENT and the transactions contemplated hereby. 22.13 JOINT AND SEVERAL LIABILITY: PERFORMANCE WARRANTY. Notwithstanding any other provision of this AGREEMENT, it is understood and agreed that ORTHO and RWJPRI shall be jointly and severally liable for the obligations of ORTHO and RWJPRI under this AGREEMENT. LICENSEE hereby warrants and guarantees the performance of any and all rights and obligations of this AGREEMENT by its AFFILIATE(S) and SUBLICENSEE(S) including, without limitation, performance under any license granted pursuant to Section 4.3, 4.5, or 4.6 above. -60- 22.14 USE OF SINGULAR. As used in this AGREEMENT, singular includes the plural and plural includes the singular, wherever so required by the context. 22.15 HEADINGS. The captions to the several Sections and Articles hereof are not a part of this AGREEMENT, but are included merely for convenience of reference only and shall not affect its meaning or interpretation. 22.16 COUNTERPARTS. This AGREEMENT may be executed in two counterparts, each of which shall be deemed an original and which together shall constitute one immanent. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and duly executed this AGREEMENT on the date(s) indicated below, to be effective the day and year first above written. For and on Behalf of KOSAN BIOSCIENCES, INC. By: /s/ Daniel V. Santi ----------------------------------------- Name: Daniel Santi --------------------------------------- Title: Chairman -------------------------------------- Date: Sept 28-98 --------------------------------------- For and on Behalf of ORTHO-MCNEIL PHARMACEUTICAL INC. By: /s/ Robert G. Savage ----------------------------------------- Robert G. Savage, President Date: 9-29-98 --------------------------------------- For and on Behalf of THE R.W. JOHNSON PHARMACEUTICALS RESEARCH INSTITUTE By: /s/ William A.M. Duncan ----------------------------------------- William A.M. DunCan, Chairman Date: 9-29-28 --------------------------------------- -61- Exhibit A Research Plan PART I. FAST -TRACK PROJECT OBJECTIVES AND SPECIFIC AIMS [**] Page 1 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] Page 2 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] REFERENCES Jacobsen, J.R., Hutchinson, C.R., Cane, D.E., & Khosla, C. (1997) "Precursor-directed biosynthesis of erythromycin analogs by an engineered polyketide synthase," SCIENCE 277: 367-369. Zotchev, S.B., & Hutchinson, C.R. (1995) "Cloning and heterologous expression of the genes encoding nonspecific electron transport components for a cytochrome P450 system of SACCHAROPOLYSPORA ERYTHRAEA involved in erythromycin production," GENE 156: 101-106. PART II. SAR PROJECT OBJECTIVE AND SPECIFIC AIMS [**] Page 3 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] Page 4 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] Page 5 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] Page 6 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] Page 7 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] REFERENCES Andersen, J.F., Tatsuta, K., Gunji, H., Ishiyama, T., & Hutchinson, C.R. (1993) "Substrate specificity of 6-deoxyerythronolide B hydroxylase, a bacterial cytochrome P450 of erythromycin A biosynthesis," BIOCHEMISTRY 32:1905-1913. Bright, G.M., Nagel, A.A., Bordner, J., ET AL. (1988) "Synthesis, IN VITRO and IN VIVO activity of novel 9-deoxo-9a-aza-9a-homoerythromycin A derivatives; a new class of macrolide antibiotics, the azalides," J. ANTIBIOTICS 41: 1029-1047. Griesgraber, G., Or Y.S., Chu, D.T.W., Nilius, A.M., Johnson, P.M., Flamm, R.K., Henry, R.F., & Plattner, J.J. (1996) "3-keto-11,12 carbazate derivatives of 6-O-methyl erythromycin A: synthesis and IN VITRO activity," J. ANTIBIOTICS 49(5): 465-477. Jacobsen, J.R., Hutchinson, C.R., Cane, D.E., & Khosla, C. (1997) "Precursor-directed biosynthesis of erythromycin analogs by an engineered polyketide synthase," SCIENCE 277: 367-369. Kao, C.M., Luo, G., Katz, L., Cane, D.E., & Khosla, C. (1995) "Manipulation of macrolide ring size by directed mutagenesis of a modular polyketide synthase," J. AM. CHEM. SOC. 117: 9105-9106. Kealey, J.T., Liu, L., Santi, D.V., Betlach, M.C., & Barr, P.J. (1997) "Production of a polyketide natural product in non-polyketide producing prokaryotic and eukaryotic hosts," PROC. NATL. ACAD. SCI. USA, in press. Liu, L., Thamchaipenet, A., Fu, H., Betlach, M., & Ashley, G. (1997) "Biosynthesis of 2-nor-6-deoxyerythronolide B by rationally designed domain substitution," J. AM. CHEM. SOC. 119: 10553-10554. McDaniel, R., Kao, C.M., Fu, H., Hevezi, P., Gustafsson, C., Betlach, M., Ashley, G., Cane, D.E., & Khosla, C. (1997) "Gain-of-function mutagenesis of a modular polyketide synthase," J. AM. CHEM. SOC. 119: 4309-4310. Morimoto, S., Takahashi, Y., Watanabe, Y., & Omura, S. (1984) "Chemical modification of erythromycins. I. Synthesis and antibacterial activity of 6-O-methylerythromycins A," J., ANTIBIOTICS 37:187-189. Page 8 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Ruan, X., Pereda, A., Stassi, D., Zeidner, D., Summers, R.G., Jackson, M., Shivakumar, A., Kakavas, S., Staver, M.J., Donadio, S., & Katz, L. (1997) "Acyltransferase Domain substitutions in erythromycin polyketide synthase yield novel erythromycin derivatives, "J. BACTERIOLOGY 179:6416-6425. Zotchev, S.B., & Hutchinson, C.R. (1995) "Cloning and heterologous expression of the genes encoding nonspecific electron transport components for a cytochrome P450 system of SACCHAROPOLYSPORA ERYTHRAEA involved in erythromycin production," GENE 156: 101-106. PART III. CRITERIA FOR NCES [**] Page 9 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] Page 10 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] Page 11 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] PART IV. FTE TABLES AND TIMELINES The table below shows the number and cost of Kosan FTEs to be applied in the Fast-Track and SAR Projects though the course of the Research Program. [**] Page 12 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [**] Page 13 of 13 Confidential Information [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Exhibit B [**]
- ----------------------------------------------------- ---------------- ---------------- ---------------- KOS002 CONCENTRATION DATA - ----------------------------------------------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- WELL EXTRACT PEAK RT COMPOUND MW CONC(mM) - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A2 KE-001 7.55 KA-058 302 0.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A2 KE-001 11.41 KA-060 302 0.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A2 KE-001 11.81 KA-061 302 1.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A2 KE-001 14.65 KA-042 284 0.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A3 KE-007 10.60 KA-100 368 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A3 KE-007 11.90 KA-118 386 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A3 KE-007 15.25 KA-119 386 2.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A3 KE-007 15.44 KA-120 386 0.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A3 KE-007 19.17 KA-075 324 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A4 KE-014 6.31 KA-068 318 2.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A4 KE-014 7.52 KA-069 318 2.5 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A4 KE-014 10.28 KA-056 300 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A4 KE-014 10.93 KA-057 300 0.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A4 KE-014 21.75 KA-031 270 0.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A5 KE-023 6.37 KA-068 318 1.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A5 KE-023 7.57 KA-069 318 1.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A5 KE-023 10.33 KA-056 300 0.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A6 KE-030 15.32 KA-119 386 1.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A6 KE-030 15.78 KA-120 386 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A7 KE-038 10.47 KA-100 368 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A7 KE-038 11.95 KA-118 386 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A7 KE-038 15.28 KA-119 386 4.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A7 KE-038 15.76 KA-120 386 0.9 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A7 KE-038 25.08 KA-074 322 0.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A8 KE-045 10.58 KA-100 368 0.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A8 KE-045 12.93 KA-102 368 1.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A8 KE-045 15.35 KA-119 386 4.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A8 KE-045 15.83 KA-120 386 1.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A8 KE-045 19.25 KA-075 324 0.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A8 KE-045 23.01 KA-121 386 0.5 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A8 KE-045 23.66 KA-122 386 0.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A8 KE-045 25.06 KA-108 372 3.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 11.43 KA-101 368 1.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 13.38 KA-005 182 1.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- Page 1 of 10 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 13.88 KA-150 453 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 14.78 KA-151 453 0.5 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 15.03 KA-127 392 0.9 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 15.60 KA-125 390 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 16.18 KA-128 392 0.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 16.71 KA-018 236 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 18.18 KA-138 413 1.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 18.70 KA-136 411 0.9 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 19.76 KA-142 427 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 20.31 KA-139 413 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 20.75 KA-140 413 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 21.25 KA-129 392 2.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 22.24 KA-126 390 1.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 23.65 KA-137 411 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 25.00 KA-109 374 0.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A9 KE-073 26.58 KA-088 348 1.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A10 K005-83 26.73 KA-025 254 1.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- A 11 K005-92D [**] 390 1.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 7.82 KA-058 302 1.9 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 11.30 KA-059 302 0.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 12.05 KA-061 302 4.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 14.87 KA-042 284 0.9 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 19.57 KA-052 298 1.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 21.13 KA-053 298 0.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 21.30 KA-054 298 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 21.98 KA-064 312 8.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 22.96 KA-044 286 2.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 23.75 KA-038 283 3.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 24.53 KA-055 298 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 25.40 KA-040 283 5.9 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 26.76 KA-025 254 9.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 27.10 KA-050 297 2.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 28.05 KA-022 240 3.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B2 KE-002 29.21 KA-023 240 2.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B3 KE-060 10.27 KA-100 368 0.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B3 KE-060 13.71 KA-150 453 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B3 KE-060 14.64 KA-046 290 0.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B3 KE-060 15.19 KA-119 386 1.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B3 KE-060 15.71 KA-120 386 0.5 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B3 KE-060 16.55 KA-135 411 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B3 KE-060 18.58 KA-136 411 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- B3 KE-060 26.28 KA-114 382 0.9 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- Page 2 of 10 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B4 KE-016 12.78 KA-102 368 9.3 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B4 KE-016 15.97 KA-105 370 2.5 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B4 KE-016 16.73 KA-106 370 0.4 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B4 KE-016 21.43 KA-089 350 0.5 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B5 KE-064 6.38 KA-068 318 1.1 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B5 KE-064 7.59 KA-069 318 0.5 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B5 KE-064 10.15 KA-065 315 2.2 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B5 KE-064 10.33 KA-056 300 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B5 KE-064 11.90 KA-001 166 0.3 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B5 KE-064 12.26 KA-002 166 0.1 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B5 KE-064 16.58 KA-030 260 0.4 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B6 KE-031 9.83 KA-116 384 0.7 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B6 KE-031 11.86 KA-098 366 0.3 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B7 KE-039 8.00 KA-058 302 4.7 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B7 KE-039 11.81 302 0.3 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B7 KE-039 12.23 KA-061 302 4.8 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B7 KE-039 14.97 KA-042 284 3.0 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B8 KE-046 10.00 KA-115 384 2.8 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B9 KE-075 14.93 KA-148 450 1.0 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B9 KE-075 15.96 KA-153 464 0.4 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B9 KE-075 16.65 KA-146 448 0.1 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B9 KE-075 17.56 KA-154 464 0.2 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B10 K005-80 19.30 KA-052 298 1.0 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- B11 K005-92E [**] 924 1.0 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- C2 KE-058 13.13 KA-083 342 1.3 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- C2 KE-058 13.68 KA-051 298 0.7 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- C2 KE-058 14.38 KA-093 356 0.4 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- C2 KE-058 15.08 KA-095 360 0.1 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- C2 KE-058 16.30 KA-009 196 0.5 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- C2 KE-058 16.51 KA-010 196 0.9 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- C2 KE-058 16.96 KA-079 332 0.2 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- C2 KE-058 17.55 KA-080 332 0.2 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- C2 KE-058 18.98 KA-086 346 0.3 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- C2 KE-058 19.41 KA-087 346 0.2 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- C3 KE-062 6.15 KA-026 258 0.7 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- C3 KE-062 7.86 KA-058 302 0.8 - ------------------- ---------------- ---------------- -------------------- ------------ ---------------- Page 3 of 10 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. - ------------------- --------------- ------------------- --------------- --------------- ---------------- C3 KE-062 11.40 KA-059 302 0.7 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C3 KE-062 12.07 KA-061 302 3.8 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C3 KE-062 14.88 KA-042 284 2.6 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C3 KE-062 16.51 KA-013 220 0.5 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C3 KE-062 19.08 KA-052 298 6.7 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C3 KE-062 19.51 KA-036 283 4.4 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C3 KE-062 21.30 KA-037 283 2.0 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C3 KE-062 22.85 KA-121 386 0.5 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C3 KE-062 23.78 KA-038 283 1.1 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C3 KE-062 25.00 KA-039 283 0.9 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C3 KE-062 26.76 KA-025 254 1.5 - ------------------- --------------- ------------------- --------------- --------------- ---------------- - ------------------- --------------- ------------------- --------------- --------------- ---------------- C4 KE-017 9.68 KA-115 384 0.8 - ------------------- --------------- ------------------- --------------- --------------- ---------------- - ------------------- --------------- ------------------- --------------- --------------- ---------------- C5 KE-063 6.48 KA-068 318 6.8 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C5 KE-063 7.78 KA-069 318 3.2 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C5 KE-063 10.42 KA-065 314 0.3 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C5 KE-063 14.83 KA-151 453 0.9 - ------------------- --------------- ------------------- --------------- --------------- ---------------- - ------------------- --------------- ------------------- --------------- --------------- ---------------- C6 KE-032 10.08 KA-024 242 0.2 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C6 KE-032 15.10 KA-119 386 1.5 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C6 KE-032 15.58 KA-120 386 0.3 - ------------------- --------------- ------------------- --------------- --------------- ---------------- - ------------------- --------------- ------------------- --------------- --------------- ---------------- C7 KE-068 10.28 KA-056 300 1.5 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C7 KE-068 10.96 KA-057 300 1.4 - ------------------- --------------- ------------------- --------------- --------------- ---------------- - ------------------- --------------- ------------------- --------------- --------------- ---------------- C8 KE-047 8.12 KA-058 302 0.4 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C8 KE-047 11.48 KA-059 302 1.1 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C8 KE-047 12.25 KA-061 302 2.0 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C8 KE-047 14.62 KA-041 284 1.4 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C8 KE-047 15.01 KA-042 284 0.2 - ------------------- --------------- ------------------- --------------- --------------- ---------------- - ------------------- --------------- ------------------- --------------- --------------- ---------------- C9 KE-053 5.35 KA-067 318 0.7 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C9 KE-053 10.95 KA-152 462 0.5 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C9 KE-053 14.03 KA-148 450 0.4 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C9 KE-053 15.73 KA-153 464 0.7 - ------------------- --------------- ------------------- --------------- --------------- ---------------- C9 KE-053 16.00 KA-146 448 0.7 - ------------------- --------------- ------------------- --------------- --------------- ---------------- - ------------------- --------------- ------------------- --------------- --------------- ---------------- C10 K005-88 KA-092 354 - ------------------- --------------- ------------------- --------------- --------------- ---------------- - ------------------- --------------- ------------------- --------------- --------------- ---------------- C11 K005-92F erythromycin A 734 1.0 - ------------------- --------------- ------------------- --------------- --------------- ---------------- - ------------------- --------------- ------------------- --------------- --------------- ---------------- D2 KE-057 5.28 KA-067 318 0.3 - ------------------- --------------- ------------------- --------------- --------------- ---------------- D2 KE-057 5.76 KA-032 276 0.3 - ------------------- --------------- ------------------- --------------- --------------- ---------------- D2 KE-057 6.18 KA-070 319 0.9 - ------------------- --------------- ------------------- --------------- --------------- ---------------- D2 KE-057 7.43 KA-071 319 0.2 - ------------------- --------------- ------------------- --------------- --------------- ---------------- Page 4 of 10 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D2 KE-057 12.60 KA-141 421 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D2 KE-057 13.13 KA-083 342 1.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D2 KE-057 13.73 KA-150 453 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D2 KE-057 14.41 KA-132 407 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D2 KE-057 14.80 KA-133 409 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D2 KE-057 18.58 KA-136 411 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D3 KE-009 5.73 KA-016 234 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D3 KE-009 7.62 KA-058 302 1.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D3 KE-009 8.68 KA-165 302 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D3 KE-009 11.20 KA-059 302 1.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D3 KE-009 11.90 KA-061 302 1.5 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D3 KE-009 12.46 KA-072 322 1.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D3 KE-009 14.76 KA-041 284 0.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D3 KE-009 17.15 KA-020 304 0.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D3 KE-009 19.20 KA-052 298 0.5 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D3 KE-009 19.65 KA-164 620 0.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D3 KE-009 21.31 KA-163 618 0.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D3 KE-009 26.70 KA-025 254 0.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D4 KE-018 7.95 KA-058 302 1.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D4 KE-018 11.75 KA-060 302 0.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D4 KE-018 12.12 KA-061 302 2.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D4 KE-018 14.93 KA-042 284 1.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D5 KE-025 10.05 KA-115 384 4.5 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D5 KE-025 15.05 KA-017 234 0.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D5 KE-025 17.85 KA-111 380 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D6 KE-033 5.75 KA-012 210 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D6 KE-033 9.82 KA-115 384 0.9 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D6 KE-033 11.93 KA-098 366 0.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D7 KE-042 6.25 KA-026 258 0.9 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D7 KE-042 19.12 KA-052 298 5.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D7 KE-042 19.45 KA-036 283 5.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D7 KE-042 21.25 KA-037 283 1.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D7 KE-042 23.73 KA-038 283 2.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D7 KE-042 25.25 KA-040 283 3.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D7 KE-042 26.88 KA-025 254 5.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D7 KE-042 28.09 KA-022 240 4.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D7 KE-042 29.20 KA-023 240 3.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D7 KE-042 32.00 KA-158 508 0.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D8 KE-048 12.03 KA-077 326 1.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D8 KE-048 14.63 KA-041 284 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- Page 5 of 10 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D9 KE-074 14.91 KA-148 450 1.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D9 KE-074 15.96 KA-153 464 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D10 K003-89 KA-064 312 1.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- D11 K005-92G [**] 1.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E2 KE-004 11.96 KA-061 302 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E2 KE-004 18.56 KA-094 358 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E2 KE-004 19.21 KA-052 298 1.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E2 KE-004 23.75 KA-043 284 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E2 KE-004 24.85 KA-035 282 0.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E2 KE-004 25.84 KA-021 240 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E2 KE-004 26.78 KA-025 254 2.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E2 KE-004 28.06 KA-022 240 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E2 KE-004 29.23 KA-023 240 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 7.86 KA-058 302 0.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 12.11 KA-061 302 1.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 14.68 KA-049 291 0.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 14.90 KA-097 365 1.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 18.60 KA-136 411 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 19.13 KA-052 298 5.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 19.43 KA-036 283 7.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 21.25 KA-037 283 4.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 23.77 KA-038 283 4.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 24.90 KA-078 330 1.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 25.41 KA-040 283 3.5 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 26.80 KA-025 254 2.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 28.00 KA-022 240 1.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E3 KE-061 29.00 KA-023 240 1.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E4 KE-019 7.91 KA-058 302 2.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E4 KE-019 11.80 KA-060 302 0.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E4 KE-019 12.19 KA-061 302 1.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E4 KE-019 14.96 KA-042 284 1.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E5 KE-026 9.80 KA-116 384 1.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E5 KE-026 11.85 KA-098 366 2.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E5 KE-026 12.16 KA-061 302 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E5 KE-026 12.73 KA-117 384 2.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E5 KE-026 13.23 KA-066 314 1.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E6 KE-035 9.93 KA-115 384 4.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- Page 6 of 10 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E7 KE-043 22.45 KA-082 340 2.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E7 KE-043 26.83 KA-025 254 0.5 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E8 KE-049 12.92 KA-102 368 14.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E8 KE-049 16.08 KA-105 370 2.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E8 KE-049 16.83 KA-106 370 0.5 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E8 KE-049 21.50 KA-089 350 0.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E9 KE-077 14.85 KA-148 450 1.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E9 KE-077 16.23 KA-153 464 0.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E10 K005-82 9.80 [**] 457 0.9 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- E11 K005-92H [**] 1.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 7.88 KA-058 302 0.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 11.38 KA-059 302 0.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 12.1 KA-061 302 2.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 14.9 KA-042 284 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 19.2 KA-052 298 3.9 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 19.55 KA-036 283 2.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 21.35 KA-037 283 1.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 22.85 KA-121 386 0.2 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 23.75 KA-038 283 2.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 25.43 KA-040 283 2.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 26.73 KA-025 254 6.0 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 28.06 KA-022 240 1.9 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F2 KE-005 29.23 KA-023 240 1.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F3 KE-010 17.08 KA-159 512 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F3 KE-010 19.22 KA-048 290 0.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F3 KE-010 21.00 KA-062 304 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F3 KE-010 22.40 KA-082 340 1.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F3 KE-010 23.05 KA-157 500 0.7 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F3 KE-010 24.60 KA-035 282 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F3 KE-010 26.76 KA-162 531 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F4 KE-020 7.94 KA-058 302 5.1 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F4 KE-020 11.75 KA-060 302 0.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F4 KE-020 12.15 KA-061 302 5.4 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F4 KE-020 14.96 KA-042 284 3.6 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F5 KE-027 9.93 KA-116 384 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F5 KE-027 11.90 KA-098 366 0.8 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F5 KE-027 12.83 KA-117 384 1.5 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- F5 KE-027 13.31 KA-073 322 0.3 - ------------------- ---------------- ---------------- ---------------- ---------------- ---------------- Page 7 of 10 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F6 KE-036 9.83 KA-115 384 1.4 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F6 KE-036 17.70 KA-111 380 0.1 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F7 KE-044 7.26 KA-034 280 0.7 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F7 KE-044 9.18 KA-028 260 0.2 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F7 KE-044 12.91 KA-085 346 0.6 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F7 KE-044 16.50 KA-063 310 0.2 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F7 KE-044 18.68 KA-094 358 0,2 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F7 KE-044 20.15 KA-045 288 2.0 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F7 KE-044 21.10 KA-062 304 0.4 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F7 KE-044 22.45 KA-082 340 1.7 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F8 KE-070 10.05 KA-115 384 0.2 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F8 KE-070 12.95 KA-102 368 9.0 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F8 KE-070 13.38 KA-103 368 0.6 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F8 KE-070 16.06 KA-105 370 1.6 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F8 KE-070 16.83 KA-106 370 0.3 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F8 KE-070 26.36 KA-114 382 1.5 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F9 KE-055 none 0.0 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F10 K005-92A 14.80 [**] 527 1.0 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- F11 K005-92J [**] 1.0 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G2 KE-006 5.95 KA-016 234 0.5 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G2 KE-006 6.95 KA-084 344 0.4 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G2 KE-006 12.08 KA-090 352 0.1 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G2 KE-006 18.60 KA-047 290 0.3 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G2 KE-006 19.33 KA-052 298 0.7 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G2 KE-006 21.01 KA-062 304 0.3 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G2 KE-006 22.36 KA-082 340 0.8 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G2 KE-006 26,76 KA-025 254 1.3 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G3 KE-012 19.30 KA-052 298 0.2 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G3 KE-012 22.43 KA-082 340 1.0 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G3 KE-012 24.58 KA-076 325 0.1 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G3 KE-012 25.03 KA-110 378 0.1 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G3 KE-012 26.78 KA-025 254 0.3 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G4 KE-021 10.38 KA-100 368 0.2 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G4 KE-021 15.23 KA-119 386 3.5 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G4 KE-021 15.78 KA-120 386 0.9 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G4 KE-021 23.58 KA-014 222 1.1 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- G4 KE-021 25.01 KA-074 322 3.3 - ------------------- ---------------- ---------------- ------------------ -------------- ---------------- Page 8 of 10 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G5 KE-065 3.18 KA-006 194 2.9 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G5 KE-065 9.96 KA-116 384 1.1 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G5 KE-065 11.20 KA-098 366 0.1 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G5 KE-065 12.86 KA-117 384 2.4 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G5 KE-065 13.36 KA-066 314 0.6 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G5 KE-065 14.76 KA-046 290 1.2 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G5 KE-065 25.00 KA-107 370 1.2 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G6 KE-037 15.26 KA-119 386 1.9 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G6 KE-037 15.76 KA-120 386 0.4 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G6 KE-037 25.06 KA-107 370 1.3 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G7 KE-069 28.28 KA-092 354 0.8 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G8 KE-071 6.01 KA-032 276 0.4 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G8 KE-071 10.20 KA-124 388 0.4 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G8 KE-071 12.76 KA-027 258 1.4 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G8 KE-071 14.80 KA-046 290 1.8 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G8 KE-071 18.66 KA-136 411 0.7 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G8 KE-071 21.63 KA-155 464 1.3 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G9 KE-072 7.05 KA-011 207 0.1 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G9 KE-072 9.31 KA-130 398 0.2 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G9 KE-072 10.23 KA-015 232 0.1 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G9 KE-072 12.76 KA-156 486 0.2 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G9 KE-072 16.16 KA-008 196 0.3 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G9 KE-072 17.90 KA-147 448 0.1 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G9 KE-072 21.56 KA-144 446 0.2 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G9 KE-072 22.51 KA-033 276 0.3 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G9 KE-072 23.45 KA-KA-145 446 0.2 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G9 KE-072 25.00 KA-123 386 0.1 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G10 K005-92B 24.15 [**] 1183 1.0 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ G11 K005-92K [**] 848 1.0 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ H2 KE-059 5.87 KA-096 362 2.0 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ H2 KE-059 6.85 KA-084 344 2.8 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ H2 KE-059 14.53 KA-019 240 0.4 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ H2 KE-059 19.28 KA-048 290 0.4 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ H2 KE-059 23.12 KA-043 284 0.6 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ H2 KE-059 28.20 KA-091 354 1.1 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ H3 KE-013 12.83 KA-102 368 5.5 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ H3 KE-013 22.95 KA-113 382 1.4 - ---------------- -------------- ----------- --------------------- ----------- ------------- ------------ Page 9 of 10 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H4 KE-022 10.40 KA-100 368 0.7 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H4 KE-022 11.95 KA-118 386 0.7 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H4 KE-022 13.03 KA-102 368 1.1 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H4 KE-022 15.21 KA-119 386 4.0 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H4 KE-022 15.78 KA-120 386 2.0 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H4 KE-022 16.90 KA-104 368 1.0 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H4 KE-022 18.73 KA-094 358 1.1 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H4 KE-022 19.21 KA-099 366 1.1 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H5 KE-028 5.28 KA-067 318 0.2 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H5 KE-028 9.56 KA-003 168 0.5 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H5 KE-028 11.63 KA-098 366 2.6 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H5 KE-028 12.56 KA-117 384 1.1 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H5 KE-028 18.56 KA-094 358 0.1 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H6 KE-066 9.77 KA-115 384 6.8 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H6 KE-066 14.75 KA-046 290 0.4 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H6 KE-066 17.73 KA-111 380 0.4 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H6 KE-066 19.38 KA-112 380 0.3 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H6 KE-066 26.30 KA-114 382 0.2 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H7 KE-106 16.53 KA-063 310 0.2 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H7 KE-106 19.43 KA-081 340 0.3 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H7 KE-106 23.24 KA-043 284 2.6 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H7 KE-106 24.22 [**] 1183 1.9 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H7 KE-106 27.50 KA-007 194 0.7 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H7 KE-106 29.75 KA-131 398 1.2 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H8 KE-050 9.25 KA-134 410 0.3 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H8 KE-050 11.43 KA-101 368 0.3 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H8 KE-050 13.36 KA-029 260 0.3 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H8 KE-050 16.18 KA-008 196 0.9 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H8 KE-050 18.16 KA-149 452 0.1 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H8 KE-050 21.23 KA-129 392 0.3 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H8 KE-050 23.65 KA-004 176 0.6 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H8 KE-050 25.05 KA-109 374 1.3 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H8 KE-050 26.56 KA-088 348 0.8 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H9 KE-054 15.20 [**] 444 1.6 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H9 KE-054 18.96 unknown 444 0.2 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H10 K005-92C [**] 1.0 - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- - --------------- --------------- ------------- -------------------- ------------ ------------ ----------- H11 K005-92L [**] 318 1.0 - --------------- --------------- ------------- -------------------- ------------ ------------ -----------
Page 10 of 10 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EXHIBIT C KOSAN PATENT RIGHTS [**] Confidential Information Page 1 of 2 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EXHIBIT C (CONT) KOSAN PATENT RIGHTS [**] Confidential Information Page 2 of 2 [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EXHIBIT 10.12 AMENDMENT NUMBER 1 TO RESEARCH AND LICENSE AGREEMENT BY AND BETWEEN KOSAN BIOSCIENCES AND R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE This Amendment dated MAR 17, 2000 is made to the RESEARCH AND LICENSE AGREEMENT (hereinafter called the "AGREEMENT"), made as of September 28, 1998 by and between KOSAN BIOSCIENCES, INC., a corporation organized under California law having its principal office at 3832 Bay Center Place, Hayward, California 94545 (hereinafter called "KOSAN"); ON THE ONE HAND, AND: ORTHO MCNEIL PHARMACEUTICAL, INCORPORATED (hereinafter called "ORTHO"), a company organized under Delaware law, having its principal office at U.S. Route 202, Raritan, New Jersey 08869; and the R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE (hereinafter called "RWJPRI"), a division of Ortho McNeil Pharmaceutical, Incorporated, having its principal office at U.S. Route 202, Raritan, New Jersey 08869 (ORTHO and RWJPRI hereinafter collectively called "LICENSEE") ON THE OTHER HAND, WITNESSETH: A. WHEREAS, KOSAN and LICENSEE have entered into the AGREEMENT providing for a collaborative research drug discovery program as generally described in the RESEARCH PLAN attached thereto as Appendix A; B. WHEREAS, the RESEARCH PLAN provided for two projects to be conducted by the parties, a [**] to be conducted over the [**], and an [**] to be conducted over the [**], each with a provision for additional CONTINGENT WORK, to be performed in the event a GO DECISION was made for the Project; C. WHEREAS, having completed the first twelve months of the RESEARCH PROGRAM, the parties wish to fund the CONTINGENT WORK on the Fast Track PROJECT and to reserve the rights to [**] under provisions of the AGREEMENT: NOW, THEREFORE, in consideration of the premises and the performance of covenants herein contained, the parties agree to amend the AGREEMENT as follows: 1. Unless otherwise defined herein, all capitalized terms used herein shall have the same meaning as set forth in the AGREEMENT. [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2. In accordance with the terms of the AGREEMENT, for Year 2 of the RESEARCH PROGRAM, RWJPRI shall fund [**] on the [**]. RWJPRI acknowledges that [**] already been provided in Year 1 with payment therefor deferred until Year 2. Thus, RWJPRI shall provide funding for [**] for the combined programs for Year 2 in accordance with the terms of the AGREEMENT. 3. [**] shall be deemed an [**] and RWJPRI has made the $[**] ([**] Dollar) payment due under Section 6.2.1. [**] shall be a reserved Compound under the provisions Section 3.5.6 until such time as it is designated a Licensed Compound under the Agreement or the end of the NON-EXCLUSIVE SCREENING PERIOD, whichever shall first occur. 4. Except as amended herein, all of the terms and conditions of the AGREEMENT shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and duly executed this Amendment AGREEMENT on the date(s) indicated below, to be effective the day and year first above written. For and on Behalf of KOSAN BIOSCIENCES, INC. By: /s/ Daniel V. Sant ----------------------------------------- Name: DANIEL V. SANT --------------------------------------- Title: Chief Executive Date: 17 MARCH 2000 --------------------------------------- For and on Behalf of THE R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE By: /s/ P.A. Peterson ----------------------------------------- Name: P.A. PETERSON, MD, PhD --------------------------------------- Title: President Date: MARCH 17, 2000 --------------------------------------- [**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EX-10.12 14 EXHIBIT-10.12 EXHIBIT 10.12 AMENDMENT NUMBER 1 TO RESEARCH AND LICENSE AGREEMENT BY AND BETWEEN KOSAN BIOSCIENCES AND R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE This Amendment dated MAR 17, 2000 is made to the RESEARCH AND LICENSE AGREEMENT (hereinafter called the "AGREEMENT"), made as of September 28, 1998 by and between KOSAN BIOSCIENCES, INC., a corporation organized under California law having its principal office at 3832 Bay Center Place, Hayward, California 94545 (hereinafter called "KOSAN"); ON THE ONE HAND, AND: ORTHO MCNEIL PHARMACEUTICAL, INCORPORATED (hereinafter called "ORTHO"), a company organized under Delaware law, having its principal office at U.S. Route 202, Raritan, New Jersey 08869; and the R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE (hereinafter called "RWJPRI"), a division of Ortho McNeil Pharmaceutical, Incorporated, having its principal office at U.S. Route 202, Raritan, New Jersey 08869 (ORTHO and RWJPRI hereinafter collectively called "LICENSEE") ON THE OTHER HAND, WITNESSETH: A. WHEREAS, KOSAN and LICENSEE have entered into the AGREEMENT providing for a collaborative research drug discovery program as generally described in the RESEARCH PLAN attached thereto as Appendix A; B. WHEREAS, the RESEARCH PLAN provided for two projects to be conducted by the parties, a Fast Track Project to be conducted over the first twelve months, and an SAR Project to be conducted over the first twenty-four months, each with a provision for additional CONTINGENT WORK, to be performed in the event a GO DECISION was made for the Project; C. WHEREAS, having completed the first twelve months of the RESEARCH PROGRAM, the parties wish to fund the CONTINGENT WORK on the Fast Track PROJECT and to reserve the rights to RWJ-351055 under provisions of the AGREEMENT: NOW, THEREFORE, in consideration of the premises and the performance of covenants herein contained, the parties agree to amend the AGREEMENT as follows: 1. Unless otherwise defined herein, all capitalized terms used herein shall have the same meaning as set forth in the AGREEMENT. 2. In accordance with the terms of the AGREEMENT, for Year 2 of the RESEARCH PROGRAM, RWJPRI shall fund 4 FTE's for the CONTINGENT WORK on the Fast Track Project and 12 FTE's for the SAR PROJECT. RWJPRI acknowledges that one of the 4 FTE's has already been provided in Year 1 with payment therefor deferred until Year 2. Thus, RWJPRI shall provide funding for 16 FTE's for the combined programs for Year 2 in accordance with the terms of the AGREEMENT. 3. RWJ-351055 shall be deemed an FTE and RWJPRI has made the $250,000 (Two Hundred Fifty Thousand Dollar) payment due under Section 6.2.1. RWJ-351055 shall be a reserved Compound under the provisions Section 3.5.6 until such time as it is designated a Licensed Compound under the Agreement or the end of the NON-EXCLUSIVE SCREENING PERIOD, whichever shall first occur. 4. Except as amended herein, all of the terms and conditions of the AGREEMENT shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and duly executed this Amendment AGREEMENT on the date(s) indicated below, to be effective the day and year first above written. For and on Behalf of KOSAN BIOSCIENCES, INC. By: /s/ Daniel V. Sant ----------------------------------------- Name: DANIEL V. SANT --------------------------------------- Title: Chief Executive Date: 17 MARCH 2000 --------------------------------------- For and on Behalf of THE R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE By: /s/ P.A. Peterson ----------------------------------------- Name: P.A. PETERSON, MD, PhD --------------------------------------- Title: President Date: 17 MARCH 2000 --------------------------------------- EX-10.13 15 EXHIBIT 10.13 EXHIBIT 10.13 SUBLEASE THIS SUBLEASE ("Sublease"), dated January 6, 1999, for reference purposes only, is entered into by and between LYNX THERAPEUTICS, INC., a Delaware corporation ("Sublessor") and KOSAN BIOSCIENCES INCORPORATED, a California corporation ("Sublessee"). RECITALS A. Sublessor leases certain premises consisting of approximately 44,280 square feet in a building commonly known as 3832 Bay Center Place, Hayward, California 94545 (the "Building"), pursuant to a certain Lease Agreement dated June 28, 1993, between Spieker-Singleton #87, Limited Partnership as landlord (hereinafter "Master Lessor"), and Sublessor, as tenant, (as amended or otherwise modified from time to time, the "Master Lease"), a copy of which is attached hereto as EXHIBIT A, together with certain improvements therein and appurtenances thereto as described in the Master Lease (said premises, together with said improvements and appurtenances, hereinafter the "Premises"). Capitalized terms herein not otherwise defined herein shall have the same meanings as provided in the Master Lease. B. Sublessor desires to sublease to Sublessee, and Sublessee desires to sublease from Sublessor a portion of the Premises consisting of 37,982 square feet, and more particularly shown on the layout attached at EXHIBIT B hereto ("Sublease Premises") upon the terms and conditions provided for herein. NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, Sublessor and Sublessee covenant and agree as follows: AGREEMENT 1. SUBLEASE PREMISES. Sublessor hereby leases to Sublessee, and Sublessee hereby leases from Sublessor, the Sublease Premises, upon and subject to the terms and conditions set forth herein. In connection with its use of the Sublease Premises, and to the extent Sublessor has the right under the Master Lease, Sublessee shall have the right to use in common with Sublessor and any other occupant of the Building the common areas outside the Building, including the walkways, parking areas, loading and unloading areas, driveways and entrances, as well as the common areas within the Building, including, the hallways, stairways, common areas, restrooms, and other areas that may be reasonably necessary for Sublessee's use of the Sublease Premises; provided, however that Sublessee shall only have the nonexclusive right to use 152 of the parking spaces leased to Sublessor pursuant to the Master Lease. 2. TERM. (a) The term of this Lease shall commence on the later of (i) February 1, 1999 or (ii) the date when the Sublessor has delivered possession of the Sublease Premises to Sublessee (the "Commencement Date"). Sublessor shall use commercially reasonable efforts to cause the Commencement Date to occur on February 1, 1999. 1. (b) Notwithstanding said Commencement Date, if for any reason Sublessor cannot deliver possession of the Sublease Premises to Sublessee on said date, Sublessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Sublease or the obligations of Sublessee hereunder or extend the term hereof, but in such case Sublessee shall not be obligated to pay Rent until possession of the Sublease Premises is tendered to Sublessee. If the Commencement Date shall not have occurred by April 1, 1999, Sublessee shall have the right, until May 1, 1999, to terminate this Sublease upon written notice to Sublessor, whereupon, any monies previously paid or deposited by Sublessee to Sublessor shall promptly be refunded to Sublessee. (c) The term of this Lease shall end on July 31, 2003; PROVIDED, HOWEVER, that the term of this Sublease shall earlier terminate in the event of the earlier termination of the Master Lease. (d) If at any time during the term of this Sublease, Sublessor determines to sublease all or any part of the remainder of the Premises (the "Remaining Premises") other than the current sublease for the Remaining Premises (the "Inex Sublease") with Inex Pharmaceuticals (U.S.A.), Inc. ("Inex"), which includes a right to extend, then Sublessor shall notify Sublessee in writing and Sublessee shall have ten (10) business days after receipt of Sublessor's written notice to notify Sublessor in writing its intention to sublease such Remaining Premises. The terms of any such subletting of the Remaining Premises shall be on the same terms and conditions as this Sublease, except that the rent shall be the greater of (i) fair market rent or (ii) the rent payable during the previous period for the Sublease Premises. The term "fair market rent" shall mean the rental rate for comparable space (including all tenant improvements), in comparable business parks within a ten (10) mile radius of the Building's perimeter, excluding San Mateo County. If Sublessee timely provides Sublessor with notice of its election to sublease the Remaining Premises within said ten (10)-business day period then the parties shall consummate the sublease of such space by the preparation and execution of any amendment to this Sublease within thirty (30) days after Sublessor's receipt of Sublessee's notice. If Sublessee does not indicate in writing its election to sublease such Remaining Premises within said ten (10)-business day period, then Sublessor shall have the right to sublease such premises to a third party. Nothing contained in this section shall be construed to give Sublessee the right to sublease the Remaining Premises if Sublessor uses the Remaining Premises for its own occupancy. If the parties are unable to agree upon the fair market rent for the Remaining Premises within fifteen (15) days after Sublessee's exercise of its right of first offer to sublease the Remaining Premises, then the fair market rent shall be determined as follows: Sublessor and Sublessee shall each appoint one (1) real estate appraiser, which appraisers together shall determine the fair market rent for the Remaining Premises within fifteen (15) days of their appointment. Sublessor and Sublessee agree to make their appointments promptly. In the event the two appraisers selected by Sublessor and Sublessee shall be unable to agree on the amount of fair market rent, they shall promptly select a third appraiser and within fifteen (15) days after the third appraiser is selected, the third appraiser shall submit his or her determination of the then prevailing fair market rent. The fair market rent shall be the mean of the two closest rental determinations. Each party shall bear the fees and expenses of the appraiser it selects and one-half of the fees and expenses of the third appraiser (if one is appointed pursuant to the terms hereof). All real appraisers appointed shall be members of the American Institute of Real Estate Appraisers and have at least five (5) 2. years experience appraising similar space located in commercial projects in the vicinity of the Remaining Premises. 3. USE. Sublessee shall be permitted to use the Sublease Premises consistent with the Permitted Use set forth in the Master Lease, and consistent with the applicable requirements of the City of Hayward. 4. RENT. (a) BASE RENT. Starting on the Commencement Date, Sublessee shall pay as base rent ("Base Rent") for the Sublease Premises in advance, on or before the first day of each month, without deduction or offset, monthly rent in the amounts set forth below. Base Rent and Additional Rent (defined below) shall be payable to Sublessor at the address stated herein for Sublessor. Base Rent and Additional Rent shall collectively be referred to herein as "Rent." Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment based on the number of days in the month at issue.
PERIOD MONTHLY RENT (EXCLUSIVE OF BASIC OPERATING COST) 02/01/99 - 01/31/00 $70,646.52 02/01/00 - 01/31/01 $72,545.62 02/01/01 - 01/31/02 $74,444.72 02/01/02 - 01/31/03 $76,343.82 02/01/03 - 07/31/03 $78,242.92
(b) ADDITIONAL RENT. Sublessee shall pay to Sublessor, as additional rent ("Additional Rent"), its pro rata share of the additional amounts which Sublessor is required to pay under the Master Lease with respect to the Premises, which are allocable to the term hereof, including, but not limited to, Sublessor's Pro Rata share of Basic Operating Costs. In addition, Sublessee shall pay to Sublessor as Additional Rent any costs and expenses applicable to the Sublease Premises which are paid directly by Sublessor, including, but limited to, personal property taxes and real property taxes on tenant improvements. 5. SECURITY DEPOSIT. Upon mutual execution of this Sublease, Sublessee shall deposit with Sublessor the amount of $156,485.84 as a security deposit, which sum shall be held by Sublessor, without obligation for interest, as security for the performance of Sublessee's covenants and obligations under this Sublease, it being expressly understood and agreed that such deposit is not an advance rental deposit or a measure of damages incurred by Sublessor in case of Sublessee's default. Upon the occurrence of any event of default by Sublessee beyond the applicable notice and cure period, Sublessor may, without prejudice to any other remedy provided herein or provided by law, use such fund to the extent necessary to cure such defaults hereunder, and any other damage, injury, expense or liability caused by such event of default, and Sublessee shall pay to Sublessor, within ten (10) days after Sublessee's receipt of written demand, the amount so applied in order to restore the Security Deposit to its original amount. Although the Security Deposit shall be deemed the property of Sublessor, any remaining balance of such deposit shall be returned by Sublessor to Sublessee at such time after termination of this 3. Sublease less any amounts that are needed to perform any of Sublessee's obligations under this Sublease that have been unfulfilled by Sublessee. 6. AS-IS. Subject to Master Lessor's service, maintenance or repair obligations under the Master Lease, the Sublease Premises and all improvements will be taken over on an "as is" basis, provided Sublessor represents, warrants and covenants (now and as of the Commencement Date) that all improvements to the Sublease Premises made by the Sublessor shall remain on the Sublease Premises (except the improvements and equipment listed on EXHIBIT E) and (I) have been constructed, installed, operated and maintained in accordance with all applicable laws, by-laws, rules, regulations, orders, permits and licenses and (II) all plumbing, HVAC, electrical and other building systems within the Sublease Premises are in good working order and repair. The improvements to the Sublease Premises which shall remain at the Sublease Premises shall include the existing de-ionized water system, lab benches and fume hoods installed by Sublessor. Notwithstanding anything to the contrary contained herein, all improvements to the Sublease Premises made by Sublessor (the "Sublessor Improvements") shall at all times remain the property of Sublessor, subject only to Sublessee's rights to use such improvements as part of the Sublease Premises pursuant to this Sublease. Upon the expiration or sooner termination of this Sublease, Sublessee shall vacate and surrender the Sublease Premises, in the same condition, broom clean, and with all systems and improvements in good working order as existed at the Commencement Date ordinary wear and tear excepted; provided, however, that Sublessee's obligations to vacate and surrender the Sublease Premises as provided herein shall be subject to Sections 23 and 24 of the Master Lease as incorporated herein. 7. MASTER LEASE. This Sublease shall be subject and subordinate to all of the terms and provisions of the Master Lease, and Master Lessor shall have all rights in respect of the Master Lease and the Premises as set forth therein. Except for payments of Rent and Basic Operating Costs under Sections 6 and 7 of the Master Lease (which payments shall be made by Sublessor), and, except as otherwise provided herein, Sublessee hereby agrees to perform for Sublessor's benefit, during the term of this Sublease, all of Sublessor's obligations under the Master Lease but only to the extent they relate to the Sublease Premises which accrue during the term of this Sublease. 8. INCORPORATION OF MASTER LEASE. (a) Except as otherwise provided in this Sublease, all of the terms and provisions of the Master Lease are incorporated into and made a part of this Sublease, and the rights and obligations of the parties under the Master Lease are hereby imposed upon the parties hereto with respect to the Sublease Premises, the Sublessor being substituted for the Landlord in the Master Lease, the Sublessee being substituted for the Tenant in the Master Lease and the Sublease Premises being substituted for the Premises in the Master Lease provided, however, that the term "Landlord" in the following sections of the Master Lease (i) shall mean Master Lessor, not Sublessor: 7.A, 7.B, 8.A, 10, 16, 17, 18, 23.C, 24, 29, and 44, and (ii) shall mean both Master Lessor and Sublessor: 7E. (b) Notwithstanding the foregoing: 4. (i) the following Paragraphs of the Master Lease are not incorporated herein: Basic Lease Information (Lease Date, Tenant, Landlord, Address of Landlord, Scheduled Term Commencement Date, Length of Term, Estimated First Year Operating Cost, Tenant's Proportionate Share, Rent, Security Deposit) 1,2, 3, 19, 20, 37, 38, 39, 41, 42, 43 and Exhibits B, C, and D. (ii) Each of the parties hereto shall fully perform all of their respective obligations hereunder, and shall indemnify, defend, protect, and hold harmless the other party from any and all liability, damages, liabilities, claims proceedings, actions, demands and costs (including reasonable attorneys' fees) resulting, directly or indirectly, from their failure to perform their respective obligations. (iii) Upon any termination of the Master Lease, this Sublease shall also terminate. If Master Lessor seeks to terminate the Master Lease because of a default or alleged default by Sublessor under the Master Lease (other than a default or alleged default caused by the default by Sublessee under this Sublease), Sublessor shall take all action required to reinstate the Master Lease. Further, if Rent is abated under the Master Lease, Rent hereunder shall also be abated in the same proportion. (iv) Sublessor shall have no service, maintenance or repair obligations with respect to the Sublease Premises except for its obligation to use commercially reasonable efforts to enforce the obligations of Master Lessor under the Master Lease. Sublessee hereby expressly waives the provisions of subsection 1 of Section 1932 and Sections 1941 of the Civil Code of California. Sublessor shall use commercially reasonable efforts to enforce Master Lessor's service, maintenance or repair obligations under the Master Lease. (v) Sublessee shall indemnify, defend, protect, and hold Sublessor harmless from and against all actions, claims, demands, costs, liabilities, losses, reasonable attorneys' fees, damages, penalties, and expenses (collectively "Claims") which may be brought or made against Sublessor or which Sublessor may pay or incur to the extent caused by (i) a breach of this Sublease by Sublessee, (ii) any violation of law by Sublessee or its employees, agents, contractors or invitees ("Agents") relating to the use or occupancy of the Sublease Premises, or (iii) the negligence or willful misconduct of Sublessee or its Agents. Sublessor shall indemnify, defend, protect, and hold Sublessee harmless from and against all actions, claims, demands, costs, liabilities, losses, reasonable attorneys' fees, damages, penalties and expenses which may be brought or made against Sublessee or which Sublessee may pay or incur to the extent caused by (i) the negligence or willful misconduct of Sublessor or its Agents occurring on or about the Premises or Sublease Premises; (ii) the failure by Sublessor to comply with or perform its obligations under the Master Lease and/or this Sublease, and (iii) a breach by Sublessor of any of its representations or warranties to Sublessee under this Sublease. As used herein, "Hazardous Materials" means any substance or material which is classified or considered to be hazardous or toxic under any present or future federal, state, regional or local law relating to the use, storage, treatment, existence, release, emission, discharge, generation, manufacture, disposal or transportation of any such substances. (vi) Sublessee shall indemnify, defend and hold harmless Sublessor and Master Lessor from and against all claims, suits, judgments, losses, costs, personal injuries, 5. damages, and expenses of every type and nature, to the extent caused by the storage, use, release or disposal of Hazardous Materials on or about the Premises by Sublessee or Sublessee's employees, contractors, agents or licensees, except to the extent that any of the foregoing results from (i) the willful misconduct or negligent acts or omissions of Sublessor, or any of its agents, employees, contractors or licensees, or (ii) the willful misconduct or negligent acts or omissions of Master Lessor, or any of its agents, employees, contractors or licensees. Notwithstanding anything to the contrary in this Sublease or Master Lease, Sublessee shall have no obligation to clean up or to comply with any law regarding, or to reimburse, indemnify, defend or hold harmless Sublessor or Master Lessor with respect to, any Hazardous Materials discovered on the Sublease Premises which existed prior to the Commencement Date of this Sublease. (vii) Sublessor shall indemnify, defend and hold harmless Sublessee from and against all claims, suits, judgments, losses, costs, personal injuries, damages, and expenses of every type and nature, to the extent caused by storage, use, release or disposal of Hazardous Materials on or about the Sublease Premises or Premises by Sublessor or Sublessor's employees, contractors, agents or licensees, except to the extent that any of the foregoing results from the willful misconduct or negligent acts or omissions of the Sublessee or Sublessee's employees or agents. Notwithstanding anything to the contrary in this Sublease, Sublessor shall have no obligation to clean up or to comply with any law regarding, or to reimburse, indemnify, defend or hold harmless Sublessee with respect to, any Hazardous Materials which come to be located on the Sublease Premises or Premises after the Commencement Date (except if such Hazardous Materials are brought onto the Sublease Premises or Premises by Sublessor). (viii) Sublessor represents to Sublessee that (A) the Master Lease is in full force and effect, (B) the copy of the Master Lease which is attached to this Sublease as EXHIBIT A is a true, correct and complete copy of the Master Lease, (C) to Sublessor's best knowledge, no default exists on the part of Sublessor, or has there occurred any event which, with the giving of notice or passage of time or both, could constitute such a default or event of default, (D) to Sublessor's best knowledge, there are no pending or threatened actions, suits or proceedings before any court or administrative agency against Sublessor which could, in the aggregate, adversely affect the Sublease Premises or of Sublessor to perform its obligations under the Sublease, and Sublessor is not aware of any facts which might result in any actions, suits or proceedings, and (E) to Sublessor's best knowledge (x) Sublessor has not discharged, disposed of or released any Hazardous Materials in or about the Sublease Premises or Premises except in compliance with applicable laws and no action, proceeding, or claim is pending, or threatened concerning any Hazardous Materials arising in connection with Sublessor's use of the Sublease Premises or Premises, and (y) Sublessor has not transported, stored, used, manufactured, emitted, disposed of or released, or exposed to its employees or others to, Hazardous Materials on or about the Sublease Premises or Premises in violation of any law, rule, regulation, treaty or statute promulgated by any governmental authority. Sublessor shall immediately notify Sublessee of any release, emission or spill of any Hazardous Materials on or about the Sublease Premises or Premises of which it is aware which may in any way pose a material threat to the health or safety of any person located in or about the Sublease Premises. Sublessor shall deliver to Sublessee on the Commencement Date a hazardous waste certificate in the form attached to the Master Lease as Exhibit C completely filled-out and duly executed by Sublessor for the benefit of Sublessee and made effective as of the Commencement Date. Sublessee shall immediately notify Sublessor of any release, emission or spill of any Hazardous 6. Materials on or about the Sublease Premises of which it is aware which may in any way pose a material threat to the health or safety of any person located in or about the Sublease Premises. Sublessee shall deliver to Sublessor on the Commencement Date a hazardous waste certificate in the form attached to the Master Lease as Exhibit C completely filled-out and duly executed by Sublessee for the benefit of Sublessor and made effective as of the Commencement Date. (ix) The provisions and obligations of the foregoing Section 8(b)(v),(vi), and (vii) shall survive the termination of this Sublease. (c) For the purposes of incorporating the terms and provisions of the Master Lease into this Sublease, the Master Lease is hereby amended as follows (references are to Sections of the Master Lease): (i) Section 21B. of the Master Lease is deleted and replaced with the following: Any Rent or other consideration realized by Sublessee under any such sublease or assignment in excess of the Rent payable hereunder, after amortization of (1) the reasonable cost of any improvements which Sublessee has made to the Premises and (2) reasonable subletting and assignment costs, shall be divided and paid, fifty percent (50%) to Sublessee, fifty percent (50%) to Sublessor, after Master Lessor has been paid its share of such excess rent pursuant to Section 21.B of the Master Lease. 9. BROKERAGE. Each party warrants and represents to the other that other than Cornish & Carey Commercial, such party has not retained any other real estate broker, finder or any other person whose services would form the basis for any claim for any commission or fee in connection with this Sublease or the transactions contemplated hereby. Each party agrees to save, defend, indemnify and hold the other party free and harmless from any breach of its warranty and representation as set forth in the preceding sentence, including the other party's attorneys' fees. 10. SUBLESSOR'S OBLIGATIONS. Except as expressly otherwise provided herein Sublessor shall have no obligation to Sublessee with respect to the Premises or the performance by Master Lessor of any obligations of Master Lessor under the Master Lease. 11. EARLY TERMINATION OF MASTER LEASE. If, without the fault of Sublessor hereunder the Master Lease should terminate prior to the expiration of this Sublease, Sublessor shall have no liability to Sublessee. To the extent that the Master Lease grants Sublessor any discretionary right to terminate the Master Lease, whether due to casualty, condemnation, or otherwise, Sublessor shall not exercise such right at any time during the first forty two (42) months of the term of this Sublease without the prior written consent of the Sublessee. Commencing with the forty third (43rd) month, Sublessor shall be entitled to exercise or not exercise any such discretionary right to terminate the Master Lease in its complete and absolute discretion. In the event of a termination of this Sublease due to casualty or condemnation, Sublessor shall be entitled to all insurance proceeds for the Sublessor Improvements regardless of whether the insurance covering the Sublessor Improvements is maintained by Sublessor or Sublessee. In the event of a casualty or condemnation which does not result in a termination of this Sublease, Sublessee shall receive all insurance proceeds for the Sublessor Improvements (regardless of whether the insurance covering the Sublessor Improvements is maintained by 7. Sublessor or Sublessee) and shall use such insurance proceeds to promptly repair, restore or rebuild the Sublessor Improvements, subject to the supervision and approval of Sublessor during the construction process. 12. QUIET ENJOYMENT. Sublessee shall peacefully have, hold and enjoy the Subleased Premises, subject to the terms and conditions of this Sublease and subject to the Master Lease, provided that Sublessee pays all rent and performs all of Sublessee's covenants and agreements contained herein. In the event, however, that Sublessor defaults in the performance or observance of any of Sublessor's obligations under this Sublease or receives a notice of default from Master Lessor under the Master Lease, then Sublessee shall give written notice to Sublessor specifying in what manner Sublessor has defaulted. If such default shall not be cured within a reasonable time, but in no event later than thirty (30) days after Sublessor's receipt of such written notice from Sublessee (except that if such default cannot be cured within said thirty (30) day period, this period shall be extended for an additional reasonable time, provided that Sublessor commences to cure such default within such thirty (30) day period and proceeds diligently thereafter to effect such cure as quickly as possible), then Sublessee shall be entitled, at Sublessee's option, to cure such default and promptly collect from Sublessor Sublessee's reasonable expenses in so doing (including, without limitation, reasonable attorneys' fees and court costs) unless such default by Sublessor is caused by a default of Sublessee hereunder (in which case Sublessor shall not be liable for Sublessee's costs to cure the default). Sublessee shall not be required to wait the entire cure period provided for herein if earlier action is required to prevent a termination by Master Lessor of the Master Lease and Sublessor has failed to take such earlier action. Nothing contained herein shall entitle Sublessee to act on behalf of Sublessor or in Sublessor's name. 13. CONSENT OF MASTER LESSOR. If Sublessee desires to take any action which requires the consent of Master Lessor pursuant to the terms of the Master Lease, including, without limitation, the making of any alterations, then, notwithstanding anything to the contrary herein, (a) Sublessor, independently, shall have the same rights of approval or disapproval as Master Lessor has under the Master Lease, (b) Sublessee shall not take any such action until it obtains the consent of both Sublessor and Master Lessor, and (c) Sublessee shall request that Sublessor obtain Master Lessor's consent on Sublessee's behalf and Sublessor shall use commercially reasonable efforts to obtain such consent, unless Sublessor and Master Lessor agree that Sublessee may contact Master Lessor directly with respect to the specific action for which Master Lessor's consent is required. Any consent required of Sublessor conclusively shall be deemed reasonably withheld, if consent also is required of the Master Lessor, and Master Lessor withholds Master Lessor's consent. 14. NO THIRD PARTY RIGHTS. The benefit of the provisions of this Sublease is expressly limited to Sublessor and Sublessee and their permitted successors and assigns. Under no circumstances will any third party be construed to have any rights as a third party beneficiary with respect to any of said provisions; PROVIDED, HOWEVER, that Master Lessor shall be entitled to the benefit of Sublessee's assumption of Sublessor's obligations, as "Tenant" under the Master Lease, pursuant to Section 5 above. 15. BOARD APPROVAL. This Sublease is subject to both the approval of the Board of Directors of the Sublessor and the Board of Directors of the Sublessee. 8. 16. MASTER LESSOR CONSENT. This Sublease and Sublessor's and Sublessee's obligations hereunder are conditioned upon having obtained the written consent of the Master Lessor to this Sublease. If such consent has not been obtained by Sublessor within thirty (30) days after the date of Sublessor's execution of this Sublease, Sublessee may, within ten (10) days thereafter, terminate this Sublease by written notice to Sublessor whereupon Sublessor shall return to Sublessee all sums paid by Sublessee to Sublessor in connection with its execution of this Sublease. Sublessor shall use commercially reasonable efforts to obtain Master Lessor's consent to this Sublease as soon as practicable. 17. COUNTERPARTS. This Sublease may be executed in any number of counterparts, each of which counterparts shall be deemed to be an original, and all of which together shall constitute one and the same instrument. 18. SECURITY SERVICES. Sublessee, at its sole cost and expense, shall maintain security services for the Sublease Premises. Such services shall be provided on a 24-hour basis by a security company acceptable to Sublessor in its reasonable discretion. 19. SURRENDER. Sublessee's obligation to surrender the Sublease Premises shall be fulfilled if Sublessee surrenders possession of the Sublease Premises in the condition existing at the Commencement Date, ordinary wear and tear, Hazardous Materials existing at Commencement Date, and interior improvements made by Sublessee which Sublessor states in writing may be surrendered at the termination of the Sublease excepted; provided, however, that Sublessee's obligations to vacate and surrender the Sublease Premises as provided herein shall be subject to Sections 23 and 24 of the Master Lease as incorporated herein. 20. ADDITIONAL AGREEMENT. Sublessee and Sublessor agree to use commercially reasonable efforts to execute (and to cause Inex to execute), prior to the Commencement Date, an Assignment and Assumption Agreement in the exact form as EXHIBIT C attached hereto and incorporated herein by reference. 21. INITIAL SUBLESSEE IMPROVEMENTS. Subject to the consent and approval of Master Lessor, and the requirements of Section 12 of the Master Lease, Sublessor hereby consents to the construction by Sublessee of those certain improvements to the Sublease Premises (the "Sublessee Improvements") generally described in EXHIBIT D attached hereto and incorporated herein by reference. Sublessor's consent as set forth herein is subject to approval by Sublessor and Master Lessor of final plans and specifications for the Sublessee Improvements. 22. MUTUAL WAIVER OF SUBROGATION. The waiver of subrogation provision set forth in Section 9 of the Master Lease shall be deemed a three party agreement binding among and inuring to the benefit of Sublessor, Sublessee and Master Lessor (by reason of its consent to hereto). 9. IN WITNESS WHEREOF, the parties have executed this Sublease as of the date first written above. ADDRESS: SUBLESSOR: 3832 Bay Place LYNX THERAPEUTICS, INC. Hayward, CA 94545 Attn: Edward C. Albini By: /s/ [ILLEGIBLE] -------------------------------- Its: Chief Financial Officer ------------------------------- By: -------------------------------- Its: ------------------------------- ADDRESS: SUBLESSEE: KOSAN BIOSCIENCES INCORPORATED By: /s/ Daniel V. Santi -------------------------------- Its: CEO ------------------------------- By: /s/ Michael S. Ostrach -------------------------------- Its: VP and Asst Secretary ------------------------------- EXHIBIT A [ATTACH COPY OF MASTER LEASE] BASIC LEASE INFORMATION LEASE DATE: June 28, 1993 TENANT: Lynx Therapeutics, Inc. ADDRESS OF TENANT: 3832 Bay Center Place Hayward, CA 94545 LANDLORD: Spieker-Singleton #87, Limited Partnership ADDRESS OF LANDLORD: 6000 Stoneridge Mall Road, Suite 270 Pleasanton, CA 94588 PROJECT DESCRIPTION: An approximately 128,700 square foot project consisting of four building located at Breakwater Avenue and Bay Center Place in Hayward, California, known as BayCenter Business Park. BUILDING DESCRIPTION: An approximately 44,280 square foot building located at 3832 Bay Center Place, Hayward, California PREMISES: Approximately 44,280 square feet, more or less, of office space located in BayCenter Business Center, and more commonly known as 3832 Bay Center Place Hayward, California as outlined in red on Exhibit "A" attached hereto. PERMITTED USES: General office and research and development, and manufacturing of certain biotechnical and chemical products. OCCUPANCY DENSITY: 4 people per 1000 square feet of occupied space SCHEDULED TERM COMMENCEMENT DATE: August 1, 1993 LENGTH OF TERM: One Hundred Twenty (120) months RENT:
Occupancy Month Level Base Rent ----- ----- --------- Base Rent: 1-2 15,000 sf Free of Base Rent 3-12 15,000 sf $.67/sf/mo NNN 13-24 30,000 sf $.67/sf/mo NNN 25-36 44,280 sf $.67/sf/mo NNN 37-60 44,280 sf $.72/sf/mo NNN 61-96 44,280 sf $.82/sf/mo NNN 97-120 44,280 sf $.90/sf/mo NNN
Estimated First Year Basic Operating Cost: $.14/sf/mo of occupied space SECURITY DEPOSIT: $29,700.00 TENANTS PROPORTIONATE SHARE: Months 1-12 11.66% of Project Months 13-24 23.31% of Project Months 25-120 34.41% of Project (Unless occupancy is adjusted as described herein in Paragraph 1) The foregoing Basic Lease Information is incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and the Lease, the latter shall control. TABLE OF CONTENTS Page BASIC LEASE INFORMATION 1 Table of Contents 2 1. Premises 3 2. Possession and Lease Commencement 3 3. Term 3 4. Use 3 5. Rules and Regulations 3 6. Rent 3 7. Basic Operating Cost 4 8. Insurance and Indemnification 5 9. Waiver of Subrogation 5 10. Landlord's Repairs and Services 5 11. Tenant's Repairs 5 12. Alterations 5 13. Signs 6 14. Inspection/Posting Notices 6 15. Utilities 6 16. Subordination 6 17. Financial Statements 6 18. Estoppel Certificate 6 19. Security Deposit 7 20. Tenant's Remedies 7 21. Assignment and Subletting 7 22. Quiet Enjoyment 7 23. Condemnation 7 24. Casualty Damage 7 25. Holding Over 8 26. Default 8 27. Liens 9 28. Substitution 9 29. Transfers by Landlord 9 30. Right of Landlord to Perform Tenant's Covenants 9 31. Waiver 9 32. Notices 10 33. Attorneys' Fees 10 34. Successors and Assigns 10 35. Force Majeure 10 36. Miscellaneous 10 37. Additional Provisions 10 EXHIBIT "A" Site Plan, Legal Description EXHIBIT "B" Tenant Improvement Specifications EXHIBIT "C" Hazardous Waste Certificate EXHIBIT "D" First Right of Refusal EXHIBIT "E" Exceltech Report dated March 1, 1988 LEASE THIS LEASE is made as of the 28TH day of JUNE, 1993, between SPIEKER-SINGLETON #87, LIMITED PARTNERSHIP (herein after called "Landlord") and LYNX THERAPEUTICS, INC. (hereinafter called "Tenant"). PREMISES 1. Landlord leases to Tenant and Tenant leases from Landlord, upon the terms and conditions hereinafter set forth, those premises (the "Premises") cross-hatched outlined-in red on Exhibit "A" and described in the Basic Lease Information. The Premises may be all or part of the building (the "Building") or of the project (the "Project") which may consist of more than one building. The Building and Project are outlined in blue and green respectively on Exhibit "A". Notwithstanding the foregoing during the first two (2) years of this Lease, in the event Tenant is actually occupying more than the occupied space referred to in Basic Lease Information, then Tenant shall pay for such additional space on the same square footage cost as outlined. POSSESSION AND LEASE COMMENCEMENT C. This Lease shall commence August 1, 1993. TERM 3. The Term of this Lease shall commence on the Term Commencement Date and continue in full force and effect for the number of months specified as the Length of and Term in the Basic Lease Information or until this Lease is terminated as otherwise provided herein. If the Term Commencement Date is a date other than the first day of the calendar month the Term shall be the number of months of the Length of the Term in addition to the remainder of the calendar month following the Term Commencement Date. USE 4. A. Tenant shall use the Premises for the Permitted Use and for no other use or purpose without prior written consent of Landlord. No increase in the Occupant Density of the Premises shall be made without the prior written consent of Landlord. Tenant and it employees, customers, visitors, and licensees shall have the nonexclusive right to use, in common with other parties occupying the Buildings or Project, the parking areas and driveways of the Project, including without limitation to non-exclusive use of four parking stalls per 1,000 square feet occupied hereunder, subject to such reasonable rules and regulations as Landlord may from time to time prescribe. B. Tenant shall not permit any odors, smoke, dust, gas, substances, noise or vibration to emanate from the Premises, nor take any action which would constitute a nuisance or would disturb, obstruct or endanger any other tenants of the Building or Project in which the Premises are situated or unreasonably interfere with their use of their respective premises. Tenant shall not receive, store or otherwise handle any product, material or merchandise which is toxic, harmful, explosive, highly inflammable or combustible unless such is done in accordance with applicable rules and regulations as determined by local, state and federal authorities. Storage outside the Premises of materials, vehicles or any other items Landlord deems objectionable is prohibited without Landlord's prior written consent. Tenant shall not use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purposes, nor shall Tenant cause or maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer the commission of any waste in, on or about the Premises. Tenant shall not allow any sale by auction upon the Premises, or place any loads upon the floors, walls, or ceilings which endanger the structure, or place any harmful liquids in the drainage system of the Building or Project. No waste, materials or refuse shall be dumped upon or permitted to remain outside the Premises except in trash containers placed inside exterior enclosures designated for that purpose by Landlord. C. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, stature, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall at its sole cost and expense obtain any and all licenses or permits necessary for Tenant's use of the Premises. Tenant shall promptly comply with the requirements of any board of fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Premises. The judgement of any court of competent jurisdiction or the admission of Tenant in any actions against Tenant, whether Landlord by a party thereto or not, that Tenant has so violated any such law, statute, ordinance, rule, regulation or requirement, shall be conclusive of such violation as between Landlord and Tenant. Tenant shall not do or permit anything to be done in, on or about the Premises, Building or Project, or upon any contents therein or cause a cancellation of said insurance or otherwise affect said insurance in any manner. Tenant shall indemnify Landlord and hold Landlord harmless against any loss, expense, damage, attorneys' fees or liability arising out of the failure of Tenant to comply with any applicable law or comply with the requirements as set forth herein. RULES AND 5. Tenant and Tenant's agents, employees, and invitees shall REGULATIONS faithfully observe and comply with any reasonable rules and regulations Landlord may from time to time prescribe in writing for the purpose of maintaining the proper care, cleanliness, safety, traffic flow and general order of the Premises or Project. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building or Project with any of the rules and regulations. RENT 6. Tenant shall pay to Landlord, without demand throughout the term, Rent as specified in the Basic Lease Information, payable in monthly installments in advance on or before the first day of each calendar month, in lawful money of the United States, without deduction or offset whatsoever to Landlord at the address -3- specified in the Basic Lease Information or to such other firm or to such other place as the Landlord may from time to time designate in writing. Rent for the first full month of the Term shall be paid by Tenant upon Tenant's execution of this Lease. If the obligation for payment of Rent commences on other than the first day of a month, then Rent shall be prorated and the prorated installment shall be paid on the first day of the calendar month succeeding the Term Commencement Date. BASIC 7. A. BASIC OPERATING COST. In addition to the Base Rent OPERATING required to be paid hereunder, Tenant shall pay as COSTS additional Rent, Tenant's Proportionate Share, as defined in the Basic Lease Information, of Basic Operating Cost in the manner set forth below. Basic Operating Cost shall mean all expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay, or would be required to pay if the Project were fully occupied, because of or in connection with management, maintenance, preservation and operation of the Project and its supporting facilities servicing the Project (determined in accordance with generally accepted accounting principles, consistently applied) including but not limited to the following: (1) All real estate taxes, possessory interest taxes, business or license taxes of fees, service payment in lieu of such taxes or fees, annual or periodic license or use fees, excises, transit charges, housing fund assessments, open space charge, assessments, levies, fees or charges, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind (including fees "in-lieu" of any such tax or assessment) which are assessed, levied, charged, confirmed, or imposed by any public authority upon the Project, its operations or the rent (or any proportion or component thereof), except (a) inheritance or estate taxes imposed upon or assessed against the Project, or any part thereof or interest therein, and (b) taxes computed upon the basis of the net income of Landlord or the owner of any interest therein. (2) All insurance premiums and costs, including but not limited to, any deductible amounts, premiums and cost of fire, casualty and liability coverage which Landlord is required to carry pursuant to Section 8.A below, rental abatement and special hazard insurance applicable to the Project and Landlord's personal property used in connection therewith; provided, however, that Landlord may, but shall not be obligated to, carry special hazard insurance covering losses caused by casualty not insured under standard fire and extended coverage insurance, excluding earthquake insurance obtained without Tenant's prior consent. (3) Repairs, replacements and general maintenance for the Premises, Building and project (except for those repairs expressly the responsibility of Landlord, those repairs paid for by proceeds of insurance or by Tenant or other third parties, and alterations attribute solely to tenants of the Project other than Tenant). (4) All maintenance, janitorial and service agreements and cost or supplies and equipment used in maintaining the Premises, Building and Project and the equipment therein and the adjacent sidewalks, driveways, parking and service areas, including with out limitations to alarm service, window cleaning, elevator maintenance, Building exterior maintenance and landscaping. (5) Utilities which benefit all or a portion of the Premises. (6) a management and accounting cost recovery equal to ten percent (10%) of Basic Operating Cost. In the event that the Project is not fully occupied during any fiscal year of the Term as determined by Landlord, and adjustment shall be made in computing the Basic Operating Cost for such year so that Basic Operating Cost shall be computed as though the building had bee one hundred percent (100%) occupied; provided, however, that in no event shall Landlord be entitled to collect in excess of one hundred percent (100%) if the total Basic Operating Cost from all of the tenants in the Project including Tenant. To the extent commercially reasonable, Landlord will use third party contractors to perform maintenance, repairs, and other functions under this Paragraph. Landlord will negotiate at arms length with these contractors, suppliers and/or vendors to obtain competitive prices and Landlord will use its effort during this lease to obtain competitive pricing for services and products for which Tenant is financially responsible under this Paragraph 7. Notwithstanding the foregoing, Operating Costs shall not include (i) depreciation on the Building, (ii) real estate broker's commissions, (iii) interest, loan fees and other carrying costs relating to any mortgage or deed of trust on the Building or Project, (iv) costs, fines or penalties for violations by Landlord of any governmental rule, (v) any obligations of Landlord with respect to Hazardous Materials, (vi) any amounts for services paid to entities related to Landlord to the extent said amounts exceed the amounts that would have been paid to unaffiliated entities for the same services; (vii) any cost incurred to remedy any defects in construction of the Building, (viii) any amounts for the acquisition or maintenance of art work located in the Building or Project or the cost of insurance thereon. If any capital expense borne under Paragraph 7 is above ten thousand dollars ($10,000) then the expense will be amortized over the useful life with a ten percent (10%) interest rate. All costs and expenses shall be determined in accordance with generally accepted accounting principles which shall be consistently applied. Basic Operating Cost shall not include specific costs incurred for the account of, separately billed to and paid by specific tenants. Notwithstanding anything herein to the contrary and instance wherein Landlord, at Landlord's sole reasonable discretion, deems Tenant to be responsible for any amounts greater than its Proportionate Share, Landlord shall have the right to allocate cost in any manner Landlord deems reasonably appropriate. B. PAYMENT OF ESTIMATED BASIC OPERATING COST. "Estimated Basic Operating Cost" for any particular year shall mean Landlord's estimate of the Basic Operating Cost for such fiscal year made prior to commencement of such fiscal year as hereinafter provided. Landlord shall have the right from time to time to revise its fiscal year and interim accounting periods so long as the periods as so revised are reconciled with prior periods in accordance with generally accepted accounting principles applied in a consistent manner. During the last month of each fiscal year during the Term, or as soon thereafter as practicable, Landlord shall give Tenant written notice of the Estimate Basic Operating Cost for ensuing fiscal year. Tenant shall pay Tenant's Proportionate Share of the Estimated Basic Operating Costs with installments on the first day of each calendar month during such year, in advance. If at any time during the course of the fiscal year, Landlord determines that Basic Operating Cost will apparently vary from the then Estimated Basic Operating Cost by more than ten percent (10%), Landlord may, by written notice to Tenant, revise the Estimate Basic Operating Cost for the balance of such fiscal year and Tenant shall pay Tenant's Proportionate Share of the Estimated Basic Operating Cost as so revised for the balance of the then current fiscal year on the first of each calendar month and there after. C. COMPUTATION OF BASIC OPERATING COST ADJUSTMENT. "Basic Operating Cost Adjustment" shall mean the difference between Estimated Basic Operating Cost and Basic Operating Cost for any fiscal year determined as hereinafter provided. Within ninety (90) days after the end of each fiscal year, as determined by Landlord, or as soon thereafter as possible, Landlord shall deliver to Tenant a statement of Basic Operating Cost for the fiscal year just ended accompanied by a computation of Basic Operating Cost Adjustment. If such statement shows that Tenant's payment based upon Estimated Basic Operating Cost is less than Tenant's Proportionate Share of Basic Operating Cost, then Tenant shall pay to Landlord the difference within twenty (20) days after receipt of such statement. If such statement shows that Tenant's payments of Estimated Basic Operating Cost exceed Tenant's Proportionate Share of Basic Operating Cost is less than Tenant's Proportionate Share of Basic Operating Cost, then Tenant shall pay to Landlord the difference within twenty (20) days after receipt of such statement. If such statement shows that Tenant's payments of Estimated Basic Operating Cost exceed Tenant's Proportionate Share of Basic -4- Operating Costs, then (provided that Tenant is not in default under this Lease), Landlord shall pay to Tenant the difference within Twenty (20) days of such statement. If this Lease has been terminated or the Term hereof has expired prior to the date of such statement. If this Lease has been terminated or the Term hereof has expired prior to the date of such statement, then the Basic Operating Cot Adjustment shall be paid by the appropriate party within twenty (20) days after the date of delivery of the statement. Should this Lease commence or terminate at any time other than the first day of the fiscal year, Tenant's Proportionate Share of the Basic Operating Cost adjustment shall be prorated by reference to the exact number of calendar days during such fiscal year for which the Tenant is obligated to pay Base Rent. D. NET LEASE. This shall be net Lease and Base Rent shall be paid to Landlord absolutely net of all costs and expenses except as herein provided. The provisions for payment of Basic Operating Cost and the Basic Operating Cost Adjustment are intended to pass on to Tenant and reimburse Landlord for all costs and expenses of the nature described in paragraph 7A incurred in connection with ownership and operation of the Building or Project and such additional facilities now and in subsequent years as may be determined by Landlord to be necessary to the Building or Project. E. TENANT AUDIT. Tenant shall have the right, at Tenant's expense and upon not less than five(5) days prior written notice to Landlord, to review at reasonable times, in Landlord's office, Landlord's books and records applicable to Tenant's Lease for purposes of verifying Landlord's calculation of the Basic Operating Cost and Basic Operating Cost Adjustment. In the event that Tenant shall dispute the amount set fort in any statement provided by Landlord under Paragraph 7B or 7C above, Tenant shall have the right, not later than twenty (20) days following the receipt of such statement and upon condition that Tenant shall first deposit with Landlord the full amount in dispute, to cause Landlord's books and record with respect to such fiscal year to be audited by certified public accountants selected by Tenant and subject to Landlord's reasonable right of approval. The Basic Operating Cost Adjustment shall be appropriately adjusted on the basis of such audit. If such audit discloses a liability for a refund in excess of ten percent (10%) of Tenant's Proportionate Share of the Basic Operating Cost Adjustment previously reported, the cost of such audit shall be borne by Landlord; otherwise the cost of such audit shall be paid by Tenant. If Tenant shall not request an audit in accordance with the provisions of this paragraph 7B within twenty (20) days of receipt of Landlord's statement provided pursuant to paragraph 7B or 7C, such statement shall be final and binding for all purposes hereof. INSURANCE AND 8. A. CASUALTY INSURANCE. Landlord agrees to maintain insurance INDEMNIFI- insuring the Buildings of the Project of which the Premises CATIONS are a part, against fire, lightning, extended coverage, vandalism and malicious mischief in an amount not less then eighty percent (80%) of the replacement cost thereof. Such insurance shall be for the sole benefit of Landlord and under its sole control. Landlord shall not be obligated to insure any furniture, equipment, machinery, goods or supplies not covered by this Lease which Tenant may keep or maintain in the premises or any leasehold improvements, additions or alterations which Tenant may make upon the Premises. B. LIABILITY INSURANCE. Tenant shall purchase at its own expense and keep in force during this Lease a policy or policies of comprehensive liability insurance, including personal injury and property damage, in the amount of not less than Five Hundred Thousand dollars ($500,000.00) for property damage and Two Million Dollars ($2,00,000.00) per occurrence for personal injuries or deaths of persons occurring in or about the Premises and Project. Said policies shall (1) name Landlord and if applicable, its agent, and any party holding an interest to which this Lease may be subordinated as additional insureds, (2) be issued by an insurance company acceptable to Landlord and licenses to do business in the State of California, and (3) provide that said insurance shall not be cancelled unless thirty (30) days prior written notice shall have been given to landlord. Said policy or policies or certificates thereof shall be delivered to Landlord by Tenant upon commencement of the lease and upon each renewal of said insurance. C. INDEMNIFICATION. Landlord shall not be liable to Tenant for any loss or damage to person or property caused by theft, fire, act of God, acts of a public enemy, riot, strike, insurrection, war, court order, requisition or order of governmental body or authority or for any damage or inconvenience which may arise through repair or alteration of any part of the Building or Project or failure to make any such repair except to the extent caused by the negligence or willful misconduct of Landlord and except as expressly otherwise provided in paragraph 10 and 12. Tenant shall indemnify Landlord and hold Landlord harmless from any and all loss, cost, damage, injury or expense arising out of or related to (1) claims of injury to or death of persons or damage to property occurring or resulting directly or indirectly from the use of occupancy of the Premises, or from any activities of Tenant, its agents, servants, employees or anyone in or about the Premises or Project, or form any cause whatsoever, (2) claims for work or labor performed, or for materials or supplies furnished to or at the request of Tenant or in connection with performance of any work done for the account of Tenant within the Premises or Project, and (3) claims arising from any breach or default on the part of Tenant in the performance of any covenant contained in this Lease. Such indemnity shall include without limitation the obligation to provide all costs of defense against any such claims including any action or proceeding brought against Landlord. The foregoing indemnity shall not be applicable to claims arising from the active negligence or willful misconduct of Landlord. Landlord shall defend, indemnify and hold harmless Tenant, its agents, and any and all affiliates of Tenant including without limitation, any corporations, or other entities controlling, controlled by or under common control with Tenant, from and against any and all claims or liabilities arising from (i) the negligence or willful misconduct of Landlord, its officers, employees, agents, visitors, invitees or licenses, or (ii) any breach or default in any material warranty or material representation of Landlord hereunder or the performance of any material covenant on Landlord's part to be performed hereunder. The provisions of this paragraph shall survive the expiration or termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination. WAIVER OF 9. To the extent permitted by law and without affecting the SUBROGATION coverage provided by insurance required to be maintained hereunder, but subject to the approval of each insurance carrier affected thereby. Landlord and Tenant each waive any right to recover against the owner (a) damages for injury to or death of persons, (b) damages to property, (c) damages to the Premises or any part thereof, or (d) claims arising by reason of the foregoing to the extent such damages or claims are covered by insurance. This provision is intended to waive fully, and for the benefit of each party, any rights and/or claims which might give rise to a right of subrogation on any insurance carrier. The coverage obtained by each party pursuant to this Lease shall include, without limitation, a waiver of subrogation by the carrier which conforms to the revisions of this paragraph, but subject to the approval of each insurance carrier affected thereby. LANDLORD'S 10. Landlord shall at Landlord's expense maintain the structural REPAIR AND soundness of the roof, foundations and exterior walls of the SERVICES building in good repair, reasonable ware and tear excepted. The term wall as used herein shall not include windows, glass or plate glass, exterior doors, special store fronts or office entries. The term roof as used herein shall not include skylights, smoke hatches or roof vents. Landlord shall perform on behalf of Tenant and other tenants of the Project the maintenance of the public an common areas of the Project including but not limited to the landscaped areas, parking areas, driveways, the truck staging areas, rail spur areas, fire sprinkler systems, sanitary and storm sewer lines, utility services, electric and telephone equipment servicing the Building(s), exterior lighting, and anything which affects the operation and exterior appearance of the Project. -5- Tenant shall reimburse Landlord for all such costs in accordance with Paragraph 7. Any damage caused by or repairs necessitated by any act of Tenant may be repaired by Landlord at Landlord's option and at Tenant's expense. Tenant shall immediately give Landlord written notice of any defect or need of repairs after which Landlord shall have reasonable opportunity to repair same. Landlord in the course of its maintenance and repairs shall use its best efforts too minimize any interference with Tenant's operations. Landlord's liability with respect to any defects, repairs, or maintenance for which Landlord is responsible under any of the provisions of this Lease shall be limited to the cost of such repairs or maintenance. Landlord in the course of its maintenance and repairs shall use its best efforts to minimize any interference with Tenant's operations. If Landlord fails to timely perform its maintenance and repair obligations hereunder and, as a consequence, Tenant's use of the Premises is substantially impaired, Tenant, in addition to all other remedies available hereunder and, as a consequence, Tenant's use of the Premises is substantially impaired, Tenant, in addition to all other remedies available hereunder or by law shall have the right to cause such repair or maintenance to be performed by Landlord. TENANT'S 11. Tenant shall at Tenant's expense maintain all parts of the REPAIRS Premises in a good clean and secure condition promptly making all necessary repairs and replacements including but not limited to all windows, glass, doors and any special office entries, walls and wall finishes, floor covering, heating, ventilating and air conditioning systems, truck doors, dock bumpers, dock plates and levelers, roofing, plumbing work and fixtures, downspouts, skylights, smoke hatches and roof vents. Tenant shall at Tenant's expense also perform regular removal of trash and debris. Tenant shall, at its own expense, enter into a regularly scheduled preventative maintenance/service contract with a maintenance contractor for servicing all hot water, heating and air conditioning systems and equipment within or serving the Premises. The maintenance contractor and the contract must be approved by Landlord. The service contract must include all services suggested by the equipment manufacturer within the operation/maintenance manual and must become effective and a copy thereof delivered to Landlord within thirty (30) days of the Term Commencement Date. Tenant shall not damage any demising wall or disturb the integrity and support provided by any demising wall and shall, at its sole expense, immediately repair any damage to any demising wall caused by Tenant or its employees, agents or invitees. ALTERATIONS 12. Except with respect to the initial Tenant improvements described in Exhibit B attached hereto, which improvements Landlord by execution hereof hereby approves, Tenant shall not make, or allow to be made, any structural alterations or physical additions in, about or to the premises costing more than Five Thousand Dollars ($5,000.00) in each instance and cumulatively no more than Ten Thousand Dollars ($10,000.00) each year without obtaining the prior written consent of Landlord which consent of Landlord which consent shall not be unreasonably withheld with respect to proposed alterations and additions which (a) comply with all applicable laws, ordinances, rules and regulations, (b) are in Landlord's reasonable opinion compatible with the Project and its mechanical, plumbing, electrical, and heating/ventilation/air conditioning systems, and in Landlord's reasonable opinion will not interfere with the use and occupancy of any other portion of the Building or Project by any other Tenant or its invitees. Specifically, but without limiting the generality of the foregoing, Landlord shall have the right of consent for all plans and specifications for the alterations or additions subject to this Section 12, construction means and methods, any contractor or subcontractor to be employed on the work of alterations or additions, and the time for performance of such work. Tenant shall also supply to Landlord any documents and information reasonably requested by Landlord in connection with its consideration of a request for approval hereunder. Tenant must have Landlord's written approval and all appropriate permits and licenses prior to the commencement of said alterations and additions. All alterations and additions permitted hereunder other than the initial Tenant improvements described in Exhibit "B" hereto shall be made and performed by Tenant without cost or expense to Landlord including any costs or expenses which Landlord may incur in electing to have an outside agency review said plans and specifications provided the cost to Tenant of any such review shall not exceed Five Hundred Dollars ($500.00). Landlord, by written notice at the time it approves any such alterations, shall have the right to required Tenant to remove any or all alterations, additions, improvements and partitions made by Tenant and restore the Premises to their original condition by the termination of this Lease, by lapse of time or otherwise, all at Tenant's expense provided Tenant shall have no obligation to remove the initial tenant improvements described in Exhibit "B" hereto. All such removals and restoration shall be accomplished in a good workmanlike manner so as not to cause any damage to the Premises or Project whatsoever. If Landlord so elects, such alterations, physical additions or improvements shall become the property of Landlord and surrendered to Landlord upon the termination of this Lease by lapse of time or otherwise; provided, however that this clause shall not apply to trade fixtures or furniture owned by Tenant. In addition to and wholly apart from its obligation to pay Tenant's Proportionate Share of Basic Operating Costs, Tenant shall be responsible for and shall pay prior to delinquency any taxes or governmental service fees, possessory interest taxes, fees or charges in lieu of any such taxes, capital levies, or other chargers imposed upon, levied with respect to or assessed against its personal property, on the value of its alterations, additions or improvements and on its interest pursuant to this Lease. To the extent that any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord. SIGNS 13. All signs, notices and graphics of every kind or character, visible in or from public view or corridors, the common areas or the exterior of the Premises, shall be subject to Landlord's prior written approval, which Landlord shall have the right to withhold in its absolute and sole discretion. Tenant shall not place or maintain any banners whatsoever or any window decor in or on any exterior window or window fronting upon any common areas or service area or upon any truck doors or man doors without Landlord's prior written approval which Landlord shall have the right to grant or withhold in its absolute and sole discretion. Any installation of signs or graphics on or about the Premises and Project shall be subject to any applicable governmental laws, ordinances, regulations and to any other requirements imposed by Landlord. Tenant shall remove all such signs and graphics by the termination of this Lease. Such installations and removals shall be made in such manner as to avoid injury to or defacement of the Premises, Building or Project and any other improvements contained therein, and Tenant shall repair any injury or defacement including without limitation discoloration caused by such installation or removal. INSPECTION/ 14. After reasonable notice, except in the emergencies where no POSTING such notice shall be required, Landlord, it's agents and NOTICES representatives, shall have the right to enter the Premises to inspect the same, to lean, to perform such work as may be permitted or required hereunder, to make repairs or alterations to the Premises or Project or to other tenant spaces therein, to deal with emergencies, to post such notices as may be permitted or required by law to prevent the perfection of liens against Landlord's interest in the Project or to exhibit the Premises to prospective tenants, purchasers, encumbrances or others, or for any other purpose as Landlord may deem necessary or desirable; provided, however, that Landlord shall not unreasonably interfere with Tenant's business operations. Tenant shall not be entitled to any abatement of Rent by reason of the exercise of any such right of entry. Six months prior to the end of the lease, Landlord shall have the right to erect on the Premises and/or Project a suitable sign indicating that the Premises are available for lease. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the premises and shall meet with Landlord for a joint inspection of the Premises at the time of vacating the Premises shall conclusively be deemed correct for purposes of determining Tenant's responsibility for repairs and restoration. UTILITIES 15. Tenant shall pay for all water, gas, heat, air conditioning, light, power, telephone, sewer, sprinkler charges and other utilities and services used on or from the Premises, together with any taxes, penalties, surcharges or the like pertaining thereto, and maintenance charges for utilities and shall furnish all electric light bulbs, ballasts and tubes used within the Premises. If any such services are not separately -6- metered to Tenant, Tenant shall pay a reasonable proportion, as determined by Landlord, of all charges jointly serving other premises, Landlord shall not be liable for any damages directly or indirectly resulting from nor shall the Rent or any monies owed Landlord under this Lease herein reserved be abated by reason of (a) the installation, use or interruption of use of any equipment used in connection with the furnishing of any of the foregoing utilities and services, (b) failure to furnish or delay in furnishing any of the foregoing utilities and services, when such failure or delay is caused by acts of God or the elements, labor disturbances of any character, any other accidents or other conditions beyond the reasonable control of Landlord, or (c) the limitation, curtailment, rationing or restriction on use of water, electricity, gas or any other form of energy or any other service or utility whatsoever serving the Premises or Project. Landlord shall be entitled to cooperate voluntarily and in a reasonable manner in the efforts of national, state or local government agencies or utility suppliers in reducing energy or other resource consumption. The obligation to make services available hereunder shall be subject to the limitations of any such voluntary, reasonable program. SUBORDINATION 16. Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be subject and subordinate at all times to (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Premises and/or the land upon which the Premises and Project are situated, or both, and (b) any mortgage or deed of trust which may now exist or be placed upon said Project, land, ground leases or underlying leases, or Landlord's interest or estate in any of the said items, which is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason. Tenant shall execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents evidencing the priority of subordination of this Lease with respect to any such ground leases or underlying leases or any such mortgage or deed of trust. Landlord will attempt to get a non-disturbance agreement from any subsequent mortgagor on the property. FINANCIAL 17. At the request of Landlord, but not more than twice in any STATEMENTS twelve (12) month period, Tenant shall provide to Landlord its current financial statement or other information discussing financial worth which Landlord shall use solely for purposes of this Lease and in connection with the ownership, management and disposition of the property subject hereto. ESTOPPEL 18. Tenant agrees from time to time within ten (10) days after CERTIFICATES request of Landlord, to delivery to Landlord, or Landlord's designee, an estoppel certificate stating that this Lease is in full force and effect, the date to which Rent has been paid, the unexpired portion of this Lease and such other matters pertaining to this Lease as may be reasonably requested by Landlord. Failure by Tenant to execute and deliver such certificate shall constitute an acceptance of the Premises and acknowledgement by Tenant that the statements included are true and correct without exception. Landlord and Tenant intend that any statement delivered pursuant to this paragraph may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Project or any interest therein. The parties agree that Tenant's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord's execution of the Lease. SECURITY 19. Tenant agrees to deposit with Landlord upon execution of DEPOSIT this Lease, a Security Deposit as stated in the Basic Lease Information which sum shall be held by Landlord, without obligation for interest, as security for the performance of Tenant's covenants and obligations under this Lease, it being expressly understood and agreed that such deposit is not an advance rental deposit or a measure of damages incurred by Landlord in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may, from time, without prejudice to any other remedy provided herein or provided by law, use such fund to the extent necessary to make good any arrears of Rent or other payments due to Landlord hereunder and any other damage, injury, expense or liability caused by such event of default, and Tenant shall pay to Landlord, on demand, the amount so applied in order to restore the Security Deposit to its original amount. Although the Security Deposit shall be deemed the property of Landlord, any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination of this Lease that all of the Tenant's obligations under this Lease have been fulfilled. TENANT'S 20. Tenant shall look solely to Landlord's interest in the REMEDIES Project for recovery of any judgement from Landlord. Landlord, or if Landlord is a partnership, its partners whether general or limited, or if it is a corporation, its directors, officers of shareholders, shall never be personally liable for any such judgement. Any lien obtained to enforce any such judgement and any levy of execution thereon shall be subject and subordinate to any lien, mortgage or deed of trust on the Project. ASSIGNMENT 21. A. Tenant shall not assign or sublet the Premises or any AND part thereof without Landlord's prior written approval SUBLETTING except as provided herein. If Tenant desires to assign this Lease or sublet any or all of the Premises, Tenant shall give Landlord written notice sixty (60) days prior to the anticipated effective date of the assignment or sublease. Landlord shall then have a period of thirty (30) days following receipt of such notice to notify Tenant in writing that Landlord elects to permit Tenant to assign this Lease or sublet such space, subject, however, to Landlord's prior written approval of the proposed assignee or subtenant and of any related documents or agreements associated with the assignment or sublease, such consent not to be unreasonably withheld so long as the use of the Premises by such proposed assignee or subtenant would be a Permitted Use and would not in Landlord's opinion increase Occupant Density of the Project, the proposed assignee or subtenant is of sound financial condition, and the proposed assignment or sublease would not be likely to result in any decrease in Rent. If Landlord should fail to notify after having received notification of such intent to sublease, Tenant in writing of such election within said period, Landlord shall be deemed to have approved the proposed assignee or subtenant. B. Any Rent or other reconsideration realized by Tenant under any such sublease or assignment in excess of the Rent payable hereunder, after amortization of (1) the reasonable cost of any improvements which Tenant has made to the Premises and (2) reasonable subletting and assignment costs, shall be divided and paid fifty percent (50%) to Tenant, fifty percent (50%) to Landlord. C. In any subletting or assignment undertaken by Tenant, Tenant shall diligently seek to obtain the maximum rental amount available in the marketplace for such subletting or assignment. D. For purposes of this Lease, and assignment or subletting shall not include any assignment or sublease of all or any portion of the Premises made to any entity which controls, is controlled by, or is under common control with Tenant; to any entity which results from a merger or consolidation with Tenant (including any successor corporation); to any entity engaged in a joint venture with Tenant; or to any entity which acquires substantially all of the stock or assets of Tenant, as a going concern, with respect to the business that is being conducted in the Premises (hereinafter each "Permitted Transfer"). In addition, a sale or transfer of capital stock of Tenant shall be deemed a Permitted Transfer if (1) such sale or transfer occurs in connection with any bona fide financing or capitalization for the benefit of Tenant, or (2) Tenant is a publicly traded corporation, provided Landlord is in no worse position with respect to -7- Landlord's economic security under this Lease. Notwithstanding anything to the contrary contained in this Lease, Landlord shall have no right of approval or consent with respect to any Permitted Transfer, nor shall Landlord have any right to any sums or other economic consideration resulting from any Permitted Transfer. Notwithstanding the foregoing, a transfer shall be a "permitted transfer" only if Landlord is in no worse a position with respect to Landlord's economic security under this Lease (including payment of rent). F. No assignment or subletting by Tenant shall relieve Tenant of any obligations under this Lease. Any assignment or subletting which conflicts with the provisions hereof shall be void. QUIET 22. Landlord represents that it has full right and authority to ENJOYMENT enter into this Lease and that Tenant, upon paying the Rent and performing its other covenants and agreements herein set forth, shall peaceably and quietly have, hold and enjoy the Premises for the Term hereof without hindrance or molestation from Landlord, subject to the terms and provisions of this Lease. CONDEMNATION 23. A. If the whole or any substantial portion of the Project of which the Premises are a part should be taken or condemned for any public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking would prevent or materially interfere with the Permitted Use of the Premises, this Lease shall terminate and the Rent shall be abated during the unexpired portion of this Lease, effective when the physical taking of said Premises shall have occurred. B. If a portion of the Project of which the Premises are a part should be taken or condemned for any public use under any governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and this Lease is not terminated as provided in the subparagraph 23A above, this Lease shall not terminate, but the Rent payable hereunder during the unexpired portion of the Lease shall be reduced to such extent as may be fair and reasonable under all of the circumstances. C. Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired portion of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant's personal property, the unamortized cost of any tenant improvements or alterations, moving cost or loss of goodwill, shall be and remain the property of Tenant. CASUALTY 24. A. If the Premises should be damaged or destroyed by fire, DAMAGE tornado or other casualty, Tenant shall give immediate written notice thereof to Landlord. Within thirty (30) days of such notice, Landlord shall notify Tenant whether in Landlord's opinion such repairs can be made either (1) within ninety (90) days, (2) in more than ninety (90) days but in less than one hundred eighty (180) days, or (3) in more than one hundred eighty (180) days from the date of such notice; Landlord's determination shall be binding on Tenant. If Landlord fails to complete the repairs within one hundred fifty (150) days after the date upon which Landlord is notified of such damage, such period of time to be extended for delays caused by the fault or neglect of Tenant or because of acts of God, acts of public agencies, labor disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain materials, supplies or fuels, or delay of the contractors or subcontractors due to such causes or other contingencies beyond the control of Landlord, Tenant may at its option terminate this Lease by delivering written notice of termination to Landlord whereupon this Lease shall terminate thirty (30) days thereafter. B. If the Premises should be damaged by fire, tornado or other casualty but only to such extent that rebuilding or repairs can in Landlord's estimation be completed within ninety (90) days after the date upon which Landlord is notified by Tenant of such damage, this Lease shall not terminate, and Landlord shall at its sole cost and expense thereupon proceed with reasonable diligence to rebuild and repair the Premises to substantially the condition in which they existed prior to such damage, except that Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements which may have been placed in, on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be reduced to such extent as may be fair and reasonable under all of the circumstances. C. If the Premises should be damaged by fire, tornado or other casualty but only to such extent that rebuilding or repairs can in Landlord's estimation be completed in more than ninety (90) days but in less than one hundred eighty (180) days, then Landlord shall have the option of either (1) terminating the Lease by written notice given to Tenant within thirty (30) days after the date upon which Landlord is notified by Tenant of such damage, effective upon the date of the occurrence of such damage, in which event the Rent shall be abated during the unexpired portion of the Lease, or (2) electing to rebuild or repair the Premises to substantially the condition in which they existed prior to such damage except that Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements which may have been placed in, on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be reduced to such extent as may be fair and reasonable under all of the circumstances. In the event that Landlord should fail to complete such repairs and rebuilding within one hundred eighty (180) days after the date upon which Landlord is notified by Tenant of such damage, such period of time to be extended for delays caused by the fault or neglect of Tenant or because of acts of God, acts of public agencies, labor disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain materials, supplies or fuels, or delay of the contractors or subcontractors due to such causes or other contingencies beyond the reasonable control of Landlord, Tenant may at its option terminate this Lease by delivering thirty (30) days prior written notice of termination to Landlord as Tenant's exclusive remedy, whereupon all rights and obligations hereunder shall cease and terminate. D. If the Premises should be so damaged by fire, tornado, or other casualty that rebuilding or repairs cannot in Landlord's estimation be completed within one hundred eighty (180) days after the date upon which Landlord is notified by Tenant of such damage, this Lease shall terminate and the Rent shall be abated during the unexpired portion of this Lease, effective upon the date of the occurrence of such damage. E. Notwithstanding anything herein to the contrary, in the event that holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon -8- all rights and obligations hereunder shall cease and terminate. F. The provision of Section 1942, Subdivision 2, and Section 1933, Subdivision 4, of the Civil Code of California is superseded by the foregoing. G. In the event Landlord chooses to rebuild under this Paragraph 24, Landlord agrees to do so without delay and complete such rebuilding in as expeditious a manner as is commercially reasonably given the circumstances. HOLDING OVER 25. If Tenant shall retain possession of the Premises or any portion thereof without Landlord's consent following the expiration of the Lease or sooner termination for any reason, then Tenant shall pay to Landlord for each day of such retention one hundred fifty percent (150%) triple-the amount of the daily rental for the first month prior to the date of expiration or termination. Tenant shall also indemnify and hold Landlord harmless from any loss or liability resulting from delay by Tenant in surrendering the Premises, including, without limitation, any claims made by any succeeding tenant founded on such delay. Alternatively, if Landlord gives notice of Landlord's consent to Tenant's holding over, such holding over shall constitute renewal of the Lease on whatever terms are specified in such notice. Acceptance of Rent by Landlord following expiration or termination shall not constitute a renewal of this Lease, and nothing contained in this paragraph shall waive Landlord's right of reentry or any other right. Unless Landlord exercises the option hereby given to it, Tenant shall be only a Tenant at sufferance, whether or not Landlord accepts any Rent from Tenant while Tenant is holding over without Landlord's written consent. Additionally, in the event that upon termination of the Lease, Tenant has not fulfilled its obligation with respect to repairs and cleanup of the Premises or any other Tenant obligations as set forth in this Lease, then Landlord shall have the right to perform any such obligations as it deems necessary at Tenant's sole cost and expense, and any time required by Landlord to complete such obligations shall be considered a period of holding over and the terms of this paragraph shall apply provided Landlord diligently undertakes to complete such work in a timely manner. DEFAULT 26. A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an event of default on the part of Tenant: (1) ABANDONMENT. Vacation or abandonment of the premises for a continuous period in excess of five (5) days. Tenant waives any right of notice Tenant may have under Section 1951.3 of the Civil Code of the State of California, the terms of this subparagraph 26A being deemed such notice to Tenant as required by said Section 1951.3. (2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any other amount due and payable hereunder upon the date when said payment is due, such failure continuing without cure by payment of the delinquent Rent and late charge or other obligations for a period of five (5) days after written notice and demand; provided, however, that except as expressly otherwise provided herein, Landlord shall not be required to provide such notice more than twice during any three (3) year period of the Term, the third such non-payment in such period constituting default for all purposes hereof without requirements of notice. (3) OTHER OBLIGATIONS. Failure to perform any obligations, agreement or covenant under this Lease other than those matters specified in subparagraphs (1) and (2) of this subparagraph 26A, such failure continuing for fifteen (15) days after written notice of such failure, or such longer period as Landlord reasonably determines to be necessary to remedy such default, provided that Tenant shall continuously and diligently pursue such remedy at all times until such default is cured. (4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit of creditors. (5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's creditors which involuntary petition remains undischarged for a period of thirty (30) days. In the event that under applicable law the trustee in bankruptcy or Tenant has the right to affirm this Lease and continue to perform the obligation of Tenant hereunder, such trustee or Tenant shall, in such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease. (6) RECEIVERSHIP. The employment of a receiver to take possession of substantially all of Tenant's assets of the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of ten (10) days after the levy thereof. (7) ATTACHMENT. The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets of the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of twenty (20) days after the levy thereof. B. REMEDIES UPON DEFAULT. (1) RENT. All failures to pay any monetary obligation to be paid by Tenant under this Lease shall be construed as obligations for payment of Rent. (2) TERMINATION. In the event of the occurrence of any event of default Landlord shall have the right, with or without notice or demand, to immediately terminate this Lease, and at any time thereafter recover possession of the Premises or any part thereof and expel and remove therefrom Tenant and any other person occupying the same, by any lawful means, and again repossess and enjoy the Premises without prejudice to any of the remedies that Landlord may have under this Lease, or at law or equity by reason of Tenant's default or of such termination. (3) CONTINUATION AFTER DEFAULT. Even though Tenant has breached this Lease and/or abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession under paragraph 26B(2) hereof, and Landlord may enforce all its rights and remedies under this Lease, including but not without limitation, the right to recover Rent as it becomes due, and Landlord, without terminating this Lease, may exercise all of the rights and remedies of a Landlord under Section 1951.4 of the Civil Code of the State of California or any successor code section. Acts of maintenance preservation or efforts to lease the Premises or the appointment of a receiver upon application of Landlord to protect Landlord's interest under this Lease shall not constitute an election to terminate Tenant's right to possession. C. DAMAGES UPON TERMINATION. Should Landlord terminate this Lease pursuant to the provisions of paragraph 26B(2) hereof, Landlord shall have all the rights and remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State of California, or successor code sections. Upon such termination, in addition to any other rights and remedies to which Landlord may be entitled under applicable law, Landlord shall be entitled to recover from Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts which had been earned at the time of termination, (2) the worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such Rent loss that the Tenant proves could have been reasonably avoided, (3) the worth at the time of award of the amount by which the unpaid Rent for the balance of the term after the time of award exceeds the -9- amount of such Rent loss that the Tenant proves could be reasonably avoided, and (4) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which, in the ordinary course of things, would be likely to result therefrom. The "worth at the time of award" of the amounts referred to in (1) and (2) above shall be computed with interest at the maximum rate allowed by law. The "worth at the time of award" of the amount referred to in (3) above shall be computed by discounting such amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco at the time of the award plus one percent (1%). D. LATE CHARGE. In addition to its other remedies, Landlord shall have the right without notice or demand to add to the amount of any payment required to be made by Tenant hereunder, and which is not paid on or before the date the same is due, an amount equal to five percent (5%) of the delinquency for each month or portion thereof that the delinquency remains outstanding to compensate Landlord for the loss of the use of the amount not paid and the administrative costs caused by the delinquency, the parties agreeing that Landlord's damage by virtue of such delinquencies would be difficult to compute and the amount stated herein represents a reasonable estimate thereof. E. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of the parties are cumulative and not alternative to the extent permitted by law and except as otherwise provided herein. LIENS 27. Tenant shall keep the premises free from liens arising out of or related to work performed, materials or supplies furnished or obligations incurred by Tenant or in connection with work made, suffered or done by Tenant in or on the Premises or Project. In the event that Tenant shall not, within ten (10) days following the imposition of any such lien, cause the same to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord on behalf of Tenant and all expenses incurred by Landlord in connection therefore shall be payable to Landlord by Tenant on demand with interest at the maximum rate allowable by law. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord, the Premises, the Project and any other party having an interest herein, from mechanics' and materialmen's liens, and Tenant shall give Landlord not less than ten (10) business days prior written notice of the commencement of any work in the Premises or Project which could lawfully give rise to a claim for mechanics' or materialmen's lien. SUBSTITUTION 28. TRANSFERS BY 29. In the event of a sale or conveyance by Landlord of the LANDLORD Project, the same shall operate to release Landlord from any future liability upon any of the covenants or conditions, express or implied, herein contained in favor of Tenant, and in such event Tenant agrees to look solely to the responsibility of the successor in interests of Landlord in and to this Lease. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee. RIGHT OF 30. All covenants and agreements to be performed by Tenant under LANDLORD TO any of the terms of this Lease shall be performed by Tenant PERFORM at Tenants' sole cost and expense and without any abatement TENANT'S of Rent. If Tenant shall fail to pay any sum of money, other COVENANTS than Rent, required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for five (5) days after notice thereof by Landlord, Landlord may, but shall not be obligated to do so, and without waiving or releasing Tenant from any obligations of the Tenant, make any such payment or perform any such act on the Tenant's part to be made or performed. All sums so paid by Landlord and all necessary incidental costs together with interest thereon at the maximum rate permitted by law from the date of such payment by the Landlord shall be payable to Landlord on demand, and Tenant covenants to pay such sums, and Landlord shall have, in addition to any other right or remedy of Landlord, the same right and remedies in the event of the nonpayment thereof by Tenant as in the case of default by Tenant in the payment of the Rent. WAIVER 31. If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein. The acceptance of Rent by Landlord shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition or this Lease, regardless of Landlord's knowledge of such preceding breach at the time Landlord accepted such Rent. Failure by either party Landlord to enforce any of the terms, covenants or conditions of this Lease for any length of time shall not be deemed to waive or to decrease the right of said party Landlord to insist thereafter upon strict performance by the other Party--Tenant. Waiver of by either party Landlord-of any term, covenant or condition contained in this Lease may only be made by a written document signed by said party- Landlord. NOTICES 32. Each provision of this Lease or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivery of any notice or the making of any payment by Landlord or Tenant to the other shall be deemed to be complied with when and if the following steps are taken: A. All Rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at the address set forth in the Basic Lease Information, or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant's obligation to pay Rent and any other amounts to Landlord under the terms of this Lease shall not be deemed satisfied until such Rent and other amounts have been actually received by Landlord. B. All notices, demands, consents and approvals which may or are required to be given by either party to the other hereunder shall be in writing and shall be deemed to have been fully given when deposited in the United States mail, certified or registered, postage prepaid, and addressed to the party to be notified at the address for such party specified in the Basic Lease Information or to such other place as the party to be notified may from time to time designate. Tenant appoints as its agent to receive the service of all default notices and notice of commencement of unlawful detainer proceedings the person in charge of or apparently in charge of or occupying the Premises at the time, and, if there is no such person, then such service may be made by attaching the same on the main entrance of the Premises. -10- ATTORNEYS 33. In the event either party places the enforcement of this FEES Lease, or any part thereof, or the collection of any Rent due, or to become due hereunder, or recovery of the possession of the Premises in the hands of an attorney or files suit upon the same, the prevailing party shall recover its reasonable attorneys' fees and court costs. SUCCESSORS 34. This Lease shall be binding upon and inure to the benefit of AND ASSIGNS Landlord, its successors and assigns, and shall be binding upon and inure to the benefit of Tenant, its successors, and to the extent assignment may be approved by Landlord hereunder, Tenant's assigns. FORCE 35. Whenever a period of time is herein prescribed for action to MAJEURE be taken by Landlord, Landlord shall not be liable or responsible for, and there shall be excluded from the computation for any such period of time, any delays due to strike, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions or any other causes of any kind whatsoever which are beyond the control of Landlord. Whenever a period of time is herein prescribed for action as to non-monetary obligations to be taken by Tenant, Tenant shall not be liable or responsible for, and there shall be excluded from the computation for any such period of time, any delays due to strike, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions or any other causes of any kind whatsoever which are beyond the control of Tenant. MISCEL- 36. A. The term "Tenant" or any pronoun used in place thereof LANEOUS shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their and each of their respective successors, executors, administrators and permitted assigns, according to the context hereof. B. Time is of the essence regarding this Lease and all of its provisions. C. This Lease shall in all respects be governed by the laws of the State of California. D. This Lease, together with its exhibits, contains all the agreements of the parties hereto and supercedes any previous negotiations. E. There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease and its exhibits. F. This Lease may not be modified except by a written instrument by the parties hereto. G. If, for any reason whatsoever, any of the provisions hereof shall be unenforceable or ineffective, all of the other provisions shall be and remain in full force and effect. ADDITIONAL 37. RIGHT OF FIRST REFUSAL. Provided Tenant is not, and has not PROVISIONS been, in default of any terms and conditions of this Lease, Tenant shall have a prior right of refusal to Lease existing space as it becomes available in the Project, provided no other Tenant has a pre-existing prior on right on such space. Upon notification by Landlord either orally or in writing of the availability of space, Tenant shall have seven (7) days to notify Landlord of Tenant's desire to exercise Tenant's prior right of refusal on the terms and conditions offered by Landlord. In the event Tenant fails to give Landlord notice of Tenant's election to lease the additional space within the time period, Tenant shall have no further right, title or interest in the space provided Landlord shall not lease said space to any other entity or individual on terms and conditions that are materially more favorable to the tenant under such lease than those offered to Tenant without first offering the space to Tenant upon the more favorable terms and conditions, whereupon Tenant shall have seven (7) days to notify Landlord of Tenant's desire to exercise Tenant's prior right of first refusal upon the more favorable terms and conditions. In the event Landlord leases said space, then Tenant shall have the same prior right of first refusal, as specified in this Section 37, when and if said space becomes available again during this lease term. If, on the other hand, Tenant exercises its prior right of refusal in the manner prescribed, Tenant shall immediately deliver to Landlord payment for the first month's rent for the space (in the manner as provided for in this Lease), and the lease for the space shall be consummated without delay in accordance with the terms and conditions set forth in the lease offer. 38. OPTION TO RELEASE. While this Lease is in full force and effect, provided that Tenant is not at such time in default of any of the terms, covenants and conditions hereof, and Tenant has never been in material default of this lease, Tenant shall have the right and option to extend the term hereof on the premises for two (2) additional periods of five (5) years each, except that the monthly rental and terms for said release shall be at the fair market rates and prevailing terms then in effect on equivalent properties, of equivalent size, in equivalent areas (but in no event will the rent be less than the immediately previous rental rate). Notice of Tenant's intention to exercise the option must be given to Landlord in writing at least one hundred eighty (180) days prior to the expiration of the term. This option shall apply only to the primary tenant and not to an assignee or subtenant of Tenant, except for those parties pre-approved, if any, as assignees or sublessees. 39. TERMINATION OPTION. Notwithstanding anything herein to the contrary, Tenant shall have one (1) option to terminate this Lease effective on the last day of month thirty-six (36) ("early termination date") provided that Tenant notifies Landlord in writing of its intent to do so prior to the last day of month twenty-four (24) and pays to Landlord the cost of all unamortized costs funded by Landlord including tenant improvements and commission, plus all abated rent and reduced rent as a result of less than the occupancy of the entire building during the first two (2) years of the lease plus an additional two (2) years of future rent on the entire premises. 40. SIGNAGE. Notwithstanding the provisions of Section 13 above, Tenant shall have the right to install monument signage allowed by the City of Hayward, consistent with the existing signage in BayCenter Business Park, and with the prior written approval of Landlord. 41. TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide and pay Tenant a tenant improvement allowance of One Hundred Seventy-Seven Thousand One Hundred Twenty Dollars ($177,120.00) upon completion of the tenant improvements specified in Exhibit B herein and submission of a bonafide invoice evidencing an obligation of Tenant to pay for such completed work by a competent general contractor and receipt of final lien releases. 42. LANDLORD WARRANTY. To the best of Landlord's knowledge, Landlord represents and warrants to Tenant that as of the date hereof and as of the Term Commencement Date, (a) the Building and all Building systems are and shall be in good working condition, structurally sound and free from latent defects, (b) the Premises and the Building do not violate any ordinance, rule, code (including without limitation the requirements of the Americans with Disabilities Act), covenants or restrictions of record as are applicable to the Building or the Premises or regulation of any government agency, and Landlord has not received notice of any possible violation. 43. HAZARDOUS MATERIALS. Landlord represents and warrants that the attached Exceltech report dated March 1, 1988 (Exhibit B) is the most recent report obtained by Landlord concerning Hazardous Materials with respect to the Project. To the best of Landlord's knowledge Landlord is unaware of the presence of any Hazardous Materials on the Project that is in violation of applicable laws. In the event of (a) any breach of the foregoing representation and warranty or (b) the occurrence, release or threatened release of any Hazardous -11- Materials on or about the Premises, Building or Project that is caused by Landlord, or its employees or (c) the presence of any Hazardous Materials caused by any previous occupant of the Building that is required by local, state or federal law to be remediated, then Landlord shall protect, indemnify, defend and hold Tenant harmless from and against any costs of clean-up of such Hazardous Materials. The provisions of this section shall survive the termination of this Lease. 44. HAZARDOUS MATERIALS. Tenant shall (i) not cause or permit any "Hazardous Material" (as hereinafter defined) to be brought upon, kept, or used in or about the Premises by Tenant, its agents, employees, contractors or invitees in any manner which shall cause contamination of the Premises or adjacent property. If Tenant breaches the obligations stated in the preceding sentence, or if the presence of Hazardous Material on the Premises caused or permitted by Tenant results in contamination of the Premises or any adjacent property, then Tenant shall indemnify, defend and hold Landlord harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses (including, without limitation, diminution in value of the Premises and/or adjacent property, damages for the loss or restriction on use of rentable or useable space or of any amenity of the Premises and/or adjacent property, damages arising from any adverse impact on marketing of the Premises and/or adjacent property, and sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees) which arise during or after the Lease Term or any Extended Term as a result of such contamination. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal, or restoration work required by any federal, state or local governmental agency or subdivision because of Hazardous Material present in the soil or ground water on or under the Premises and/or adjacent property. Without limiting the foregoing, if the presence of any Hazardous Material on the Premises caused or permitted by Tenant results in any contamination of the Premises and/or adjacent property, Tenant shall promptly take all actions at its sole expense as are necessary to return the Premises and/or adjacent property to the condition existing prior to the introduction of any such Hazardous Material to the Premises and/or adjacent property; provided that Landlord's approval of such actions shall first be obtained, which approval shall not be unreasonably withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises and/or adjacent property. As used herein, the term "Hazardous Material" means any hazardous or toxic substance, material, or waste, or any substance, materiel or waste which is or becomes regulated by any local governmental authority, the State of California or the United States Government. Upon expiration or earlier termination of this Lease, Tenant shall duly execute and deliver to Landlord a certificate (the "Hazardous Waste Certificate") in the form on Exhibit C attached hereto. In the event Tenant shall fail to so deliver the Hazardous Waste Certificate, such failure shall, without further notice or the passage of time, constitute a default under the Lease and shall entitle Landlord to retain the entire security deposit held by Landlord, to be applied toward payment of the cost of assessing the presence of Hazardous Material on the Premises and/or adjacent property, and toward payment of all loss, cost, liability, damage and expense of Landlord arising as a result of any such contamination and toward such other costs and expenses of Landlord as Landlord may designate in its sole discretion. Nothing contained herein shall be deemed or construed to limit the liability of Tenant to Landlord hereunder for the breach of any covenant of Tenant under this Paragraph 44. The provisions of this Paragraph 44 shall survive the expiration or earlier termination of this Lease and Tenant's surrender the Premises to Landlord. 45. LEASE EFFECTIVE DATE. Submission of this instrument for examination or signature by Tenant does not constitute a reservation or option for lease, and it is not effective as a lease or otherwise until execution by Landlord and Tenant. IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and year first above written. "LANDLORD" SPIEKER-SINGLETON #87, LIMITED PARTNERSHIP BY /s/ Peter H. Schnugg ------------------------------------ Peter H. Schnugg Its Agent for Owner -------------------------------------- "TENANT" LYNX THERAPEUTICS, INC. BY /s/ Sam Eletr ------------------------------------ Print Name SAM ELETR ----------------------------- Its CEO & CHAIRMAN ----------------------------- SITE PLAN Future Phase II [MAP] EXHIBIT B I. OPEN OFFICE Lynx Therapeutics' officing policy is democratic in nature, areas or bullpens may be defined by moveable partitions. The furniture is freestanding. All ranks of employees receive the same space allocation. There will not be any new construction related to the open office areas except painting of existing finishes. II. R&D CHEMISTRY R&D Chemistry will consist of organic chemistry and supporting instrumentation spaces. The laboratories will have on the order of .50-1.0 fume hoods/person. Laboratory finishes will be chemical resistive epoxy (walls, worksurfaces) and sheet vinyl (flooring). All spaces will comply with 1991 Uniform Building Code requirements for laboratories. III. MOLECULAR BIOLOGY Molecular Biology spaces will be less fume hood intensive (one hood/8 persons) than Chemistry. Laboratory finishes will be similar to those in Chemistry. All spaces will comply with 1991 Uniform Building Code requirements for Laboratories. IV. MANUFACTURING Lynx's manufacturing process involves small scale chemical manufacturing of synthetic DNA products. Processes are bulk formation, synthesis, chromatography, filtration and precipitation. Finishes will be chemical resistant epoxy paint (walls) and sheet vinyl flooring. The flooring in the bulk formulation areas will be a more durable material, such as troweled epoxy or quarry tile. V. HVAC It is presumed, because of the fume hood intensity and air change requirements of laboratory and manufacturing spaces that modification and supplements to the existing HVAC system will be required. At this time the extent of this work is undetermined. The laboratory spaces require 100% make up air. The office HVAC systems can be recirculating with make up per ASHRAE standards. Structural work will occur as necessary to add new HVAC equipment on the roof. VI. PLUMBING Existing PVC and copper process piping may be reused, however the systems will be expanded to reach the laboratory areas adjacent to the existing laboratory core. Central services include vacuum, argon and deionized and non potabic water. Domestic water will be supplied to eyewashes and safety showers per Cal OSHA standards. Existing drain systems will be expanded to serve new laboratory locations. Manufacturing process piping will include stainless steel solvent delivery. All chemical wastes are collected and disposed of by Lynx and are not part of the drainage system. Sinks will be provided at a ration of approximately one per four lab/ manufacturing personnel. VII. ELECTRICAL The existing 7,000 ampere service appears sufficient to handle the anticipated loads. Paver requirements are low voltage, 120/208 VAC. Relocation of existing distribution equipment is expected. Main distribution panels will remain in place. Lighting levels in laboratory and manufacturing will be upgraded from existing office levels. All lighting will comply with the requirements of Title XXIV, the California Energy Code. [IMAGE] [IMAGE] EXHIBIT C HAZARDOUS WASTE CERTIFICATE , 1993 SPIEKER PARTNERS 6000 Stoneridge Mall Road, Suite 270 Pleasanton, CA 94588 RE: That certain lease ("Lease") dated _______, 1993 between Spieker-Singleton #87, a Limited Partnership ("Landlord"), and Lynx Therapeutics, ("Tenant"), covering certain real property and improvements thereon located in the County of Alameda, State of California and more commonly known as 3832 Bay Center Place, Hayward, California (the "Premises"), as amended. Gentlemen: The undersigned, LYNX THERAPEUTICS, as Tenant under the above-captioned Lease, hereby certifies to the best of Tenant's knowledge and after the inspection of the Premises by a qualified third party to Landlord that, as of the date hereof, there are no Hazardous Materials (as such term is defined in the Lease) in or about the Premises caused by Tenant's use or occupancy or caused by any visitors to the Building or anyone whatsoever connected to, affiliated with, or delivering to, or working on behalf, the Tenant. Tenant hereby acknowledges its continuing obligation under PARAGRAPH 44 (Hazardous Materials Provisions) of the lease, notwithstanding the expiration or other termination of the Lease term, to indemnify, defend and hold Landlord harmless from and against any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses (as more fully set forth in said PARAGRAPH 44) as a result of the presence of Hazardous Material brought upon, kept or used in or about the Premises by Tenant, its agents, employees, contractors or invitees. The undersigned understands that Landlord will be relying upon the statements of Tenant contained herein in Landlord's continued maintenance and operation of the Premises. Lynx Therapeutics, a - -------------------------------------------- By: --------------------------------- Its: --------------------------------- By: --------------------------------- Its: --------------------------------- EXHIBIT D FIRST RIGHT OF REFUSAL ON ADJACENT PROPERTY In consideration of that Lease Agreement between Spieker-Singleton #87, Limited Partnership, and Lynx Therapeutics, Inc. "Lynx", the general partners of Spieker-Singleton #115, Limited Partnership and any of its affiliated successors, "S-S #115", does hereby grant to Lynx the following first right of refusal on two parcels of land totalling 7.1 acres at Whitesell Road and BayCenter Place, Hayward, California, APN #439-99-73 and APN #439-99-77 (the "Land"). Provided Lynx is not and has not been in default of any terms and conditions of the Lease, then Lynx will have the following option on the above referenced land. In the event Landlord intends to offer for lease on a build to suit basis a project on such land, S-S #115 will first offer the right to Lynx to lease such a project on the same terms and conditions as Landlord intends to offer to a third party. Landlord's obligation to extend such offer to Lynx shall however be limited to only those times and situations where Lynx's financial condition permits the financing of such build to suit on customary and reasonable terms and conditions offered by Landlord. If Lynx is otherwise able to secure financing for such a project reasonably acceptable to Landlord, then Landlord shall be obligated to extend such offer to Lynx. Lynx shall have seven (7) days to notify S-S #115 of Lynx's desire to exercise the prior right of refusal on the terms and conditions offered by S-S #115. In the event S-S #115 intends to offer the Land for sale, S-S #115 will first offer to sell it to Lynx. Lynx shall have seven (7) days to notify S-S #115 of Lynx's desire to purchase the Land on the terms S-S #115 has offered and a contract shall be entered into immediately thereafter. In the event that Landlord intends to offer the Land for sale or lease to an unaffiliated third party on terms fifteen percent (15%) more advantageous than Landlord previously offered to Lynx, Landlord will first offer to sell the Land to Lynx or lease a build to suit to on such more favorable terms and Lynx shall have seven (7) days to notify S-S #115 of Lynx's desire to purchase the Land or lease a build to suit on these terms and a contract shall be entered into immediately thereafter. By: /s/ [ILLEGIBLE] --------------------- Its: Agent for Owner EXHIBIT B [ATTACH LAYOUT OF PREMISES SUBLEASED] EXHIBIT B [Floorplan] EXHIBIT C FORM OF ASSIGNMENT AND ASSUMPTION OF SUBLEASE OBLIGATIONS THIS ASSIGNMENT AND ASSUMPTION OF SUBLEASE OBLIGATIONS (this "Assignment") is dated as of _________, 1998 by and among LYNX THERAPEUTICS, INC., a Delaware corporation ("Assignor"), KOSAN BIOSCIENCES INCORPORATED, a California corporation ("Assignee") and INEX PHARMACEUTICALS (U.S.A.), INC., a Washington corporation ("Subtenant"). WHEREAS, Assignor is sublessor under that certain Sublease dated __________, 1998, by and between Assignor and Subtenant (the "Inex Sublease"), respecting certain premises (the "Premises") with a street address of 3832 Bay Road, Hayward, California, as more particularly described therein, whereby Assignor subleased to Subtenant approximately 6,298 square feet of the Premises (the "Inex Premises") and agreed to provide certain services to Subtenant pursuant to the terms of the Inex Sublease; WHEREAS, Assignor subleased the remainder of the Premises (the "Remaining Premises") to Assignee pursuant to that certain Sublease between Assignor and Assignee dated of even date herewith (the "Kosan Sublease"), such that Assignor will no longer have possession of any part of the Premises; WHEREAS, Assignor desires to assign to Assignee the service obligations accruing under the Inex Sublease for the period (referred to herein as the "Service Period") commencing on the "Commencement Date" (as defined in the Kosan Sublease) and ending on the date of the termination of the term of the Kosan Sublease, and Assignee desires to assume such service obligations; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Assignor, Assignee, and Subtenant agree as follows: 1. ASSIGNMENT OF SERVICE OBLIGATIONS. Subject to the terms, conditions and limitations set forth in this Assignment, the Inex Sublease and the underlying master lease ("Master Lease") between Assignor, as tenant, and Spieker-Singleton #87, Limited Partnership, as landlord ("Master Lessor"), Assignor hereby assigns and Assignee hereby assumes all of Assignor's rights and obligations to perform the following services ("Services") during the Service Period under Section 6(c)(ii) of the Inex Sublease: gas, electricity, HVAC and HVAC maintenance service, waste management and recycling, house vacuum, RODI water system, and emergency power. Subtenant agrees to reimburse Assignee for fourteen and 22/100 percent (14.22%) of the costs incurred by Assignee with respect to the Services; provided, however that one hundred percent (100%) of any Services performed or provided for the sole benefit of Subtenant (as reasonably determined by Assignee) 14. or as a result of any negligent act or omission of Subtenant or any of its agents, employees, contractors or invitees, shall be reimbursed by Subtenant to Assignee. Such reimbursement shall be made by Subtenant within ten (10) days after its receipt of a written notice from Assignee stating the cost incurred by Assignee for the Services. If requested, Assignee shall provide Subtenant with reasonable, supporting back-up detail for such costs. Subtenant acknowledges that payment to Assignee for the Services is an obligation accruing under the Inex Sublease. Accordingly, if Subtenant fails to make a required reimbursement payment to Assignee within the ten (10)-day time period described above, such failure shall be deemed a default under the Inex Sublease. In the event of such a default under the Inex Sublease, Assignor shall promptly commence and prosecute an unlawful detainer action against Subtenant pursuant to the Sublease for failure of Subtenant to pay rent. In addition, any reimbursement payment which is not paid by Subtenant within the foregoing ten (10)-day period will accrue interest at the daily rate of ten percent (10%) or the maximum rate allowable by law, whichever is less, until paid to Assignee. 2. ASSUMPTION OF OBLIGATIONS. Assignee does hereby accept this assignment and, for the benefit of Assignor and Subtenant, expressly assumes and agrees to provide the Services during the Service Period to the Remaining Premises, subject to the terms and conditions set forth in this Assignment, it being understood that (i) Assignee shall have no obligations under this Assignment unless and until the Commencement Date shall occur, and (ii) Assignee shall have no liability or responsibility with respect to any Services first arising and accruing during any time period other than the Service Period. Notwithstanding anything to the contrary contained in this Assignment or the Inex Sublease, there shall be no abatement of rent under the Inex Sublease or liability of Assignee or Assignor on account of any injury or interference with Subtenant's business (including loss of profits) with respect to any cessation of utilities or the performance of any Services. Assignee shall not be responsible for repairs required by an accident, fire or other peril, or for damage caused to any part of the Inex Premises or the Remaining Premises by any act, negligence or omission of Subtenant or its agents, contractors, employees or invitees. It is an express condition precedent to all obligations of Assignee with respect to the Services that Subtenant shall have notified Assignee of the need for such Services. 3. WAIVER OF SUBROGATION. The waiver of subrogation provisions set forth in Section 9 of the Master Lease shall be deemed a four-party agreement binding among and inuring to the benefit of Assignor, Assignee, Subtenant and Master Lessor (by reason of its consent to the Kosan Sublease). 4. MISCELLANEOUS. This Assignment shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors and assigns. If either party brings an action or legal proceeding with respect to this Assignment, the prevailing party shall be entitled to recover its reasonable attorneys' fees and costs. All captions contained in this Assignment are for convenience of reference only and shall not affect the construction of this Assignment. This Assignment shall be governed by California law. If any one or more of the provisions of this Assignment shall be invalid, illegal or unenforceable in any respect, the validity, legality and 15. enforceability or the remaining provisions contained herein shall not in any way be affected or impaired thereby. Executed as of the date first above written. ASSIGNOR: LYNX THERAPEUTICS, INC. By: ----------------------------------- Its: ----------------------------------- By: ----------------------------------- Its: ----------------------------------- ASSIGNEE: KOSAN BIOSCIENCES INCORPORATED By: ----------------------------------- Its: ----------------------------------- By: ----------------------------------- Its: ----------------------------------- SUBTENANT: INEX PHARMACEUTICALS (U.S.A.) INC. By: ----------------------------------- Its: ----------------------------------- By: ----------------------------------- Its: ----------------------------------- 16. EXHIBIT D [GENERAL DESCRIPTION OF SUBLESSEE IMPROVEMENTS] 17 EXHIBIT D 1. OFFICE Kosan Biosciences intends to improve the existing open office space with the addition of approximately 14+ hard-walled executive offices and one to two executive conference rooms. The office improvements may also require a partitioning wall, which will subdivide the now existing open office space. An additional access door between the office and R & D areas may also be required. 2. R & D CHEMISTRY The Chemistry laboratories will have approximately 1 fume hood per person. Maintaining this ratio may require the addition of approximately 10 fume hoods and corresponding HVAC improvements. 3. FERMENTATION Kosan expects to improve the now existing engineering space and possibly an additional 1000 sq. ft. to accommodate fermentation equipment for the production of research and/or GMP grade products. This improvement will require, but is not limited to, the installation of central steam generating equipment and associated plumbing, drainage plumbing and channels, waste disposal equipment, HVAC improvements and ducting, plumbed central gases, routing of electrical and water lines, alteration to the existing drop ceiling, and upgrade of flooring to epoxy resin. EXHIBIT E IMPROVEMENTS AND EQUIPMENT TO BE REMOVED BY SUBLESSOR Bio safety Cabinets Portable Equipment Un-interruptible Power Supplies Dehumidification Units/Condensers Autoclave Glassware Washer Glassware Dryer Warehouse Racks Data Networking Equipment, less cabling Critical equipment monitoring system Laminar Flow Hoods Library racks De-ionized water system purification bottles 18. EX-10.14 16 EXHIBIT 10.14 EXHIBIT 10.14 CONSENT TO SUBLEASE AGREEMENT This Consent to Sublease Agreement (this "Agreement") is made as of September 17, 1999 by and among Spieker Properties, L.P., a California limited partnership ("Master Landlord"), Lynx Therapeutics, Inc., a Delaware corporation ("Sublandlord"), and Kosan Biosciences Incorporated, a California corporation ("Subtenant"). Recitals This Agreement is made with regard to the following facts: A. Master Landlord and Sublandlord, as tenant, entered into a Lease dated June 28, 1993, (the "Master Lease"), for premises located at 3832 Bay Center Place, Hayward, California (the "Premises") in the office building commonly known as Bay Center II Business Park, Building A (the "Building"). Initially capitalized terms not otherwise defined herein shall have the same meanings as described in the Lease. B. Under the terms of Paragraph 21 of the Master Lease, Sublandlord has requested Master Landlord's consent to the Amendment to Sublease Agreement dated September 15, 1999, between Sublandlord and Subtenant (the "Sublease"), which would sublease to Subtenant a portion of the Premises, as more particular described in the Amendment to Sublease (the "Subleased Premises"). A copy of the Amendment to Sublease is attached to this Agreement as Exhibit A. C. Master Landlord is willing to consent to the Sublease on the terms and conditions contained in this Agreement. NOW THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, the parties agree as follows. 1. MASTER LANDLORD'S CONSENT. Master Landlord consents to the Sublease. This consent is granted only on the terms and conditions stated in this Agreement. Master Landlord is not bound by any of the terms, covenants, or conditions of the Sublease. The Sublease is subject and subordinate to the Master Lease. 2. LIMITS OF CONSENT. 2.1 NONRELEASE OF SUBLANDLORD; FURTHER TRANSFERS; RECAPTURE RIGHTS. Neither the Sublease nor this Agreement will: (a) release Sublandlord from any liability, whether past, present or future, under the Master Lease; (b) alter the primary liability of Sublandlord to pay the Rent and perform all of Tenant's obligations under the Master Lease (including the payment of all bills rendered by Master Landlord for charges incurred by Subtenant for services and materials supplied to the Subleased Premises); (c) be construed as a waiver of Master Landlord's right to consent to any proposed transfer after the date hereof by Sublandlord under the Master Lease or Subtenant under the Sublease, or as a consent to any portion of the Subleased Premises being used or occupied by any other party; or (d) limit Master Landlord's right, in the event of a proposed future sublease, to recapture any portion of the Premises, including the Subleased Premises, affected by that proposed sublease, as provided in Paragraph 21 of the Master Lease. Master Landlord may consent to the subsequent sublease and assignment of the Sublease or any amendments or modifications to the Sublease without notifying Sublandlord or anyone else liable under the Master Lease, including any guarantor of the Master Lease, and without obtaining their consent. No such action by -1- Master Landlord will relieve those persons from any liability to Master Landlord or otherwise with regard to the Subleased Premises. Notwithstanding the foregoing, nothing contained herein shall diminish any obligation of Subtenant to obtain Sublandlord's approval prior to taking any such actions. 3. RELATIONSHIP WITH MASTER LANDLORD 3.1 EFFECT OF SUBLANDLORD DEFAULT UNDER MASTER LEASE. If Sublandlord defaults in the performance of its obligations under the Master Lease, Master Landlord may, without limiting its other rights and remedies, by notice to Sublandlord and Subtenant, elect to receive and collect, directly from Subtenant, all rent and any other sums owing and to be owed under the Sublease, as further set forth in Section 3.2 below. 3.2 MASTER LANDLORD'S ELECTION TO RECEIVE RENTS. Master Landlord will not, as a result of the Sublease, or as a result of the collection of rents or any other sums from Subtenant under Section 3.1 above, be liable to Subtenant for any failure of Sublandlord to perform any obligation of Sublandlord under the Sublease. Sublandlord irrevocably authorizes and directs Subtenant, on receipt of any written notice from Master Landlord stating that a default exists in the performance of Sublandlord's obligations under the Master Lease, to pay to Master Landlord the rents and any other sums due and to become due under the Sublease. Sublandlord agrees that Subtenant has the right to rely on any such statement from Master Landlord, and that Subtenant will pay those rents and other sums to Master Landlord without any obligation or right to inquire as to whether a default exists and despite any notice or claim from Sublandlord to the contrary. Sublandlord will not have any right or claim against Subtenant for those rents or other sums paid by Subtenant to Master Landlord. Master Landlord will credit Sublandlord with any rent received by Master Landlord under this assignment, but the acceptance of any payment on account of rent from Subtenant as the result of a default by Sublandlord will not: (a) be an attornment by Master Landlord to Subtenant or by Subtenant to Master Landlord; (b) be a waiver by Master Landlord of any provision of the Master Lease; or (c) release Sublandlord from any liability under the terms, agreements, or conditions of the Master Lease. No payment of rent by Subtenant directly to Master Landlord, regardless of the circumstances or reasons for that payment, will be deemed an attornment by Subtenant to Master Landlord in the absence of a specific written agreement signed by Master Landlord to that effect. 3.3 MASTER LANDLORD'S ELECTION OF TENANT'S ATTORNMENT. In the event the Master Lease is terminated prior to the expiration of the term of the Sublease, Master Landlord shall have the right, pursuant to notice to Subtenant, to succeed to Sublandlord's interest in the Sublease and cause Subtenant to attorn to Master Landlord. Master Landlord will assume the obligation of Sublandlord under the Sublease from the time of the exercise of the option, but Master Landlord will not be: (a) liable for any rent paid by Subtenant to Sublandlord more than one month in advance, or any security deposit paid by Subtenant to Sublandlord; (b) liable for any act or omission of Sublandlord under the Master Lease or for any default of Sublandlord under the Sublease which occurred prior to the Master Landlord's assumption; (c) subject to any defenses or offsets that Subtenant may have against Sublandlord which arose prior to Master Landlord's assumption; or (d) bound by any changes or modifications made to the Sublease without the written consent of Master Landlord. 4. CONSIDERATION FOR SUBLEASE. Sublandlord and Subtenant represent and warrant that there are no additional payments of rent or any other consideration of any type which has been paid or is payable by Subtenant to Sublandlord in connection with the Sublease, other than as disclosed in the Sublease. -2- 5. GENERAL PROVISIONS 5.1 BROKERAGE COMMISSION. Sublandlord and Subtenant agree that Master Landlord will not be liable for any brokerage commission or finder's fee in connection with the consummation of the Sublease or this Agreement. Sublandlord and Subtenant will protect, defend, indemnify, and hold Master Landlord harmless from any brokerage commission or finder's fee in connection with the consummation of the Sublease or this Agreement, and from any cost or expense (including attorney fees) incurred by Master Landlord in resisting any claim for any such brokerage commission or finder's fee. The provisions of this Section 5.1 shall survive the expiration or earlier termination of the Sublease and this Agreement. 5.2 NOTICE. Any notice that may or must be given by any party under this Agreement will be delivered (i) personally, (ii) by certified mail, return receipt requested, or (iii) by a nationally recognized overnight courier, addressed to the party to whom it is intended. Any notice given to the Master Landlord, Sublandlord or Subtenant shall be sent to the respective address set forth on the signature page below, or to such other address as that party may designate for service of notice by a notice given in accordance with the provisions of this Section 5.2. 5.3 CONTROLLING LAW. The terms and provisions of this Agreement will be construed in accordance with, and will be governed by, the laws of the State of California. 5.4 ENTIRE AGREEMENT; WAIVER. This Agreement constitutes the final, complete and exclusive statement between the parties to this Agreement pertaining to the terms of Master Landlord's consent to the Sublease, supersedes all prior and contemporaneous understandings or agreements of the parties, and is binding on and inures to the benefit of their respective heirs, representatives, successors and assigns. 5.5 WAIVER OF JURY TRIAL; ATTORNEY FEES. If any party commences litigation against any other party for the specific performance of this Agreement, for damages for the breach hereof or otherwise for enforcement of any remedy hereunder, the parties waive any right to a trial by jury and, in the event of any commencement of litigation, the prevailing party shall be entitled to recover from the applicable party such costs and reasonable attorney fees as may have been incurred. 5.6 COUNTERPARTS. This Agreement may be executed and acknowledged in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one agreement. -3- The parties have executed this Agreement as of the above date. Master Landlord: SPIEKER PROPERTIES, L.P., Master Landlord Address: a California limited partnership 2200 Powell Street By: Spieker Properties, Inc., Suite 325 a Maryland corporation, Emeryville, CA 94608 its general partner By: /s/ [ILLEGIBLE] ---------------------------------------- Its: Senior Vice President --------------------------------------- Sublandlord: Lynx Therapeutics, Inc. Sublandlord Address: a Delaware corporation 25861 Industrial Blvd. Hayward, CA 94544 By: /s/ [ILLEGIBLE] ---------------------------------------- Its: Chief Financial Officer --------------------------------------- Subtenant: Kosan Biosciences, Inc. Subtenant Address: a California corporation 3832 Bay Center Place Hayward, CA 94544 By: /s/ [ILLEGIBLE] ---------------------------------------- Its: COO --------------------------------------- -4- AMENDMENT TO SUBLEASE This AMENDMENT TO SUBLEASE (this "Amendment") is dated as of this 15th day of September, 1999 by and between LYNX THERAPEUTICS, INC., a Delaware corporation ("Sublessor") and KOSAN BIOSCIENCES INCORPORATED, a California corporation ("Sublessee"). RECITALS A. Sublessor and Sublessee entered into a Sublease dated January 6, 1999 (the "Sublease"), for premises (the "Sublease Premises") with a street address of 3832 Bay Center Place, Hayward, California, and more particularly described in the Sublease; B. Pursuant to the terms of the Sublease, Sublessee desires to sublease from Sublessor the Remaining Premises (as defined therein), which represents the balance of the Premises leased by Sublessor under the Master Lease. C. Sublessor and Sublessee now desire to amend the Sublease to include the Remaining Premises on the terms and conditions set forth herein. Capitalized terms used in this Amendment and not otherwise defined shall have the meanings assigned to them in the Sublease. AGREEMENT NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sublessor and Sublessee hereby agree as follows: 1. SUBLEASE PREMISES. Commencing on the later of (i) September 15, 1999, or (ii) the date on which Sublessor has delivered possession of the Remaining Premises to Sublessee in the condition required by this Amendment (the "Expansion Date"), the term "Sublease Premises" shall mean the Premises (as defined in the Master Lease) and Exhibit B to the Sublease shall be deleted. Sublessor shall use commercially reasonable efforts to deliver possession of the Remaining Premises to Sublessee in the condition required hereunder on September 15, 1999, or as soon thereafter as practicable. Commencing on the Expansion Date, Sublessee shall have the nonexclusive use of all parking spaces leased to Sublessor pursuant to the Master Lease. Notwithstanding said Expansion Date, if for any reason Sublessor cannot deliver possession of the Remaining Premises to Sublessee on Said date, Sublessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Sublease or the obligations of Sublessee or Sublessor hereunder or extend the term hereof, but in such case Sublessee shall not be obligated to pay Rent or perform any other obligations hereunder with respect to the Remaining Premises until possession of the Remaining Premises is tendered to Sublessee. If the Expansion Date shall not have occurred by October 1, 1999, Sublessee shall have the right, until November 1, 1999, to terminate this Amendment upon written notice to Sublessor, whereupon, any monies previously paid or deposited by Sublessee to Sublessor hereunder shall promptly be refunded to Sublessee, and the Sublease shall be deemed unchanged by this Amendment. 2. RENT. Commencing on the Expansion Date, the Base Rent schedule set forth in Section 4(a) of the Sublease shall be deleted and replaced with the following:
MONTHLY RENT (EXCLUSIVE PERIOD OF BASIC OPERATING COST) Expansion Date - 01/31/00 $82,360.80 02/01/00 - 01/31/01 $90,809.82 02/01/01 - 01/31/02 $93,338.72 02/01/02 - 01/31/03 $95,552.72 02/01/03 - 07/31/03 $97,766.72
Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment based on the number of days in the month at issue. Commencing on the Expansion Date, Sublessee's pro rata share (for purposes of calculating Additional Rent) shall be 100%, it being understood that Sublessee shall have no responsibility or liability for any Additional Rent obligations under the Sublease or this Amendment arising out of or related to any period of time prior to the Expansion Date. Upon mutual execution of this Amendment, Sublessee shall deposit with Sublessor the amount of $11,714.28 to be applied as a credit towards the first installment(s) of Base Rent due on and after the Expansion Date. 3. SECURITY DEPOSIT. Upon mutual execution of this Amendment, Sublessee shall deposit with Sublessor the amount of $39,047.60, which amount shall be added to the Security Deposit and held by Sublessee in accordance with the terms of Section 5 of the Sublease. 4. REMAINING PREMISES TAKEN AS-IS. Subject to Master Lessor's service, maintenance or repair obligations under the Master Lease, the Remaining Premises and all improvements will be taken over by Sublessee on the Expansion Date on an "as is" basis, provided Sublessor represents, warrants and covenants (now and as of the Expansion Date) that (i) all improvements to the Remaining Premises made by the Sublessor shall remain on the Remaining Premises and (X) have been constructed, installed, operated and maintained in accordance with all applicable laws, by-laws, roles, regulations, orders, permits and licenses and (Y) all plumbing, HVAC, electrical and other building systems within the Remaining Premises are in good working order and repair and all other improvements currently in the Remaining Premises shall remain in the Remaining Premises, and (ii) the prior subtenant in the Remaining Space, Inex Pharmaceuticals (U.S.A.) has obtained all required "closure" from the necessary governmental agencies regarding its storage, use, disposal, transportation or handling of any Hazardous Materials in the Remaining Space. Except as set forth in the foregoing sentence, all provisions of the Sublease regarding the Sublease Premises shall apply to the Remaining Premises (including, without limitation, Sublessee's surrender obligations under Section 6 thereof, provided that the point of reference for Sublessee's surrender obligations for the Remaining Premises shall be the condition of such premises on the Expansion Date), it being understood that Sublessee shall have no liability or responsibility under the Sublease or this Amendment with respect to any claims, damages, costs, expenses or liabilities arising out of the occupancy, use or condition of the Remaining Premises during any period of time prior to the Expansion Date, unless caused by Sublessee or clue to Sublessee's negligence or willful misconduct. 2 5. AMENDMENT TO SUBLEASE. Section 20 and Exhibit C of the Sublease are hereby deleted. 6. BROKERAGE. Each party to this Agreement acknowledges that R. Randolph Scott ("Scott") of Cornish & Carey Commercial Realty acts as a real estate broker for Sublessor and may be entitled to a commission as a result of this Amendment. In the event Scott is entitled to a commission, Sublessor agrees that Sublessee shall bear no responsibility whatsoever for any commissions due to Scott. Notwithstanding anything to the contrary set forth above, each party to this Agreement warrants and represents to the other that, such party has not retained any other real estate broker, finder or any other person whose services would form the basis for any claim for any commission or fee in connection with this Amendment or the transactions contemplated hereby. Each party agrees to save, defend, indemnify and hold the other party free and harmless from any breach of its warranty and representation as set forth in the preceding sentence, including the other party's attorneys' fees. 7. CONDITION PRECEDENT TO SUBLEASE AMENDMENT. This Amendment and the parties' obligations hereunder are subject to the receipt by Sublessor of the Master Lessor's consent to this Amendment. If such consent has not been obtained by Sublessor within thirty (30) days after the date of Sublessor's execution of this Amendment, Sublessee may, within ten (10) days thereafter, terminate this Amendment by written notice to Sublessor whereupon Sublessor shall return to Sublessee all sums paid by Sublessee to Sublessor in connection with its execution of this Amendment and the Sublease shall be deemed unchanged by this Amendment. Sublessor shall use commercially reasonable efforts to obtain Master Lessor's consent to this Amendment as soon as practicable. 8. RATIFICATION. The Sublease, as amended by this Amendment, is hereby ratified by Sublessor and Sublessee and Sublessor and Sublessee hereby agree that the Sublease, as so amended, shall continue in full force and effect. 9. MISCELLANEOUS. (a) VOLUNTARY AGREEMENT. The parties have read this Amendment and the mutual releases contained in it, and on the advice of counsel they have freely and voluntarily entered into this Amendment. (b) ATTORNEY'S FEES. If either party commences an action against the other party arising out of or in connection with this Amendment, the prevailing party shall be entitled to recover from the losing party reasonable attorney's fees and costs of suit. (c) SUCCESSORS. This Amendment shall be binding on and inure to the benefit of the parties and their successors. (d) COUNTERPARTS. This Amendment may be signed in two or more counterparts. When at least one such counterpart has been signed by each party, this Amendment shall be deemed to have been fully executed, each counterpart shall be deemed to be an original, and all counterparts shall be deemed to be one and the same agreement. 3 (e) TENANT IMPROVEMENTS. Subject to the consent and approval of Master Lessor and the requirements set forth in Section 12 of the Master Lease, Sublessor hereby consents to Sublessee's modification of the exhaust ducts and installation of 220 voltage electrical outlets in rooms 130 and 131 (collectively, the "Rooms") of the Remaining Premises to make the Rooms more suitable for its operations. Notwithstanding anything to the contrary set forth above, Sublessee shall obtain Sublessor's prior written approval for any further modifications of the Rooms or the Remaining Premises including, but not limited to, the installation of fume hoods in rooms 126 and 127 of the Remaining Premises. IN WITNESS WHEREOF, Sublessor and Sublessee have executed this Amendment as of the date first written above. SUBLESSOR: LYNX THERAPEUTICS, INC., a Delaware corporation By: [ILLEGIBLE] ---------------------------------------- Its: Chief Financial Officer --------------------------------------- SUBLESSEE: KOSAN BIOSCIENCES INCORPORATED, a California corporation By: /s/ Michael Ostrach ---------------------------------------- Its: Chief Operating Officer, V.P. --------------------------------------- 4 EX-10.15 17 EXHIBIT 10.15 EXHIBIT 10.15 MASTER EQUIPMENT LEASE NO. 0033 Under this Master Equipment Lease No. 0033 (the "Lease"), dated as of September 3, 1996, PHOENIX LEASING INCORPORATED, a California corporation ("Lessor"), hereby leases to KOSAN BIOSCIENCES, INC., a California corporation ("Lessee"), and Lessee hereby leases from Lessor, the equipment (herein called "Equipment") which is described on the schedule attached hereto or any subsequently-executed schedule entered into by Lessor and Lessee and which incorporates this Lease by reference. Any such schedules shall hereinafter individually be referred to as a "Schedule" and collectively be referred to as the "Schedules." Lessor hereby leases the Equipment to Lessee upon the following terms and conditions: 1. TERM OF AGREEMENT. The term of this Lease begins on the date set forth above and shall continue thereafter and be in effect so long as and at any time any Schedule entered into pursuant to this Lease is in effect. The Initial Term and rent payable with respect to each leased item of Equipment shall be as set forth in and as stated in the respective Schedule(s). The terms of each Schedule hereto are subject to all conditions and provisions of this Lease as it may at any time be amended. Each Schedule shall constitute a separate and independent lease and contractual obligation of Lessee and shall incorporate the terms and conditions of this Master Equipment Lease and any additional provisions contained in such Schedule. In the event of a conflict between the terms and conditions of this Lease and any additional provisions of such Schedule, the additional provisions of such Schedule shall prevail with respect to such Schedule only. 2. NON-CANCELLABLE LEASE. This Lease and any Schedule cannot be cancelled or terminated except as expressly provided herein. This Lease (including all Schedules to this Lease) constitutes a net lease and Lessee agrees that its obligations to pay all rent and other sums payable hereunder (and under any Schedule) and the rights of Lessor and assignee in and to such rent and other sums, are absolute and unconditional and are not subject to any abatement, reduction, setoff, defense, counterclaim or recoupment due or alleged to be due to, or by reason of, any past, present or future claims which Lessee may have against Lessor, any assignee, the manufacturer or seller of the Equipment, or against any person for any reason whatsoever. 3. LESSOR COMMITMENT. So long as no Event of Default or event which with the giving of notice or passage of time, or both, could become an Event of Default has occurred or is continuing, Lessor agrees to lease to Lessee the groups of Equipment described on each Schedule, subject to the following conditions: (i) that in no event shall Lessor be obligated to lease Equipment to Lessee hereunder where the aggregate purchase price of all Equipment leased to Lessee hereunder would exceed One Million Dollars ($1,000,000) ("Commitment"); (ii) the amount of Equipment purchased by Lessor at any one time shall be at least equal to Twenty-five Thousand Dollars ($25,000) except for a final advance which may be less than Twenty-five Thousand Dollars ($25,000); (iii) Lessor shall not be obligated to purchase Equipment hereunder after June 30, 1998; (iv) all Lease documentation required by Lessor has been executed by Lessee or provided by Lessee no later than September 30, 1996; (v) the equipment described on the Schedule is acceptable to Lessor; (vi) with respect to each funding, Lessee has provided to Lessor each of the closing documents and other items described in Exhibit A hereto (which documents shall be in form and substance acceptable to Lessor) and which list may be modified for each subsequent funding; (vii) there is no material adverse change in Lessee's condition, financial or otherwise, as determined by Lessor, and Lessee so certifies, from (yy) the date of the most recent financial statements delivered by Lessee to Lessor prior to execution of this Lease, to (zz) the date of the proposed lease of the Equipment; (viii) at the time of all fundings, Lessee is performing according to its business plan -1- referred to as "Detailed Budget Report, July through December 1996 dated 6/30/96, and Balance Sheet Projections for July through December, 1996, dated June 30, 1996; Balance Sheet Projections for July through December 1996 to be provided by Lessee in a monthly format, and Income Statement and Balance Sheet Projections for years 1997 and 1998 to be provided by Lessee in a monthly format," all as may be amended from time to time, in form and substance acceptable to Lessor (collectively, "Business Plan") which Business Plan is viable only through June 30, 1998; (ix) Lessor or its agent has inspected and placed identification labels on the Equipment; (x) Lessee shall offer to Lessor, on an exclusive basis, all lease transactions for equipment contemplated by Lessee until expiration of all Schedules; however if Lessor declines to finance any such transaction or Lessee and Lessor cannot agree upon terms, then Lessee shall be free to seek such financing from any other third party; and (xi) Lessor has received in form and substance acceptable to Lessor: (a) Lessee's interim financial statements signed by a financial officer of Lessee; (b) evidence of Lessee's Two Million One Hundred Thirty-Four Thousand Five Hundred Thirty-Nine Dollars ($2,134,539) cash position as of June 30, 1996; and (c) Lessee's corporate resolution authorizing the transaction set forth herein. 4. NO WARRANTIES BY LESSOR. (a) Lessee has selected both (i) the Equipment and (ii) the suppliers (herein called "Vendor") from whom Lessor is to purchase the Equipment. LESSOR MAKES NO WARRANTY EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND AS TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS IS" AND WITH ALL FAULTS. (b) If the Equipment is not properly installed, does not operate as represented or warranted by Vendor or is unsatisfactory for any reason, Lessee shall make any claim on account thereof solely against Vendor and shall, nevertheless, pay Lessor all rent payable under this Lease, Lessee hereby waiving any such claims as against Lessor. Lessor hereby agrees to assign to Lessee solely for the purpose of making and prosecuting any said claim, to the extent assignable, all of the rights which Lessor has against Vendor for breach of warranty or other representation respecting the Equipment. Lessor shall have no responsibility for delay or failure to fill the order. (c) Lessee understands and agrees that neither the Vendor nor any salesman or other agent of the Vendor is an agent of Lessor. No salesman or agent of Vendor is authorized to waive or alter any term or condition of this Lease, and no representations as to the Equipment or any other matter by the Vendor shall in any way affect Lessee's duty to pay the rent and perform its other obligations as set forth in this Lease. (d) Lessee hereby requests Lessor to purchase Equipment from Vendor and to lease Equipment to Lessee on the terms and conditions of the Lease set forth herein. (e) Lessee hereby authorizes Lessor to insert in this Lease and each Schedule hereto the serial numbers and other identification data of the Equipment when determined by Lessor. 5. LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee represents and warrants that (a) it is a corporation in good standing under the laws of the state of its incorporation, and duly qualified to do business, and will remain duly qualified during the term of this Lease, in each state where the Equipment will be located, as specified on each Schedule hereto; (b) it has full authority to execute and deliver this Lease and perform the terms hereof, and this Lease has been duly authorized and constitutes valid and binding obligations of Lessee enforceable in accordance with its terms; (c) this Lease will not contravene any law, regulation or judgment affecting Lessee or result in any breach of any agreement or other instrument binding on Lessee; (d) no consent of Lessee's shareholders or holder of any indebtedness, or filing with, or approval of, any governmental agency or commission, is a condition to the performance of the terms hereof; (e) there is no action or proceeding pending or threatened against Lessee before any court or administrative agency which might have a materially adverse effect on the business, financial condition or operations of Lessee; (f) no deed of trust, mortgage or third party interest arising -2- through Lessee will attach to the Equipment or the Lease; (g) the Equipment will remain at all times under applicable law, removable personal property, free and clear of any lien or encumbrance in favor of Lessee or any other person, notwithstanding the manner in which the Equipment may be attached to any real property; (h) all credit, financial and any other information submitted to Lessor herewith or any other time is true and correct; and (i) Lessee has provided, or will provide if requested, Lessee's tax identification number. 6. EQUIPMENT ORDERING. Lessee shall be responsible for all packing, rigging, transportation and installation charges for the Equipment and Lessor may separately invoice Lessee for such charges. Lessee has selected the Equipment itself and shall arrange for delivery of Equipment so that it can be accepted in accordance with Section 7 hereof. Lessee hereby agrees to indemnify and hold Lessor harmless from any claims, liabilities, costs and expenses, including reasonable attorneys' fees, incurred by Lessor arising out of any purchase orders or assignments executed by Lessor with respect to any Equipment or services relating thereto. 7. LESSEE ACCEPTANCE. Lessee shall return to Lessor the signed and dated Acceptance Notice attached to each Schedule hereto (a) acknowledging the Equipment has been received, installed and is ready for use and (b) accepting it as satisfactory in all respects for the purposes of this Lease. Lessor is authorized to fill in the Rent Start Date on each Schedule in accordance with the foregoing. 8. LOCATION; INSPECTION; LABELS. Equipment shall be delivered to and shall not be removed from the Equipment "Location" shown on each Schedule without Lessor's prior written consent, which "Location" shall in all events be within the Untied States. Lessor shall have the right to inspect Equipment at any reasonable time. Lessee shall be responsible for all labor, material and freight charges incurred in connection with any removal or relocation of such Equipment which is requested by the Lessee and consented to by Lessor, as well as for any charges due to the installation or moving of the Equipment. The rental payments shall continue during any period in which the Equipment is in transit during a relocation. Lessor or its agent shall mark and label Equipment, which labels shall state Equipment is owned by Lessor, and Lessee shall keep such labels on the Equipment as labeled by Lessor or its agent. 9. EQUIPMENT MAINTENANCE. (a) GENERAL. Lessee will locate or base each item of Equipment where designated in an Acceptance Notice and will reasonably permit Lessor to inspect such item of Equipment and its maintenance records. Lessee will at its sole expense comply with all applicable laws, rules, regulations, requirements and orders with respect to the use, maintenance, repair, condition, storage and operation of each item of Equipment. Except as required herein, Lessee will not make any addition or improvement to any item of Equipment that is not readily removable without causing material damage to any item or impairing its original value or utility. Any addition or improvement that is so required or cannot be so removed will immediately become the property of Lessor. (b) SERVICE AND REPAIR. With respect to computer equipment, other than personal computers, Lessee has entered into, and will maintain in effect, Vendor's standard maintenance contract or another contract satisfactory to Lessor for a period equal to the term of each Schedule and extensions thereto which provides for the maintenance of the Equipment and repairs and replacement parts thereof in good condition and working order, all in accordance with the terms of such maintenance contract. Lessee shall have the Equipment certified for the Vendor's standard maintenance agreement prior to delivery to Lessor upon expiration of this Lease. With respect to any other Equipment, Lessee will, at its sole expense, maintain and service, and repair any damage to, each item of Equipment in a manner consistent with prudent industry practice and Lessee's own practice so that such item of Equipment is at all times (i) in the same condition as when delivered to Lessee, -3- except for ordinary wear and tear, (ii) in good operating order for the function intended by its manufacturer's warranties and recommendations. 10. LOSS OR DAMAGE. Lessee assumes the entire risk of loss to the Equipment through use, operation or otherwise. Lessee hereby indemnifies and holds harmless Lessor from and against all claims, loss of rental payments, costs, damages, and expenses relating to or resulting from any loss, damage or destruction of the Equipment, any such occurrence being hereinafter called a "Casualty Occurrence." On the first rental payment date following such Casualty Occurrence, or, if there is no such rental payment date, thirty (30) days after such Casualty Occurrence, Lessee shall (i) repair the Equipment, returning it to good operating condition or (ii) replace the Equipment with identical equipment in good condition and repair, the title to which shall vest in Lessor and which thereafter shall be subject to the terms of this Lease; or (iii) pay to Lessor (a) any unpaid accrued amounts relating to such Equipment due Lessor under this Lease up to the date of the Casualty Occurrence, and (b) a sum equal to the Casualty Value as set forth in the Casualty Value table attached to each Schedule hereto for such Equipment. Upon the making of such payment, the term of this Lease as to each unit of Equipment with respect to which the Casualty Value was paid shall terminate. 11. GENERAL INDEMNITY. Lessee will protect, indemnify and save harmless Lessor from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses, imposed upon or incurred by or asserted against Lessor or any assignee of Lessor by Lessee or any third party by reason of the occurrence or existence (or alleged occurrence or existence) of any act or event relating to or caused by the Equipment, including but not limited to, consequential or special damages of any kind, or any failure on the part of Lessee to perform or comply with any of the terms of this Lease. In the event that any action, suit or proceeding is brought against Lessor by reason of any such occurrence, Lessee, upon request of Lessor, will at Lessee's expense resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel designated and approved by Lessor. Lessee's obligations under this Section 11 shall survive the expiration of this Lease with respect to acts or events occurring or alleged to have occurred prior to the return of the Equipment to Lessor at the end of the Lease term. 12. INSURANCE. Lessee at its expense shall keep the Equipment insured for the entire term and any extensions of this Lease against all risks for at least the replacement value of such Equipment and shall provide for a loss payable endorsement to Lessor or any assignee of Lessor. Lessee shall maintain comprehensive general public liability insurance with respect to loss or damage for personal injury, death or property damage in an amount not less than $2,000,000 per occurrence, naming Lessor or any assignee of Lessor as additional insured. Such insurance shall contain insurer's agreement to give thirty (30) days written notice to Lessor before cancellation or material change of any policy of insurance. Lessee will provide Lessor and any assignee of Lessor with a certificate of insurance from the insurer evidencing Lessor's or such assignee's interest in the policy of insurance. Such insurance shall cover any Casualty Occurrence to any unit of Equipment. Notwithstanding anything in Section 10 or this Section 12 to the contrary, this Lease and Lessee's obligations hereunder and under each Schedule shall remain in full force and effect with respect to any unit of Equipment which is not subject to a Casualty Occurrence. If Lessee fails to provide or maintain insurance as required herein, Lessor shall have the right, but shall not be obligated to obtain such insurance. In that event, Lessee shall pay to Lessor the cost thereof. 13. TAXES. Lessee agrees to reimburse Lessor for, (or pay directly if instructed by Lessor), and agrees to indemnify and hold Lessor harmless from, all fees (including, -4- but not limited to, license, documentation, recording and registration fees), and all sales, use, gross receipts, personal property, occupational, value added or other taxes, levies, imposts, duties, assessments, charges, or withholdings of any nature whatsoever, together with any penalties, fines, additions to tax, or interest thereon (all of the foregoing being hereafter referred to as "Impositions") except same as may be attributable to Lessor's income, arising at any time prior to or during the term of this Lease, or upon termination or early termination of this Lease and levied or imposed upon Lessor directly or otherwise by any Federal, state or local government in the United States or by any foreign country or foreign or international taxing authority upon or with respect to (i) the Equipment, (ii) the exportation, importation, registration, purchase, ownership, delivery, leasing, possession, use, operation, storage, maintenance, repair, return, sale, transfer of title, or other disposition thereof, (iii) the rentals, receipts, or earnings arising from the Equipment, or any disposition of the rights to such rentals, receipts, or earnings, (iv) any payment pursuant to this Lease, and (v) this Lease or the transaction or any part thereof. Lessee's obligations under this Section 13 shall survive the expiration of this Lease with respect to acts or events occurring or alleged to have occurred prior to the return of the Equipment to Lessor at the end of the Lease term. 14. PAYMENT BY LESSOR. If Lessee shall fail to make any payment or perform any act required hereunder, then Lessor may, but shall not be required to, after such notice to Lessee as is reasonable under the circumstances, make such payment or perform such act with the same effect as if made or performed by Lessee. Lessee will upon demand reimburse Lessor for all sums paid and all costs and expenses incurred in connection with the performance of any such act. 15. SURRENDER OF EQUIPMENT. Upon termination or expiration of this Lease, with respect to each group of Equipment, Lessee will forthwith surrender the Equipment to Lessor delivered in as good order and condition as originally delivered, reasonable wear and tear excepted. Lessor may, at its sole option, arrange for removal and transportation of the Equipment provided that Lessee's obligations under Sections 10, 11 and 12 shall not be released. Lessee shall bear all expenses of delivering (which include, but are not limited to, the de-installation, insurance, packaging and transportation of) the Equipment to Lessor's location or other location within the United States as Lessor may request. In the event Lessee fails to deliver the Equipment as directed above, all obligations of Lessee under this Lease, including rental payments, shall remain in full force and effect until Lessee delivers the Equipment to Lessor. 16. ASSIGNMENT. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, SUCH CONSENT NOT TO BE UNREASONABLY WITHHELD, LESSEE SHALL NOT (a) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS LEASE, EQUIPMENT, OR ANY INTEREST THEREIN, OR (b) SUBLET OR LEND EQUIPMENT OR PERMIT IT TO BE USED BY ANYONE OTHER THAN LESSEE OR LESSEE'S EMPLOYEES. LESSOR MAY ASSIGN THIS LEASE OR GRANT A SECURITY INTEREST IN ANY OR ALL EQUIPMENT, OR BOTH, IN WHOLE OR IN PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO LESSEE. If Lessee is given notice of such assignment it agrees to acknowledge receipt thereof in writing and Lessee shall execute such additional documentation as Lessor's assignee shall require. Each such assignee and/or secured party shall have all of the rights, but none of the obligations, of Lessor under this Lease, unless such assignee or secured party expressly agrees to assume such obligations in writing. Lessee shall not assert against any assignee and/or secured party any defense, counterclaim or offset that Lessee may have against Lessor. Notwithstanding any such assignment, and providing no Event of Default has occurred and is continuing, Lessor, or its assignees, secured parties, or their agents or assigns, shall not interfere with Lessee's right to quietly enjoy use of Equipment subject to the terms and conditions of this Lease. Subject to the foregoing, this Lease inures to the benefit of and is binding upon the successors and -5- assignees of the parties hereto. Lessee acknowledges that any such assignment by Lessor will not materially change Lessee's duties or obligations under the Lease or increase any burden of risk on Lessee. 17. DEFAULT. (a) EVENT OF DEFAULT. Any of the following events or conditions shall constitute an "Event of Default" hereunder: (i) Lessee's failure to pay any monies due to Lessor hereunder or under any Schedule beyond the fifth (5th) day after the same is due; (ii) Lessee's failure to comply with its obligations under Section l2 or Section 16; (iii) Lessee's failure to comply with or perform any term, covenant, condition, warranty or representation of this Lease or any Schedule hereto or under any other agreement between Lessee and Lessor or under any lease of real property covering the location of Equipment if such failure to comply or perform is not cured by Lessee within thirty (30) days of receipt of notice thereof; (iv) seizure of the Equipment under legal process; (v) the filing by or against Lessee of a petition for reorganization or liquidation under the Bankruptcy Code or any amendment thereto or under any other insolvency law providing for the relief of debtors; (vi) the voluntary or involuntary making of an assignment of a substantial portion of its assets by Lessee, or any guarantor ("Guarantor") under any guaranty executed in connection with this Lease ("Guaranty"), for the benefit of its creditors, the appointment of a receiver or trustee for Lessee or any Guarantor for any of Lessee's or Guarantor's assets, the institution by or against Lessee or any Guarantor of any formal or informal proceeding for dissolution, liquidation, settlement of claims against or winding up of the affairs of Lessee or any Guarantor, PROVIDED that in the case of all such involuntary proceedings, same are not dismissed within sixty (60) days after commencement; or (vii) the making by Lessee or any Guarantor of a transfer of all or a material portion of Lessee's or Guarantor's assets or inventory not in the ordinary course of business. (b) REMEDIES. If any Event of Default shall have occurred: (i) Lessor may proceed by appropriate court action or actions either at law or in equity to enforce performance by Lessee, of the applicable covenants of this Lease, or to recover damages therefor; or (ii) Lessee will, without demand, on the next rent payment date following the Event of Default, pay to Lessor as liquidated damages which the parties agree are fair and reasonable under the circumstances existing at the time this Lease is entered into, and not as a penalty, an amount equal to the Casualty Value of the Equipment set forth in Exhibit C together with any rent or other amounts past due and owing by Lessee hereunder; and (iii) Lessor may, without notice to or demand upon Lessee; (a) Take possession of the Equipment and lease or sell the same or any portion thereof, for such period, amount, and to such entity as Lessor shall elect. The proceeds of such lease or sale will be applied by Lessor (A) first, to pay all costs and expenses, including reasonable legal fees and disbursements, incurred by Lessor as a result of the default and the exercise of its remedies with respect thereto, (B) second, to pay Lessor an amount equal to any unpaid rent or other amounts past due and payable plus the Casualty Value, to the extent not previously paid by Lessee, and (C) third, to reimburse Lessee for the Casualty Value to the extent previously paid. Any surplus remaining thereafter will be retained by Lessor. (b) Take possession of the Equipment and hold and keep idle the same or any portion thereof. -6- Lessee agrees to pay all internal and out-of-pocket costs of Lessor related to the exercise of its remedies, including direct costs of its in-house counsel and out-of-pocket legal fees and expenses. At Lessor's request, Lessee shall assemble the Equipment and make it available to Lessor at such location as Lessor may designate. Lessee valves any right it may have to redeem the Equipment. Repossession of any or all Equipment shall not terminate this Lease or any Schedule unless Lessor notifies Lessee in writing. Any amount required to be paid under this Section shall be increased by a service charge at the rate of 2.0% per month, or the highest rate of interest permitted by applicable law, whichever is less, accruing from the date the Casualty Value or other amounts are payable hereunder until such amounts are paid. None of the above remedies is intended to be exclusive, but each is cumulative and in addition to any other remedy available to Lessor, and all may be enforced separately or concurrently. 18. LATE PAYMENTS. Lessee shall pay to Lender an amount equal to the greater of 10% per month of all amounts owed Lessor by Lessee which are not paid when due or $100, but in no event an amount greater than the highest rate permitted by applicable law. If such funds have not been received by Lessor at Lessor's place of business or by Lessor's designated agent by the date such funds are due under this Lease, Lessor shall bill Lessee for such charges. Lessee acknowledges that invoices for rentals due hereunder are sent by Lessor for Lessee's convenience only. Lessee's non-receipt of an invoice will not relieve Lessee of its obligation to make rent payments hereunder. 19. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses including reasonable attorney's fees and the fees of the collection agencies, incurred by Lessor in enforcing any of the terms, conditions or provisions hereof. 20. OWNERSHIP; PERSONAL PROPERTY. The Equipment shall be and remain personal property of Lessor, and Lessee shall have no right, title or interest therein or thereto except as expressly set forth in this Lease, notwithstanding the manner in which it may be attached or affixed to real property, and upon termination or expiration of the Lease term, Lessee shall have the duty and Lessor shall have the right to remove the Equipment from the premises where the same be located whether or not affixed or attached to the real property or any building, at the cost and expense of Lessee. 21. ALTERATIONS; ATTACHMENTS. No alterations or attachments shall be made to the Equipment without Lessor's prior written consent, which shall not be given for changes that will affect the reliability and utility of the Equipment or which cannot be removed without damage to the Equipment, or which in any way affect the value of the Equipment for purposes of resale or re-lease. 22. FINANCING STATEMENT. Lessee will execute financing statements pursuant to the Uniform Commercial Code. Lessee authorizes Lessor to file financing statements signed only by Lessor (where such authorization is permitted by law) at all places where Lessor deems necessary. 23. MISCELLANEOUS. (a) Lessee shall provide Lessor with such corporate resolutions, financial statements and other documents as Lessor shall request from time to time. (b) Lessee represents that the Equipment is being leased hereunder for business purposes. (c) Time is of the essence with respect to this Lease. (d) Lessee shall keep -7- its books and records in accordance with generally accepted accounting principles and practices consistently applied and shall deliver to Lessor its annual audited financial statements, unaudited monthly financial statements to include any financial information given to Lessee's Board of Directors, and signed by an officer off Lessee and such other unaudited financial statements as may be reasonably requested by Lessor. (e) Any action by Lessee against Lessor for any default by Lessor under this Lease, including breach of warranty or indemnity, shall be commenced within one (1) year after any such cause of action accrues. 24. NOTICES. All notices hereunder shall be in writing, by registered mail, or reliable messenger or delivery service and shall be directed, as the case may be, to Lessor at 2401 Kerner Boulevard, San Rafael, California 94901, Attention: Asset Management and to Lessee at 1450 Rollins Road, Burlingame, CA 94019, Attention: Joana Voglino. 25. ENTIRE AGREEMENT. Lessee acknowledges that Lessee has read this Lease, understands it and agrees to be bound by its terms, and further agrees that it and each Schedule constitute the entire agreement between Lessor and Lessee with respect to the subject matter hereof and supersedes all previous agreements, promises, or representations. The terms and conditions hereof shall prevail notwithstanding any variance with the terms of any purchase order submitted by the Lessee with respect to any Equipment covered hereby. 26. AMENDMENT. This Lease may not be changed, altered or modified except by an instrument in writing signed by an officer of the Lessor and the Lessee. 27. WAIVER. Any failure of Lessor to require strict performance by Lessee or any waiver by Lessor of any provision herein shall not be construed as a consent or waiver of any other breach of the same or any other provision. 28. SEVERABILITY. If any provision of this Lease is held invalid, such invalidity shall not affect any other provisions hereof. 29. JURISDICTION AND WAIVER OF JURY TRIAL. This Lease shall be governed by and construed under the laws of the State of California. It is agreed that exclusive jurisdiction and venue for any legal action between the parties arising out of this Lease shall be in the Superior Court for Marin County, California, or, in cases where Federal diversity jurisdiction is available, in the United States District Court for the Northern District of California. LESSEE, TO THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON 0R WITH RESPECT TO THIS LEASE, ANY SCHEDULE, OR ANY AGREEMENT EXECUTED IN CONNECTION HEREWITH. 30. NATURE 0F TRANSACTION. Lessor makes no representation whatsoever, express or implied, concerning the legal character of the transaction evidenced hereby, for tax or any other purpose. 31. SECURITY INTEREST. (a) One executed copy of the Lease will be marked "Original" and all other counterparts will be duplicates. To the extent, if any, that this Lease constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no security interest in the lease may be created in any documents other than the "Original" (b) There shall be only one original of each Schedule and it shall be marked "Original," and all other counterparts will be duplicates. To the extent, if any, that any Schedule(s) to this Lease constitutes chattel paper (or as such term is defined in the Uniform Commercial Code as in effect in any -8- applicable jurisdiction) no security interest in any Schedule(s) may be created in any documents other than the "Original." 32. SUSPENSION OF OBLIGATIONS. The obligations of Lessor hereunder will be suspended to the extent that it is hindered or prevented from complying therewith because of labor disturbances, including but not limited to strikes and lockouts, acts of God, fires, storms, accidents, failure of the manufacture to deliver any item of Equipment, governmental regulations or interference, or any cause whatsoever non within the sole and exclusive control of Lessor. 33. SOFTWARE. For the term of this Lease, and so long as no Event of Default has occurred and is continuing, Lessor hereby assigns to Lessee all of Lessor's rights under any License Agreement executed by Lessor in connection with the Equipment (except for any right of Lessor to be reimbursed for the License Fee). Lessee agrees to be bound by the provisions of any such License Agreement and to perform all obligations of Lessor (except Lessor's payment obligations) thereunder. Lessee acknowledges that all of Lessee's obligations under the Lease with respect to the Equipment will apply equally to the software, including but not limited to Lessee's obligation to pay rent to Lessor. 34. COMMITMENT FEE. Lessee has paid to Lessor a commitment fee ("Fee") of Ten Thousand Dollars ($10,000). The Fee shall be applied by Lessor first to reimburse Lessor for all out-of-pocket UCC search costs, inspections and appraisal fees incurred by Lessor, and then proportionally to the first month's rent for each Schedule here under in the proportion that the purchase price of the Equipment leased pursuant to the Schedule bears to Lessor's entire commitment. However, the portion of the Fee which is not applied to rental shall be non-refundable except if Lessor defaults in its obligations pursuant to Section 3. 35. FINANCE LEASE. The parties agree that this lease is a "Finance Lease" as defined by section 10-103(a)(7) of the California Commercial Code (Cal.Com.C.). Lessee acknowledges either (a) that Lessee has reviewed and approved any written Supply Contract (as defined by Cal.Com.C. Section 10-103(a)(25)) covering Equipment purchased from the "Supplier" (as defined by Cal.Com.C. Section 10-103(a)(24)) thereof for lease to Lessee or (b) that Lessor has informed or advised Lessee, in writing, either previously or by this Lease of the following: (i) the identity of the Supplier; (ii) that the Lessee may have rights under the Supply Contract; and (iii) that the Lessee may contact the Supplier for a description of any such rights Lessee may have under the Supply Contract. Lessee hereby waives any rights and remedies Lessee may have under Cal.Com.C. Sections 10-508 through 522. 36. ADJUSTMENT OF INITIAL LEASE RATE FACTOR. For any Schedule funded, from July 1,1997 through June 30, 1998 (each a "Rate Adjustment Schedule") Lessor and Lessee agree that the initial lease rate factor of 2.58% ("the Initial Lease Eats Factor"), will be adjusted based on the Funding Treasury Note Rate, as defined below. Lessor and Lessee agree that for each twenty (20) basis points that the Funding Treasury Note Rate, is greater than 5.56%, the Initial Lease Rate Factor for the applicable Adjusted Rate Schedule shall be adjusted as sat forth in the table on Exhibit B hereto and shall remain constant for that Adjusted Rate Schedule. Lessor and Lessee agree that in no event shall the Initial Lease Rate Factor be adjusted to be lass than 2.58% for any Adjusted Rate Schedule. The term "Funding Treasury Note Rate" shall mean the average of the yields to maturity of all "Govt. Bonds & Notes" as set forth in the "Ask Yld." column of the Wall Street Journal, Western Edition, "Treasury Bonds, Notes & Bills" report published on the -9- date which is 15 business days prior to the funding date for each Adjusted Rate Schedule under this Lease, having a maturity three years from the month in which the funding date for any such Adjusted Rate Schedule occurs. If there is no such government bond/note having such maturity three years from the month in which the funding date for any such Adjusted Rate Schedule occurs, the Funding Treasury Note Rate shall be the average of such yields to maturity of any such government bonds/notes so listed in the gall Street Journal having a maturity in the succeeding month which is closest to three years from the month in which the funding date occurs. 37. PURCHASE OR RENEWAL REQUIREMENT FOR ALL SCHEDULES TO MASTER EQUIPMENT LEASE. At the expiration of the Initial Term for Schedule No. 1, and notwithstanding anything to the contrary in the Lease, upon 90 days prior written notice to Lessor, Lessee shall purchase AS-IS, WHERE-IS all, but not less than all, of the Equipment covered under all Schedules to this Lease at the expiration of the Initial Term for each such Schedule for an amount equal to twenty percent (20%) of the Equipment's original purchase price, whereupon Lessor shall issue to Lessee a Bill of Sale for the Equipment transferring it to Lessee without any representation or warranty whatsoever. In the event Lessee does not provide 90 days prior written notice as specified above, Lessee shall be deemed to have selected No. 1 above for all Schedules to the Lease. Lessee shall be responsible for all applicable taxes in connection with any purchase of Equipment by Lessee. IN WITNESS WHEREOF, the parties hereto have executed this Lease. PHOENIX LEASING INCORPORATED KOSAN BIOSCIENCES INC. By: /s/ [ILLEGIBLE] By: /s/ Joana Voglino ----------------------- ------------------------ Title: V.P. Title: CFO-OPTS. MGR. -------------------- --------------------- Headquarters Location: 1450 Rollins Road Burlingame, CA 94019 County of San Mateo Exhibit A - Closing Memorandum Exhibit B - Rate Adjustment Table -10- Exhibit A to MASTER EQUIPMENT LEASE Dated September 3, 1996 CLOSING MEMORANDUM 1.* Duly executed Master Equipment Lease marked "Original." 2. Duly executed Schedule marked "Original." 3. Duly executed Certificate of Acceptance. [EXECUTE UPON ACCEPTANCE OF EQUIPMENT] 4. Insurance Certificates. 5.* Resolutions of Lessee's Board of Directors, including an incumbency certificate. 6.* Copy of Lessee's articles of incorporation including all amendments, certified by the Secretary of Lessee as being true and complete and in full force and effect. 7.* Certificate from the Secretary of State of Lessee's state of incorporation, from the state in which Lessee's chief executive office is located, if different, and from each state where Lessee is qualified to do business, stating Lessee is in good standing or is authorized to transact business, as the case may be, dated not more than thirty days prior to the first purchase of Equipment. 8. Real Property Waiver.** 9. UCC Financing Statements. 10. Bill of Sale (for Sale-Leaseback Equipment). 11. UCC search. 12.* Payment of Commitment Fee. 13. Equipment List, in form and substance satisfactory to Lessor. 14. Lessee's most recent financial statements. 15. Certificate of Chief Financial Officer stating that no event of default has occurred, there is no adverse change in the financial condition of Lessee and that the Equipment is free of any encumbrances. 16.* California Civil Code Section 3440 Filing and Published Notice. 17. See Section 3 of Master Equipment Lease for additional preconditions to closing. * First Schedule Only. ** Required if any Equipment is a fixture, i.e., attached to real property, or located in certain states. EXHIBIT B TO MASTER EQUIPMENT LEASE NO. 0033
FUNDING TREASURY NOTE RATE INITIAL LEASE RATE FACTOR -------------------------- ------------------------- 6.560% 2.58% 6.760% 2.59% 6.960% 2.60% 7.160% 2.61% 7.360% 2.62% 7.560% 2.63% 7.760% 2.64% 7.960% 2.65% 8.160% 2.66% 8.360% 2.67% 8.560% 2.68% 8.760% 2.69% 8.960% 2.70% 9.160% 2.71% 9.360% 2.72% 9.560% 2.73% 9.760% 2.74% 9.960% 2.75% 10.160% 2.76% 10.360% 2.77% 10.560% 2.78% 10.760% 2.79% 10.960% 2.80% 11.160% 2.81% 11.360% 2.82% 11.560% 2.83% 11.760% 2.84% 11.960% 2.85% 12.160% 2.86% 12.360% 2.87% 12.560% 2.88% 12.760% 2.89% 12.960% 2.90% 13.160% 2.91% 13.360% 2.92%
plus .01% increase in the Initial lease Rate Factor for every additional 20 basis point increase in Funding Treasury Note Rate. Lessor' s Lessee's Iitials Iitials /s/ [INITIALS] --------- ---------- EX-10.16 18 EXHIBIT 10.16 EXHIBIT 10.16 [LETTERHEAD] MASTER LOAN AND SECURITY AGREEMENT Master Loan and Security Agreement No. S6880 Dated August 25, 1998 FINOVA Technology Finance, Inc. ("we," "us" or "FINOVA") is willing to make a loan (the "Loan") to Kosan Bioscience, Inc. ("you" or "Borrower") under the terms and conditions contained in this Master Loan and Security Agreement (this "Master Agreement"). The Loan will be secured by the Collateral described in any schedule to this Agreement (a "Schedule"). The Collateral also includes any replacement parts, additions and accessories that you may add to the Collateral, as well as any proceeds of sale, lease or rental of the Collateral. We may treat any Schedule as a separate loan and security agreement containing all of the provisions of this Loan and Security Agreement. 1. THE CREDIT We may make the Loan in more than one advance (an "Advance", each of which shall be evidenced by a "Schedule"). All of the Schedules, taken together, will make up the Loan. We will only make the Loan to you if all the conditions in this Master Agreement have been met to our satisfaction. We will rely on your representations and warranties, contained in this Master Agreement, in making the Loan. The terms of this Agreement will each apply to the Loan. - - USE OF PROCEEDS. You will use the proceeds of the Loan to pay for the Collateral. We may pay the Supplier (whom you have chosen) of the Collateral directly from the Loan proceeds. The Supplier will deliver the Collateral to you at your expense. You will properly install the Collateral at your expense at the location(s) indicated in the Schedule. If you have already paid for the Collateral, we will pay the Loan proceeds to you or to another person that you may designate in writing. - - NOTES. Your obligation to repay the Loan and to pay interest on the Loan will be evidenced by Notes. Each Note will be dated the date of the Schedule to which the Advance evidenced by the Note is related. - - TERM. The Term of each Schedule (and the related Advance) begins upon the date that we make payment for the Collateral covered under each Schedule (the "Closing Date"). The Term continues until you fully perform all of your obligations under this Agreement and each Schedule and the related Note(s). If the Collateral is not delivered, installed and accepted by you by the date indicated in the Schedule, we may terminate this Agreement and the Schedule as to the Collateral that was not delivered, installed and accepted by giving you 10 days written notice of termination. Any advance Loan payment you may have paid us is nonrefundable, even if the Term never starts or if we rightfully terminate this Agreement or the Schedule. - - LOAN ACCOUNT. We will keep a loan account on our books and records (which are computerized) for the Loan. We will record all payments of principal and interest in the loan account. Unless the entries in the loan account are clearly in error, the loan account will definitively indicate the outstanding principal balance and accrued interest on the Loan. We may send you loan account statements from time to time or upon your request. - - PAYMENTS. The scheduled loan payments (the "Payments") are indicated on the Schedule. The Payments are payable periodically as specified on the Schedule from time to time (for example, monthly). The Schedule also indicates whether the Payments are payable "in advance" or "in arrears." You agree that you owe us the total of all of these Payments over the Term of the Schedule. - - FIRST PAYMENT. The first Payment is due at the beginning of the Term or at a later date that we agree to in writing. Subsequent Payments are due on the thirtieth day of each successive period (except the next following period if Payments are payable in arrears) until you pay us in full all of the Payments and any other charges or expenses you owe us. - - INTEREST. Prior to maturity of a Schedule, you will pay us interest on each Schedule at the Interest Rate indicated in the Schedule. "Maturity" means the scheduled maturity or any earlier date on which we accelerate the Loan. The Payment amount indicated in the Schedule includes interest at this Interest Rate. Interest is calculated in advance using a year of 360 days with twelve months of 30 days. - - DEFAULT INTEREST RATE. After Maturity of the Loan you will pay us interest at a rate of four (4%) percent per year above the Interest Rate. This is referred to as the "Default Rate." - - INTERIM PAYMENT. If an Advance is made on a day other than the thirtieth or thirty-first day of a period, you will also pay us an interim Payment on the first Payment date. The interim Payment will be for the period from the beginning of the Term until the twenty-ninth day of the period in which the Advance is made, unless the Advance is made on the thirty-first day of a period. If the Advance is made on the thirty-first day of a period, the interim Payment will be for the period from the beginning of the Term through and including the twenty-ninth day of the next following period. The Interim Payment will be calculated the same way as the regular Payments but pro rata on a daily basis for the number of days for which the interim Payment is due. - - USURY. You and we intend to obey the law. If the Interest Rate charged would exceed the maximum legal rate, you will only have to pay the maximum legal rate. You do not have to pay any excess interest over and above the maximum legal rate of interest. However, if it later becomes legal for you to pay all or part of any excess interest, you will then pay it to us upon our request. - - PAYMENT DETAILS. You will make all payments due under this Master Agreement by 12:00 P.M., Connecticut time, on the day they are due. You will make all payments in US Dollars (US$) in immediately available funds. We do not have to make or give "presentment, demand, protest or notice" to get paid. You waive "presentment, demand, protest and notice." - - APPLICATION OF PAYMENTS. Each payment under this Master Agreement is to be applied in the following order: first, to any fees, costs, expenses and charges you may owe us; second, to any interest due; and third to the principal balance. -2- - - PREPAYMENT. You may not prepay the Loan, in whole or in part, unless this is specifically permitted by Exhibit A to this Agreement. If prepayment is permitted by Exhibit A to this Master Agreement, you will give us at least 30 days advance written notice of prepayment. You will pay us the prepayment premium indicated in the Schedule(s). You will also pay us all accrued and unpaid interest through the date of prepayment, as well as all outstanding fees, costs, expenses and charges then due. Of course, you will also pay the entire outstanding principal balance of the Loan. Once you give us a notice of prepayment, that notice is final and irrevocable. If we accelerate the Loan following an Event of Default, you will also owe us a prepayment premium calculated as if the Loan were prepaid on the date of acceleration. If no prepayment is permitted, the premium due upon acceleration will be five (5%) percent of the outstanding principal balance. - - YOUR OBLIGATION TO PAY US ALL PAYMENTS IS ABSOLUTE AND UNCONDITIONAL. YOU ARE NOT EXCUSED FROM MAKING THE PAYMENTS, IN FULL, FOR ANY REASON. YOU AGREE THAT YOU HAVE NO DEFENSE FOR FAILURE TO MAKE THE PAYMENTS AND YOU WILL NOT MAKE ANY COUNTERCLAIMS OR SETOFFS TO AVOID MAKING THE PAYMENTS. 2. SECURITY INTEREST - - You grant us a security interest in the Collateral. The Collateral secures the full and timely payment and performance of all of your obligations to us and to FINOVA Capital Corporation under this Master Agreement and any other agreement, loan or lease that you may have with us or FINOVA Capital Corporation (the "Obligations"). You also grant us a security interest in any additional collateral identified in any Schedule. Any additional collateral is considered to be "Collateral" and it secures all of the Obligations. - - If we request, you will put labels supplied by us stating "PROPERTY OF FINOVA" on the Collateral where they are clearly visible. - - You give us permission to add to this Master Agreement or any Schedule the serial numbers and other information about the Collateral. - - You give us permission to file this Master Agreement or a Uniform Commercial Code financing statement, at your expense, in order to perfect our security interest in the Collateral. You also give us permission to sign your name on the Uniform Commercial Code financing statements where this is permitted by law. - - You will pay our cost to do searches for other filings or judgments against you or your affiliates. You will also pay any filing, recording or stamp fees or taxes resulting from filing this Agreement or a Uniform Commercial Code financing statement. You will also pay our fees in effect from time to time for documentation, administration and Termination of this Master Agreement. - - At your expense, you will defend our first priority security interest in the Collateral against, and keep the Collateral free of, any legal process, liens, other security interests, attachments, levies and executions. You will give us immediate written notice of any legal process, liens, attachments, levies or executions, and you will indemnify us against any loss that results to us from these causes. - - You will notify us at least 15 days before you change the address of your principal executive office. -3- - - You will promptly sign and return additional documents that we may request in order to protect our first priority security interest in the Collateral. - - The Collateral is personal property and will remain personal property. You will not incorporate it into real estate and will not do anything that will cause the Collateral to become part of real estate or a fixture without lender's prior consent. 3. CONDITIONS OF LENDING - - See our Commitment Letter to you dated August 24, 1998, which you and we consider to be a part of this Master Agreement. The terms and conditions of the Commitment Letter continue following the making of the first Advance. However, if there is a conflict between the terms and conditions of this Master Agreement, any Schedule or any Note and the terms and conditions of the Commitment Letter, then you and we agree that the terms and conditions of this Agreement, the Schedules and the Notes control over the Commitment Letter terms and conditions. - - Before we disburse any proceeds of any Advance, we also require the following: - - That no payment is past due to us under any other agreement, loan or lease that you or any guarantor have with us or with FINOVA Capital Corporation. - - That you are complying with all terms of this Agreement. - - That we have received all the documents we requested, including the signed Schedule, Note and Delivery and Acceptance Certificate. - - That there has been no material adverse change in your financial condition, business, operations or prospects, or that of any guarantor, from the financial condition that you disclosed to us in your application for credit. 4. REPRESENTATIONS AND WARRANTIES You represent and warrant to us as follows: - - All financial information and other information that you or any guarantor have given us is true and complete. You or any guarantor have not failed to tell us anything that would make the financial information misleading. There has been no material adverse change in your financial condition, business, operations or prospects, or the financial condition of any guarantor, from the financial condition that you disclosed to us in your application for credit. - - You have supplied us with information about the Collateral. You promise to us that the amount of our Advance as to each item of Collateral is no more than the fair and usual price for this kind of Collateral, taking into account any discounts, rebates and allowances that you or any affiliate of yours may have been given for the Collateral. - - You have complied with all "environmental laws" and will continue to comply with all "environmental laws." No "hazardous substances" are used, generated, treated, stored or disposed of by you or at your properties except in compliance with all environmental laws. "Environmental laws" mean all federal, state or local environmental laws and regulations, including the following laws: CERCLA, RCRA, Hazardous Materials Transport Act and The Federal Water Pollution Control Act. "Hazardous substances" means all hazardous or toxic wastes, materials or substances, as defined in the environmental laws, as well as oil, flammable substances, asbestos that is or could become friable, urea formaldehyde insulation, polychlorinated biphenyls and radon gas. -4- - - You have taken all action necessary to assure that there will be no material adverse change to your business by reason of the advent of the year 2000, including without limitation that all computer-based systems, embedded microchips and other processing capabilities effectively recognize and process dates after April 1, 1999. 5. COVENANTS You agree to do the following things (or not to do the following things if so stated) until full payment of all amounts due to us under this Agreement, the Schedules and the Notes: CARE, USE, LOCATION AND ALTERATION OF THE COLLATERAL - - You will make sure that the Collateral is maintained in good operating condition, and that it is serviced, repaired and overhauled when this is necessary to keep the Collateral in good operating condition. All maintenance must be done according to the Supplier's or Manufacturer's requirements or recommendations. All maintenance must also comply with any legal or regulatory requirements. - - You will maintain service logs for the Collateral and permit us to inspect the Collateral, the service logs and service reports. You give us permission to make copies of the service logs and service reports. - - We will give you prior notice if we, or our agent, want to inspect the Collateral or the service logs or service reports. We may inspect it during regular business hours. You will pay our travel, meals and lodging costs to inspect the Collateral, but only for one inspection per year. If we find during an inspection that you are not complying with this Master Agreement, you will pay our travel, meals and lodging costs, our salary costs, and the costs and fees of our agents for reinspection. You will promptly cure any problems with the Collateral that are discovered during our inspection. - - You will use the Collateral only for business purposes. You will obey all legal and regulatory requirements in your use of the Collateral. - - You will make all additions, modifications and improvements to the Collateral that are required by law or government regulation. Otherwise, you will not alter the Collateral without our written permission. You will replace all worn, lost, stolen or destroyed parts of the Collateral with replacement parts that are as good or better than the original parts. The new parts will become subject to our security interest upon replacement. - - You will not remove the Collateral from the location indicated in the Schedule without our written permission YEAR 2000 COMPLIANT - - You shall take all action necessary to assure that there will be no material adverse change to your business by reason of the advent of the year 2000, including without limitation that all computer-based systems, embedded microchips and other processing capabilities effectively recognize and process dates after April 1, 1999. At our request, you shall provide to us assurance reasonably acceptable to us that your computer-based systems, embedded microchips and other processing capabilities are year 2000 compatible. RISK OF LOSS - - You have the complete risk of loss or damage to the Collateral. Loss or damage to the Collateral will not relieve you of your obligation to make the Payments. -5- - - If any Collateral is lost or damaged, you have two choices (although if you are in default under this Master Agreement, we and not you will have the two choices). The choices are: (1) Repair or replace the damaged or lost Collateral so that, once again, the Collateral is in good operating condition and we have a perfected first priority security interest in it. (2) Pay us the casualty value specified in Exhibit B attached. Once you have paid us this amount and any other amount that you may owe us, we will release our security interest in the damaged or lost Collateral and you (or your insurer) may keep the Collateral for salvage purposes, on an "AS IS, WHERE IS" basis. INSURANCE - - Until you have made all Payments to us under this Master Agreement, the Schedules and the Notes, you will keep the Collateral insured. The amount of insurance, the coverage, and the insurance company must be acceptable to us. - - If you do not provide us with written evidence of insurance that is acceptable to us, we may buy the insurance ourselves, at your expense. You will promptly pay us the cost of this insurance. We have no obligation to purchase any insurance. Any insurance that we purchase will be our insurance, and not yours. - - Insurance proceeds may be used to repair or replace damaged or lost Collateral or to pay us the present value of the Payments, as provided above. - - You appoint us as your "attorney-in-fact" to make claims under the insurance policies, to receive payments under the insurance policies, and to endorse your name on all documents, checks or drafts relating to insurance claims for Collateral. TAXES - - You will pay all sales, use, excise, stamp, documentary and ad valorum taxes, license, recording and registration fees, assessments, fines, penalties and similar charges imposed on the ownership, possession, use, lease or rental of the equipment or on the Loan. - - You will pay all taxes (other than our federal or state net income taxes) imposed on you or on us regarding the Payments. - - You will reimburse us for any of these taxes that we pay or advance. - - You will file and pay for any personal property taxes on the Collateral. FINANCIAL STATEMENTS - - During the Term you will promptly give copies of any filings you make with the Securities and Exchange Commission (SEC). You and any guarantor will also provide us with the following financial statements: - - Quarterly balance sheet and statements of earnings and cash flow - within 45 days after the end of your first three fiscal quarters in each fiscal year. These will be certified by the chief financial officer. - - Annual balance sheet and statements of earnings and cash flow - within 90 days after the end of each fiscal year. These will be audited by independent auditors acceptable to FINOVA. Their audit report must be unqualified. These financial statements will be prepared according to generally accepted accounting principles, consistently applied. -6- All financial statements and SEC filings that you or any guarantor provide us will be true and complete. They will not fail to tell us anything that would make them misleading. 6. DEFAULTS - - You are in default if any of the following happens: - - You do not pay us, when it is due, any Payment or other payment that you owe us under this Master Agreement, any Schedule, Note or that you owe under any other agreement, loan or lease that you have with us or with FINOVA Capital Corporation. - - Any of the financial information that you give us is not true and complete, or you fail to tell us anything that would make the financial information misleading. - - You do something you are not permitted to do, or you fail to do anything that is required of you, under this Master Agreement, any Schedule or any other lease, loan or other financial arrangement that you have with us. - - An event of default occurs for any other lease, loan or obligation of yours (or any guarantor) that exceeds $25,000. - - You or any guarantor file bankruptcy, or involuntary bankruptcy is filed against you or any guarantor. - - You or any guarantor are subject to any other insolvency proceeding other than bankruptcy (for example, a receivership action or an assignment for the benefit of creditors). - - Without our permission, you or any guarantor sell all or a substantial part of its assets, merge or consolidate, or a majority of your voting stock or interests (or any guarantor's voting stock or interests) is transferred. - - There is a material adverse change in your financial condition, business, operations or prospects, or that of any guarantor, from the condition that you disclosed to us in your application for credit. REMEDIES, DEFAULT INTEREST, LATE FEES If you are in default we may exercise one or more of our "remedies." Each of our remedies is independent. We may exercise any of our remedies, all of our remedies or none of our remedies. We may exercise them in any order we choose. Our exercise of any remedy will not prevent us from exercising any other remedy or be an "election of remedies." If we do not exercise a remedy, or if we delay in exercising a remedy, this does not mean that we are forgiving your default or that we are giving up our right to exercise the remedy. Our remedies allow us to do one or more of the following: - - "Accelerate" the Loan balance under any or all Notes. This means that we may require you to immediately pay us all Payments for the entire Term for any or all Schedules. - - Require you to immediately pay us all amounts that you are required to pay us for the entire Term of any other agreements, loans or leases that you have with us. - - Sue you for all payments and other amounts you owe us plus the Prepayment Premium (see Section 1 above). - - Require you at your expense to assemble the Collateral at a location we request in the United States of America. - - Remove and repossess the Collateral from where it is located, without demand or notice, or make the Collateral inoperable. We have your permission to remove any physical obstructions to removal of the -7- Collateral. We may also disconnect and separate all Collateral from other property. No court order, court hearing or "legal process" will be required for us to repossess the Collateral. You will not be entitled to any damages resulting from removal or repossession of the Collateral. We may use, ship, store, repair or lease any Collateral that we repossess. We may sell any repossessed Collateral at private or public sale. You give us permission to show the Collateral to buyers at your location free of charge during normal business hours. If we do this, we do not have to remove the Collateral from your location. If we repossess the Collateral and sell it, we will give you credit for the net sale price, after subtracting our costs of repossessing and selling the Collateral. If we rent the Collateral to somebody else, we will give you credit for the net rent received, after subtracting our costs of repossessing and renting the Collateral, but the credit will be discounted to present value using a discount rate equal to the Default Rate. The credit will be applied against what you owe us under this Master Agreement, the Schedules, the Notes and any other agreements, loans or leases that you have with us. If the credit exceeds the amount you owe under this Master Agreement, the Schedule, the Notes and any other agreements, loans or leases that you have with us, we will refund the amount of the excess to you. - - Return conditions: Following an Event of Default, at our request you will return the Collateral, freight and insurance prepaid by you, to us at a location we request in the United States of America. It will be returned in good operating condition, as required by Section 5 above. The Collateral will not be subject to any liens when it is returned. All advertising insignia will be removed and the finish will be painted or blended so that nobody can see that advertising insignia used to be there. - - You will pack or crate the Collateral for shipping in the original containers, or comparable ones. You will do this carefully and follow all recommendations of the Supplier and the Manufacturer as to packing or crating. - - You will also return to us the plans, specifications, operating manuals, software documentation, discs, warranties and other documents furnished by the Manufacturer or Supplier. You will also return to us all service logs and service reports, as well as all written materials that you may have concerning the maintenance and operation of the Collateral. - - At our request, you will provide us with up to 60 days free storage of the Collateral at your location, and will let us (or our agent) have access to the Collateral in order to inspect it and sell it. - - You will pay us what it costs us to repair the Collateral if you do not return it in the required condition. You will also pay us for the following: - - All our expenses of enforcing our remedies. This includes all our expenses to repossess, store, ship, repair and sell the Collateral. - - Our reasonable attorney's fees and expenses. - - Default interest on everything you owe us from the date of your default to the date on which we are paid in full at the Default Rate. You realize that the damages we could suffer as a result of your default are very uncertain. This is why we have agreed with you in advance on the Default Rate to be used in calculating the payments you will owe us if you default. You agree that, for these reasons, the payments you will owe us if you default are "agreed" or "liquidated" damages. You understand that -8- these payments are not "penalties" or "forfeitures." LATE FEES. You will pay us a late fee whenever you pay any amount that you owe us more than ten (10) days after it is due. You will pay the late fee within one month after the late Payment was originally due. The late fee will be six (6%) percent of the late Payment. If this exceeds the highest legal amount we can charge you, you will only be required to pay the highest legal amount. The late fee is intended to reimburse us for our collection costs that are caused by late Payment. It is charged in addition to all other amounts you are required to pay us, including Default Interest. 7. EXPENSES AND INDEMNITIES PERFORMING YOUR OBLIGATIONS IF YOU DO NOT If you do not perform one or more of your obligations under this Master Agreement or a Schedule or Note, we may perform it for you We will notify you in writing at least ten (10) days before we do this. We do not have to perform any of your obligations for you. If we do choose to perform them, you will pay us all of our expenses to perform the obligations. You will also reimburse us for any money that we advance to perform your obligations, together with interest at the Default Rate on that amount. These will be additional "Payments" that you will owe us and you will pay them at the same time that your next Payment is due. - - You will indemnify us, defend us and hold us harmless for any and all claims, expenses and attorney's fees concerning or arising from the Collateral, this Agreement, or any Schedule or Note, or your breach of any representation or warranty. It includes any claims concerning the manufacture, selection, delivery, possession, use, operation or return of the Collateral. - - This obligation of yours to indemnify us continues even after the Term is over. 8. MISCELLANEOUS WE MAY ASSIGN OR GRANT A SECURITY INTEREST IN THIS AGREEMENT, ANY SCHEDULE, ANY NOTE OR ANY PAYMENTS WITHOUT YOUR PERMISSION. THE PERSON TO WHOM WE ASSIGN IS CALLED THE "ASSIGNEE." THE ASSIGNEE WILL NOT HAVE ANY OF OUR OBLIGATIONS UNDER THIS MASTER AGREEMENT. YOU WILL NOT BE ABLE TO RAISE ANY DEFENSE, COUNTERCLAIM OR OFFSET AGAINST ASSIGNEE. AFTER ASSIGNMENT YOU MAY "QUIETLY ENJOY" THE USE OF THE COLLATERAL SO LONG AS YOU ARE NOT IN DEFAULT. UNLESS YOU RECEIVE OUR WRITTEN PERMISSION, YOU MAY NOT ASSIGN OR TRANSFER YOUR RIGHTS UNDER THIS MASTER AGREEMENT OR ANY SCHEDULE. YOU ALSO ARE NOT ALLOWED TO LEASE OR RENT THE COLLATERAL OR LET ANYBODY ELSE USE IT UNLESS WE GIVE YOU OUR WRITTEN PERMISSION. WE DID NOT MANUFACTURE OR SUPPLY THE COLLATERAL. WE ARE NOT A DEALER IN THE COLLATERAL. INSTEAD, YOU CHOSE THE COLLATERAL. WE DO NOT MAKE ANY WARRANTY AS TO THE COLLATERAL. WE DO NOT MAKE ANY WARRANTY AS TO "MERCHANTABILITY" OR "SUITABILITY" OR "FITNESS FOR A PARTICULAR PURPOSE" OR "NONINFRINGEMENT" OF ANY PATENT, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHT. WE WILL NOT BE RESPONSIBLE FOR LOSS, DAMAGE, OR INJURY TO YOU OR ANYBODY ELSE AS A RESULT OF ANY DEFECTS, HIDDEN OR OTHERWISE, IN -9- THE COLLATERAL UNDER "STRICT LIABILITY" LAWS OR ANY OTHER LAWS. WE WILL NOT BE RESPONSIBLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF PROFITS OR GOODWILL. If the Collateral is unsatisfactory, you will continue to pay us all Payments and other amounts you are required to pay us. You must seek repair or replacement of the equipment solely from the Manufacturer or Supplier and not from us. Neither the Manufacturer nor the Supplier is our "agent," so they cannot speak for us and they are not allowed to make any changes in this Master Agreement or any Schedule or Note, or give up any of our rights. ACCEPTANCE BY FINOVA, GOVERNING LAW, JURISDICTION, VENUE, SERVICE OF PROCESS, WAIVER OF JURY TRIAL. THIS MASTER AGREEMENT WILL ONLY BE BINDING WHEN WE HAVE ACCEPTED IT IN WRITING. THIS MASTER AGREEMENT IS GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF ARIZONA (NOT INCLUDING THE "CHOICE OF LAW" DOCTRINE), THE STATE IN WHICH OUR OFFICE IS LOCATED IN WHICH FINAL APPROVAL OF THE TERMS OR CONDITIONS OF THIS MASTER AGREEMENT OCCURRED AND FROM WHICH DISBURSEMENT OF THE LOAN PROCEEDS WILL BE ORDERED. HOWEVER, IF THIS MASTER AGREEMENT IS UNENFORCEABLE UNDER ARIZONA LAW, IT WILL INSTEAD BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED. YOU MAY ONLY SUE US IN A FEDERAL OR STATE COURT THAT IS LOCATED IN MARICOPA COUNTY, ARIZONA. THIS APPLIES TO ALL LAWSUITS UNDER ALL LEGAL THEORIES, INCLUDING CONTRACT, TORT AND STRICT LIABILITY. YOU CONSENT TO THE PERSONAL JURISDICTION OF THESE ARIZONA COURTS. YOU WILL NOT CLAIM THAT MARICOPA COUNTY, ARIZONA, IS AN "INCONVENIENT FORUM" OR THAT IT IS NOT A PROPER "VENUE." WE MAY SUE YOU IN ANY COURT THAT HAS JURISDICTION. WE MAY SERVE YOU WITH PROCESS IN A LAWSUIT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO YOUR ADDRESS INDICATED AFTER YOUR SIGNATURE BELOW. YOU AND WE EACH WAIVE ANY RIGHT YOU OR WE MAY HAVE TO A JURY TRIAL IN ANY LAWSUIT BETWEEN YOU AND US. NOTICES. We may give you written notice in person, by mail, by overnight delivery service, or by fax. Notice will be send to your address below your signature. Mail notice will be effective three (3) days after we mail it with prepaid postage to the address stated. Overnight delivery notice requires a receipt and tracking number. Fax notice requires a receipt from the sending machine showing that it has been sent to your fax number and received. -10- You may give us notice the same way that we may give you notice. This Master Agreement benefits our successors and assigns. This Master Agreement benefits only those successors and assigns of yours that we have approved in writing. This Master Agreement binds your successors and assigns. This Master Agreement binds only those successors and assigns of ours that clearly assume our obligations in writing. TIME IS OF THE ESSENCE OF THIS MASTER AGREEMENT This Master Agreement, all of the Schedules and the Notes and the Commitment Letter are together the entire agreement between you and us concerning the Collateral. Only an employee of FINOVA who is authorized by corporate resolution or policy may modify or amend this Loan or any Schedule or Note on our behalf, and this must be in writing. Only he or she may give up any of our rights, and this must be in writing. If more than one person is the Borrower under this Agreement, then each of you is jointly and severally liable for your obligations under this Master Agreement. This Master Agreement is only for your benefit and for our benefit, as well as our successors and assigns. It is not intended to benefit any other person. If any provision in this Master Agreement is unenforceable, then that provision must be deleted. Only unenforceable provisions are to be deleted. The rest of this Master Loan Agreement will remain as written. PUBLICITY. We may make press releases and publish a tombstone announcing this transaction and its total amount. You may not publicize this transaction in any way without our prior written consent. LENDER: BORROWER: FINOVA TECHNOLOGY FINANCE INC. KOSAN BIOSCIENCES, INC. 10 WATERSIDE DRIVE 1450 ROLLINS ROAD FARMINGTON, CT 06032-3065 BURLINGAME, CA 94010 BY: /s/ Linda A. Moschitto BY: /s/ Daniel V. Santi ------------------------ ------------------------- PRINTED NAME: Linda A. Moschitto PRINTED NAME: DANIEL V. SANTI -------------------- ---------------- TITLE: Director - Contract Administration TITLE: Chairman -------------------------------------- ------------ FAX NUMBER: (860) 676-1814 Taxpayer ID# 94321-7016 DATE ACCEPTED: 9/24/98 FAX NUMBER: (650) 343-2931 DATED: 9/18/98 -11- STATE OF CALIFORNIA COUNTY OF SAN MATEO I acknowledge that DANIEL V. SANTI, who stated that he is CHAIRMAN of the Borrower named above, signed this Master Loan and Security Agreement in my presence today: 09/18/98. He acknowledged to me that his signature on this Master Loan and Security Agreement was authorized by a valid resolution or other valid authorization from Borrower's board of directors or other governing body. /s/ Kenneth E. Constantino --------------------------- Notary Public [SEAL] -12- EXHIBIT A Prepayment Schedule To Master Loan and Security Agreement No. S6880 The Prepayment premium shall be determined by multiplying the outstanding principal balance of the Loan by the percentage amount shown below which corresponds with the month during the Term in which the prepayment is to be made:
Month of term Percentage Amount ------------- ----------------- 1 through 24 No Prepayment 25 through 36 2.75% 37 through 48 1.50%
Borrower (initial) /s/ [INITIALS] -------- Lender (initial) ---------- EXHIBIT B Casualty Value Schedule To Master Loan and Security Agreement No. S6880 The Casualty Value for the Collateral (or any item thereof) shall be determined by multiplying the outstanding principal balance of the Loan by the percentage amount shown below which corresponds with the month during the Term in which the determination is to be made:
Month of Term Percentage Amount ------------- ----------------- 1 through 12 4.25% 13 through 24 3.25% 25 through 36 2.75% 37 through 48 1.50% Borrower (initial) /s/ [INITIALS] ---------- Lender (initial) -----------
EX-10.17 19 EXHIBIT 10.17 EXHIBIT 10.17 [LETTERHEAD] August 24, 1998 REVISION #2 ----------- Mr. Michael Ostrach Vice President - Corporate Development Kosan Biosciences, Inc. 1450 Rollins Road Burlingame, CA 94010 Dear Mr. Ostrach: Subject to all the terms and conditions hereof and receipt by us of all documents requested by us, in form and substance satisfactory to us and our counsel, we are prepared to enter into the following loan transaction (the "Loan"). BORROWER OR "YOU": Kosan Biosciences, Inc. LENDER OR "WE" OR "US": FINOVA Technology Finance, Inc. TERM OF LOANS: 48 consecutive months MAXIMUM LOAN AMOUNT: $2,000,000 in one or more advances (each an "Advance") to finance your purchase of certain laboratory, office and production equipment and tenant improvements acceptable to us (the "Equipment"), plus softcosts related thereto not to exceed 20% of the amount of each Advance. Not more than $773,116 in Advances may be made unless and until receipt by us of confirmation of a signed collaboration agreement (in form and substance acceptable to us) with Johnson & Johnson (or another entity acceptable to us) which will provide an aggregate of no less than $6,000,000 of projected revenue. The initial Advance of $484,116, plus $289,000 for a Varian NMR when delivered and accepted shall comprise the $773,116 total above referenced. COLLATERAL: The due payment and performance of all of your present and future obligations to us shall be secured by a first and only perfected security interest in and to all of the Equipment, together with all proceeds of, and accessions and additions to, substitutions for, and all replacements of, any of the foregoing, whether cash or non-cash, including, but not limited to, insurance proceeds (collectively, the "Collateral") COLLATERAL LOCATION: Burlingame, CA ANTICIPATED CLOSING DATES: August 1998 through June 30, 1999 CLOSING DATE: The date on which all conditions to the Loan for the Initial Advance and all future Advances are satisfied by you and the Loan proceeds are disbursed to you or to other persons at your 1 direction. The Initial Advance and all further Advances shall be evidenced by one or more promissory notes (each a "Note"). Each Advance shall not be less than $100,000 secured by delivered and accepted Equipment. No Closing Dates shall occur after June 30, 1999. MONTHLY LOAN PAYMENTS: Each Note shall be payable in 48 consecutive monthly payments of principal and interest each equal to 2.332% of the Advance, subject to adjustment, payable monthly in advance, and followed by one payment equal to 12.5% of the Advance. The first Monthly Loan Payment shall be payable on the Closing Date of each Advance. ADJUSTMENT TO MONTHLY LOAN PAYMENTS: If, on the second business day preceding the Closing Date for each Advance, the highest yield for four-year U.S. Treasury Notes as published in THE WALL STREET JOURNAL is greater than the yield on June 23, 1998, the first 48 Monthly Loan Payments shall be increased to reflect such change in yield. The yield as of June 23, 1998 was 5.56%. As of the Closing Date for each Advance, the Monthly Loan Payments shall be fixed for the entire term. INTERIM PAYMENTS: In addition to the Monthly Loan Payments, interim payments shall accrue for each day from each Closing Date until the twenty-ninth day of the same month (27th day of the month of each Advance in the case of February) unless the Advance is made on the thirtieth or thirty-first day of a month. If the Closing Date is the thirty-first day of a month, the interim payment shall accrue from the Closing Date until the twenty-ninth day of the next following month. If the Closing Date is the thirtieth day of a month, there shall be no interim payment. The interim payment for each day shall be 1/30 of the adjusted interest rate multiplied by the amount of the Advance and shall be payable on the Closing Date. DOCUMENTATION: All documentation shall be prepared and reviewed by us or our counsel and shall be in form and substance satisfactory to us and our counsel in our and our counsel's sole and absolute discretion, and shall include, without limitation, the Notes, a loan and security agreement, the Letter of Credit (if required), landlord and mortgagee's waivers and consents, assignments, insurance policies, UCC Financing Statements, and such other documents or other agreements and as we and our counsel deem appropriate (collectively, the "Loan Documents"). LETTER OF CREDIT, OTHER LOAN PROVISIONS AND COVENANTS: A. LOAN PROVISIONS. The Loan Documents shall include the usual provisions and covenants in our loan agreements, cross default and cross collateralization provisions to all your Loans, and such other or different provisions and covenants that are customarily included in agreements of this kind. 2 B. MINIMUM CASH REQUIREMENT; LETTER OF CREDIT. You shall at all times maintain a minimum of unrestricted cash or cash equivalents of at least $5,000,000 (the "Minimum Cash Requirement"). In the event you at any time fail to maintain the Minimum Cash Requirement, you shall open an Irrevocable Letter of Credit, in form and substance satisfactory to us, issued by a Bank satisfactory to us, in our favor as beneficiary (the "Letter of Credit") , or provide us as Collateral cash or cash equivalents, acceptable to us, in an amount equal to fifty (50%) percent of the then current outstanding principal balance of the Loan. The failure to provide the Letter of Credit or other Collateral shall be an event of default. At month twenty-four of the initial Loan, we will review your current financial condition and future outlook. Following the review, we may in our sole discretion, reduce or waive the Minimum Cash Requirement for the remainder of the term of the Loans. C. INSURANCE. The Loan Documents shall provide for you, at all times to procure and maintain, or cause to be procured and maintained, policies of insurance, in such form, of such type and with insurers satisfactory to us. D. FINANCIAL REPORTING. You shall deliver to us or cause to be delivered to us your quarterly financial statements within 45 days following the end of each respective fiscal quarter and annual financial statements for you within 90 days following the end of each respective fiscal year. All annual financial statements shall be prepared in accordance with GAAP and be audited by a reputable firm of certified public accountants acceptable to us, and shall be accompanied by a certificate executed by such certified public accountants to the effect that you have complied with all covenants contained in the Loan Documents and there are no events of default thereunder ("Compliance Certificate"). All quarterly financial statements may be internally prepared in accordance with GAAP, and accompanied by a Compliance Certificate executed by the respective chief financial officer. E. ADDITIONAL REPRESENTATIONS. It shall be a condition precedent to the closing of each Advance that no payment due us is past due, whether as a lessee, a borrower, a guarantor or in some other capacity; that the you are in compliance with the provisions of this Commitment; that all information requested by us and 3 all documentation then required by our counsel has been received by us, including resolutions of your Board of Directors authorizing the transactions contemplated by this Commitment; that you are not in default under any material contract to which you are a party or by which it or your property is bound; that there has not been any material adverse change or threatened material adverse change in your financial or other condition, business, operations, properties, assets or prospects since December 31, 1997 or from the written information that has been supplied to us by you or any manufacturer of the Equipment prior to the date of this Commitment; that there shall be no actual or threatened conflict with, or violation of, any regulatory statute, standard or rule relating to you, your present or future operations, or the Equipment, the violation of which would have a material adverse effect on your financial condition; and that we receive an opinion of your counsel satisfactory to us. All information supplied by you shall be correct in all material respects and shall not omit any statement necessary to make the information supplied not be misleading. There shall be no material breach of the representations and warranties by you in the Loan Documents. The representations shall include that the cost of each item of the Equipment does not exceed the fair and usual price for like quantity purchases of such item and reflects all discounts, rebates and allowances for the Equipment given to you or any of your affiliate by you by the manufacturer, supplier or anyone else including, without limitation, discounts for advertising, prompt payment, testing or other services. FEES AND EXPENSES: You shall be responsible for our reasonable fees and expenses in connection with the transaction, including UCC filing, due diligence search fees and the expenses of our counsel to respond to any requested modifications or changes to the Lender's standard documentation. We shall use our best efforts to notify you when the Fees and Expenses reach $1,500; however, our failure to do so is not intended to limit the fees and expenses set forth herein. COMMITMENT FEE: Simultaneously with the acceptance of this Commitment, you shall pay us a non-refundable Commitment Fee of $20,000. The $20,000 Application Fee, previously paid shall be applied towards the Commitment Fee. The Commitment Fee shall be first applied to the Fees and Expenses due hereunder. Any remainder shall be applied to the second Monthly Loan Payment due under each Advance on a pro-rata basis. In the event that we are unable to receive confirmation of a signed collaboration agreement (in form and substance acceptable to us) with Johnson & Johnson (or another entity acceptable to us) which will provide an aggregate of no less than 4 $6,000,000 of projected revenue, we will credit the unused portion of the Commitment Fee to your account within thirty days of your written request to us. SURVIVAL: This Commitment Letter shall survive the closing. However, if there is any conflict between the terms and conditions of the Loan Documents and those of this Commitment Letter, the Loan Documents shall control. This Commitment and the Closing of the transaction contemplated herein are subject, amongst other things, to receipt by us, in form and substance satisfactory to us and our counsel, at or prior to Closing, of: (i) all documentation and other requirements set forth herein including but not limited to the Loan Documents and other requirements set forth herein and as may be required by our counsel; and (ii) our receipt, in form and substance satisfactory to us, of all financial and credit information requested by us, (including, but not limited to, your audited financial statements for the year ended 1997), which reflects no material adverse change in your or condition, business, financial or otherwise; and (iii) evidence that the Equipment is owned by you, free and clear of all liens and encumbrances; and (iv) a completed year 2000 compliance form satisfactory to us; and (v) evidence of such insurance required by us, written by insurers and in amounts satisfactory to us; and (vi) such opinions of your counsel, certificates, waivers, releases, Uniform Commercial Code Financing Statements, due diligence searches, and further documents as may be required by us or our counsel. In addition to all other conditions and requirements set forth herein, this Commitment and the closing of the transaction contemplated hereunder shall be subject, in our sole judgment, that there be no material adverse change in your financial, business or other condition. This Commitment is not assignable without our prior written consent. We reserve the right to cancel this Commitment in the event you or any of your officers, employees, agents or representatives has made any misrepresentation to us or has withheld any information from us with regard to the transaction contemplated hereby. As used in this Commitment, the terms "satisfactory to us" or "acceptable to us" or "satisfactory to our counsel" or "acceptable to our counsel" or terms of similar import mean satisfactory or acceptable to us or our counsel in our or its sole judgment and discretion. This Commitment and the Loan Documents shall be governed by the laws of the State of Arizona. Any dispute arising under this Commitment shall be litigated by you only in any federal or state court located in the State of Arizona, or any state court located in Maricopa 5 County, Arizona; and you hereby irrevocably submit to the personal jurisdiction of such courts and waive any objection that may exist as to venue or convenience of such forums. Nothing contained herein shall preclude us from commencing any action in any court having jurisdiction thereof. In the event that the Initial Advance does not close prior to December 31, 1998 because of your failure to satisfy the conditions for the closing, or because of a material adverse change in your financial, business or other condition, this Commitment shall terminate and we shall have no liability to you and we shall retain, as earned, the Commitment Fee. In the event we fail to complete this transaction and such failure is not because of your inability to satisfy all the conditions for closing or a material adverse change in your financial, business or other condition, our liability shall be limited to a return of the Commitment Fee, less Fees and Expenses due hereunder. Please execute the copy of this letter acknowledging your acceptance of the terms hereof and return it to us. If a copy of this Commitment is not executed and returned by you by August 28, 1998, this offer shall be deemed withdrawn. This Commitment supersedes, replaces and terminates all previous proposals and/or agreements including, but not limited to, our proposal dated June 23, 1998 which shall be null and void. Should you have any questions, please call me. If you wish to accept this Commitment, please sign and return the enclosed duplicate letter to the undersigned by August 28, 1998. Sincerely, FINOVA TECHNOLOGY FINANCE, INC. By /s/ Linda A. Moschitto ----------------------------------------- Linda A. Moschitto Director - Contract Administration Accepted this 25 day of August, 1998 KOSAN BIOSCIENCES, INC. By: /s/ Michael Ostrach ----------------------------------------- Michael Ostrach Vice President - Corporate Development 6 EX-10.18 20 EXHIBIT 10.18 EXHIBIT 10.18 [LOGO] TECHNOLOGY FINANCE January 6, 2000 [LETTERHEAD] Ms. Susan M. Kanaya Chief Financial Officer Kosan Biosciences, Incorporated 3832 Bay Center Place Hayward, CA 94545 Dear Ms. Kanaya: FINOVA Capital Corporation ("we" or "Lender") is pleased to enter into the following transaction with Kosan Biosciences, Incorporated ("you" or "Borrower") on the terms and conditions hereinafter set forth. The outline of this Commitment is as follows: BORROWER: Kosan Biosciences, Incorporated LENDER: FINOVA Capital Corporation TERM OF LOANS: Each Loan shall have a term until payment in full of forty-three (43) consecutive months from the thirtieth day of the month coincident with or (as the case may be) the month next following the making of the Loan. FACILITY: A $2,000,000 line of credit. Subject to the terms of the Loan Documents (as hereinafter defined), we will from time to time make loans to you under the Facility (each, a "Loan" and collectively, the "Loans"). Once a Loan is made, it cannot be reborrowed. Each Loan shall be evidenced by a separate promissory note in form and substance satisfactory to Lender. PURPOSE OF LOANS: For the acquisition of Equipment on Schedule A and new laboratory, office, production, research and development and additional equipment. Lender at its sole option may finance used equipment and/or equipment older than 90 days from the date of supplier's invoice. Lender will finance soft costs in amounts not in excess of twenty-five percent (25%) of each Loan, but shall not exceed a maximum of $500,000 in total. Notwithstanding the foregoing, the soft costs on the first Loan may be a maximum of 55% of that Loan, but in no case exceed the maximum. Such soft costs to include leasehold improvements, delivery, installation, sales tax and software. All items financed with the proceeds of the Loan are subject to final review and acceptance by the Lender. COLLATERAL: The due payment and performance of all of Borrower's present and future obligations to Lender shall be secured by a first and only perfected lien on and security interest in and to all items financed with the proceeds of a Loan, and all replacements, substitutions, accessions and additions thereto, and all proceeds thereof (including, without limitation, proceeds of insurance). Each Loan shall be cross collateralized. 1 COLLATERAL LOCATION: 3832 Bay Center Place, Hayward, CA 94545 ANTICIPATED DELIVERY: Through December 31, 2000. CLOSING DATE: The date on which all conditions to a Loan are satisfied by the Borrower and the Loan proceeds are disbursed to the Borrower or to other Persons at the Borrower's direction. Each Loan shall have a principal amount of not less than $250,000 secured by all Collateral. No Closing Dates shall occur after December 31, 2000. MONTHLY PAYMENTS: Each Loan shall be paid in forty-three (43) consecutive installments of principal and interest. Each of the first forty-two (42) Monthly Payments shall be in an amount equal to 2.745% of the principal amount of the Loan and the final forty-third (43rd) Monthly Payment shall be in an amount equal to ten (10%) percent of the principal amount of the Loan. All payments are payable in advance and the first (1st) and forty-second (42nd) Monthly Payments applicable to a Loan shall be payable on the Closing Date of such Loan and shall be withheld by the Lender from the Loan proceeds disbursed by the Lender. ADJUSTMENT TO MONTHLY PAYMENTS: If, on the second business day preceding the Closing Date for each Loan the highest yield for four-year U. S. Treasury Notes as published in THE WALL STREET JOURNAL on such date is greater than the yield as published on December 3, 1999, the Monthly Payments shall be increased (point for point) to reflect such increase in the yield. The yield as of December 3, 1999 was 6.29%. As of the Closing Date, the Monthly Payments with respect to the applicable Loan being made shall be fixed for the entire Term. INTERIM PAYMENTS: If the date we make the Loan to you is not the thirtieth (30th) or the thirty-first (31st) day of the month, you will pay, on the thirtieth (30th) day of the month in which we make the Loan to you, interest only, at the applicable adjusted interest rate, from the date we make the Loan to you to the twenty-ninth (29th) day of the same month. If the date we make the Loan to you is the thirty-first (31st), you will pay interest at the applicable adjusted interest rate, from the date we make the Loan to you to the twenty-ninth (29th) day of the next following month. The interim payment (as well as the first (1st) and forty-second (42nd) Monthly Payments) shall be payable on the Closing Date and shall be withheld by the Lender from the Loan proceeds disbursed by the Lender. INSURANCE: Borrower shall, at its own expense, maintain and deliver evidence to Lender of such insurance required by Lender, written by insurers and in amounts satisfactory to Lender. 2 LOAN PROVISIONS AND COVENANTS: All documentation shall be prepared and reviewed by us or our counsel and shall be in form and substance satisfactory to us and our counsel in our and our counsel's sole and absolute discretion, and shall include, without limitation, a promissory note (and related schedule) for each Loan, a master loan and security agreement, environmental certificate and indemnity agreement, opinion of outside counsel, financing statements, releases, waivers and consents (including, but not limited to, landlord's and mortgagee's waivers), corporate resolutions and incumbencies, insurance letter, insurance certificates and copies of insurance policies, and such other documents as we and our counsel deem appropriate in our or their sole discretion (collectively, the "Loan Documents"). The Loan Documents contemplated hereby shall contain such conditions, representations, warranties, covenants, events of default (including, without limitation, cross default provisions), remedies, and other terms and provisions as are customarily required by lenders in transactions of this type or as the parties shall agree. ADDITIONAL COVENANTS: There shall be no actual or threatened conflict with, or violation of, any regulatory statute, standard or rule relating to the Borrower, its present or future operations, or the Collateral. All information supplied by the Borrower shall be correct and shall not omit any statement necessary to make the information supplied not be misleading. There shall be no material breach of the representations and warranties of the Borrower in the Loan Agreement. The representations shall include that the Cost of each item of the Collateral does not exceed the fair and usual price for like quantity purchases of such item. The master loan and security agreement shall also contain the following covenant. FINANCIAL REPORTING. During the period of the Commitment and while any Loan is outstanding, Borrower shall deliver to Lender or cause to be delivered to Lender the Borrower's quarterly financial statements within 45 days following the end of each respective fiscal quarter and annual financial statements within 90 days following the end of each respective fiscal year. All annual financial statements shall be prepared in accordance with generally accepted accounting principles ("GAAP") and be audited by a reputable firm of certified public accountants acceptable to Lender, and shall be accompanied by a certificate executed by such certified public accountants to the effect that the Borrower has complied with all covenants contained in the Loan Documents and there are no events of default thereunder ("Compliance Certificate"). All quarterly financial statements may be internally prepared in accordance with GAAP, and accompanied by a Compliance Certificate executed by the Borrower's Chief Financial Officer. 3 FEES AND EXPENSES: The Borrower shall be responsible for the Lender's reasonable fees and expenses in connection with the transaction, including the fees and expenses of counsel to prepare and review the documentation, not to exceed $2,500. COMMITMENT FEE: With the acceptance of this Commitment by the Borrower, a Commitment Fee of $20,000 shall be then due the Lender. The Application Fee of $10,000 previously paid by the Borrower shall be applied to the Commitment Fee. The Commitment Fee, less any fees and expenses, shall be applied, on a pro rata basis based on the amount of each Loan in proportion to the total Facility to the second Monthly Loan Payment of each Loan. SURVIVAL: This Commitment Letter shall survive closing. However, if there is any conflict between the terms and conditions of the master loan and security agreement (or schedules) and those of this Commitment Letter, the master loan and security Agreement (or schedules) shall control. This Commitment and the Closing of each Loan contemplated herein are subject, amongst other things, to receipt by us, in form and substance satisfactory to us and our counsel, at or prior to Closing, of: (i) all documentation and other requirements set forth herein including but not limited to the Loan Documents and other requirements set forth herein and as may be required by our counsel; and (ii) our receipt, in form and substance satisfactory to us, of all financial and credit information requested by us, which reflects no material adverse change in your condition, business, financial or otherwise; and (iii) evidence that the Collateral is owned by you, free and clear of all liens and encumbrances; and (iv) evidence of such insurance required by us, written by insurers and in amounts satisfactory to us; and (v) such opinions of your outside counsel, certificates, waivers, releases, Uniform Commercial Code Financing Statements, due diligence searches, and further documents as may be required by us or our counsel; and (vi) evidence that no payment is past due to the Lender from the Borrower, whether as a borrower, a lessee, a guarantor or in some other capacity and that there be no default under any agreement, instrument or document between the Lender and the Borrower (including, without limitation, the Loan Documents); and (vii) evidence that the Borrower is in compliance with the provisions of this Commitment; and 4 (viii) our receipt of evidence satisfactory to us, in our sole discretion that the subject transaction is environmentally acceptable. We shall have the right to require you to retain the services of a firm acceptable to us and knowledgeable in environmental matters to perform environmental investigations of the Collateral and real property owned, operated or occupied by you (including, without limitation, the Collateral Location) and the surrounding areas. Such investigation may include, but not be limited to, soil and ground water testing to fully identify the scope of any environmental issues impacting the transaction (including Phase I and/or Phase II environmental reports). The scope and results of such investigations must be satisfactory to us, in our sole discretion. In addition to all other conditions and requirements set forth herein, this Commitment and the closing of each Loan contemplated hereunder shall be subject, in our sole judgment, that there be no material adverse change in your financial, business or other condition. This Commitment is not assignable without our prior written consent. We reserve the right to cancel this Commitment in the event you or any of your officers, employees, agents or representatives has made any misrepresentation to us or has withheld any information from us with regard to the transaction contemplated hereby. As used in this Commitment, the terms "satisfactory to us" or "acceptable to us" or "satisfactory to our counsel" or "acceptable to our counsel" or terms of similar import mean satisfactory or acceptable to us or our counsel in our or its sole judgment and discretion. This Commitment and the Loan Documents shall be governed by the laws of the State of Arizona. Any dispute arising under this Commitment shall be litigated by you only in any federal or state court located in the State of Arizona, or any state court located in Maricopa County, Arizona; and you hereby irrevocably submit to the personal jurisdiction of such courts and waive any objection that may exist as to venue or convenience of such forums. Nothing contained herein shall preclude us from commencing any action in any court having jurisdiction thereof. In the event that the Loans do not close prior to January 1, 2001 because of your failure to satisfy the conditions for the closing, or because of a material adverse change in your financial, business or other condition, this Commitment shall terminate and we shall have no liability to you and we shall retain, as earned, the Commitment Fee. In the event we fail to complete this transaction and such failure is not because of your inability to satisfy all the conditions for closing or a material adverse change in your financial, business or other condition, our liability shall be limited to a return of the Commitment Fee, less Fees and Expenses due hereunder. 5 Please execute the copy of this letter acknowledging your acceptance of the terms hereof and return it to us along with a check for $10,000 representing the balance of the Commitment Fee. If a copy of this Commitment is not executed and returned by you on or before January 11, 2000, this Commitment shall be deemed withdrawn. Sincerely, FINOVA CAPITAL CORPORATION By /s/ Dannion C. McGary ---------------------- Dannion C. McGary Vice President Accepted this 7 day of JANUARY 2000 KOSAN BIOSCIENCES, INCORPORATED By: /s/ Susan Kanaya ------------------------ 6
- ----------------------------------------------------------------------------------------------------------------------------------- Description/Vendor Invoice # Invoice Date Price - ----------------------------------------------------------------------------------------------------------------------------------- LABORATORY EQUIPMENT 1999 06/04/99 1 Gear drive variable speed mixer - Lightnin - process S01/99016522 05/28/99 1,328.00 06/07/99 1 Winchlift & Stand - Inaco - Process 105504 05/03/99 912.00 06/07/99 1 Centrifuge - Alfa Laval - Process 130582 05/20/99 1,271.00 06/10/99 1 Foxy 200 fraction collector - Isco, Inc. - Process 026862-00 06/04/99 3,795.00 06/23/99 1 Vacuubrand MZ2C - Vacuubrand - Process 906 06/07/99 2,071.75 06/30/99 1 IDG400-58 Probe- Nalorac - Chemistry -2802835 06/28/99 21,000.00 07/01/99 1 Biostat MD Triple - B.Braun biotech- Process 34144 & 34785 /21/1999 & 8/27/99 79,385.00 07/01/99 1 NMR Sample Changer & Gradiant Amplifier - Bruker - Process 034954 & 035148 5/27/99 & 7/19/99 42,990.00 07/02/99 1 5L Glass fermentation vessel MD - 5 - B.Braun - Process 34214 06/28/99 1,218.00 07/06/99 1 New Shaft for 150L - B. Metal fabrication 13267 07/06/99 1,976.00 07/14/99 Installation Consolidated Autoclave - Labworks Equip Svc. - Process 1784 07/13/99 07/20/99 2 New Brunswick Series 25 Incubator Shakers - New Brunswick - New Technology 100072 07/14/99 8,800.00 07/31/99 1 Hitachi HPLC System - Shaman -- Process N/A 07/16/99 16,000.00 08/02/99 1 Hand Nut Tool - Alfa Laval - Process 135647 07/28/99 1,044.00 08/06/99 1 SS 34 Rotor - Kendro Laboratories - Process & Biological Sciences SLS/99012265 07/30/99 3,150.00 08/10/99 New Brunswick Shaker upper & lower bearings - Labworks Equipment - Process 1815 08/10/99 405.00 08/15/99 1 Eight position multicell transport - Hewlett Packard - 100128894 08/10/99 4,080.00 08/20/99 1 Consolidated Autoclave Model SR24C - Laboratory Equipment Company - Process 156 & 1565 7/13/99 & 7/9/99 32,245.00 08/20/99 1 Vacuum pump assembly on house vacuum system - Labworks Equipment - Process 1829 & 1836 8/20/99 & 8/26/99 4,200.00 08/25/99 1 Vacuum Pump 1.8CFM - Fisher Scientific - Chemistry 9632318 08/19/99 930.00 09/01/99 4 Piece baffles & (1) piece mixer to 150L fermentor - B. Metal Fabrication - Process 13332 08/18/99 1,030.00 09/03/99 1 Circ Refg Htg Digt 13L 115V (water bath) - Fisher - Lab support 9892860 09/03/99 1,772.00 09/23/00 1 IHR 2106 Seal assembly kit for 150L - LSL 1 Biotafitte, Inc - Process Science 2708 09/01/99 1,210.51 09/29/99 1 Freezer Storage Flame - Sussman - Process 9987566 09/10/99 1,680.26 09/30/99 Steam generator - Sussman - Process 42894 08/31/99 17,266.00 10/06/99 1 General Electric Refrigerator - University Electric company - biological Sciences 0091858-IN 09/30/99 1,180.00 10/11/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development 57800 10/07/99 1,000.00 10/18/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development 57912 10/13/99 1,135.00 11/05/99 1 Circulating Water Flow bath - VWR Scientific 1897571 10/25/99 1,450.00 11/09/99 1 Pollyscience chiller model 6105 - VWR Scientific - New Technology 1850528 10/21/99 1,985.00 11/01/09 1 Economy Oven - VWR Scientific Products - Chemistry 1864117 10/22/99 1,190.00 11/14/99 1 Microfuge R - Beckman Brand - VWR Scientific - Process Development 2227236 11/29/99 4,600.00 11/15/99 1 Water Bath - Fisher Scientific - Process 977228 11/09/99 1,772.60 11/27/99 1 GE Refrigerator - University Electric Company - Biological Sciences 0094028-IN 11/29/99 1,180.00 12/06/99 1 Evaporative Light Scattering Detector 572737 11/11/99 13,950.00 12/06/99 1 Industrial Scale / Top loading - VWR Scientific - Process 2216307 11/24/99 976.50 subtotal Laboratory equipment LEASEHOLD IMPROVEMENTS 1999 06/01/99 New facility build out - Scales construction - Science 99016-02 06/22/99 14,004.00 06/15/99 New facility build out - Scales construction - Process 99007-02 06/09/99 868.00 07/01/99 Architectual blueprints for New Fac. Buildout - Dowler Gruman Architect - Whole Co. 815702 & 9815703 2/16/99 & 3/9/99 15,972.50 07/01/99 Data Cable installation - RC Communication - Whole Co. 2756 06/28/99 243.60 08/01/99 Electrical Install 32 Dedicated Circuits - Graham Electrical Contractors - Whole facility 32729 07/12/99 21,970.00 08/01/99 Construct Wood Platforms - Scales Construction - Whole Company 99016-03 07/28/99 2,105.00 09/01/99 Engineering for the 1000 litre fermentation suite - LEM Construction Inc. - Process 99176 08/31/99 18,213.00 10/01/99 Heat exchange system - Cal Air Inc. - whole company Jul-32 09/23/99 6,083.00 10/19/99 Install 21 data cables - R.C. Communications - Whole company 2914 10/24/99 1,407.30 10/27/99 Construction of new process development lab - Concrete shell structures 268,021.00 subtotal Leasehold improvements
Description/Vendor Shipping Sales Tax Labor Total LABORATORY EQUIPMENT 1999 06/04/99 1 Gear drive variable speed mixer - Lightnin - process 34.17 109.56 - 1,471.73 06/07/99 1 Winchlift & Stand - Inaco - Process 30.00 - - 942.00 06/07/99 1 Centrifuge - Alfa Laval - Process 10.49 - 2,491.39 3,773.58 06/10/99 1 Foxy 200 fraction collector - Isco, Inc. - Process - 313.09 - 4,108.09 06/23/99 1 Vacuubrand MZ2C - Vacuubrand - Process 26.57 - - 2,098.32 06/30/99 1 IDG400-58 Probe- Nalorac - Chemistry 60.00 1,732.50 - 22,792.50 07/01/99 1 Biostat MD Triple - B.Braun biotech- Process 628.55 - - 80,013.55 07/01/99 1 NMR Sample Changer & Gradiant Amplifier - Bruker - Process 41.00 3,546.68 2,540.00 49,117.68 07/02/99 1 5L Glass fermentation vessel MD - 5 - B.Braun - Process 23.87 100.49 - 1,342.36 07/06/99 1 New Shaft for 150L - B. Metal fabrication - 163.02 - 2,139.02 Installation Consolidated Autoclave - Labworks Equip Svc. - 07/14/99 Process - - 1,800.00 1,800.00 New Brunswick Series 25 Incubator Shakers - New Brunswick - 07/20/99 2 New Technology - 726.00 - 9,526.00 07/31/99 1 Hitachi HPLC System - Shaman -- Process - - - 16,000.00 08/02/99 1 Hand Nut Tool - Alfa Laval - Process 4.67 - - 1,048.77 SS 34 Rotor - Kendro Laboratories - Process & Biological 08/06/99 1 Sciences 35.00 262.77 - 3,447.77 New Brunswick Shaker upper & lower bearings - Labworks 08/10/99 Equipment - Process 20.00 33.41 1,385.00 1,843.41 08/15/99 1 Eight position multicell transport - Hewlett Packard - 14.00 - - 4,094.00 Consolidated Autoclave Model SR24C - Laboratory Equipment 08/20/99 1 Company - Process 865.00 2,911.01 3,774.99 39,797.00 Vacuum pump assembly on house vacuum system - Labworks 08/20/99 1 Equipment - Process 120.00 346.50 1,000.00 5,666.50 08/25/99 1 Vacuum Pump 1.8CFM - Fisher Scientific - Chemistry 64.50 76.73 - 1,071.23 Piece baffles & (1) piece mixer to 150L fermentor - B. Metal 09/01/99 4 Fabrication - Process - 84.98 - 1,114.96 Circ Refg Htg Digt 13L 115V (water bath) - Fisher - Lab 09/03/99 1 support - 153.92 - 1,926.52 IHR 2106 Seal assembly kit for 150L - LSL Biotafitte, Inc - 09/23/00 1 Process Science - - 625.00 1,835.51 09/29/99 1 Freezer Storage Flame - Sussman - Process - 138.62 - 1,818.88 09/30/99 1 Steam generator - Sussman - Process 218.84 - - 17.484.84 General Electric Refrigerator - University Electric company 10/06/99 1 - biological Sciences 30.00 99.83 - 1,309.83 10/11/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development 8.49 73.12 - 1,081.61 10/18/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development 6.42 82.75 1,224.17 11/05/99 1 Circulating Water Flow bath - VWR Scientific - 119.63 - 1,569.63 Pollyscience chiller model 6105 - VWR Scientific - New 11/09/99 1 Technology - 163.76 - 2,148.76 11/01/09 1 Economy Oven - VWR Scientific Products - Chemistry - 98.18 - 1,288.16 Microfuge R - Beckman Brand - VWR Scientific - Process 11/14/99 1 Development - 379.50 - 4,979.50 11/15/99 1 Water Bath - Fisher Scientific - Process - 146.25 - 1,918.85 GE Refrigerator - University Electric Company - Biological 11/27/99 1 Sciences 30.00 99.83 - 1,309.83 12/06/99 1 Evaporative Light Scattering Detector 160.15 1,150.88 - 15,261.03 12/06/99 1 Industrial Scale / Top loading - VWR Scientific - Process 24.32 80.57 - 1,081.39 --------------- subtotal Laboratory equipment 309,447.02 --------------- LEASEHOLD IMPROVEMENTS 1999 06/01/99 New facility build out - Scales construction - Science - - - 14,004.00 06/15/99 New facility build out - Scales construction - Process - - - 868.00 07/01/99 Architectual blueprints for New Fac. Buildout - Dowler Gruman Architect - Whole Co. - - - 15,972.50 07/01/99 Data Cable installation - RC Communication - Whole Co. - - 990.00 1,233.60 08/01/99 Electrical Install 32 Dedicated Circuits - Graham Electrical Contractors - Whole facility - - - 21,970.00 08/01/99 Construct Wood Platforms - Scales Construction - Whole Company - - - 2,105.00 09/01/99 Engineering for the 1000 litre fermentation suite - LEM Construction Inc. - Process - - - 18,213.00 10/01/99 Heat exchange system - Cal Air Inc. - whole company - - - 6,083.00 10/19/99 Install 21 data cables - R.C. Communications - Whole company - 116.10 2,655.00 4,178.40 10/27/99 Construction of new process development lab - Concrete shell structures - - 268,021.00 -------------- subtotal Leasehold improvements 352.648.50 ---------------
Description/Vendor Serial Number LABORATORY EQUIPMENT 1999 06/04/99 1 Gear drive variable speed mixer - Lightnin - process R9972800000501 06/07/99 1 Winchlift & Stand - Inaco - Process SRNC-PSW-BT 06/07/99 1 Centrifuge - Alfa Laval - Process SRNAC5229-3 06/10/99 1 Foxy 200 fraction collector - Isco, Inc. - Process SRN213032 06/23/99 1 Vacuubrand MZ2C - Vacuubrand - Process SRN21677710-99 06/30/99 1 IDG400-58 Probe- Nalorac - Chemistry SRN9906-5131 07/01/99 1 Biostat MD Triple - B.Braun biotech- Process SRN8842728Job1111 07/01/99 1 NMR Sample Changer & Gradiant Amplifier - Bruker - Process SRN AH104,BF8006 07/02/99 1 5L Glass fermentation vessel MD - 5 - B.Braun - Process SRN 3920425/1 07/06/99 1 New Shaft for 150L - B. Metal fabrication SRNFernshaft 07/14/99 Installation Consolidated Autoclave - Labworks Equip Svc. - Process SRN reference SR24C.061899 07/20/99 2 New Brunswick Series 25 Incubator Shakers - New Brunswick - New Technology SRN780603432 & 390132993 07/31/99 1 Hitachi HPLC System - Shaman -- Process SRN0818-033 08/02/99 1 Hand Nut Tool - Alfa Laval - Process SRNAC9306-2 08/06/99 1 SS 34 Rotor - Kendro Laboratories - Process & Biological Sciences SRN9912065 08/10/99 New Brunswick Shaker upper & lower bearings - Labworks Equipment - Process SRNFSR-1121 08/15/99 1 Eight position multicell transport - Hewlett Packard - SRNDE73300623 08/20/99 1 Consolidated Autoclave Model SR24C - Laboratory Equipment Company - Process SRN5500-97, SN 061899 08/20/99 1 Vacuum pump assembly on house vacuum system - Labworks Equipment - Process SRNF993 08/25/99 1 Vacuum Pump 1.8CFM - Fisher Scientific - Chemistry SRNFile # LR28889,MOD16030074 09/01/99 4 Piece baffles & (1) piece mixer to 150L fermentor - B. Metal Fabrication - Process SRN9914 09/03/99 1 Circ Refg Htg Digt 13L 115V (water bath) - Fisher - Lab support SRN13873113C 09/23/00 1 IHR 2106 Seal assembly kit for 150L - LSL Biotafitte, Inc - Process Science SRN1139.103.00 09/29/99 1 Freezer Storage Flame - Sussman - Process SRN83058958 09/30/99 1 Steam generator - Sussman - Process SRNISSB48F3 10/06/99 1 General Electric Refrigerator - University Electric company - biological Sciences SRNMV248386 10/11/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development SRN52200102 10/18/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development SRN341003058 11/05/99 1 Circulating Water Flow bath - VWR Scientific SRN13271-036 11/09/99 1 Pollyscience chiller model 6105 - VWR Scientific - New Technology SRN13271-256 11/01/09 1 Economy Oven - VWR Scientific Products - Chemistry SRN699081412 11/14/99 1 Microfuge R - Beckman Brand - VWR Scientific - Process Development SRNMRB99F12 11/15/99 1 Water Bath - Fisher Scientific - Process SRN115v60H 11/27/99 1 GE Refrigerator - University Electric Company - Biological Sciences SRNRV247820 12/06/99 1 Evaporative Light Scattering Detector SRN9908873A 12/06/99 1 Industrial Scale / Top loading - VWR Scientific - Process SRN11302-866 subtotal Laboratory equipment LEASEHOLD IMPROVEMENTS 1999 06/01/99 New facility build out - Scales construction - Science Leasehold improve SRN N/A 06/15/99 New facility build out - Scales construction - Process Leasehold improve SRN N/A 07/01/99 Architectual blueprints for New Fac. Buildout - Dowler Gruman Architect - Whole Co. Leasehold improve SRN N/A 07/01/99 Data Cable installation - RC Communication - Whole Co. Leasehold improve SRN N/A 08/01/99 Electrical Install 32 Dedicated Circuits - Graham Electrical Contractors - Whole facility Leasehold improve SRN N/A 08/01/99 Construct Wood Platforms - Scales Construction - Whole Company Leasehold improve SRN N/A 09/01/99 Engineering for the 1000 litre fermentation suite - LEM Construction Inc. - Process Leasehold improve SRN N/A 10/01/99 Heat exchange system - Cal Air Inc. - whole company Leasehold improve SRN N/A 10/19/99 Install 21 data cables - R.C. Communications - Whole company Leasehold improve SRN N/A 10/27/99 Construction of new process development lab - Concrete shell structures Leasehold improve SRN N/A subtotal Leasehold improvements
Description/Vendor Paid by check # LABORATORY EQUIPMENT 1999 06/04/99 1 Gear drive variable speed mixer - Lightnin - process 3001 06/07/99 1 Winchlift & Stand - Inaco - Process 3078 06/07/99 1 Centrifuge - Alfa Laval - Process 3038 06/10/99 1 Foxy 200 fraction collector - Isco, Inc. - Process 3081 06/23/99 1 Vacuubrand MZ2C - Vacuubrand - Process 3124 06/30/99 1 IDG400-58 Probe- Nalorac - Chemistry 3154 & 2373 07/01/99 1 Biostat MD Triple - B.Braun biotech- Process 3220 & 3567 07/01/99 1 NMR Sample Changer & Gradiant Amplifier - Bruker - Process 3218 & 3566 07/02/99 1 5L Glass fermentation vessel MD - 5 - B.Braun - Process 3135 07/06/99 1 New Shaft for 150L - B. Metal fabrication 3336 07/14/99 Installation Consolidated Autoclave - Labworks Equip Svc. - Process 3298 New Brunswick Series 25 Incubator Shakers - New Brunswick - New 07/20/99 2 Technology wire transfer 7/16/99 07/31/99 1 Hitachi HPLC System - Shaman -- Process 3200 08/02/99 1 Hand Nut Tool - Alfa Laval - Process 3396 08/06/99 1 SS 34 Rotor - Kendro Laboratories - Process & Biological Sciences 3417 New Brunswick Shaker upper & lower bearings - Labworks Equipment - 08/10/99 Process 3492 08/15/99 1 Eight position multicell transport - Hewlett Packard - 3480 Consolidated Autoclave Model SR24C - Laboratory Equipment Company - 08/20/99 1 Process 3491 Vacuum pump assembly on house vacuum system - Labworks Equipment - 08/20/99 1 Process 3582 08/25/99 1 Vacuum Pump 1.8CFM - Fisher Scientific - Chemistry 3578 Piece baffles & (1) piece mixer to 150L fermentor - B. Metal 09/01/99 4 Fabrication - Process 3646 09/03/99 1 Circ Refg Htg Digt 13L 115V (water bath) - Fisher - Lab support 3764 IHR 2106 Seal assembly kit for 150L - LSL Biotafitte, Inc - Process 09/23/00 1 Science 3780 09/29/99 1 Freezer Storage Flame - Sussman - Process 3764 09/30/99 1 Steam generator - Sussman - Process 3866 General Electric Refrigerator - University Electric company - 10/06/99 1 biological Sciences 4018 10/11/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development 3924 10/18/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development 3993 11/05/99 1 Circulating Water Flow bath - VWR Scientific 4173 11/09/99 1 Pollyscience chiller model 6105 - VWR Scientific - New Technology 4023 11/01/09 1 Economy Oven - VWR Scientific Products - Chemistry 4173 11/14/99 1 Microfuge R - Beckman Brand - VWR Scientific - Process Development 4222 11/15/99 1 Water Bath - Fisher Scientific - Process 4193 11/27/99 1 GE Refrigerator - University Electric Company - Biological Sciences 4221 12/06/99 1 Evaporative Light Scattering Detector 4073 12/06/99 1 Industrial Scale / Top loading - VWR Scientific - Process 4222 subtotal Laboratory equipment LEASEHOLD IMPROVEMENTS 1999 06/01/99 New facility build out - Scales construction - Science 3164 06/15/99 New facility build out - Scales construction - Process 3115 Architectual blueprints for New Fac. Buildout - Dowler Gruman 07/01/99 Architect - Whole Co. 3345 07/01/99 Data Cable installation - RC Communication - Whole Co. 3262 Electrical Install 32 Dedicated Circuits - Graham Electrical 08/01/99 Contractors - Whole facility 3475 08/01/99 Construct Wood Platforms - Scales Construction - Whole Company 3608 Engineering for the 1000 litre fermentation suite - LEM 09/01/99 Construction Inc. - Process 3540 10/01/99 Heat exchange system - Cal Air Inc. - whole company 3968 10/19/99 Install 21 data cables - R.C. Communications - Whole company 4009 Construction of new process development lab - Concrete shell 10/27/99 structures 3953 & 4213 subtotal Leasehold improvements
Description/Vendor Cleared / Bank Stmt date Check Date Soft Costs Laboratory equipment 1999 Gear drive variable speed mixer - Lightnin - 06/04/99 1 process 6/30/99 6/17/99 143.73 06/07/99 1 Winchlift & Stand - Inaco - Process 7/31/99 7/1/99 30.00 06/07/99 1 Centrifuge - Alfa Laval - Process 7/31/99 7/1/99 2,501.88 06/10/99 1 Foxy 200 fraction collector - Isco, Inc. - Process 7/31/99 7/1/99 313.09 06/23/99 1 Vacuubrand MZ2C - Vacuubrand - Process 7/31/99 7/1/99 26.57 06/30/99 1 IDG400-58 Probe- Nalorac - Chemistry 7/31/99 & 3/31/99 7/8/99 1,792.50 7/22/99 & 9/21/99 07/01/99 1 Biostat MD Triple - B.Braun biotech- Process 7/31/1999 & 9/30/99 628.55 NMR Sample Changer & Gradiant Amplifier - Bruker - 7/22/99 & 9/21/99 07/01/99 1 Process 8/31/99 & 9/30/99 6,127.68 5L Glass fermentation vessel MD - 5 - B.Braun - 07/02/99 1 Process 7/31/99 7/8/99 124.36 07/06/99 1 New Shaft for 150L - B. Metal fabrication 8/31/99 8/11/99 163.02 Installation Consolidated Autoclave - Labworks 07/14/99 Equip Svc. - Process 8/31/98 7/29/99 1,800.00 New Brunswick Series 25 Incubator Shakers - New 07/20/99 2 Brunswick - New Technology 7/31/99 726.00 07/31/99 1 Hitachi HPLC System - Shaman -- Process 7/31/99 7/15/99 - 08/02/99 1 Hand Nut Tool - Alfa Laval - Process 8/31/99 8/19/99 4.67 SS 34 Rotor - Kendro Laboratories - Process & 08/06/99 1 Biological Sciences 8/31/99 8/19/99 297.77 New Brunswick Shaker upper & lower bearings - 08/10/99 Labworks Equipment - Process 9/30/99 8/27/99 1,438.41 Eight position multicell transport - Hewlett 08/15/99 1 Packard - 9/30/99 8/27/99 14.00 Consolidated Autoclave Model SR24C - Laboratory 08/20/99 1 Equipment Company - Process 9/30/99 8/27/99 7,552.00 Vacuum pump assembly on house vacuum system - 08/20/99 1 Labworks Equipment - Process 9/30/99 9/21/99 1,466.50 08/25/99 1 Vacuum Pump 1.8CFM - Fisher Scientific - Chemistry 9/30/99 9/21/99 141.23 Piece baffles & (1) piece mixer to 150L fermentor 09/01/99 4 - B. Metal Fabrication - Process 10/31/99 9/24/99 84.98 Circ Refg Htg Digt 13L 115V (water bath) - Fisher 09/03/99 1 - Lab support 10/31/99 10/14/99 153.92 IHR 2106 Seal assembly kit for 150L - LSL 09/23/00 1 Biotafitte, Inc - Process Science 10/31/99 10/14/99 625.00 09/29/99 1 Freezer Storage Flame - Sussman - Process 10/31/99 10/14/99 138.62 09/30/99 1 Steam generator - Sussman - Process 11/30/99 10/22/99 218.84 General Electric Refrigerator - University 10/06/99 1 Electric company - biological Sciences 11/30/99 11/11/99 129.83 Dissolved Oxygen Probe - Metier Toledo - Process 10/11/99 1 Development 11/30/99 10/27/99 81.61 Dissolved Oxygen Probe - Metier Toledo - Process 10/18/99 1 Development 11/30/99 11/11/99 89.17 11/05/99 1 Circulating Water Flow bath - VWR Scientific Call Vendor 12/2/99 119.63 Pollyscience chiller model 6105 - VWR Scientific - 11/09/99 1 New Technology 11/30/99 11/11/99 163.76 11/01/09 1 Economy Oven - VWR Scientific Products - Chemistry Call Vendor 12/2/99 98,318.00 Microfuge R - Beckman Brand - VWR Scientific - 11/14/99 1 Process Development Call Vendor 11/11/99 379.50 11/15/99 1 Water Bath - Fisher Scientific - Process Call Vendor 12/2/99 146.25 GE Refrigerator - University Electric Company - 11/27/99 1 Biological Sciences Call Vendor 12/16/99 129.83 12/06/99 1 Evaporative Light Scattering Detector Call Vendor 12/2/99 1,311.03 Industrial Scale / Top loading - VWR Scientific - 12/06/99 1 Process Call Vendor 16-Dec 104.89 subtotal Laboratory equipment 29,257.00 Leasehold Improvements 1999 New facility build out - Scales construction - 06/01/99 Science 7/31/99 7/8/99 14,004.00 New facility build out - Scales construction - 06/15/99 Process 7/31/99 7/1/99 868.00 Architectual blueprints for New Fac. Buildout - 07/01/99 Dowler Gruman Architect - Whole Co. 8/31/99 8/11/99 1,597.50 Data Cable installation - RC Communication - Whole 07/01/99 Co. 8/31/99 7/22/99 1,233.60 Electrical Install 32 Dedicated Circuits - Graham 08/01/99 Electrical Contractors - Whole facility 9/30/99 Aug-99 21,970.00 Construct Wood Platforms - Scales Construction - 08/01/99 Whole Company 10/31/99 9/21/99 2,105.00 Engineering for the 1000 litre fermentation suite 09/01/99 - LEM Construction Inc. - Process 9/30/99 9/3/99 18,213.00 10/01/99 Heat exchange system - Cal Air Inc. - whole company 11/30/99 11/11/99 6,083.00 Install 21 data cables - R.C. Communications - 10/19/99 Whole company 11/30/99 11/11/99 4,178.40 Construction of new process development lab - 1/30/99 & Call Vendor on 11/8/99 & 10/27/99 Concrete shell structures S180.5 12/16/99 253,021.00 subtotal Leasehold improvements 352,648.50 - --------------------------------------------------------------------------- TOTALS 390,805.52 - ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------- Description/Vendor Invoice # Invoice Date - ---------------------------------------------------------------------------------------------------------------------- QTY Computer Equipment 1999 05/18/99 1 ID-7000 Mod Kit - Hitachi - Process 22709 05/26/99 05/11/99 O2 Visual Workstation, 2700MHZ. - Tnpos. Inc - New Technologies 16197 06/21/99 06/10/99 1 Cisco Pix Firewall - Langtech - whole company 5332 & 5435 6/10/99 & 7/14/99 06/16/66 2 Superstack 1111 Dual Speed Hubs $ (1) Office Connect Hub - Macwarehouse - General PO2872590101 06/09/99 06/15/99 2 256 MB KITs SGI O2 - Advanced enterprise solutions - New Technologies 42696 06/18/99 07/01/99 1 Dell Dimension XPS T500MHz - DELL - General 246411672 06/14/99 07/01/99 1 IBM Monitor T550 - MacWarehouse - General PO2872590102 06/22/99 07/25/99 1 ACMA Pentium III 450 System - ACMA - Process 88-0168939 07/28/99 08/11/99 1 IMAC G3/333 SRN9312LFGV1 - MicroWarehouse - P13477290103 08/05/99 08/11/99 1 IMAC G3/333 SRN9312LFGSN - MicroWarehouse - P13477290104 08/05/99 08/20/99 1 Phaser 740 Plus Color Laser Printer - Redwood Imaging, Inc. - G&A 1773 08/23/99 09/01/99 1 NMR Sample Changer software - Bruker Chemistry 355372 08/25/99 09/16/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors - DELL - Process 2752 & 276752768 9/13/99 & 9/15/99 09/23/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors - DELL - Process 1965 & 279961973 9/24/99 & 9/24/99 10/20/99 1 IMAC - MacWarehouse - Biology P19686900002 10/07/99 10/24/99 1 Exper Software - Stat-Ease - Process Development 15744 10/19/99 11/01/99 1 Dell Dimension XPS T450MHz Pentium 3 Computer - DELL - G&A 292081270 10/25/99 12/06/99 1 Dell 455 Celeron GX 100/T base Computer -DELL - Process 302837026 11/29/99 subtotal Computer equipment Furniture and office equipment 1999 06/01/99 1 Kosan Sign - Sign Classics - General 995307 05/21/99 07/01/99 1 Office Desk with Right Flush - BRG - General 90000094 06/25/99 07/01/99 3 tables & 1 desk - OP Contract - Administration 25926 07/01/99 07/01/99 Cherry Desk (4) with Files and Bookcases - BRG - Administration 84589 05/28/99
Description/Vendor Price Shipping Sales Tax QTY Computer Equipment 1999 05/18/99 1 ID-7000 Mod Kit - Hitachi - Process - - 79.20 05/11/99 1 O2 Visual Workstation, 2700MHZ. - Tnpos. Inc - New Technologies 8,744.00 70.00 721.38 06/10/99 1 Cisco Pix Firewall - Langtech - whole company 11,610.25 50.00 656.97 06/16/66 2 Superstack 1111 Dual Speed Hubs $ (1) Office Connect Hub - Macwarehouse - General 1,383.00 22.66 - 06/15/99 2 256 MB KITs SGI O2 - Advanced enterprise solutions - New Technologies 999.00 21.36 82.42 07/01/99 1 Dell Dimension XPS T500MHz - DELL - General 1,930.00 - 156.35 07/01/99 1 IBM Monitor T550 - MacWarehouse - General 1,199.95 22.69 - 07/25/99 1 ACMA Pentium III 450 System - ACMA - Process 1,473.00 10.00 121.52 08/11/99 1 IMAC G3/333 SRN9312LFGV1 - MicroWarehouse - 1,199.00 52.09 - 08/11/99 1 IMAC G3/333 SRN9312LFGSN - MicroWarehouse - 1,199.00 64.96 - 08/20/99 1 Phaser 740 Plus Color Laser Printer - Redwood Imaging, Inc. - G&A 2,649.00 - 177.09 09/01/99 1 NMR Sample Changer software - Bruker Chemistry 1,300.00 29.75 107.25 09/16/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors - DELL - Process 2,787.90 194.58 246.09 09/23/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors - DELL - Process 2,787.90 194.58 246.09 10/20/99 1 IMAC - MacWarehouse - Biology 899.00 50.09 - 10/24/99 1 Exper Software - Stat-Ease - Process Development 995.00 15.00 82.09 11/01/99 1 Dell Dimension XPS T450MHz Pentium 3 Computer - DELL - G&A 1,419.00 80.00 123.69 12/06/99 1 Dell 455 Celeron GX 100/T base Computer -DELL - Process 1,137.00 90.00 101.23 subtotal Computer equipment Furniture and office equipment 1999 06/01/99 1 Kosan Sign - Sign Classics - General 1,198.00 - 93.89 07/01/99 1 Office Desk with Right Flush - BRG - General 976.56 150.00 92.94 07/01/99 3 tables & 1 desk - OP Contract - Administration 1,656.11 38.48 278.95 07/01/99 Cherry Desk (4) with Files and Bookcases - BRG - Administration 8,869.47 - 731.73
Description/Vendor Labor Total Serial Number QTY Computer Equipment 1999 05/18/99 1 ID-7000 Mod Kit - Hitachi - Process 950.00 1,039.20 Installation - reference SN 100997 05/11/99 1 O2 Visual Workstation, 2700MHZ. - Tnpos. Inc - New Technologies - 9,535.38 W12-270S-9G128 06/10/99 1 Cisco Pix Firewall - Langtech - whole company - 12,317.22 Software/firewall - No serial 06/16/66 2 Superstack 1111 Dual Speed Hubs $ (1) Office Connect Hub - number Macwarehouse - General - 1,405.66 DEH3480,3562.3955 06/15/99 2 256 MB KITs SGI O2 - Advanced enterprise solutions - New Technologies - 1,102.78 DRG02/256 07/01/99 1 Dell Dimension XPS T500MHz - DELL - General - 2,086.35 220/1394 07/01/99 1 IBM Monitor T550 - MacWarehouse - General - 1,222.64 1S9513DW05508007 07/25/99 1 ACMA Pentium III 450 System - ACMA - Process - 1,604.52 907206639, B12921A03543 08/11/99 1 IMAC G3/333 SRN9312LFGV1 - MicroWarehouse - - 1,251.09 SRN9312LFGV1 08/11/99 1 IMAC G3/333 SRN9312LFGSN - MicroWarehouse - - 1,263.96 SSG9310HFGSN 08/20/99 1 Phaser 740 Plus Color Laser Printer - Redwood Imaging, Inc. - G&A - 2,826.09 SRN740P 09/01/99 1 NMR Sample Changer software - Bruker Chemistry - 1,437.00 SRNH9397 09/16/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors - DELL - Process - 3,228.57 SRN220-1393, SRN26911-00 09/23/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors - DELL - Process - 3,228.57 SRN310-0050,SRNJC-1581VMW 10/20/99 1 IMAC - MacWarehouse - Biology - 951.09 SSG9395D0GSN 10/24/99 1 Exper Software - Stat-Ease - Process Development - 1,092.09 SRNW5XR3352 11/01/99 1 Dell Dimension XPS T450MHz Pentium 3 Computer - DELL - G&A - 1,622.69 SRN310-3180 12/06/99 1 Dell 455 Celeron GX 100/T base Computer -DELL - Process - 1,328.23 SRN220-3220 --------- subtotal Computer equipment 48,543.13 --------- Furniture and office equipment 1999 06/01/99 1 Kosan Sign - Sign Classics - General 378.00 1,669.89 SRN Kosan Bus. Sign 07/01/99 1 Office Desk with Right Flush - BRG - General - 1,219.50 SRNEN-M3672L-C 07/01/99 3 tables & 1 desk - OP Contract - Administration - 1,973.54 SRNHMI-DB25-.3048W.2230W.366 07/01/99 Cherry Desk (4) with Files and Bookcases - BRG - Administration - 9,601.20 SRN399535-539.39935-46 --------- 14,464.13 ---------
Paid by check Description/Vendor $\# Cleared / Bank Stmt date QTY Computer Equipment 1999 05/18/99 1 ID-7000 Mod Kit - Hitachi - Process 2995 6/30/99 05/11/99 1 O2 Visual Workstation, 2700MHZ. - Tnpos. Inc - New Technologies 3169 7/31/99 06/10/99 1 Cisco Pix Firewall - Langtech - whole company 3147 & 3357 7/31/99 & 8/31/99 06/16/66 2 Superstack 1111 Dual Speed Hubs $ (1) Office Connect Hub - Macwarehouse - General 3091 7/31/99 06/15/99 2 256 MB KITs SGI O2 - Advanced enterprise solutions - New Technologies 3035 7/31/99 07/01/99 1 Dell Dimension XPS T500MHz - DELL - General 3064 7/31/99 07/01/99 1 IBM Monitor T550 - MacWarehouse - General 3091 7/31/99 07/25/99 1 ACMA Pentium III 450 System - ACMA - Process 3394 8/31/99 08/11/99 1 IMAC G3/333 SRN9312LFGV1 - MicroWarehouse - 3496 9/30/99 08/11/99 1 IMAC G3/333 SRN9312LFGSN - MicroWarehouse - 3496 9/30/99 08/20/99 1 Phaser 740 Plus Color Laser Printer - Redwood Imaging, Inc. - G&A 3603 9/30/99 09/01/99 1 NMR Sample Changer software - Bruker Chemistry 3643 10/31/99 09/16/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors - DELL - Process 3759 10/31/99 09/23/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors - DELL - Process 3759 10/31/99 10/20/99 1 IMAC - MacWarehouse - Biology 3849 30-Nov 10/24/99 1 Exper Software - Stat-Ease - Process Development 4076 Call Vendor 11/01/99 1 Dell Dimension XPS T450MHz Pentium 3 Computer - DELL - G&A 4105 Call Vendor 12/06/99 1 Dell 455 Celeron GX 100/T base Computer -DELL - Process 4215 Call Vendor Furniture and office equipment 1999 06/01/99 1 Kosan Sign - Sign Classics - General 3119 7/31/99 07/01/99 1 Office Desk with Right Flush - BRG - General 3335 8/31/99 07/01/99 3 tables & 1 desk - OP Contract - Administration 3252 7/31/99 07/01/99 Cherry Desk (4) with Files and Bookcases - BRG - Administration 3335 8/31/99
Description/Vendor Check Date Sch Costs QTY Computer Equipment 1999 05/18/99 1 ID-7000 Mod Kit - Hitachi - Process 6/17/99 1,039.20 05/11/99 1 O2 Visual Workstation, 2700MHZ. - Tnpos. Inc - New Technologies 7/8/99 791.35 7/8/99 & 06/10/99 1 Cisco Pix Firewall - Langtech - whole company 8/11/99 706.97 06/16/66 2 Superstack 1111 Dual Speed Hubs $ (1) Office Connect Hub - Macwarehouse - General 7/1/99 22.65 06/15/99 2 256 MB KITs SGI O2 - Advanced enterprise solutions - New Technologies 7/1/99 103.75 07/01/99 1 Dell Dimension XPS T500MHz - DELL - General 7/1/99 155.35 07/01/99 1 IBM Monitor T550 - MacWarehouse - General 7/1/99 22.59 07/25/99 1 ACMA Pentium III 450 System - ACMA - Process 8/19/99 131.52 08/11/99 1 IMAC G3/333 SRN9312LFGV1 - MicroWarehouse - 8/27/99 52.09 08/11/99 1 IMAC G3/333 SRN9312LFGSN - MicroWarehouse - 8/27/99 64.95 08/20/99 1 Phaser 740 Plus Color Laser Printer - Redwood Imaging, Inc. - G&A 9/21/99 177.09 09/01/99 1 NMR Sample Changer software - Bruker Chemistry 2 1,437.00 09/16/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors - DELL - Process 10/14/99 440.67 09/23/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors - DELL - Process 10/14/99 440.67 10/20/99 1 IMAC - MacWarehouse - Biology 10/22/99 52.09 10/24/99 1 Exper Software - Stat-Ease - Process Development 11/11/99 1,092.09 11/01/99 1 Dell Dimension XPS T450MHz Pentium 3 Computer - DELL - G&A 12/2/99 203.59 12/06/99 1 Dell 455 Celeron GX 100/T base Computer -DELL - Process 12/16/99 191.23 7,126.13 Furniture and office equipment 1999 06/01/99 1 Kosan Sign - Sign Classics - General 471.89 07/01/99 1 Office Desk with Right Flush - BRG - General 242.94 07/01/99 3 tables & 1 desk - OP Contract - Administration 317.43 07/01/99 Cherry Desk (4) with Files and Bookcases - BRG - Administration 731.73 1,763.99
EX-10.19 21 EXHIBIT 10.19 EXHIBIT 10.19 EXHIBIT C-6 RESTATED PROMISSORY NOTE $275,000.00 San Francisco, CA December 23, 1998 FOR VALUE RECEIVED, Daniel V. Santi promises to pay to Kosan Biosciences Incorporated (the "Company"), or order, the principal sum of Two Hundred Seventy Five Thousand ($275,000.00), together with interest on the unpaid principal hereof from the date hereof at the rate of 4.47% percent per annum, compounded semiannually. Principal and interest shall be due and payable on December 23, 2001. Should the undersigned fail to make full payment of principal or interest for a period of 10 days or more after the due date thereof, the whole unpaid balance on this Note of principal and interest shall become immediately due at the option of the holder of this Note. Payments of principal and interest shall be made in lawful money of the United States of America. The undersigned may at any time prepay all or any portion of the principal or interest owing hereunder. This Note is subject to the terms of the Option, dated as of October 23, 1998. This Note is secured in part by a pledge of the Company's Common Stock under the terms of a Security Agreement of even date herewith and is subject to all the provisions thereof. The holder of this Note shall have full recourse against the undersigned, and shall not be required to proceed against the collateral securing this Note in the event of default. In the event the undersigned shall cease to be an employee or consultant of the Company for any reason, this Note shall, at the option of the Company, be accelerated, and the whole unpaid balance on this Note of principal and accrued interest shall be immediately due and payable. Should any action be instituted for the collection of this Note, the reasonable costs and attorneys' fees therein of the holder shall be paid by the undersigned. /s/ Daniel V. Santi ---------------------------- Signature Daniel V. Santi ---------------------------- Print Name EXHIBIT C-7 SECURITY AGREEMENT This Security Agreement is made as of DEC. 23, 1998 between Kosan Biosciences Incorporated ("Pledgee"), and Daniel V. Santi ("Pledgor"). RECITALS Pursuant to Pledgor's election to purchase Shares under the Option Agreement dated 10/1/98 (the "Option"), between Pledgor and Pledgee under Pledgee's 1996 Stock Option Plan, and Pledgor's election under the terms of the Option to pay for such shares with his promissory note (the "Note"), Pledgor has purchased 250,000 shares of Pledgee's Common Stock (the "Shares") at a price of $1.00 per share, for a total purchase price of $250,000.00. The Note and the obligations thereunder are as set forth in Exhibit C-6 to the Option. NOW, THEREFORE, it is agreed as follows: 1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration of the transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant to the California Commercial Code, hereby pledges all of such Shares (herein sometimes referred to as the "Collateral") represented by certificate number , duly endorsed in blank or with executed stock powers, and herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who shall hold said certificate subject to the terms and conditions of this Security Agreement. The pledged stock (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Security Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Option, and the Pledgeholder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter into this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: a. PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum of the Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. b. ENCUMBRANCES. The Shares are free of all other encumbrances, defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. c. MARGIN REGULATIONS. In the event that Pledgee's Common Stock is now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. VOTING RIGHTS. During the term of this pledge and so long as all payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. STOCK ADJUSTMENTS. In the event that during the term of the pledge any stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by the Pledgee under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. OPTIONS AND RIGHTS. In the event that, during the term of this pledge, subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged. 6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of this Security Agreement in the event: a. Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more; or b. Pledgor fails to perform any of the covenants set forth in the Option or contained in this Security Agreement for a period of 10 days after written notice thereof from Pledgee. In the case of an event of Default, as set forth above, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code. 7. RELEASE OF COLLATERAL. Subject to any applicable contrary rules under Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not sell, withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 9. TERM. The within pledge of Shares shall continue until the payment of all indebtedness secured hereby, at which time the remaining pledged stock shall be promptly delivered to Pledgor, -2- subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. 10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross negligence, Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree that the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. GOVERNING LAW. This Security Agreement shall be interpreted and governed under the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" By: /s/ Daniel V. Santi ------------------------------------ Daniel V. Santi --------------------------------------- Print Name Address: 211 Belgrave Ave. ------------------------------ SF CA 94117 ------------------------------ "PLEDGEE" Kosan Biosciences Incorporated By: /s/ [ILLEGIBLE] ------------------------------------ Title: Chief Operating Officer ------------------------------ "PLEDGEHOLDER" /s/ [ILLEGIBLE] --------------------------------------- Stock Option Administrator of Kosan Biosciences Incorporated -3- EX-10.21 22 EXHIBIT 10.21 EXHIBIT 10.21 EXHIBIT C-6 PROMISSORY NOTE $74,250 San Francisco, CA FEB 21, 2000 FOR VALUE RECEIVED, MICHAEL S. OSTRACH promises to pay to Kosan Biosciences Incorporated (the "Company"), or order, the principal sum of SEVENTY-FOUR THOUSAND TWO HUNDRED FIFTY ($74,250 ), together with interest on the unpaid principal hereof from the date hereof at the rate of SIX AND 46/100 percent (6.46%) per annum, compounded semiannually. Principal and interest shall be due and payable on FEB 21, 2003. Should the undersigned fail to make full payment of principal or interest for a period of 10 days or more after the due date thereof, the whole unpaid balance on this Note of principal and interest shall become immediately due at the option of the holder of this Note. Payments of principal and interest shall be made in lawful money of the United States of America. The undersigned may at any time prepay all or any portion of the principal or interest owing hereunder. This Note is subject to the terms of the Option, dated as of JAN. 20, 1998 & OCT 23, 1998. This Note is secured in part by a pledge of the Company's Common Stock under the terms of a Security Agreement of even date herewith and is subject to all the provisions thereof. The holder of this Note shall have full recourse against the undersigned, and shall not be required to proceed against the collateral securing this Note in the event of default. In the event the undersigned shall cease to be an employee or consultant of the Company for any reason, this Note shall, at the option of the Company, be accelerated, and the whole unpaid balance on this Note of principal and accrued interest shall be immediately due and payable. Should any action be instituted for the collection of this Note, the reasonable costs and attorneys' fees therein of the holder shall be paid by the undersigned. /s/ Michael Ostrach ---------------------------------- Signature Michael Ostrach ---------------------------------- Print Name EXHIBIT C-7 SECURITY AGREEMENT This Security Agreement is made as of FEB 21, 2000 between Kosan Biosciences Incorporated ("Pledgee"), and MICHAEL S. OSTRACH ("Pledgor"). RECITALS Pursuant to Pledgor's election to purchase Shares under the Option Agreement dated JAN. 20, 1998 & OCT. 23, 1998, (the "Option"), between Pledgor and Pledgee under Pledgee's 1996 Stock Option Plan, and Pledgor's election under the terms of the Option to pay for such shares with his promissory note (the "Note"), Pledgor has purchased 110,000 shares of Pledgee's Common Stock (the "Shares") at a price of $0.45 & 1.00 per share, for a total purchase price of $74,250 . The Note and the obligations thereunder are as set forth in Exhibit C-6 to the Option. NOW, THEREFORE, it is agreed as follows: 1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration of the transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant to the California Commercial Code, hereby pledges all of such Shares (herein sometimes referred to as the "Collateral") represented by certificate number____, duly endorsed in blank or with executed stock powers, and herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who shall hold said certificate subject to the terms and conditions of this Security Agreement. The pledged stock (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Security Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Option, and the Pledgeholder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter into this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: a. PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum of the Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. b. ENCUMBRANCES. The Shares are free of all other encumbrances, defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. c. MARGIN REGULATIONS. In the event that Pledgee's Common Stock is now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. VOTING RIGHTS. During the term of this pledge and so long as all payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. STOCK ADJUSTMENTS. In the event that during the term of the pledge any stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by the Pledgee under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. OPTIONS AND RIGHTS. In the event that, during the term of this pledge, subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged. 6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of this Security Agreement in the event: a. Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more; or b. Pledgor fails to perform any of the covenants set forth in the Option or contained in this Security Agreement for a period of 10 days after written notice thereof from Pledgee. In the case of an event of Default, as set forth above, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code. 7. RELEASE OF COLLATERAL. Subject to any applicable contrary rules under Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not sell, withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 9. TERM. The within pledge of Shares shall continue until the payment of all indebtedness secured hereby, at which time the remaining pledged stock shall be promptly delivered to Pledgor, -2- subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. 10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross negligence, Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree that the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. GOVERNING LAW. This Security Agreement shall be interpreted and governed under the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" By: /s/ Michael Ostrach ------------------------------------------ M OSTRACH --------------------------------------------- Print Name Address: 15 Honeywood Rd ------------------------------------- Orinda, CA 94567 ------------------------------------- "PLEDGEE" Kosan Biosciences Incorporated By: /s/ Kevin Kaster ------------------------------------------ Title: VICE PRESIDENT --------------------------------------- "PLEDGEHOLDER" /s/ Kevin Kaster --------------------------------------------- Stock Option Administrator of Kosan Biosciences Incorporated -3- EX-10.22 23 EXHIBIT 10.22 EXHIBIT 10.22 EXHIBIT C-6 PROMISSORY NOTE $ 50,000.00 San Francisco, CA FEBRUARY 21, 2000 FOR VALUE RECEIVED, SUSAN KANAYA promises to pay to Kosan Biosciences Incorporated (the "Company"), or order, the principal sum of FIFTY THOUSAND DOLLARS ($50,000.00/XX), together with interest on the unpaid principal hereof from the date hereof at the rate of SIX AND FORTY SIX ONE HUNDREDTHS percent (6.46%) per annum, compounded semiannually. Principal and interest shall be due and payable on FEBRUARY 21, 2003. Should the undersigned fail to make full payment of principal or interest for a period of 10 days or more after the due date thereof, the whole unpaid balance on this Note of principal and interest shall become immediately due at the option of the holder of this Note. Payments of principal and interest shall be made in lawful money of the United States of America. The undersigned may at any time prepay all or any portion of the principal or interest owing hereunder. This Note is subject to the terms of the Option, dated as of NOVEMBER 4, 1999. This Note is secured in part by a pledge of the Company's Common Stock under the terms of a Security Agreement of even date herewith and is subject to all the provisions thereof. The holder of this Note shall have full recourse against the undersigned, and shall not be required to proceed against the collateral securing this Note in the event of default. In the event the undersigned shall cease to be an employee or consultant of the Company for any reason, this Note shall, at the option of the Company, be accelerated, and the whole unpaid balance on this Note of principal and accrued interest shall be immediately due and payable. Should any action be instituted for the collection of this Note, the reasonable costs and attorneys' fees therein of the holder shall be paid by the undersigned. /s/ Susan Kanaya ------------------------------------------- Signature SUSAN M. KANAYA ------------------------------------------- Print Name EXHIBIT C-7 SECURITY AGREEMENT This Security Agreement is made as of FEBRUARY 21, 2000 between Kosan Biosciences Incorporated ("Pledgee"), and SUSAN M. KANAYA ("Pledgor"). RECITALS Pursuant to Pledgor's election to purchase Shares under the Option Agreement dated NOV. 04, 1999 (the "Option"), between Pledgor and Pledgee under Pledgee's 1996 Stock Option Plan, and Pledgor's election under the terms of the Option to pay for such shares with his promissory note (the "Note"), Pledgor has purchased 50,000 shares of Pledgee's Common Stock (the "Shares") at a price of $1.00 per share, for a total purchase price of $50,000.00. The Note and the obligations thereunder are as set forth in Exhibit C-6 to the Option. NOW, THEREFORE, it is agreed as follows: 1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration of the transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant to the California Commercial Code, hereby pledges all of such Shares (herein sometimes referred to as the "Collateral") represented by certificate number_______, duly endorsed in blank or with executed stock powers, and herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who shall hold said certificate subject to the terms and conditions of this Security Agreement. The pledged stock (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Security Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Option, and the Pledgeholder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter into this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: a. PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum of the Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. b. ENCUMBRANCES. The Shares are free of all other encumbrances, defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. c. MARGIN REGULATIONS. In the event that Pledgee's Common Stock is now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. VOTING RIGHTS. During the term of this pledge and so long as all payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. STOCK ADJUSTMENTS. In the event that during the term of the pledge any stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by the Pledgee under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. OPTIONS AND RIGHTS. In the event that, during the term of this pledge, subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged. 6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of this Security Agreement in the event: a. Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more; or b. Pledgor fails to perform any of the covenants set forth in the Option or contained in this Security Agreement for a period of 10 days after written notice thereof from Pledgee. In the case of an event of Default, as set forth above, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code. 7. RELEASE OF COLLATERAL. Subject to any applicable contrary rules under Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not sell, withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 9. TERM. The within pledge of Shares shall continue until the payment of all indebtedness secured hereby, at which time the remaining pledged stock shall be promptly delivered to Pledgor, -2- subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. 10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross negligence, Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree that the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. GOVERNING LAW. This Security Agreement shall be interpreted and governed under the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" By: /s/ Susan Kanaya --------------------------------------- SUSAN M. KANAYA ------------------------------------------ Print Name Address: 1421 WOODBERRY AVE. SAN MATEO, CA 94403 "PLEDGEE" Kosan Biosciences Incorporated By: /s/ Kevin Kaster --------------------------------------- Title: VICE PRESIDENT ------------------------------------ "PLEDGEHOLDER" /s/ Kevin Kaster ------------------------------------------ Stock Option Administrator of Kosan Biosciences Incorporated -3- EX-10.23 24 EXHIBIT 10.23 EXHIBIT 10.23 EXHIBIT C-6 PROMISSORY NOTE $72,500 San Francisco, CA - --------- FEB 21, 2000 FOR VALUE RECEIVED, KEVIN KASTER promises to pay to Kosan Biosciences. Incorporated (the "Company"), or order, the principal sum of SEVENTY TWO THOUSAND FIVE HUNDRED ($72,500), together with interest on the unpaid principal hereof from (the date hereof at the rate of SIX AND 40/100 percent (6.46%) per annum, compounded semiannually. Principal and interest shall be due and payable on FEB 21, 2003. Should the undersigned fail to make full payment of principal or interest for a period of 10 days or more after the due date thereof, the whole unpaid balance on this Note of principal and interest shall become immediately due at the option of the holder of this Note. Payments of principal and interest shall be made in lawful money of the United States of America. The undersigned may at any time prepay all or any portion of the principal or interest owing hereunder. This Note is subject to the terms of the Option, dated as of AUG 7, 1998 & AUG 7, 1999. This Note is secured in part by a pledge of the Company's Common Stock under the terms of a Security Agreement of even date herewith and is subject to all the provisions thereof. The holder of this Note shall have full recourse against the undersigned, and shall not be required to proceed against the collateral securing this Note in the event of default. In the event the undersigned shall cease to be an employee or consultant of the Company for any reason, this Note shall, at the option of the Company, be accelerated, and the whole unpaid balance on this Note of principal and accrued interest shall be immediately due and payable. Should any action be instituted for the collection of this Note, the reasonable costs and attorneys' fees therein of the holder shall be paid by the undersigned. /s/ Kevin Kaster -------------------------------------------- Signature Kevin Kaster -------------------------------------------- Print Name EXHIBIT C-7 SECURITY AGREEMENT This Security Agreement is made as of FEB. 21, 2000 between Kosan Biosciences Incorporated ("Pledgee"), and KEVIN R. KASTER ("Pledgor"). RECITALS Pursuant to Pledgor's election to purchase Shares under the Option Agreement dated AUG 7, 1998 & AUG 7, 1999 (the "Option"), between Pledgor and Pledgee under Pledgee's 1996 Stock Option Plan, and Pledgor's election under the terms of the Option to pay for such shares with his promissory note (the "Note"), Pledgor has purchased 72,500 shares of Pledgee's Common Stock (the "Shares") at a price of $ONE per share, for a total purchase price of $72,500. The Note and the obligations thereunder are as set forth in Exhibit C-6 to the Option. NOW, THEREFORE, it is agreed as follows: 1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration of the transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant to the California Commercial Code, hereby pledges all of such Shares (herein sometimes referred to as the "Collateral") represented by certificate number _______, duly endorsed in blank or with executed stock powers, and herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who shall hold said certificate subject to the terms and conditions of this Security Agreement. The pledged stock (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Security Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Option, and the Pledgeholder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter into this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: a. PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum of the Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. b. ENCUMBRANCES. The Shares are free of all other encumbrances, defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. c. MARGIN REGULATIONS. In the event that Pledgee's Common Stock is now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. VOTING RIGHTS. During the term of this pledge and so long as all payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. STOCK ADJUSTMENTS. In the event that during the term of the pledge any stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by the Pledgee under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. OPTIONS AND RIGHTS. In the event that, during the term of this pledge, subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged. 6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of this Security Agreement in the event: a. Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more; or b. Pledgor fails to perform any of the covenants set forth in the Option or contained in this Security Agreement for a period of 10 days after written notice thereof from Pledgee. In the case of an event of Default, as set forth above, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code. 7. RELEASE OF COLLATERAL. Subject to any applicable contrary rules under Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not sell, withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 9. TERM. The within pledge of Shares shall continue until the payment of all indebtedness secured hereby, at which time the remaining pledged stock shall be promptly delivered to Pledgor, -2- subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. 10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross negligence, Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree that the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. GOVERNING LAW. This Security Agreement shall be interpreted and governed under the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" By: /s/ Kevin R. Kaster ----------------------------------- KEVIN R. KASTER -------------------------------------- Print Name Address: 199 PORT ROYAL AVE ------------------------------ FOSTER CITY, CA 94404 ------------------------------ "PLEDGEE" Kosan Biosciences Incorporated By: /s/ [ILLEGIBLE] ----------------------------------- Title: COO & VP -------------------------------- "PLEDGEHOLDER" /s/ Kevin Kaster -------------------------------------- Stock Option Administrator of Kosan Biosciences Incorporated -3- EX-10.24 25 EXHIBIT 10.24 EXHIBIT 10.24 KOSAN BIOSCIENCES, INC. EMPLOYMENT AGREEMENT This Agreement is entered into by and between Kosan Biosciences, Inc., a California corporation (the "Company"), and Daniel V. Santi ("Executive"), as of November 1, 1998. WHEREAS, Executive is currently employed as a professor with the University of California at San Francisco ("UCSF") and works as a consultant for the Company pursuant to the terms of the Amended and Restated Consulting Agreement by and between Executive and the Company, dated March 29, 1996 (the Consulting Agreement ); WHEREAS, Executive shall take a leave of absence from UCSF to become an employee of the Company; WHEREAS, as of the date Executive receives a leave of absence from UCSF, the Company desires to employ the Executive as the Chief Executive Officer and President of the Company, reporting to the Board of Directors of the Company (the "Board"); WHEREAS, the parties desire and agree to enter into an employment relationship by means of this Agreement; and NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is mutually covenanted and agreed by and among the parties as follows: 1. DUTIES AND SCOPE OF EMPLOYMENT. (a) POSITION: EMPLOYMENT COMMENCEMENT DATE. As of the date Executive receives a leave of absence from UCSF that, at a minimum, exceeds nine (9) months ("Leave of Absence"), the Executive shall be employed as the Chief Executive Officer and President of the Company reporting to the Board ("Commencement Date"). (b) OBLIGATIONS. Executive shall devote his full business efforts and time to the Company. As Chief Executive Officer and President of the Company, Executive shall have the duties and responsibilities customarily associated with such positions, including senior management powers and responsibilities for the Company's business and affairs. During the term of this Agreement, Executive agrees not to actively engage in any other employment, occupation or consulting activity for any direct or indirect remuneration that creates an actual or potential conflict of interest with the Company without the prior approval of the Board; provided, however, that Executive may engage in activities that do not materially interfere with his duties and obligations under this Agreement or create an actual or potential conflict of interest with the Company for up to four hours per week. Executive shall report the nature and extent of such activities, if any, to the Board every six months. -1- 2. AT-WILL EMPLOYMENT. Executive and the Company understand and acknowledge that Executive's employment with the Company constitutes "at-will" employment. Executive and the Company acknowledge that this employment relationship may be terminated at any time, with or without good cause or for any or no cause, at the option either of the Company or Executive. 3. COMPENSATION, FRINGE BENEFITS AND STOCK OPTIONS. (a) BASE SALARY. While employed by the Company pursuant to this Agreement, the Company shall pay the Executive as compensation for his services a base salary at the annualized rate of $250,000 (the "Base Salary"). Such salary shall be paid periodically in accordance with normal Company payroll practices and subject to the usual, required withholding. Executive's Base Salary shall be adjusted annually by a percentage equal to the percent change set forth in the U.S. Department of Labor and Bureau of Labor Statistics' Consumer Price Index for U.S. Cities. Executive understands and agrees that neither his job performance nor promotions, commendations, bonuses or the like from the Company give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of this Agreement. (b) DISCRETIONARY BONUS. The performance of Executive and the Company may be reviewed by the Board periodically, and, on that basis, the Board may, in its discretion, award the Executive a bonus. Any such bonus shall be subject to applicable withholding. (c) EXECUTIVE BENEFITS. During his employment hereunder, Executive shall be eligible to participate in the employee benefit plans currently and hereafter maintained by the Company of general applicability to other key executives of the Company, including, without limitation, group health, disability, and life insurance benefits and participation in any Company profit-sharing, retirement or pension plan, and vacation consistent with the vacation policies of the Company. (d) STOCK OPTION. As of the Commencement Date, Executive shall be granted a nonstatutory stock option which shall consist of 250,000 shares of the Company's then issued and outstanding shares of Common Stock at an exercise price equal to the fair market value of the Common Stock on the date of grant. Subject to the acceleration of vesting provisions in this Section 3 and Section 5 of this Agreement, the Option shall commence vesting on October 1, 1998, and shall vest and become exercisable as to 1/48th of the shares subject to the Option per month, so as to be fully vested on October 1, 2002, subject to Executive continuing to render services to the Company as President and Chief Executive Officer. The Option shall be in all respects subject to the terms, definitions and provisions of the Company's 1996 Stock Option Plan (the "Option Plan") and the stock option agreement by and between Executive and the Company (the "Option Agreement"), all of which documents are incorporated herein by reference. Notwithstanding the above, Executive shall fully vest in and have the right to exercise the Option as to all of the shares subject to the Option, including shares as to which it would not otherwise be vested or exercisable, in the event that (i) the Company enters into a merger or other reorganization (as defined in Section 181 of the California Corporations Code) with or into another -2- corporation or entity (except where California Corporations Code Section 1201(b) does not require the approval of the outstanding shares of the Company with respect to such merger or other reorganization), (ii) the Company sells all or substantially all of its assets, (iii) a person or entity makes a tender or exchange offer for and acquires 50% or more of the issued and outstanding voting securities of the Company, or (iv) any person within the meaning of Section 3(a)(9) or Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires more than 50% of the Company's issued and outstanding voting securities of the Company. 4. EXPENSES. The Company will pay or reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in the furtherance of or in connection with the performance of Executive's duties hereunder in accordance with the Company's established policies. 5. CANCELLATION OF CONSULTING AGREEMENT. Upon the Commencement Date, Executive and Company agree to cancel and forego their rights, if any, under the Consulting Agreement. 6. SEVERANCE BENEFITS. (a) TERMINATION WITHOUT CAUSE DURING LEAVE OF ABSENCE. If Executive's employment with the Company terminates other than voluntarily by the Executive or for "Cause" (as defined herein) at any time during Executive's Leave of Absence, then (i) Executive shall become a consultant of the Company and enter into an agreement with the Company containing the terms of the Consulting Agreement; provided, however, that Executive's compensation level shall equal that of Dr. Khosla, (ii) vesting of the Option will immediately cease and Executive shall have the right to exercise any vested portion of the Option for three (3) months following such termination, and (iii) Executive shall only be eligible for severance benefits in accordance with the Company's established policies as then in effect. (b) VOLUNTARY TERMINATION DURING LEAVE OF ABSENCE. If Executive's employment with the Company terminates voluntarily by the Executive at any time during Executive's Leave of Absence, then (i) Executive shall become a consultant of the Company and enter into an agreement with the Company containing the terms of the Consulting Agreement; provided, however, that Executive's compensation level shall equal that of Dr. Khosla, (ii) the vesting of the Option will immediately cease and Executive shall have thirty (30) days to exercise vested shares, if any, subject to the Option, and (iii) Executive shall only be eligible for severance benefits in accordance with the Company's established policies as then in effect. (c) TERMINATION WITHOUT CAUSE AFTER LEAVE OF ABSENCE. If Executive's employment with the Company terminates other than voluntarily by the Executive or for "Cause" (as defined herein) at any time after Executive's Leave of Absence, then (i) Executive shall be entitled to receive a lump sum severance payment (less applicable withholding taxes) in an amount equal to eighteen (18) months of his Base Salary, as then in effect; and (ii) an additional eighteen (18) months of the shares subject to the Option shall vest as of the date of such termination and Executive have the right to exercise, for three (3) months following termination, the vested and exercisable shares subject to the Option. -3- (d) VOLUNTARY TERMINATION AFTER LEAVE OF ABSENCE. If Executive's employment with the Company terminates voluntarily by Executive at any time after the Leave of Absence, then Executive shall only be eligible for severance benefits in accordance with the Company's established policies as then in effect. (e) TERMINATION FOR CAUSE. If Executive's employment with the Company terminates for "Cause" (as defined herein) by the Company, then Executive shall only be eligible for severance benefits in accordance with the Company's established policies as then in effect. For this purpose, "Cause" is defined as (i) an act of dishonesty made by Executive in connection with Executive's responsibilities as an employee, (ii) Executive's conviction of, or plea of NOLO CONTENDERE to, a felony, (iii) Executive's gross misconduct, or (iv) Executive's failure to perform his employment duties. 7. ENFORCEMENT. In the event of any action to enforce the terms of this Agreement, the prevailing party in such action shall be entitled to such party's reasonable costs and expenses of enforcement including, without limitation, reasonable attorneys' fees. 8. ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive's death and (b) any successor of the Company. Any such successor of the Company shall be deemed substituted for the Company under the terms of this Agreement for all purposes. As used herein, "successor" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Executive following termination without cause. Any attempted assignment, transfer, conveyance or other disposition (other than as aforesaid) Of any interest in the rights of Executive to receive any form of compensation hereunder shall be null and void. 9. NOTICES. All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given if delivered personally, one (1) day after mailing via Federal Express overnight or a similar overnight delivery service, or three (3) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors in interest at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: If to the Company: Kosan Biosciences, Inc. 1450 Rollins Road Burlingame, CA 94010 If to Executive: Daniel V. Santi at the last residential address known by the Company. -4- 10. SEVERABILITY. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 11. ENTIRE AGREEMENT. This Agreement, the Option Agreement and the Confidential Information and Invention Assignment Agreement dated November 1, 1998 represent the entire agreement and understanding between the Company and Executive concerning Executive's employment relationship with the Company, and supersede and replace any and all prior agreements and understandings concerning Executive's employment relationship with the Company. 12. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement may only be amended, canceled or discharged in writing signed by Executive and the Company. 13. GOVERNING LAW. This Agreement shall be governed by the internal substantive laws, but not the choice of law rules, of the State of California. 14. EFFECTIVE DATE. This Agreement is effective immediately after it has been signed. 15. ACKNOWLEDGMENT. Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the respective dates set forth below KOSAN BIOSCIENCES, INC. By: /s/ MICHAEL S. OSTRACH ------------------------------------------- Name: MICHAEL S. OSTRACH Title: VP AND COO ---------------------------------------- DANIEL V. SANTI /s/ DANIEL V. SANTI ---------------------------------------------- Signature -5- EX-10.25 26 EXHIBIT 10.25 EXHIBIT 10.25 KOSAN BIOSCIENCES, INC. 1450 ROLLINS RD. BURLINGAME, CA 94010 (650) 343 8673 - -------------------------------------------------------------------------------- July 20, 1998 Kevin R. Kaster 199 Port Royal Avenue Foster City, CA 94404 Dear Kevin: On behalf of Kosan Biosciences, Inc., I am pleased to offer you the position of Vice President, Intellectual Property, reporting to me. Your primary responsibilities will involve directing and implementing Kosan's intellectual property strategy. In this capacity we expect that you will (i) assume responsibility for building and managing a patent portfolio to protect our technology and compounds, (ii) implement and manage policies and procedures to identify and protect inventions and trade secrets, (iii) develop patent and licensing strategies for each of our programs, (iv) negotiate and manage compliance with agreements concerning Kosan's intellectual property and (v) develop and administer budgets and other controls to maximize the cost effectiveness of the intellectual property effort without compromising quality. Also, we welcome your efforts in other areas of management consistent with corporate objectives as your time, interests and talents permit. You will receive a monthly salary of $15,000, paid semi-monthly, less federal and state payroll withholding taxes. You will also be eligible to receive performance bonuses in amounts and frequencies at the sole discretion of the Board of Directors of Kosan. Within two months of your starting date, we will agree on performance objectives for the first year of your employment. In addition, you will be eligible for employee benefit programs provided by Kosan. Should you and your family not be eligible for health insurance benefits under the Kosan plan during your first three months of employment, Kosan would reimburse you for such expenses. I will recommend to the Board of Directors that you be granted an option to purchase 60,000 shares of stock. This option will vest over four years and is subject to the terms and conditions of the Company's 1997 Stock Option Plan; 25% will vest after the first anniversary, and the remainder will vest monthly over the next three years. The exercise price of the option will be the fair market value of the stock as determined by the Board of Directors at the first regular board meeting after you start work. I will also recommend to the Board that on each of your first and second anniversaries at Kosan, you be granted options to purchase an additional 12,500 shares of stock. These options will vest on the fourth anniversary of each grant. The exercise price of the options will be the fair market value of the stock at the time of the grant. If the Board approves a renewal option program for employees, you may at your discretion choose to become part of that plan in lieu of the first and second anniversary option grants. In addition to the standard vacation benefits Kosan offers, the following days will be considered paid vacation days: the days of August 17-21, inclusive, the Monday, Tuesday and Wednesday of Thanksgiving week, the days of December 21-24, inclusive and December 28, 1998. This offer does not constitute a guarantee of employment for any specific period of time, and either you or Kosan may terminate the employment relationship at any time, with or without cause, by written notice. However, in the event that Kosan terminates your employment without cause during the three and one-half year period after your start of employment, then Kosan will pay you an amount equal to six times your monthly base salary, and will accelerate the vesting of the lesser of (a) 12.5% (six months) of your original stock option grant and (b) the remainder of your original grant. As used in this letter agreement, "cause" shall mean (i) any breach of this agreement by you which is not cured within 30 days after notice of breach is provided to you by the Company, (ii) your conviction of a felony, or (iii) any action by you prior to or during your employment which in the reasonable judgment of Kosan constitutes dishonesty, larceny, fraud, deceit or gross negligence by you in the performance of your duties to Kosan, or willful misrepresentation to shareholders, directors or officers of Kosan. As a condition of your employment with Kosan, you will be required to sign the Company's Employee Confidentiality Agreement and Proprietary Information and Inventions Agreement, two originals of each, which are attached. Please sign both sets of originals and return one of each to me with your acceptance of this offer. For purposes of Federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. This offer is valid through July 22, 1998. As we discussed, your first day of employment will be August 7, and we are willing to have you work on a part-time basis for a short period of time in order to smooth your departure from your current position. Enclosed are two originals of this letter. Please sign and return one to me, to indicate your acceptance. I, the entire Kosan staff, and our directors are very enthusiastic about your joining the Kosan team. We believe that our relationship will be mutually rewarding at the business, professional, and personal levels. Together we hope to build a highly significant enterprise that will substantially improve the process of drug 2 discovery and development. Sincerely, /s/ Michael S. Ostrach Michael S. Ostrach Vice President, Corporate Development I accept employment with Kosan Biosciences, Inc. subject to the terms and conditions hereof. I understand that the terms set forth in this letter supersede all oral discussions I may have had with anyone in the Company. /s/ Kevin R. Kaster - --------------------------- Kevin R. Kaster Date: 21 July 1998 3 EX-10.26 27 EXHIBIT 10.26 EXHIBIT 10.26 [LETTERHEAD] October 11, 1999 By overnight and facsimile: 650-357-8355 Susan M. Kanaya 1421 Woodberry Avenue San Mateo, CA 94403 Dear Susan: On behalf of Kosan Biosciences, I am pleased to extend to you an offer for the position of Vice President, Finance and Chief Financial Officer, reporting to me. Your principal responsibilities will involve (1) directing and managing our financial functions, including accounting, audit, budgeting, financial reporting, financial analysis and planning, and risk and cash management, (2) implementation and maintenance of appropriate accounting, cash management and investment systems and policies, and an effective system of internal controls, (3) coordination of the company's financing strategy, and (4) participation in corporate partnering negotiations and preparation for a public offering, and (5) participation as a member of the senior management team. Also, we welcome your efforts in other areas of management consistent with corporate objectives as your time, interests and talents permit. The monthly salary for this position is $14,375. Payroll is distributed twice a month, on the 15th and last day of each month. We also offer an attractive benefits package, including life, medical, dental and disability insurance plans and a 401k plan. Your start date will be as soon as practicable, but in no event later than November 8, 1999. If you join us on or prior to that date, you will receive a signing bonus of $20,000, payable with your first paycheck. In addition, I am pleased to offer options to purchase 45,000 shares of Kosan Biosciences Common Stock under the Kosan Stock Option Plan. The options will vest over four years, with one-fourth of the options vesting after one year of employment and the remainder vesting in equal monthly increments over the remaining three years. You also would be granted an additional 5,000 options, which would vest fully on completion of one full year of employment with Kosan or upon termination of your employment other than for "cause" or upon your voluntary termination of employment for "good reason." The exercisability of all 50,000 options will accelerate to the effective date of a change of control of Kosan. These offers of options are subject to the approval of the Board of Directors and your execution of our standard Stock Option Agreement. The exercise price will be equal to the fair market value of the stock on the date the Board or the Compensation Committee approves the stock options. We plan to effectuate the grant by means of a Compensation Committee consent effective as of the first day of your employment. Kosan would loan to you $50,000 to replace your existing loan arrangement, on terms substantially similar to the terms of your current loan from your employer, provided that the interest rate will be the rate necessary to avoid imputed interest and the term for forgiveness will be three years from your start date. For the purposes of federal immigration law, you will be required to provide Kosan documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire. Kosan also requires that you sign an Employee Proprietary Information and Invention Assignment Agreement. Your employment with the Company is for no specified period and constitutes at will employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause, and with or without notice. However, in the event of the involuntary termination of your employment for other than for "cause" or your voluntary termination of employment for "good reason" during the two years following the start of your employment, you will receive (a) separation pay in the form of a continuation of your base salary, in regular payroll installments (less withholdings and deductions required by law) for a period of six months following the effective date of the termination of employment and (b) an additional six months of vesting on your original 45,000 share option grant. If such termination occurs following a change of control, the period of separation pay will be twelve months. You will be required to sign a general release in order to receive these payments. No separation pay or additional vesting will be provided in the event of a termination of employment for "cause" or if termination is due to death, disability, retirement or voluntary resignation other than for "good reason." As used in this letter agreement, "cause" shall mean (i) any breach of this agreement or your other obligations to the Company under the Employee Proprietary Information and Invention Assignment Agreement by you which is not cured within 30 days after notice of breach is provided to you by the Company, (ii) your conviction of a felony or crime involving moral turpitude, (iii) theft, dishonesty or willful misconduct or misrepresentation in connection with, or in the course of, your duties arid responsibilities, or (iv) gross insubordination or gross refusal to perform reasonable and lawful directives from your superiors, which you fail to correct within 30 day after written notice. "Good reason" shall mean that, without your consent, (i) your rate of annual base pay is materially reduced, (ii) there is a material diminution in your duties, or the assignment to you of duties that are materially inconsistent with your duties or that materially impair your ability to perform your duties, (iii) there is a material breach of this letter agreement by Kosan that is not remedied in a reasonable period of time after Kosan's receipt of written notice from you specifying such breach, (iv) failure of a successor to Kosan to assume Kosan's obligations under this letter agreement or (v) you are required to relocate your business location more than fifty miles from our current location. In the event of any dispute or claim relating to or arising out of our employment relationship, you and the Company agree that all such disputes shall be fully and finally resolved by binding arbitration conducted by the American Arbitation Association in San Francisco, California. However, this arbitration provision shall not apply to any disputes or claims relating to or arising out of the misuse or misappropriation of the Company's trade secrets or proprietary information. You agree that while you are an employee you will not engage in any activities that conflict with your obligations to the Company and that you will abide by company rules and regulations. To indicate your acceptance of our offer, please sign and date one copy of this letter in the space provided below and return it to me in the enclosed envelope at your earliest convenience. This letter, along with any agreements relating to proprietary rights or stock purchase between you and Kosan, set forth the terms of your employment with Kosan and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by Kosan and by you. We are very excited at the prospect of your joining Kosan Biosciences and becoming a key contributor to our efforts. Please do not hesitate to contact me if you have any questions. This offer will remain open until October 15, 1999 at which time it will expire if not previously accepted in writing. Sincerely, Kosan Biosciences, Inc. By: /s/ Michael S. Ostrach AGREED AND ACCEPTED: MSO /s/ Susan Kanaya ------------------------- ------------------- Michael S. Ostrach Susan M. Kanaya Chief Operating Officer Date: 10/13/99 EX-10.27 28 EXHIBIT 10.27 EMPLOYMENT AGREEMENT This Agreement, by and between Brian Metcalf, Ph.D. ("Employee") and Kosan Biosciences, Inc. (the "Company"), is made as of March 15, 2000. In consideration of the mutual covenants contained in this Agreement, and in consideration of the employment of Employee by the Company, the parties agree as follows: 1. Duties and Scope of Employment (a) Position. The Company agrees to employ Employee under the terms of this Agreement in the position of Senior Vice President and Chief Scientific Officer beginning on March __, 2000 (the "Start Date"). As Senior Vice President and Chief Scientific Officer, Employee shall manage technology development and drug discovery research, identify and develop new technology and product-oriented research programs, manage preclinical development of Company products, establish effective research infrastructure and administration, and have the other responsibilities typical of such position. Employee will be a member of the senior management group and research committee. Employee shall report to the Chief Executive Officer of the Company. (b) Obligations. Employee shall devote his efforts full time to the Company, and shall not engage in any outside activities that interfere or conflict with Employee's responsibilities to the Company or are inconsistent with the Company's policies. 2. Compensation (a) Salary. Beginning on the Start Date, Employee shall be paid a salary of $280,000 per year, payable semi-monthly in accordance with the Company's payroll policies and subject to standard payroll deductions and withholdings. (b) Bonus. Employee will receive a bonus of $100,000 payable after the first two weeks of employment. Employee will participate in any future incentive or bonus plan or program at a level commensurate with other senior executives. 3. Stock Option Employee will be granted a stock option, which shall be an incentive stock option to the maximum extent permitted by law, to purchase 100,000 shares of Common Stock of the Company at the fair market value of such shares on the Start Date. The shares subject to the option will vest over a four-year period as follows: 25% will vest after one year of employment and 1/48th of the total will vest each month of employment thereafter, except as otherwise provided in this Agreement. The option will be granted pursuant to the Company's 1996 Stock Option Plan and the Company's standard form of stock option agreement except as such standard form of agreement is modified by the terms of this agreement. The shares subject to the option shall become fully vested immediately prior to the consummation of a Change of Control. Page 1 of 6 March 15, 2000 4. Employee Benefits; Moving Costs; Housing Loan (a) Employee shall be entitled to the full benefits for which Employee is eligible under the employee benefit plans and executive compensation programs maintained by the Company, including medical, dental, disability and life insurance benefits. In addition, Employee will be entitled to accrue 20 vacation days per year, up to a total maximum of 30 days of accrued vacation in any calendar year. The Company will reimburse the Employee for the cost of medical insurance benefits generally provided to a spouse to the extent those costs are not otherwise paid by the Company under its benefit programs. (b) Employee shall be reimbursed for normal real estate commissions, closing costs and reasonable packing, shipping, storage, unpacking and insurance expenses in connection with selling his current residence and obtaining a permanent residence in the Bay Area. (c) Employee shall be reimbursed for up to six months of normal temporary housing costs in the Bay Area incurred by the Employee for himself and his immediate family. (d) Employee shall be reimbursed for normal travel and living expenses for two trips (including your spouse) to the Bay area for the purpose of purchasing a new principal residence. (e) Employee shall be entitled to a housing loan of up to $400,000 in connection with obtaining a permanent residence in the Bay Area. The loan will have a maximum term of five (5) years (with the due date for full repayment accelerated to the date of termination if Employee voluntary terminates his employment) at an annual interest rate of x.xx%, compounded annually, (or such higher interest rate as shall be necessary to avoid imputed income to Employee under all applicable sections of the Internal Revenue Code). The loan will be secured by a second mortgage on your primary residence. (f) Employee shall be entitled to a monthly mortgage assistance payment to support up to $400,000 of mortgage principal on a 30-year mortgage. Such payment shall be grossed up for tax purposes by paying Employee an additional 60% of the amount of the mortgage assistance payment to assist with the payment of tax liability for such mortgage assistance payment. Such grossed up payment shall start with the first month such payment is due and shall continue for twelve months at 100% of the payment, shall continue for the next twelve months at 80% of the payment, for the next twelve months at 60% of the payment, for the next twelve months at 40% of the payment and for the next twelve months at 20% of the payment, at which time such payments shall end. Such payments shall also end at the termination of Employee's employment at the Company. 5. Proprietary Information Agreement; U.S. Employment Eligibility Employee agrees to sign and comply with the Company's Proprietary Information and Inventions Agreement. Employee will provide to the Company documentary evidence of his identity and eligibility for employment in the United States within three (3) business days of the Start Date. Page 2 of 6 March 15, 2000 6. Employment at Will: Limitation of Remedies The Company and Employee acknowledge that Employee's employment is at will and can be terminated by either party at any time with or without cause. If Employee's employment terminates for any reason, Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement. This at-will relationship supersedes any previous written or oral statements by the parties and cannot be changed except in writing signed by Employee and duty authorized officer of the Company. 7. Term of Employment (a) Voluntary Termination by Employee. Employee may terminate his employment voluntarily giving the Company 30 days' advance notice in writing. No compensation or payments will be paid or provided following the date when such a termination is effective. In lieu of continuing to employ Employee through the date when such a termination is effective, the Company shall have the option to terminate Employee's employment immediately upon receipt of such notice, provided that the Company shall be obligated to continue to pay Employee his salary, benefits and vacation accruals through the date termination otherwise would have been effective had the Company not exercised such option. Termination by the Company pursuant to this Section 7(a) shall not be deemed to be termination without Cause. (b) Termination by the Company. The Company may terminate Employee's employment at any time, for any reason or for no reason. (i) Termination for Cause. If the Company terminates Employee's employment for Cause, no compensation or payments will be provided to Employee following the date when such a termination of employment is effective. Any remaining housing loan shall be repaid within six months of the termination date. (ii) Termination without Cause. If the Company terminates Employee's employment without Cause, the provisions of Section 8 and the Definitions of Section 10 shall apply. Any remaining housing loan shall be converted to a five-year note at prime plus 1.0%, compounded annually, and the first payment shall begin one year from the termination date. 8. Payment Upon Termination Without Cause If Employee's employment is terminated without Cause during the three-year period following the Start Date, Employee shall be entitled to receive the following: (a) Severance Payment. The Company shall continue to pay to Employee his then current salary for twelve months in monthly installments, and benefits, following the date when such a termination of employment is effective, provided that: (i) the Company's obligation to continue to pay such base salary shall cease as of the date Employee commences full-time employment with another business entity (and Employee agrees to provide notice of such employment within Page 3 of 6 March 15, 2000 three business days of accepting such an offer); and (ii) Employee executes a waiver and release of claims substantially in the form set forth in Exhibit A hereto. (b) Acceleration of Stock Vesting. If such termination without Cause shall occur after the twelve month anniversary of the Start Date, all of the shares that would become vested within six months of such date of termination under the terms of the option described in Section 3 will be deemed to have vested provided Employee executes a waiver and release of claims substantially in the form set forth in Exhibit A hereto. 9. Parachute Payment Anything in this Agreement to the contrary notwithstanding, if the aggregate of the amounts due Employee under this Agreement and any other plan, program, or arrangement of the Company or its Affiliates constitutes a "Parachute Payment" as such term is defined in Section 280G of the Internal Revenue Code of 1986 (the "Code"), and the amount of the Parachute Payment, reduced by all Federal, state and local taxes applicable to such payments which are considered to be contingent on a Change in Control, including the excise tax imposed pursuant to Section 4999 of the Code, is less than the amount Employee would receive, after taxes, if he were paid only a dollar amount equal to three times his Base Amount as defined in Section 280G(b)(3) of the Code less $1.00, then the payments made to Employee under this Agreement which are contingent on a Change of Control shall be reduced to an amount which, when added to the aggregate of all other payments to Employee which are contingent on a Change of Control, will make the total fair market value of such payments equal to three times his Base Amount less $1.00, all as determined under Section 280G of the Code. 10. Definitions As used in this Agreement, the following definitions shall apply (a) "Cause" shall mean the occurrence of any of the following: (i) any breach by Employee of this agreement or his obligations to the Company under the Employee Proprietary Information and Invention Assignment Agreement which is not cured within 30 days after notice of breach is provided to Employee by the Company, (ii) Employees's conviction of a felony or crime involving moral turpitude, (iii) any action by Employee prior to or during his employment which in the reasonable judgment of the Company constitutes dishonesty, larceny, fraud, deceit or gross negligence by Employee in the performance of his duties to the Company, or willful misconduct or misrepresentation in connection with, or in the course of, his duties and responsibilities, or (iv) Employee's gross insubordination or gross refusal to perform reasonable and lawful directives from his superiors, which is not corrected within 30 day after written notice. (b) "Change in Control" shall mean the occurrence of any of the following: (i) the Company enters into a reorganization (as defined in Section 181 of the California Corporations Code) with or into another corporation or entity (except where California Corporations Code Section 1201(b) does not require the approval of the outstanding shares of the Company with respect to such reorganization), (ii) the Company sells all or substantially all of its assets, (iii) a person or entity makes a tender or exchange offer for and acquires 50% or more of the issued and Page 4 of 6 March 15, 2000 outstanding voting securities of the Company, or (iv) any person, within the meaning of Section 3(a)(9) or Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires more than 50% of the issued and outstanding voting securities of the Company. 11. Other Agreements Employees represents and warrants the Employee's performance of his duties for the Company will not violate any agreements, obligations or understandings that he may have with any third party or prior employer. Employee agrees not to make any unauthorized disclosure or use, on behalf of the Company, of any confidential information belonging to any of Employee's former employers. Employee also represents that he is not in authorized possession of any materials containing a third party's confidential and proprietary information. During Employee's employment with the Company, Employee may make use of information general known and used by persons with training and experience comparable to Employee's own, and information which is common knowledge in the industry or is otherwise legally available in the public domain. 12. Arbitration In the event of any dispute or claim relating to or arising out of this Agreement, Employee and the Company agree that all such disputes shall be fully and finally resolved by binding arbitration conducted by the American Arbitation Association in San Francisco, California. However, this arbitration provision shall not apply to any disputes or claims relating to or arising out of the misuse or misappropriation of the Company's trade secrets or proprietary information. 13. Governing Law This Agreement shall be governed by the laws of the State of California as applied to agreements and entered into by California residents and to be performed entirely within the State of California. 14. Expiration of Offer This offer of employment expires at midnight on May 1, 2000. 15. Entire Agreement This Agreement constitutes the complete, final exclusive embodiment of the entire agreement between Employee and the Company with respect to the terms and conditions of Employee's employment. Employee represents and warrants that he is entering into this Agreement voluntarily, and without reliance upon any promise, warranty or representation, written or oral, other than those expressly contained herein. This Agreement supersedes any other such promises, warranties, Page 5 of 6 March 15, 2000 representations or agreements. This Agreement may not be amended or modified except by a written instrument signed by Employee and duly authorized officer of the Company. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. KOSAN BIOSCIENCES, INC. BY /s/ Daniel V. Santi ------------------------------------- Daniel V. Santi Chairman and Chief Executive Officer /s/ Brian Metcalf - --------------------------------------- Brian Metcalf Page 6 of 6 March 15, 2000 EMPLOYMENT AGREEMENT AND RELEASE EXHIBIT A Except as otherwise set forth in this Employee Agreement and Release (the "Agreement") and Section 9 of that certain Employment Agreement, dated as of March 15, 2000 between the undersigned and Kosan Biosciences, Inc. (the "Company"), I hereby release, acquit and forever discharge the company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, attorneys, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the execution date of this Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment; claims or demands related to salary, bonuses, commissions stock, stock options, or any other ownership interests in the company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law, statute, or cause of action including, but not limited to, the federal civil rights Act of 1964, as amended; the federal Americans with Disabilities ("ADEA"); the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; harassment; fraud; defamation; emotional distress; and breach of the implied covenants of good faith and fair dealing. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that; (a) my waiver and release do not apply to any rights or claims that may arise after the execution date of this Agreement; (b) I have been advised hereby that I have the right to consult with an attorney prior to executing this Agreement; (c) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (d) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement shall not be effective until the date upon which the revocation period had expired, which shall be the eighth day after this Agreement is executed by me. In giving this release, which includes claims which may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company. - ----------------------------- BRIAN METCALF Date: March 15, 2000 EX-23.2 29 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Data" and "Experts" and to the use of our report dated March 10, 2000, in the Registration Statement (Form S-1) and related Prospectus of Kosan Biosciences Incorporated for the registration of shares of its common stock. /s/ Ernst & Young LLP Palo Alto, California March 27, 2000 EX-27 30 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 JAN-31-1999 DEC-31-1999 1,032 990 498 0 0 2,845 3,580 993 14,157 2,095 1,591 0 3 2 10,466 14,157 0 5,346 0 0 10,400 0 196 (4,401) 0 (4,401) 0 0 0 (4,401) (2.93) (2.93)
-----END PRIVACY-ENHANCED MESSAGE-----