AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 2000
REGISTRATION NO. 333-45922
AMENDMENT NO. 1
TO
(Exact name of Registrant as specified in its charter)
DELAWARE 54171 84-1460811
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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Copies to
ALAN L. DYE CHARLES K. RUCK
CHRISTOPHER D. OZEROFF R. SCOTT SHEAN
HOGAN & HARTSON L.L.P. LATHAM & WATKINS
1800 BROADWAY, SUITE 200 650 TOWN CENTER DRIVE, 20TH FLOOR
BOULDER, CO 80302 COSTA MESA, CA 92626
(720) 406-5300 (714) 540-1235
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE(2)
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Common Stock, $.001 par value............. $75,900,000 $20,038
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(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.
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 THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY.
Subject to completion, dated October 27, 2000
PROSPECTUS
6,000,000 Shares
[Array BioPharma Logo]
Common Stock
This is our initial public offering of shares of common stock. We are offering 6,000,000 shares.
We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol "ARRY." We expect the public offering price to be between $9.00 and $11.00 per share.
INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 7.
Per Share Total
--------- ------
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds to Array BioPharma Inc. ........................... $ $
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We have granted the underwriters a 30-day option to purchase up to 800,000 additional shares of common stock, and two of our stockholders have granted the underwriters a 30-day option to purchase up to 100,000 additional shares of their common stock, on the same terms and conditions as set forth above, solely to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on or about , 2000.
LEHMAN BROTHERS DEUTSCHE BANC ALEX. BROWN
LEGG MASON WOOD WALKER
INCORPORATED
, 2000
[Inside front cover graphic depicts Array's logo and the statement "We Accelerate Drug Discovery Through Innovations in Chemistry."]
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................... 1
Risk Factors.......................... 7
Special Note Regarding Forward-Looking
Statements and Industry Data........ 16
Use of Proceeds....................... 16
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Financial Data............... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
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PAGE
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Business.............................. 30
Management............................ 50
Related Party Transactions............ 60
Principal and Selling Stockholders.... 62
Description of Capital Stock.......... 65
Shares Eligible for Future Sale....... 69
Underwriting.......................... 71
Legal Matters......................... 74
Experts............................... 74
Where You Can Find More Information... 74
About this Prospectus................. 74
Index To Financial Statements......... F-1
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Until , 2000 (25 days after commencement of this offering), all dealers selling shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed information regarding our company and the common stock being sold in this offering and the financial statements and notes to those statements appearing elsewhere in this prospectus.
ARRAY BIOPHARMA
Array BioPharma is a discovery research company creating drug candidates through innovations in chemistry. Our experienced scientists provide premium products and services to create, evaluate and optimize potential drug candidates in collaboration with pharmaceutical and biotechnology companies. We believe our information-based approach improves the efficiency of the drug discovery process and increases the quality of potential drug candidates. In addition, we apply these capabilities internally for our own drug discovery programs.
The drug industry is experiencing revolutionary change fueled by genomics, which is the study of all genes, and by the tremendous progress in the biological understanding of disease. Historically, a key bottleneck in the development of new drugs has been the identification by biologists of the proteins that may cause disease. However, recent advances in genomics and biology have resulted in the identification of thousands of new disease-related proteins. As a result, we believe the drug research and development bottleneck is shifting to the discovery by chemists of safe and effective new drugs to treat the diseases caused by these proteins.
Chemists create drugs known as small molecule drugs used to treat these disease-related proteins. We estimate that 90% of the revenue in 1999 generated by the 200 top selling drugs worldwide was attributable to small molecule drugs created through the application of chemistry. Small changes in chemistry design can differentiate the ability of drugs to effectively treat disease and therefore determine their potential success or failure in the marketplace.
Despite recent advances in technology, the process of discovering new drugs remains slow, expensive and risky. To address these inefficiencies, it is critical to apply high quality chemistry and predictive information technology early in the discovery process to identify and eliminate inferior drug candidates and to design safe and effective new drugs.
We provide a broad range of premium drug discovery products and services to bridge the gap between the discovery of disease-related proteins and the testing of drug candidates in animals and humans, including:
- The starting materials, which we call our Optimer building blocks, used to create the chemical compounds that may become potential drug candidates;
- The creation and sale of collections of chemical compounds, which we call our Diversity Library, that have the potential to become drug candidates through further refinement;
- The optimization of potential drug candidates to maximize their effectiveness in treating disease; and
- The design and refinement of the manufacturing process required to produce large quantities of drug candidates for testing in animals and humans.
We believe our information-driven technology platform enables our scientists to make better decisions throughout the drug discovery process and thereby create higher quality drugs more quickly and less expensively. Our technology platform includes:
- Proprietary software and predictive databases that facilitate drug discovery;
- Proprietary technologies that enable our scientists to perform high-speed chemical synthesis;
- Analytical and computational technologies to determine and predict the three-dimensional structure of disease-related proteins and drug candidates; and
- Technology to test and rapidly screen those compounds with the greatest potential to effectively treat a particular disease.
Our objective is to become the leading creator of high quality potential drug candidates by providing premium discovery chemistry products, services and technologies. Key elements of our strategy are to:
- Provide an integrated chemistry solution to drug discovery and become the partner of choice for pharmaceutical and biotechnology companies;
- Combine state-of-the-art technology with innovative chemistry to accelerate drug discovery;
- Create our own drug candidates for partnering with pharmaceutical and biotechnology companies;
- Increase our scientific resources by continuing to attract world-class scientists; and
- Expand our capabilities through acquisitions and internal development.
Our achievements to date include:
- Creating our own potential drug candidates and entering into a research and license agreement with Amgen, Inc. providing for the development and possible commercialization of one of these potential drug candidates;
- Entering into collaboration agreements with pharmaceutical companies such as Eli Lilly and Company and Merck & Co., Inc.;
- Entering into collaboration agreements with biotechnology companies such as Celltech Chiroscience Ltd., through its subsidiary Darwin Discovery Limited, ICOS Corporation and Tularik Inc.;
- Discovering a drug candidate suitable for human testing with our first collaboration partner, ICOS;
- Creating a technology platform to identify new drug candidates from genomic information; and
- Growing our staff since our inception in 1998 to 120 full-time employees as of October 20, 2000, including 89 scientists, of whom 84 are chemists, 47 have Ph.D.'s and 42 have large pharmaceutical company experience.
We intend to grow revenue and achieve profitability through fee-for-service revenue and product sales while sharing in the success we aim to create for our collaborators. To maximize the value we capture, we intend to allocate our scientific resources to:
- Build upon our foundation of fee-for-service business with leading pharmaceutical and biotechnology companies;
- Leverage our drug discovery products and services through sales to multiple customers;
- Initiate additional collaborations with leading pharmaceutical and biotechnology companies that include fee-for-service revenue plus milestone and/or royalty payments; and
- Generate our own potential drug candidates for partnering with pharmaceutical and biotechnology companies under terms that include licensing fees, fee-for-service revenue and milestone and/or royalty payments.
We have assembled a scientific team with experience in both the pharmaceutical and biotechnology industries and with a proven track record of success during their careers in drug discovery. At our inception, we had the distinct advantage of recruiting 20 former Amgen scientists, who had previously been recruited from large pharmaceutical companies. This nucleus afforded us a critical mass of experienced chemists, which we believe has been a competitive advantage in recruiting additional scientists. In their prior careers, our scientists have helped other companies create multiple drug candidates approved by the Food and Drug
Administration for human testing and contributed to 140 patents and patent applications for pharmaceutical and biotechnology companies.
We have a limited operating history and may not be successful in executing our business strategy due to a number of risks, as described in "Risk Factors." Since our inception in 1998, we have incurred operating and net losses and negative cash flows. As of September 30, 2000, we had an accumulated deficit of $12.6 million and had net losses of $4.3 million and $5.1 million for the fiscal years ended June 30, 1999 and 2000, respectively, and $3.1 million for the three-month period ended September 30, 2000. In addition, the drug research and development industry is highly competitive. Our competitors include pharmaceutical and biotechnology companies, chemistry outsourcing companies and others, many of which have greater resources.
We incorporated in Delaware in February 1998 under the name Array BioPharma Inc. Our principal executive offices are located at 1885 33rd Street, Boulder, Colorado 80301, and our telephone number is 303-381-6600. You can visit us on the World Wide Web at www.arraybiopharma.com. Information contained on our Web site does not constitute any part of this prospectus.
"Array BioPharma," the Array BioPharma logo, "Array BioPharma The Discovery Research Company," "The Discovery Research Company," "Optimer" and "Radical" are trademarks of Array BioPharma Inc. Other trademarks and trade names appearing in this prospectus are the property of their holders.
THE OFFERING
Common stock offered by
us......................... 6,000,000 shares
Common stock to be
outstanding after the
offering................. 21,404,332 shares
Use of proceeds............ We currently intend to use the net proceeds of this
offering to fund our operations, including
continued development and manufacturing of existing
products as well as research and development of
additional products and services, hire additional
personnel and expand our facilities. We may also
use a portion of the proceeds to acquire or invest
in new products or technologies, pay down
indebtedness or acquire complementary businesses.
As of September 30, 2000, we had approximately $6.0
million of outstanding indebtedness. We intend to
use the balance of the net proceeds for general
corporate purposes, including working capital
requirements. See the section entitled "Use of
Proceeds" for more information.
Proposed Nasdaq National
Market symbol.............. ARRY
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The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of September 30, 2000. This number excludes:
- 3,118,754 shares of common stock underlying options outstanding as of September 30, 2000, at a weighted-average exercise price of $0.47 per share, of which 301,163 were exercisable;
- 110,750 shares of common stock, assuming the automatic conversion of our preferred stock, underlying warrants to purchase preferred stock outstanding as of September 30, 2000, at a weighted-average exercise price of $3.15 per share;
- 2,891,947 shares of common stock that will be available for issuance under our stock option plan following this offering; and
- 800,000 shares of common stock that will be available for purchase under our employee stock purchase plan following this offering.
ASSUMPTIONS IN THIS PROSPECTUS
Unless we indicate otherwise, all information in this prospectus assumes:
- the automatic conversion of our Series A preferred stock, Series B preferred stock and Series C preferred stock, on a one-to-one basis, into 11,501,666 shares of our common stock upon the closing of this offering;
- the filing of our amended and restated certificate of incorporation that provides for, among other things, an increase in the number of our authorized shares of common stock from 20,225,000 to 60,000,000 to be effected concurrently with this offering;
- no exercise by the underwriters of their over-allotment option to purchase up to 800,000 additional shares of common stock from us and up to 100,000 shares of common stock from two of our stockholders; and
- no exercise by any of our security holders of any outstanding options or warrants prior to the closing of this offering.
SUMMARY FINANCIAL DATA
The following tables summarize our financial data, which we derived from our historical financial statements and related notes for the following periods:
- our statements of operations data from February 6, 1998 (inception) to June 30, 1998, for the twelve-month periods ended June 30, 1999 and 2000, and for the three-month periods ended September 30, 1999 and 2000; and
- our balance sheet data at June 30, 1999 and 2000, and at September 30, 2000.
The pro forma net loss per share data gives effect to the automatic conversion of all of our outstanding preferred stock upon the closing of this offering. The pro forma as adjusted balance sheet data at September 30, 2000 reflects the conversion of all of our outstanding preferred stock into common stock upon the closing of this offering and our receipt of the estimated net proceeds from the sale of 6,000,000 shares of our common stock in this offering at an assumed initial public offering price of $10.00 per share, after deducting the estimated underwriting discount and offering expenses. The cost of revenue, research and development expenses, and selling, general and administrative expenses data below includes compensation related to stock option grants.
You should read the summary financial data for the periods indicated together with our audited financial statements and related notes and other financial information, including the "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which we have included elsewhere in this prospectus.
PERIOD FROM
FEBRUARY 6,
1998 THREE MONTHS ENDED
(INCEPTION) TO YEARS ENDED JUNE 30, SEPTEMBER 30,
JUNE 30, ---------------------- ----------------------
1998 1999 2000 1999 2000
-------------- --------- ---------- --------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Revenue............................ $ -- $ 1,504 $ 6,774 $ 1,350 $ 2,761
Cost of revenue*................... -- 1,033 4,445 817 2,408
------- --------- ---------- --------- ----------
Gross profit....................... -- 471 2,329 533 353
Research and development
expenses*........................ -- 3,301 3,963 696 1,702
Selling, general and administrative
expenses*........................ 62 1,522 3,470 439 1,694
------- --------- ---------- --------- ----------
Total operating expenses........... 62 4,823 7,433 1,135 3,396
------- --------- ---------- --------- ----------
Loss from operations............... (62) (4,352) (5,104) (602) (3,043)
Interest expense................... -- (136) (384) (84) (173)
Interest income.................... 13 181 356 25 130
------- --------- ---------- --------- ----------
Net loss........................... (49) (4,307) (5,132) (661) (3,086)
Deemed dividend related to
beneficial conversion feature of
preferred stock.................. -- -- -- -- (5,000)
------- --------- ---------- --------- ----------
Net loss applicable to common
stockholders..................... $ (49) $ (4,307) $ (5,132) $ (661) $ (8,086)
======= ========= ========== ========= ==========
Basic and diluted net loss per
share applicable to common
stockholders..................... $ (0.06) $ (1.48) $ (1.68) $ (0.22) $ (2.17)
======= ========= ========== ========= ==========
Shares used in computing basic and
diluted net loss per share....... 863,964 2,918,367 3,063,439 2,968,575 3,718,550
======= ========= ========== ========= ==========
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PERIOD FROM
FEBRUARY 6,
1998 THREE MONTHS ENDED
(INCEPTION) TO YEARS ENDED JUNE 30, SEPTEMBER 30,
JUNE 30, ---------------------- ----------------------
1998 1999 2000 1999 2000
-------------- --------- ---------- --------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Pro forma basic and diluted net
loss per share applicable to
common stockholders
(unaudited)...................... $ (0.44) $ (0.57)
========== ==========
Shares used in computing pro forma
basic and diluted net loss per
share (unaudited)................ 11,697,343 14,109,105
========== ==========
*Includes compensation related to stock option grants:
Cost of revenue.................. $ 43 $ 210
Research and development
expenses...................... 35 140
Selling, general and
administrative expenses....... 1,040 357
---------- ----------
Total.................... $ 1,118 $ 707
========== ==========
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AS OF SEPTEMBER 30, 2000
AS OF JUNE 30, -------------------------
---------------- PRO FORMA
1999 2000 ACTUAL AS ADJUSTED
------ ------- --------- -------------
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Total current assets.................................. $4,005 $ 8,548 $14,180 $69,180
Property, plant and equipment, net.................... 2,872 6,911 10,236 10,236
Total assets.......................................... 7,125 15,823 24,787 79,787
Total current liabilities............................. 2,744 6,338 6,634 6,634
Long-term debt, less current portion.................. 1,824 2,833 3,620 3,620
Total stockholders' equity............................ 2,557 6,652 14,533 69,533
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RISK FACTORS
Any investment in shares of our common stock is risky. You should carefully consider the following risks below before making a decision to buy our common stock. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial also could harm our business. If any of the following risks actually occurs, our business could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
WE MAY NOT ACHIEVE OR SUSTAIN PROFITABILITY.
We are at an early stage of executing our business plan, and we have a limited history of offering our drug discovery products and services. We have incurred operating and net losses and negative cash flows from operations since our inception. As of September 30, 2000, we had an accumulated deficit of $12.6 million. We had net losses of $4.3 million and $5.1 million for the fiscal years ended June 30, 1999 and 2000, respectively, and $3.1 million for the three-month period ended September 30, 2000. We may continue to incur operating and net losses and negative cash flows from operations, due in part to anticipated increases in expenses for research and product development, acquisitions of complementary businesses and technologies and expansion of our personnel and our business development capabilities. We may not be able to achieve or maintain profitability. Moreover, if we do achieve profitability, the level of any profitability cannot be predicted and may vary significantly from quarter to quarter.
OUR BUSINESS IS DEPENDENT UPON THE ACCEPTANCE OF OUR PRODUCTS AND SERVICES BY THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES AND THE EXTENT TO WHICH THESE INDUSTRIES USE THIRD-PARTY ASSISTANCE WITH ONE OR MORE ASPECTS OF THEIR DRUG DISCOVERY PROCESS.
We are highly dependent on research and development expenditures and the outsourcing of drug discovery activities by the pharmaceutical and biotechnology industries. Pharmaceutical and biotechnology companies consider several factors in determining these expenditures, such as the resources available for purchasing drug discovery services, the spending priorities among various types of research activities and their policies regarding expenditures during recessionary periods. Any decrease in drug research and development expenditures by pharmaceutical and biotechnology companies or in the trend to outsource drug discovery services could cause our revenue to decline. In order to be successful, our products and services must meet the requirements of the pharmaceutical and biotechnology industries, and we must convince potential customers to use our products and services instead of competing products and services. Market acceptance will depend on many factors, including our ability to:
- convince potential customers that our technologies are attractive alternatives to other technologies for drug discovery;
- convince potential customers, especially large pharmaceutical and biotechnology companies, to purchase our drug discovery products and services rather than develop them internally;
- perform contracted services in a timely fashion, with acceptable quality and at an acceptable cost; and
- design, create and manufacture sufficient quantities of our chemical compounds for our customers and collaborators with acceptable quality and at an acceptable cost.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE EXPERIENCED SCIENTISTS AND MANAGEMENT WE NEED TO COMPETE IN THE DRUG RESEARCH AND DEVELOPMENT INDUSTRY.
We are a small company with 120 full-time employees, and our future success depends on our ability to attract, retain and motivate highly skilled scientists and management, including business development personnel. Our ability to maintain, expand or renew existing engagements with our customers, enter into new engagements, and provide additional services to our existing customers depends on our ability to hire and
retain scientists with the skills necessary to keep pace with continuing changes in drug discovery technologies. Competition for experienced scientists is intense. We compete with pharmaceutical and biotechnology companies, including our customers and collaborators, medicinal chemistry outsourcing companies, contract research companies, and academic and research institutions to recruit scientists. Our inability to hire additional qualified personnel may also require an increase in the workload for both existing and new personnel. We may not be successful in attracting new scientists or management or in retaining or motivating our existing personnel. The shortage of experienced scientists, and other factors, may lead to increased recruiting, relocation and compensation costs for such scientists, which may exceed our expectations. These increased costs may reduce our profit margins or make hiring new scientists impracticable.
Our future success also depends on the personal efforts and abilities of the principal members of our senior management and scientific staff to provide strategic direction, manage our operations and maintain a cohesive and stable environment. In particular, we rely on the services of Robert E. Conway, our Chief Executive Officer; Dr. Kevin Koch, our President and Chief Science Officer; Dr. David L. Snitman, our Chief Operating Officer and Vice President, Business Development; Dr. Anthony D. Piscopio, our Vice President, Chemistry and Director of Process Chemistry; Michael Carruthers, our Chief Financial Officer; Dr. John A. Josey, our Senior Director of High-Speed Synthesis; Dr. Laurence Burgess, our Senior Director of Medicinal Chemistry and Lead Optimization and Dr. Joanna K. Money, our Director of Business Development. Although we have employment agreements with each of the above personnel, we do not have employment agreements with all of our key personnel, and the employment agreements we do have allow the employees to terminate them upon 30 days' prior notice. If we cannot attract and retain scientists and management, we will not be able to continue to provide or expand our drug discovery service offerings.
WE MAY LOSE ONE OR MORE OF OUR MAJOR CUSTOMERS.
A relatively small number of customers account for a significant portion of our revenue. During the three months ended September 30, 2000, revenue from two of our customers represented approximately 36% and 26% of our total revenue. During the fiscal year ended June 30, 2000, revenue from three of our customers represented approximately 45%, 11% and 8% of our total revenue. We expect that revenue from a limited number of customers will account for a large portion of our revenue in future quarters. In general, our customers may terminate their contracts with us upon 30 to 90 days' notice for a number of reasons or, in some cases, for no reason. If any one of our major customers cancels its contract with us, our revenue may decrease.
WE MAY NOT SUCCESSFULLY ENTER INTO ADDITIONAL COLLABORATIONS THAT ALLOW US TO PARTICIPATE IN THE FUTURE SUCCESS OF OUR PROPRIETARY DRUG CANDIDATES THROUGH MILESTONE AND/OR ROYALTY PAYMENTS, AND WE MAY NEVER RECEIVE ANY MILESTONE AND/OR ROYALTY PAYMENTS UNDER OUR CURRENT OR ANY FUTURE COLLABORATIONS.
One of our business strategies is to create our own proprietary drug candidates and to then enter into collaborations for the development of these drug candidates that will allow us to earn milestone and/or royalty payments. To date, we have entered into one such collaboration agreement that provides for milestone payments but have not yet begun providing services under this agreement. Our proprietary drug discovery program is in its early stage development and is unproven. Although we have expended, and continue to expend, time and money on internal research and development programs, we may be unsuccessful in creating valuable proprietary drug candidates that would enable us to form additional collaborations and receive milestone and/or royalty payments. Only two of our current agreements provide for milestone payments, one provides for licensing fees and none provides for royalty payments.
Even if we are able to negotiate additional collaborations, the use of our services or technologies may not result in the discovery of potential drug candidates that will be safe or effective and we may never receive any milestone or royalty payments. Our receipt of any future milestone or royalty payments under our current or any future collaborations depends on many factors, including whether our collaborators want to continue to pursue a potential drug candidate and the ultimate commercial success of the drug. Development and commercialization of potential drug candidates depend not only on the achievement of research objectives by
us and our collaborators, but also on each collaborator's financial, competitive, marketing and strategic considerations and regulation in the United States and other countries. Pharmaceutical products our collaborators develop will require lengthy and costly testing in animals and humans and regulatory approval by governmental agencies prior to commercialization. These agencies may not approve the products for commercialization despite the substantial time and resources required to obtain approvals and comply with appropriate statutes and regulations. If unforeseen complications arise in the development or commercialization of the potential drug candidates by our collaborators, we may not realize milestone or royalty payments as expected. We have not received any milestone or royalty payments since our inception.
WE MAY FAIL TO EXPAND CUSTOMER RELATIONSHIPS THROUGH INTEGRATION OF PRODUCTS AND SERVICES.
One of our business strategies is to expand our existing customer relationships across the full spectrum of our drug discovery capabilities. The number of large pharmaceutical and biotechnology companies that could potentially use our products and services is limited. As a result, we must expand our existing customer relationships in order to maximize our potential revenue. However, we may not be able to expand these existing relationships; certain of our customers and collaborators have chosen not to expand their relationships with us.
WE MAY NOT BE ABLE TO ACCELERATE THE DRUG DISCOVERY PROCESS.
One of our business strategies is to accelerate the drug discovery process by identifying potential drug candidates. We have never identified a drug candidate that has been developed into a commercial drug. It is uncertain whether we will be able to make the drug discovery process more efficient or make higher quality drug candidates. Our ability to accelerate the drug discovery process depends on many factors, including the performance and decision-making capabilities of our scientists. Although we have created an information-driven technology platform which we believe enables our scientists to make better decisions, our scientists may not make correct decisions or develop viable drug candidates.
WE MAY LOSE OUR PROPRIETARY PRODUCTS AND TECHNOLOGIES IF WE ARE UNABLE TO PROTECT THEM.
Our success will depend in part on our ability to protect our proprietary drug candidates as well as processes and other technologies we develop for the testing and synthesis of chemical compounds in the drug discovery process. One of our business strategies is to develop our own proprietary drug candidates and enter into collaborations with pharmaceutical and biotechnology companies for the development of these drug candidates. In order to protect our rights to our proprietary drug candidates, we must obtain the intellectual property rights to such drug candidates. Although we have seven patent applications on file in the United States, including three provisional applications, we have not received a patent for any of our proprietary products or technologies. Some of the products and technologies that we develop may already be patented by other companies which may prevent us from obtaining patents on the products or technologies we develop. Even if we are able to obtain patents, they may be insufficient to protect our interest in these products and technologies. Protecting our patents, if obtained, may be costly and time consuming. To the extent we are unable to protect our proprietary products and technologies, our investment in them may not yield the benefits we anticipated. We also may be subject to claims that we are infringing on the intellectual property of others. We could incur significant costs in defending such claims, and if we were unsuccessful, we would be subject to liability for infringement.
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO GROW AND TO MANAGE OUR GROWTH.
We began operations in 1998 and are at an early stage of our development. We have experienced and expect to continue to experience growth in the number of our employees and the scope of our operating and financial systems. For example, we have sold our services and products primarily through the efforts of our senior management and scientists and through customer referrals. One of our business strategies is to attract and retain additional business development personnel and to expand our business development activities. Growth in our operations has placed and is expected to place a significant strain on our operational, human and financial resources. Our ability to compete effectively will depend, in large part, on our ability to hire,
train and assimilate additional management and professional, scientific and technical personnel, and our ability to expand, improve and effectively use our operating, management, business development and financial systems to accommodate our expanded operations. The physical expansion of our facilities to accommodate future growth may lead to significant costs and may divert management and business development resources. If we fail to effectively anticipate, implement or manage the changes required to sustain our growth, we may not be able to compete successfully.
WE MAY NOT BE ABLE TO MEET THE DELIVERY AND PERFORMANCE REQUIREMENTS SET FORTH IN OUR CUSTOMER CONTRACTS.
In order to maintain our current customer relationships and to meet the performance and delivery requirements in our customer contracts, we must be able to provide products and services at appropriate levels and with acceptable quality and at an acceptable cost. Our ability to deliver the products and provide the services we offer to our customers is limited by many factors, including the difficulty of the chemistry associated with our products and services, the lack of predictability in the scientific process and the shortage of qualified scientific personnel. In particular, a large portion of our revenue depends on producing collections of chemical compounds, and our current commitments to provide these compounds to our customers exceeds the current rate at which we are producing them. Some of our customers can influence when we deliver products and perform services under their contracts. If we are unable to meet our contractual commitments, we may delay or lose revenue, lose customers or fail to expand our existing relationships.
OUR QUARTERLY OPERATING RESULTS COULD FLUCTUATE SIGNIFICANTLY.
Sales of our drug research and development products and services, including our Diversity Library, can typically involve significant technical evaluation and/or commitment of capital by our customers. Accordingly, the sales cycles associated with these products and services are lengthy and subject to a number of significant risks, including customers' budgetary constraints and internal acceptance reviews. In addition, some of our customers can influence when we deliver products and perform services under their contracts with us. Due to these lengthy and unpredictable sales cycles and the ability of our customers to influence our delivery of products and performance of services, our operating results could fluctuate significantly from quarter to quarter. In addition, we expect to continue to experience significant fluctuations in quarterly operating results due to factors such as general and industry specific economic conditions that may affect the research and development expenditures of pharmaceutical and biotechnology companies.
A large portion of our expenses, including expenses for facilities, equipment and personnel, is relatively fixed. Accordingly, if our revenue declines or does not grow as anticipated, we might not be able to correspondingly reduce our operating expenses. Failure to achieve anticipated levels of revenue could significantly harm our operating results for a particular fiscal period.
Due to the possibility of fluctuations in our revenue 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 could decline.
OUR DEVELOPMENT, TESTING AND MANUFACTURING OF POTENTIAL DRUG CANDIDATES EXPOSE US TO POTENTIAL LIABILITY AND RISKS.
We develop, test and manufacture the precursors to pharmaceutical products intended for use in humans. These activities could expose us to the risk of liability for personal injury or death to persons using these products. We may be required to pay substantial damages or incur defense costs in connection with any of these claims. Our product liability insurance may not be adequate, and we may be unable to acquire or maintain adequate insurance at acceptable costs or at all. In addition, our activities, including the analysis and synthesis of chemical compounds, involve the controlled use of hazardous materials, which subjects us to federal, state and local laws and regulations governing their use, manufacture, storage, handling and disposal. We may have to incur significant costs to comply with these laws and regulations in the future. We cannot
eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any damages that result, and any such liability could exceed our resources and disrupt our business.
OUR OPERATIONS COULD BE INTERRUPTED BY DAMAGE TO OUR SPECIALIZED LABORATORY FACILITIES.
Our operations are dependent upon the continued use of our highly specialized laboratories and equipment in Boulder, Colorado and Longmont, Colorado. Natural disasters, such as floods, or other catastrophic events caused by our operations could damage our laboratories, equipment or inventories of chemical compounds and may materially interrupt our business. The availability of laboratory space in these areas is extremely limited, and rebuilding our facilities could be time consuming and result in substantial delays in providing products and services to our customers. We maintain business interruption insurance to cover lost revenue caused by such occurrences. However, this insurance would not compensate us for the loss of opportunity and potential harm to customer relations that our inability to meet our customers' needs in a timely manner could create.
OUR CUSTOMERS MAY RESTRICT OUR USE OF SCIENTIFIC INFORMATION.
Our ability to improve the efficiency of the drug discovery services we provide by, among other things, developing an effective database designed to predict how chemical compounds interact with a targeted disease-related protein, depends in part on our generation and use of information that is not proprietary to our customers and that we derive from performing these services. However, our customers may not allow us to use this information with other customers, such as the general interaction between types of chemistries and types of drug targets that we generate when performing drug discovery services for them. Without the ability to use this information, we may not be able to develop a database, which may limit our ability to improve the efficiency of the drug discovery services we provide.
BECAUSE WE HAVE A LIMITED NUMBER OF SUPPLIERS, WE MAY INCUR INCREASED SUPPLY COSTS OR EXPERIENCE DELAY IN DELIVERING OUR PRODUCTS OR PERFORMING OUR SERVICES.
We currently purchase certain key components of biological and chemical materials that we use in our products and services from a single or a limited number of outside sources. Our reliance on our suppliers exposes us to risks, including:
- the possibility that one or more of our suppliers could terminate their services at any time without penalty;
- the potential inability of our suppliers to obtain required materials;
- the potential delays and expenses of seeking alternative sources of supply; and
- reduced control over pricing, quality and timely delivery due to the difficulties in switching to alternative suppliers.
Consequently, if materials from our suppliers are delayed or interrupted for any reason, we may not be able to deliver our products and perform our services on a timely basis or in a cost-efficient manner.
RISKS RELATED TO OPERATING IN OUR INDUSTRY
THE DRUG RESEARCH AND DEVELOPMENT INDUSTRY IS HIGHLY COMPETITIVE AND SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND OUR PRODUCTS AND SERVICES COULD BE RENDERED OBSOLETE.
The pharmaceutical and biotechnology industries are characterized by rapid and continuous technological innovation. We compete with companies in the United States and abroad that are engaged in the development and production of chemistry discovery products and services, including pharmaceutical companies, biotechnology companies, medicinal chemistry outsourcing companies, suppliers of collections of chemical compounds and contract research companies. Academic institutions, governmental agencies and other research organizations also are conducting research and developing technologies in areas in which we provide services, either on their own or through collaborative efforts. Our pharmaceutical and biotechnology company customers have internal departments that provide products and services that directly compete with our products and services. Many of our competitors offer a broader range of products and services and have greater access to financial, technical, scientific, business development, recruiting and other resources than we do, and some of our competitors may also operate with a lower cost structure. We anticipate that we will face increased competition in the future as new companies enter the market and advanced technologies become available. Our products, services and expertise may become obsolete or uneconomical due to technological advances or entirely different approaches developed by us, our customers or one or more of our competitors. For example, advances in databases and molecular modeling tools that predict how effectively compounds will treat a targeted disease may render some of our technologies, such as our Diversity Library, obsolete. While we plan to develop technologies that will give us a competitive advantage, we may not be able to develop the technologies necessary for us to successfully compete in the future. Additionally, the existing approaches of our competitors or new approaches or technologies developed by our competitors may be more effective than those we develop. We may not be able to compete successfully with existing or future competitors.
THE CONCENTRATION OF THE PHARMACEUTICAL INDUSTRY AND THE CURRENT TREND TOWARD INCREASING CONSOLIDATION COULD REDUCE THE NUMBER OF OUR POTENTIAL CUSTOMERS.
The market for our products and services has become increasingly concentrated as a result of recent mergers and acquisitions among large pharmaceutical companies. The number of our potential customers could decline even further if the current trend toward consolidation of the pharmaceutical industry continues. Accordingly, we expect to continue to rely on a relatively small number of customers for a substantial portion of our revenue. In addition, as these potential customers grow through consolidation, they may be able to negotiate price discounts or other terms for our products and services that are unfavorable to us.
THE INTELLECTUAL PROPERTY RIGHTS WE RELY ON TO PROTECT THE TECHNOLOGY UNDERLYING OUR PRODUCTS AND TECHNIQUES MAY BE INADEQUATE TO PREVENT THIRD PARTIES FROM USING OUR TECHNOLOGY OR DEVELOPING COMPETING PRODUCTS AND SERVICES OR TO PROTECT OUR INTERESTS IN OUR PROPRIETARY DRUG CANDIDATES.
Our success will depend on our ability to obtain, protect and enforce patents on our technology. Although we have seven United States patent applications on file, including three provisional applications, we have not received any patents. We have engaged in limited patent prosecution in foreign countries. Any patents that we may own or license in the future may not afford meaningful protection for our technology and products. Our efforts to enforce and maintain our intellectual property rights may not be successful and may result in substantial costs and diversion of management time. In addition, others may challenge patents we may obtain in the future and, as a result, these patents could be narrowed, invalidated or rendered unenforceable or we may be forced to stop using the technology covered by these patents or to license the technology from third parties. In addition, current and future patent applications on which we depend may not result in the issuance of patents in the United States or foreign countries. Even if our rights are valid, enforceable and broad in scope, competitors may develop products based on similar technology that is not covered by our patents. Further, since there is a substantial backlog of patent applications at the U.S. Patent
and Trademark Office, the approval or rejection of our or our competitors' patent applications may take several years.
In addition to patent protection, we also rely on copyright and trademark protection, trade secrets, know-how, continuing technological innovation and licensing opportunities. In an effort to maintain the confidentiality and ownership of our trade secrets and proprietary information, we require our employees, consultants and advisors to execute confidentiality and proprietary information agreements. However, these agreements may not provide us with adequate protection against improper use or disclosure of confidential information and there may not be adequate remedies in the event of unauthorized use or disclosure. Furthermore, like many companies in our industry, we may from time to time hire scientific personnel formerly employed by other companies involved in one or more areas similar to the activities we conduct. In some situations, our confidentiality and proprietary information agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants or advisors have prior employment or consulting relationships. Although we require our employees and consultants to maintain the confidentiality of all confidential information of previous employers, we or these individuals may be subject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. Finally, others may independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to our trade secrets. Our failure to protect our proprietary information and techniques may inhibit or limit our ability to exclude certain competitors from the market and execute our business strategies.
THE DRUG RESEARCH AND DEVELOPMENT INDUSTRY HAS A HISTORY OF PATENT AND OTHER INTELLECTUAL PROPERTY LITIGATION, AND WE MAY BE INVOLVED IN COSTLY INTELLECTUAL
PROPERTY LAWSUITS.
The drug research and development industry has a history of patent and other intellectual property litigation and these lawsuits will likely continue. Because we produce and provide many different products and services in this industry, we face potential patent infringement suits by companies that control patents for similar products and services. In order to protect or enforce our intellectual property rights, we may have to initiate legal proceedings against third parties. In addition, others may sue us for infringing their intellectual property rights or we may initiate a lawsuit seeking a declaration from a court that we do not infringe the proprietary rights of others. The patent positions of pharmaceutical, biotechnology and drug discovery companies are generally uncertain and involve complex legal and factual questions. No consistent policy has emerged from the U.S. Patent and Trademark Office or the courts regarding the breadth of claims allowed or the degree of protection afforded under patents like those for which we have applied. Legal proceedings relating to intellectual property would be expensive, take significant time and divert management's attention from other business concerns, whether we win or lose. The cost of such litigation could affect our profitability.
Further, if we do not prevail in an infringement lawsuit brought against us, we might have to pay substantial damages, including treble damages, and we could be required to stop the infringing activity or obtain a license to use the patented technology. Any required license may not be available to us on acceptable terms, or at all. In addition, some licenses may be nonexclusive, and therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around a patent, we may be unable to sell some of our products or services.
RISKS RELATED TO THE OFFERING
OUR STOCK PRICE WILL LIKELY BE VOLATILE, AND YOUR INVESTMENT COULD DECLINE IN VALUE.
The trading price of our common stock is likely to be volatile and subject to wide fluctuations in price in response to various factors, including:
- actual or anticipated variations in quarterly operating results;
- introductions or announcements of technological innovations or new products or services by us, our collaborators or our competitors;
- disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to patent our technologies;
- changes in financial estimates by securities analysts;
- conditions or trends in the pharmaceutical and biotechnology industries;
- additions or departures of key personnel;
- the loss of a significant customer or collaborator;
- announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
- regulatory developments in the United States and abroad;
- public concern as to the efficacy of new drug discovery techniques; and
- economic and political factors.
In addition, the stock market in general, and the market for life sciences companies in particular, have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to operating performance. 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. A securities class action suit against us could result in potential liabilities, substantial costs and the diversion of management's attention and resources, regardless of whether we win or lose.
THERE MAY NOT BE AN ACTIVE, LIQUID TRADING MARKET FOR OUR COMMON STOCK.
Prior to this offering, there has been no public market for our common stock. An active, liquid trading market for our common stock may not develop or be maintained following this offering. As a result, you may not be able to sell your shares quickly or at the market price. The initial public offering price will be determined by negotiation between us and representatives of the underwriters based upon a number of factors and may not be indicative of prices that will prevail in the trading market. The market price of our common stock may decline below the initial public offering price, and you may not be able to resell your shares at or above the initial offering price. Please see "Underwriting" below for a discussion of the factors to be considered in determining the initial public offering price.
IF WE NEED BUT ARE UNABLE TO OBTAIN ADDITIONAL FUNDING TO SUPPORT OUR OPERATIONS, WE WOULD HAVE TO REDUCE OR CEASE OPERATIONS OR ATTEMPT TO SELL ALL OR A PART OF OUR OPERATIONS.
We may need substantial funds to continue to research, develop and enhance our products and services. To the extent that our capital resources are insufficient to meet future capital requirements, we will have to raise additional funds to continue the development of our products and services. We may not be able to raise funds on favorable terms, if at all. Our current operating plan could change as a result of many factors, and we could require additional funding sooner than anticipated. Our requirements for additional capital may be substantial and will depend on many factors, including:
- market acceptance of our products and services;
- continued progress of our research and development of our products and services;
- acquisitions of other companies in exchange for cash, and the capital needs of any acquired companies;
- competing technological and market developments;
- the cost of protection of patent and other intellectual property rights; and
- further development of our production and business development capabilities.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of those securities would result in dilution to our stockholders. Moreover, incurring debt financing could result in a substantial portion of our operating cash flow being dedicated to the payment of principal and interest on such indebtedness, could render us more vulnerable to competitive pressures and economic downturns and could impose restrictions on our operations. If adequate funds are not available, we may be required to curtail operations significantly or to obtain funds through other arrangements on unattractive terms.
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 21,404,332 shares of common stock outstanding immediately after this offering, or 22,204,332 shares if the underwriters exercise their over-allotment option in full, based on the number of shares outstanding at September 30, 2000. All of the shares sold in this offering 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 under the Securities Act. Assuming the underwriters do not exercise their overallotment option, the remaining 15,404,332 shares of common stock outstanding will be "restricted securities" as defined in Rule 144, of which 483,275 shares will, subject to Rule 144, be available for sale immediately following this offering, and 14,921,057 will, subject to Rule 144, be available for sale following the expiration of the 180 day lock-up period. Stockholders may sell these shares in the future without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act.
After this offering, we intend to register approximately 6,810,700 shares of common stock that are reserved for issuance upon exercise of options granted or reserved for grant under our stock option plan and our employee stock purchase plan. Once we register these shares, stockholders can sell them in the public market upon issuance, subject to restrictions under the securities laws applicable to resales by affiliates. The number of shares we have reserved for issuance under our stock option plan may increase based on our issued and outstanding shares of common stock, and we may register such additional shares in the future.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING AND MAY EXPERIENCE ADDITIONAL DILUTION IN THE FUTURE.
The initial public offering price of our common stock is expected to be substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution of approximately $6.76 in the pro forma net tangible book value per share of common stock from the price per share that you pay for the common stock, based upon an assumed initial public offering price of $10.00 per share. If the holders of outstanding options or warrants exercise those options or warrants at prices below the initial public offering price, you will incur further dilution. We may also acquire other companies or technologies or finance strategic alliances by issuing equity, which may result in additional dilution to our stockholders.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BYLAWS COULD MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
Our certificate of incorporation and bylaws contain provisions that could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. We are also subject to provisions of Delaware law that could delay, deter or prevent a change in control. See "Description of Capital Stock -- Anti-Takeover Provisions" for additional information.
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING COMMON STOCK AND COULD LIMIT NEW STOCKHOLDERS FROM INFLUENCING CORPORATE DECISIONS.
Immediately after this offering, our executive officers, directors, current principal stockholders and their respective affiliates will beneficially own approximately 63% of our outstanding common stock. These stockholders, if acting together, would be able to control substantially all matters requiring approval by our stockholders, including mergers, sales of assets, the election of all directors and approval of other significant corporate transactions.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This prospectus contains forward-looking statements. We use words like "believe," "intend," "expect," "may," "will," "should," "plan," "project," "contemplate," "anticipate" and similar expressions to identify these forward-looking statements. We have based these forward-looking statements on our current expectations and projections about the growth of our business, our financial performance and the development of our industry. Because these statements reflect our current views concerning future events, these forward- looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including the risks described in "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" and elsewhere in this prospectus. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Information regarding market and industry statistics contained in the "Prospectus Summary" and "Business" sections of this prospectus is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources and cannot assure you of the accuracy of the data we have included.
USE OF PROCEEDS
We estimate our net proceeds from the sale of 6,000,000 shares of common stock in this offering will be approximately $55,000,000, or approximately $62,440,000 if the underwriters exercise their over-allotment option in full, based on an assumed initial public offering price of $10.00 per share, after deducting the estimated underwriting discount and offering expenses.
We currently intend to use the net proceeds to fund our operations, including continued development and manufacturing of existing products as well as research and development of additional products and services, hire additional personnel and expand our facilities to be able to meet the growing needs of our business. We also may use a portion of the net proceeds to acquire or invest in new products or technologies, pay down our indebtedness or acquire complementary businesses. As of September 30, 2000, we had approximately $6.0 million of outstanding indebtedness, which is described under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." We intend to use the balance of the net proceeds for general corporate purposes, including working capital requirements. Our management may spend the proceeds from this offering in ways that the stockholders may not deem desirable.
Pending the application of the net proceeds towards one of the above uses, we intend to invest the net proceeds in investment-grade, interest-bearing securities. We cannot predict whether the investment of the proceeds will yield a favorable return.
The foregoing represents our current intentions based upon our present plans and business condition. Our management will have broad discretion in the application of the net proceeds from this offering, and the occurrence of unforeseen events or changed business conditions could result in the application of the net proceeds from this offering in a manner other than as described in this prospectus.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. We currently intend to retain all available funds and any future earnings for use in the operation of our business and to fund future growth.
CAPITALIZATION
The following table sets forth our total long-term debt, including current portion, and capitalization as of September 30, 2000 presented:
- on an actual basis;
- on a pro forma basis to give effect to the automatic conversion of our Series A preferred stock, Series B preferred stock and Series C preferred stock into shares of our common stock upon the closing of this offering on a one-to-one basis, as if these events had occurred as of September 30, 2000; and
- on a pro forma as adjusted basis to give effect to the sale of 6,000,000 shares of our common stock at an assumed initial public offering price of $10.00 per share, after deducting the estimated underwriting discount and offering expenses.
The following table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes thereto included elsewhere in this prospectus.
AS OF SEPTEMBER 30, 2000
---------------------------------
(UNAUDITED)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
Long-term debt, including current portion................... $ 6,036 $ 6,036 $ 6,036
------- ------- -------
Stockholders' equity:
Preferred stock, par value $0.001 per share; 11,825,000
shares
authorized actual and pro forma and 10,000,000 shares
authorized pro forma as adjusted
Series A convertible preferred stock; 6,635,000 shares
issued
and outstanding actual and no shares issued and
outstanding
pro forma and pro forma as adjusted.................. 7 -- --
Series B convertible preferred stock; 3,199,999 shares
issued
and outstanding actual and no shares issued and
outstanding
pro forma and pro forma as adjusted.................. 3 -- --
Series C convertible preferred stock; 1,666,667 shares
issued and outstanding actual and no shares issued
and outstanding pro forma and pro forma as
adjusted............................................. 1 -- --
------- ------- -------
Total preferred stock............................. 11 -- --
------- ------- -------
Common stock, par value $0.001 per share; 20,225,000 shares
authorized actual and pro forma and 60,000,000 shares
authorized pro forma as adjusted; 3,902,666 shares issued
and outstanding actual, 15,404,332 shares issued and
outstanding pro forma and 21,404,332 shares issued and
outstanding pro forma as adjusted......................... 4 15 21
Additional paid-in capital.................................. 37,418 37,418 92,412
Accumulated deficit......................................... (12,575) (12,575) (12,575)
Notes receivable for common stock -- (related party)........ (399) (399) (399)
Deferred compensation....................................... (9,926) (9,926) (9,926)
------- ------- -------
Total stockholders' equity........................ 14,533 14,533 69,533
------- ------- -------
Total capitalization.............................. $20,569 $20,569 $75,569
======= ======= =======
|
The above table does not reflect the following:
- 3,118,754 shares of common stock underlying options outstanding as of September 30, 2000 at a weighted-average exercise price of $0.47 per share;
- 110,750 shares of common stock, assuming the automatic conversion of our preferred stock, underlying warrants to purchase preferred stock outstanding as of September 30, 2000 at a weighted-average exercise price of $3.15 per share; and
- 729,446 shares of common stock available for issuance or future grants under our stock option plan as of September 30, 2000.
DILUTION
As of September 30, 2000, our pro forma net tangible book value was $14.5 million, or $0.94 per share of common stock. Our pro forma net tangible book value per share represents our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding on that date and assumes the conversion of all outstanding shares of our preferred stock, which convert automatically into shares of common stock on a one-for-one basis upon the closing of this offering. Without taking into account any other changes in our pro forma net tangible book value per share after September 30, 2000, other than to give effect to the sale of the 6,000,000 shares of common stock offered by this prospectus at an assumed initial public offering price of $10.00 per share, after deducting the estimated underwriting discount and offering expenses, our pro forma as adjusted net tangible book value as of September 30, 2000 would have been $69.5 million, or $3.24 per share. This represents an immediate increase in pro forma as adjusted net tangible book value to existing stockholders of $2.30 per share and an immediate dilution to new investors who purchase shares of common stock in this offering of $6.76 per share. Dilution equals the difference between the amount per share paid by new investors who purchase shares of common stock in this offering and the pro forma as adjusted net tangible book value per share upon the closing of this offering. The following table illustrates the per share dilution:
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of
September 30, 2000..................................... $0.94
Increase per share attributable to new investors.......... 2.30
-----
Pro forma as adjusted net tangible book value per share
after this offering....................................... 3.24
------
Dilution in pro forma net tangible book value per share to
new investors............................................. $ 6.76
======
|
The following table illustrates, on a pro forma as adjusted basis, as of September 30, 2000, the differences between the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid to us (1) by existing stockholders, and (2) by the new investors who purchase shares of common stock in this offering at the assumed initial public offering price of $10.00 per share, before deducting the estimated underwriting discount and offering expenses.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
Existing stockholders.................... 15,404,332 72% $25,695,661 30% $ 1.67
New investors............................ 6,000,000 28 60,000,000 70 10.00
---------- ------- ----------- -------
Total.......................... 21,404,332 100% $85,695,661 100%
========== ======= =========== =======
|
The discussion and table assume:
- the automatic conversion of our Series A preferred stock, Series B preferred stock and Series C preferred stock on a one-to-one basis into 11,501,666 shares of our common stock;
- no exercise of options outstanding under our stock option plan as of September 30, 2000;
- no exercise by the underwriters of their over-allotment option to purchase up to 800,000 additional shares of common stock from us and up to 100,000 shares of common stock from two of our stockholders; and
- no exercise by any of our security holders of any outstanding warrants.
As of September 30, 2000, there were options outstanding to purchase a total of 3,118,754 shares of common stock at a weighted-average price of $0.47 per share. As of the same date, there were warrants to purchase a total of 110,750 shares of common stock, assuming the automatic conversion of our Series A and Series B preferred stock, at a weighted-average exercise price of $3.15 per share. There will be further dilution to new investors who purchase shares of common stock in this offering to the extent any of our options or warrants are exercised.
SELECTED FINANCIAL DATA
We derived the statements of operations data for the years ended June 30, 1999 and 2000 and the period from February 6, 1998 (inception) to June 30, 1998, and the balance sheet data as of June 30, 1999 and 2000 from the audited financial statements in this prospectus. Those financial statements were audited by Ernst & Young LLP, independent auditors. We derived the balance sheet data as of June 30, 1998 from audited financial statements that are not included in this prospectus. The selected financial data presented below as of September 30, 2000 and for the three months ended September 30, 1999 and 2000 have been derived from our unaudited financial statements, which are included elsewhere in this prospectus and, in our opinion, reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. Operating results for the three months ended September 30, 2000 are not necessarily indicative of results that may be expected for any other interim period or for the year ending June 30, 2001. Historical results are not necessarily indicative of the results to be expected for any interim period or for the year as a whole.
The pro forma net loss per share data gives effect to the automatic conversion of all of our outstanding preferred stock upon the closing of this offering. The cost of revenue, research and development expenses, and selling, general and administrative expenses data below includes compensation related to stock option grants.
PERIOD FROM
FEBRUARY 6,
1998 THREE MONTHS ENDED
(INCEPTION) TO YEARS ENDED JUNE 30, SEPTEMBER 30,
JUNE 30, ---------------------- ----------------------
1998 1999 2000 1999 2000
-------------- --------- ---------- --------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Revenue............................ $ -- $ 1,504 $ 6,774 $ 1,350 $ 2,761
Cost of revenue*................... -- 1,033 4,445 817 2,408
------- --------- ---------- --------- ----------
Gross profit....................... -- 471 2,329 533 353
Research and development
expenses*........................ -- 3,301 3,963 696 1,702
Selling, general and administrative
expenses*........................ 62 1,522 3,470 439 1,694
------- --------- ---------- --------- ----------
Total operating expenses........... 62 4,823 7,433 1,135 3,396
------- --------- ---------- --------- ----------
Loss from operations............... (62) (4,352) (5,104) (602) (3,043)
Interest expense................... -- (136) (384) (84) (173)
Interest income.................... 13 181 356 25 130
------- --------- ---------- --------- ----------
Net loss........................... (49) (4,307) (5,132) (661) (3,086)
Deemed dividend related to
beneficial conversion feature of
preferred stock.................. -- -- -- -- (5,000)
------- --------- ---------- --------- ----------
Net loss applicable to common
stockholders..................... $ (49) $ (4,307) $ (5,132) $ (661) $ (8,086)
======= ========= ========== ========= ==========
Basic and diluted net loss per
share applicable to common
stockholders..................... $ (0.06) $ (1.48) $ (1.68) $ (0.22) $ (2.17)
======= ========= ========== ========= ==========
Shares used in computing basic and
diluted net loss per share....... 863,964 2,918,367 3,063,439 2,968,575 3,718,550
======= ========= ========== ========= ==========
|
PERIOD FROM
FEBRUARY 6,
1998 THREE MONTHS ENDED
(INCEPTION) TO YEARS ENDED JUNE 30, SEPTEMBER 30,
JUNE 30, ---------------------- ----------------------
1998 1999 2000 1999 2000
-------------- --------- ---------- --------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Pro forma basic and diluted net
loss per share applicable to
common stockholders
(unaudited)...................... $ (0.44) $ (0.57)
========== ==========
Shares used in computing pro forma
basic and diluted net loss per
share (unaudited)................ 11,697,343 14,109,105
========== ==========
*Includes compensation related to stock option grants:
Cost of revenue.................. $ 43 $ 210
Research and development
expenses...................... 35 140
Selling, general and
administrative expenses....... 1,040 357
---------- ----------
Total.................... $ 1,118 $ 707
========== ==========
|
AS OF JUNE 30, AS OF
------------------------------ SEPTEMBER 30,
1998 1999 2000 2000
-------- -------- -------- -------------
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities..................................... $ 2,608 $ 2,186 $ 5,784 $ 10,360
Other current assets............................. 192 1,819 2,764 3,820
Property, plant and equipment, net............... 6 2,872 6,911 10,236
Other assets..................................... 4 248 364 371
-------- -------- -------- --------
Total assets................................... $ 2,810 $ 7,125 $ 15,823 $ 24,787
======== ======== ======== ========
Total current liabilities........................ $ 57 $ 2,744 $ 6,338 $ 6,634
Long-term debt, less current portion............. -- 1,824 2,833 3,620
Total stockholders' equity....................... 2,753 2,557 6,652 14,533
-------- -------- -------- --------
Total liabilities and stockholders' equity..... $ 2,810 $ 7,125 $ 15,823 $ 24,787
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this prospectus. This discussion may contain forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under "Risk Factors" and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements.
OVERVIEW
We offer a broad range of products and services to pharmaceutical and biotechnology companies to bridge the gap between the discovery of disease-related proteins and the testing of potential drug candidates in animals and humans. Our experienced scientists provide premium products and services to create, evaluate and optimize potential drug candidates. In addition, we have developed an information-driven technology platform to support our scientists in making better decisions at each stage of the drug discovery process. We also leverage our capabilities internally to develop proprietary drug candidates in collaboration with our customers. We have incurred net losses since inception and expect to incur losses in the near future as we expand our scientific staff and continue the scale-up of our operations. To date, we have funded our operations primarily through the issuance of equity securities, borrowings and revenue from our collaborators. As of September 30, 2000, we had an accumulated deficit of $12.6 million.
We generate revenue by selling products and providing services to our collaborators. Since our existing collaboration agreements provide commingled revenue, we do not report product and service revenue separately in our financial statements. In general, we sell our compounds, including our Optimer building blocks and Diversity Library, on a per-compound basis, although some of our contracts allow our customers to obtain exclusive rights to particular compounds upon the payment of additional fees. We are typically paid for our services under our collaboration agreements based on the number of full-time equivalent employees contractually assigned to a project, at an annual full-time equivalent price, plus certain expenses. Custom collections of chemical compounds we create and custom chemical synthesis we perform under our service agreements are typically charged on a per-delivered compound basis, plus a charge for research and development. In addition, two of our collaboration agreements provide for additional payments upon our achievement of certain milestones and one of our collaboration agreements provides for license fees. Our future agreements may also provide royalties. We have not yet generated any license fees or milestone or royalty payments. In general, our collaborators may terminate our collaboration agreements with them on 30 to 90 days' prior notice. During the three months ended September 30, 2000, ICOS Corporation, and Eli Lilly and Company accounted for 36% and 26%, respectively, of our total revenue. During fiscal year 2000, ICOS Corporation, Celltech Chiroscience Ltd., through its subsidiary Darwin Discovery Limited, and Merck & Co., Inc. accounted for 45%, 11% and 8%, respectively, of our total revenue. We will seek to generate revenue from new collaboration agreements that will reduce our concentration of revenue.
We generally recognize revenue upon shipment of our products or upon performance under our collaboration agreements. Revenue from our full-time equivalent collaboration service agreements is recognized on a monthly or per diem basis as work is performed. Revenue from our development, fixed-fee and fee-per-compound collaboration service agreements is recognized either on a percentage of completion basis or as compounds are shipped. Revenue from license fees will be recognized over the term of the particular license. Revenue from up front fees will be recognized over the expected term of the particular collaboration agreement.
Cost of revenue consists mainly of compensation, associated fringe benefits and other product or service-related costs, including recruiting and relocation, fine chemicals, supplies, small tools, facilities, depreciation and other direct and indirect chemical handling and laboratory support costs, excluding any costs related to research and development.
Research and development expenses consist of the same type of scientific expenditures that comprise cost of revenue, except that the expenses are related to the development of our early-stage intellectual
property and products where we have not yet proven technological feasibility. Costs of routine or production-related activities are charged to cost of revenue.
Selling, general and administrative expenses consist mainly of compensation and associated fringe benefits and other management, business development, accounting, information technology and administration costs, including consulting and professional services, travel and meals, advertising, sales commissions, facilities, depreciation and other office expenses.
We currently sell our products and services directly to pharmaceutical and biotechnology companies through our senior management and scientists and through customer referrals. In addition, we sell our products and services in Japan through an agent. International revenue represented 8% and 9% of our total revenue during fiscal years 1999 and 2000, respectively. The majority of our international revenue was attributed to European sales, and the remaining was attributed to sales in Japan. All of our collaboration agreements and purchase orders are denominated in United States dollars.
We intend to grow our revenue with existing customers and to realize new revenue streams through collaborations with a diversified group of pharmaceutical and biotechnology companies. In addition, we expect to enter into contracts that allow us to participate in the success of potential drug candidates with our collaborators through milestone and/or royalty payments and to participate in the success of our proprietary potential drug candidates through a combination of licensing fees, milestone and/or royalty payments. We expect our growth to require significant ongoing investment in facilities, scientific personnel and business development resources.
STOCK COMPENSATION
During fiscal year 2000 and the three months ended September 30, 2000, we recorded deferred stock compensation totaling $11.7 million. We recorded compensation expense related to stock option grants of approximately $1.1 million for fiscal year 2000 and approximately $707,000 for the three months ended September 30, 2000. At September 30, 2000, we had a total of $9.9 million of remaining deferred stock compensation to be amortized. Assuming the consummation of this offering, we expect to amortize deferred stock compensation recorded through September 30, 2000 as follows: $3.8 million during the remainder of fiscal year 2001; $2.2 million in fiscal year 2002; $2.0 million in fiscal year 2003; $1.9 million in fiscal year 2004; and $64,000 in fiscal year 2005. Of the $4.4 million in deferred compensation we expect to amortize in fiscal year 2001, $1.2 million is directly attributable to unvested options that will be accelerated and exercisable upon the closing of this offering. We expect to record additional deferred compensation for options granted after September 30, 2000. To date, we have granted our employees stock options as annual incentive bonus awards. Any future annual incentive bonus awards may include a partial cash component in addition to stock-based compensation. You should read Note 5 of the notes to our financial statements included elsewhere in this prospectus for additional information.
DEEMED DIVIDEND UPON ISSUANCE OF CONVERTIBLE PREFERRED STOCK
On August 31, 2000, we issued 1,666,667 shares of our Series C preferred stock, which is convertible on a one-to-one basis into shares of common stock, at $6.00 per share to investors resulting in gross proceeds of $10.0 million. Subsequent to the commencement of the initial public offering process, we reevaluated the fair value of our Series C preferred stock as of August 31, 2000 and determined it to be $9.00 per share. Accordingly, the incremental fair value of $5.0 million, or $3.00 per share, is deemed to be the equivalent of a dividend on the Series C preferred. We recorded the deemed dividend at the date of issuance by offsetting charges and credits to preferred stock, without any effect on total stockholders' equity. The preferred stock dividend increases the loss applicable to common stockholders in the calculation of basic net loss per share for fiscal year 2001 and all related interim periods.
RESULTS OF OPERATIONS
The following table presents our results of operations for the nine quarters in the period ending September 30, 2000. This information has been compiled from our unaudited interim financial statements.
Our unaudited financial statements have been prepared on the same basis as our audited financial statements. All adjustments, consisting only of normal recurring accruals considered necessary for a fair presentation, have been included. The cost of revenue, research and development expenses, and selling, general and administrative expenses data in the following table includes compensation related to stock option grants. The results of operations for any quarter are not necessarily indicative of the results of operations for any future period.
THREE MONTHS ENDED,
-------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1999 1999 1999
------------- ------------ --------- -------- -------------
(IN THOUSANDS)
Revenue...................................... $ -- $ 39 $ 462 $ 1,002 $1,350
Cost of revenue*............................. 11 23 328 671 817
------- ------- ------- ------- ------
Gross profit................................. (11) 16 134 331 533
Research and development expenses*........... 778 751 962 810 696
Selling, general and administrative
expenses*.................................. 206 462 354 500 439
Total operating expenses..................... 984 1,213 1,316 1,310 1,135
------- ------- ------- ------- ------
Loss from operations......................... (995) (1,197) (1,182) (979) (602)
------- ------- ------- ------- ------
Interest expense............................. -- (16) (44) (75) (84)
Interest income.............................. 58 48 36 39 25
------- ------- ------- ------- ------
Net loss............................. $ (937) $(1,165) $(1,190) $(1,015) $ (661)
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*Includes compensation related to stock option grants:
Cost of revenue..................................................................................................
Research and development expenses................................................................................
Selling, general and administrative expenses.....................................................................
Total.........................................................................................................
THREE MONTHS ENDED,
---------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1999 2000 2000 2000
------------ --------- -------- -------------
(IN THOUSANDS)
Revenue...................................... $ 1,351 $ 1,825 $ 2,248 $ 2,761
Cost of revenue*............................. 801 1,173 1,654 2,408
------- ------- ------- --------
Gross profit................................. 550 652 594 353
Research and development expenses*........... 920 1,020 1,327 1,702
Selling, general and administrative
expenses*.................................. 1,094 888 1,049 1,694
Total operating expenses..................... 2,014 1,908 2,376 3,396
------- ------- ------- --------
Loss from operations......................... (1,464) (1,256) (1,782) (3,043)
------- ------- ------- --------
Interest expense............................. (87) (87) (126) (173)
Interest income.............................. 86 126 119 130
------- ------- ------- --------
Net loss............................. $(1,465) $(1,217) $(1,789) $ (3,086)
======= ======= ======= ========
*Includes compensation related to stock option grants:
Cost of revenue............................. $ -- $ 5 $ 38 $ 210
Research and development expenses........... -- 4 31 140
Selling, general and administrative expenses 355 338 347 357
------- ------- ------- --------
Total.................................... $ 355 $ 347 $ 416 $ 707
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THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenue. Total revenue increased to $2.8 million for the three months ended September 30, 2000 from $1.4 million for the three months ended September 30, 1999. This increase in revenue was primarily a result of additional revenue generated under our expanded collaborations with Eli Lilly and Company and ICOS Corporation.
Cost of revenue. Cost of revenue increased to $2.4 million for the three months ended September 30, 2000 from approximately $817,000 for the three months ended September 30, 1999, reflecting the increased cost to support our revenue growth in the same period. The cost increases during the 2000 period were primarily attributed to recruiting and relocating additional scientific staff and associated salaries and benefits, and the expenditures associated with equipping and commencing operations in our new and expanded facilities. These and other costs are expected to continue to increase in the future to support our growth. We expect salaries for our scientific personnel to increase in future years at a rate in excess of general inflation because of the increased market demand for scientists. Cost of revenue was 87% of revenue during the 2000 period, compared to 61% during the 1999 period. The increase in cost of revenue as a percentage of revenue during the 2000 period as compared to the 1999 period was due primarily to facility expansion costs, increased recruiting costs and compensation related to stock option grants.
Research and development expenses. Research and development expenses increased to $1.7 million for the three months ended September 30, 2000 from approximately $696,000 for the three months ended September 30, 1999. The increase in research and development expenses during the 2000 period was primarily attributed to expanded research efforts for our Diversity Library agreements and custom synthesis
collaborations. These expanded research efforts required the recruitment and relocation of additional scientific staff and associated salaries and benefits, and the expenditures associated with equipping and commencing operations in our new and expanded facilities. We plan to increase our research and development efforts related to the discovery of additional intellectual property, which will result in increased research and development expenses.
Selling, general and administrative expenses. Selling, general and administrative expenses totaled $1.7 million for the three months ended September 30, 2000, compared to approximately $439,000 for the three months ended September 30, 1999. The increase in selling, general and administrative expenses during the 2000 period was primarily attributed to compensation related to stock option grants, relocation costs, increased staffing levels and expanded management.
Compensation related to stock option grants. Compensation expense related to stock option grants was approximately $707,000 for the three months ended September 30, 2000. There was no compensation expense related to stock option grants for the three months ended September 30, 1999. The expense for the 2000 period is allocated among the following functional areas: 50% to selling, general and administrative expenses, 30% to cost of revenue and 20% to research and development expenses. For the three months ended September 30, 2000, we recorded deferred stock compensation of $6.0 million.
Interest income or expense. We had net interest expense of approximately $43,000 for the three months ended September 30, 2000, compared to net interest expense of approximately $59,000 for the three months ended September 30, 1999. The decrease in net interest expense for the 2000 period was primarily due to larger interest income from our larger balances of cash, cash equivalents and marketable securities, partially offset by increased borrowing for the 2000 period.
FISCAL YEARS ENDED JUNE 30, 2000 AND 1999
Revenue. Total revenue increased to $6.8 million in fiscal year 2000 from $1.5 million in fiscal year 1999. The revenue increase from fiscal year 1999 to fiscal year 2000 was primarily a result of a full year of operations in fiscal year 2000 versus a partial year of operations in fiscal year 1999. Sales increased in all products and services offered, and most significantly in lead optimization services, process chemistry services and subscriptions to our Diversity Library.
Cost of revenue. Cost of revenue increased to $4.4 million in fiscal year 2000 from $1.0 million in fiscal year 1999, reflecting the increased cost to support our revenue growth in the same period. The cost increases in fiscal year 2000 were primarily attributed to recruiting and relocating additional scientific staff and associated salaries and benefits, and the expenditures associated with equipping and commencing operations in our new and expanded facilities. Cost of revenue was 66% of revenue in fiscal year 2000, compared to 69% in fiscal year 1999. The reduction in cost of revenue as a percentage of revenue in 2000 as compared to 1999 was due primarily to a larger revenue base against which to apply certain fixed costs.
Research and development expenses. Research and development expenses increased to $4.0 million in fiscal year 2000 from $3.3 million in fiscal year 1999. The increase in research and development expenses in fiscal year 2000 was primarily attributed to expanded research efforts for our Diversity Library and custom synthesis collaborations. These expanded research efforts required the recruitment and relocation of additional scientific staff and associated salaries and benefits, and the expenditures associated with equipping and commencing operations in our new and expanded facilities.
Selling, general and administrative expenses. Selling, general and administrative expenses totaled $3.5 million in fiscal year 2000, compared to $1.5 million in fiscal year 1999. The increase in selling, general and administrative expenses in fiscal year 2000 was primarily attributed to our increased staffing levels and expanded management. The recruitment and relocation of senior management was a significant component of our selling, general and administrative expenses in fiscal year 2000.
Compensation related to stock option grants. Compensation expense related to stock option grants was approximately $1.1 million in fiscal year 2000. There was no compensation expense related to stock option
grants in fiscal year 1999. The expense for fiscal year 2000 relates primarily to the selling, general and administrative functional area. In fiscal year 2000, we recorded deferred stock compensation of $5.8 million.
Interest income or expense. We had net interest expense of approximately $28,000 in fiscal year 2000, compared to net interest income of approximately $45,000 in fiscal year 1999. The net interest expense in fiscal year 2000 compared with net interest income in fiscal year 1999 was primarily due to increased borrowing to finance equipment purchases, offset partially by larger interest income from our larger balances of cash, cash equivalents and marketable securities in fiscal year 2000.
FOR THE PERIOD FROM FEBRUARY 6, 1998 (INCEPTION) TO JUNE 30, 1998
We were formed in February 1998, but we did not begin incurring costs until May 1998. Our operations in May and June of 1998 consisted primarily of obtaining equity financing, leasing facilities, hiring personnel and travelling to prospective customer locations. A comparison of this period to operations data from fiscal year 1999 would not be meaningful.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations principally with $25.3 million of private equity financing and $7.9 million in short-term and long-term debt and equipment financing arrangements. Equity investments came from a common stock offering and a series of three preferred stock offerings that occurred from May 1998 through August 2000.
Between May 19, 1998 and January 15, 1999, we issued 6,635,000 shares of our Series A preferred stock resulting in gross proceeds of $6.6 million and 2,913,367 shares of our common stock resulting in gross proceeds of $685,000. On November 16, 1999, we issued 3,199,999 shares of our Series B preferred stock resulting in gross proceeds of $8.0 million. On August 31, 2000, we issued 1,666,667 shares of our Series C preferred stock resulting in gross proceeds of $10.0 million.
In May 1998, we loaned an aggregate of $350,000 to three of our founders to purchase shares of our common stock. These loans are secured by pledges of certain shares of common stock owned by these founders, bear interest at a rate of 6.0% per annum and, in the case of two of the founders who are employees, are due on the earlier of September 1, 2002 or the date the founder's employment with us is terminated. In the case of the third founder, who is not an employee, the note is due on May 18, 2002. As of September 30, 2000, approximately $399,000 in principal and accrued interest remained outstanding under these loans. See "Related Party Transactions" included elsewhere in this prospectus.
In November 1998 and February 1999, we drew down the entirety of a $1.5 million loan from Silicon Valley Bank for the acquisition of equipment pursuant to a Loan and Security Agreement dated as of October 9, 1998. The notes reflecting this loan are payable in monthly installments with a final payment of 8.0% of the initial loan draw due at maturity, mature 42 months from the date of the initial funding under the loan and bear interest at a rate equal to the yield to maturity of the 42-month United States Treasury note as of the funding date, plus 3.0%. As of September 30, 2000, approximately $814,000 in principal and accrued interest remained outstanding under these notes. In addition, on October 9, 1998, we issued a warrant to Silicon Valley Bank in connection with this loan to purchase 40,000 shares of our Series A preferred stock at an exercise price of $1.00 per share, subject to certain adjustments.
In February 1999, we entered into a Master Note and Security Agreement with Leasing Technologies International, Inc. for a $1.5 million secured installment loan to finance our acquisition of equipment. We drew down the entire loan during the following 13 months. The notes reflecting this loan are payable in monthly installments with a final payment of 8.0% of the initial funding due at maturity, mature 42 months from the date of the initial funding and bear interest at a rate averaging approximately 11.9%. As of September 30, 2000, approximately $1.3 million in principal and accrued interest remained outstanding under this loan. In addition, on March 30, 1999, we issued a warrant to Leasing Technologies International, Inc. in connection with this loan to purchase 13,750 shares of our Series A preferred stock at an exercise price of $3.00 per share, subject to certain adjustments.
In April 1999, we drew down the entirety of a $500,000 loan from Silicon Valley Bank for the acquisition of equipment pursuant to a Loan and Security Agreement dated as of March 26, 1999. The notes reflecting this loan are payable in monthly installments with a final payment of 8.0% of the initial loan draw due at maturity, mature 42 months from the date of the initial funding under the loan and bear interest at a rate equal to the yield to maturity of the 42-month United States Treasury note as of the funding date, plus 3.0%. The notes do not have a prepayment option. As of September 30, 2000, approximately $317,000 in principal and interest remained outstanding under these notes. In addition, on March 31, 1999, we issued a warrant to Silicon Valley Bank in connection with this loan to purchase 7,000 shares of our Series B preferred stock at an exercise price of $2.50 per share, subject to certain adjustments.
In May 2000, we entered into a Loan and Security Agreement with Silicon Valley Bank for a $4.0 million line of credit permitting advances over a one-year period to finance the acquisition of equipment. Each advance plus interest must be paid in monthly installments within 36 months of the date of such advance. Interest accrues on outstanding amounts at a rate of 1.25% over Silicon Valley Bank's prime rate, which may be reduced based on our financial performance. We may prepay the line of credit upon paying an early termination fee. As of September 30, 2000, approximately $3.6 million was outstanding. In addition, we issued Silicon Valley Bank a warrant to purchase 50,000 shares of our Series B preferred stock at an exercise price of $5.00 per share, subject to certain adjustments.
In October 2000, we entered into a Research and License Agreement with Amgen Inc. for the development and possible commercialization of one of our proprietary drug candidates. This agreement provides for an up-front fee of $1.8 million Payable by Amgen in November 2000.
As of September 30, 2000, cash, cash equivalents and marketable securities totaled $10.4 million compared to $5.8 million at June 30, 2000. Net cash used in operating activities was $3.4 million for the three months ending September 30, 2000. Our net loss for the same period of $3.1 million was partially offset by non-cash charges of $1.2 million, and our working capital increased by $1.5 million to account for most of the remainder of net cash used in operations. Working capital increased due to capitalized costs of this initial public offering and increases in inventory and accounts receivable. Accounts payable and advances from customers also declined. The increase in these operating assets reflects the continued expansion of our business during the 2000 period.
During the three months ending September 30, 2000, we invested in capital equipment and leasehold improvements totaling $3.8 million. Financing activities provided $11.7 million consisting of $10.0 million from the sale of our Series C preferred stock, $269,000 from option exercises and $2.0 million from borrowings under our equipment loans, less the repayment of $529,000.
As of June 30, 2000, cash, cash equivalents and marketable securities totaled $5.8 million, compared to $2.2 million at June 30, 1999. Net cash used in operating activities was $1.3 million for fiscal year 2000. Our net loss of $5.1 million was offset by non-cash charges of $2.1 million and a reduction in working capital of $1.7 million. Working capital decreased due to increased accounts payable, and advances from customers which exceeded the increases in accounts receivable and inventories. The increase in these operating assets and liabilities reflect the expansion of our business during fiscal year 2000.
In fiscal year 2000, we invested in capital equipment and leasehold improvements totaling $5.0 million. Financing activities provided $10.1 million consisting of $8.0 million from the sale of our Series B preferred stock and $2.9 million from borrowings under our equipment loans, less the repayment of $871,000.
Our future capital requirements will depend on a number of factors, including our success in increasing sales of both existing and new products and services, expenses associated with unforeseen litigation, regulatory changes, competition, technological developments and potential future merger and acquisition activity. We believe that our existing cash, cash equivalents and marketable securities and anticipated cash flow from existing collaboration agreements together with the net proceeds of this public offerings will be sufficient to support our current operating plan for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary as a result of a number of factors. Our future capital requirements will depend on many factors, including:
- the progress of our research activities;
- the number and scope of our research programs;
- the progress of our preclinical and clinical development activities;
- the progress of the development efforts of our collaborators;
- our ability to establish and maintain current and new collaboration agreements;
- the costs involved in enforcing patent claims and other intellectual property rights;
- the costs and timing of regulatory approvals; and
- the costs of establishing business development and distribution capabilities.
Future capital requirements will also depend on the extent to which we acquire or invest in businesses, products and technologies. Until we can generate sufficient levels of cash from our operations, which we do not expect to achieve for at least several years, we expect to finance future cash needs through the sale of equity securities, strategic collaboration agreements and debt financing as well as interest income earned on cash balances. We cannot assure you that additional financing or collaboration agreements will be available when needed or that, if available, this financing will be obtained 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 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 raised by issuing equity securities, substantial dilution to existing stockholders may result.
At June 30, 2000, we had federal and Colorado income tax net operating loss carryforwards for income tax purposes of approximately $8.4 million, which will expire beginning in 2018 and continuing through 2020. We have provided a 100% valuation allowance against the related deferred tax assets as realization of such tax benefits is not assured.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Short-term investments. Our interest income is sensitive to changes in the general level of United States interest rates, particularly since a significant portion of our investments are and will be in short-term marketable securities. Due to the nature and maturity of our short-term investments, we have concluded that there is no material market risk exposure.
Foreign currency rate fluctuations. We have not taken any action to reduce our exposure to changes in foreign currency exchange rates, such as options or futures contracts, with respect to transactions with our worldwide customers.
Inflation. We do not believe that inflation has had a material impact on our business or operating results during the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS No. 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of relationship that exists. In July 1999, the Financial Accounting Standards Board issued SFAS 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement
No. 133. SFAS No. 137 deferred the effective date until fiscal years beginning after June 15, 2000. We have not engaged in hedging activities or invested in derivative instruments.
In December 1999, the Securities and Exchange Commission issued SAB 101, Revenue Recognition, which provides guidance on the recognition, presentation and disclosure on revenue in financial statements filed with the Securities and Exchange Commission. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. We believe that our current revenue recognition policy is in compliance with SAB 101.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation -- an Interpretation of APB 25 ("FIN 44"). This interpretation
clarifies (1) the definition of employee for purposes of applying APB 25, (2)
the criteria for determining whether a plan qualifies as a noncompensatory plan,
(3) the accounting consequences of various modifications to the terms of a
previously fixed stock option or award, and (4) the accounting for an exchange
of stock compensation awards in a business combination. This interpretation is
effective July 1, 2000, but certain conclusions in this interpretation cover
specific events that occur after either December 15, 1998, or January 12, 2000.
To the extent that this interpretation covers events occurring during the period
after December 15, 1998, or January 12, 2000, but before the effective date of
July 1, 2000, the effects of applying this interpretation are recognized on a
prospective basis from July 1, 2000. The adoption of FIN 44 did not impact our
financial statements.
BUSINESS
OVERVIEW OF ARRAY'S BUSINESS
Array BioPharma is a discovery research company creating drug candidates through innovations in chemistry. Our experienced scientists provide premium products and services to create, evaluate and optimize potential drug candidates in collaboration with pharmaceutical and biotechnology companies. We believe our information-based approach improves the efficiency of the drug discovery process and increases the quality of potential drug candidates. We also apply these capabilities internally for our own drug discovery programs.
The drug industry is experiencing revolutionary change fueled by genomics, which is the study of all genes, and by the tremendous progress in the biological understanding of disease. We believe the drug research and development bottleneck is shifting from the discovery by biologists of proteins that may cause disease, known as targets, to the creation by chemists of safe and effective new drugs for these targets. We provide a broad range of premium drug discovery products and services to bridge the gap between the discovery of targets and the testing of drug candidates in animals and humans. We believe that our integrated approach to drug discovery combined with our information-driven technology platform will enable both our collaborators and our internal discovery teams to create higher quality drugs and to do so more quickly and less expensively.
Our objective is to become the leading creator of high quality potential drug candidates by providing premium discovery chemistry products, services and technologies. Our achievements to date include:
- Creating our own potential drug candidates and entering into a research and license agreement with Amgen Inc. providing for the development and possible commercialization of one of these potential drug candidates;
- Entering into collaboration agreements with pharmaceutical companies such as Eli Lilly and Company and Merck & Co., Inc.;
- Entering into collaboration agreements with biotechnology companies such as Celltech Chiroscience Ltd., through its subsidiary Darwin Discovery Limited, ICOS Corporation and Tularik Inc.;
- Discovering a drug candidate suitable for human testing with our first collaboration partner, ICOS;
- Creating a technology platform to identify new drug candidates from genomic information; and
- Growing our staff since our inception in 1998 to 120 full-time employees as of October 20, 2000, including 89 scientists, of whom 84 are chemists, 47 have Ph.D.'s and 42 have large pharmaceutical company experience.
We intend to grow revenue and achieve profitability while sharing in the success we aim to create for our collaborators. We intend to maximize the value we capture by focusing our scientific resources on our proprietary drug discovery programs and collaborations that utilize our full breadth of products and services and that enable us to participate in the success of the potential drug candidates we create.
Our company was founded in 1998 in Boulder, Colorado by four Ph.D. chemists. Our early employees included 20 former Amgen scientists who had previously been recruited from large pharmaceutical companies. The founders were able to obtain venture capital financing, lease part of Amgen's former research facilities and begin operations in May 1998.
DRUG RESEARCH AND DEVELOPMENT
Drug research and development is the process of creating drugs for the treatment of human disease. The drug research process aims to generate safe and effective drug candidates, while the drug development process involves the testing of these drug candidates for safety and efficacy in animals and humans. The role of biology in drug research is primarily focused on the early stages of drug research, including understanding
the mechanism of diseases and identifying potential drug targets for therapeutic intervention. The role of chemistry in drug research is the actual creation of safe and effective drug candidates to address these targets.
Drug Characteristics
Drug characteristics are the criteria that measure the effectiveness of a drug in treating a particular disease. These characteristics include:
- Potency, which is the amount of a drug required to effectively treat the disease; the greater the potency, the smaller the required dose and therefore the smaller the likelihood of harmful side effects;
- Selectivity, which is the extent to which a drug interacts only with the disease-causing target; the greater the selectivity, the lower the probability of harmful side effects;
- Toxicity, which is the presence and significance of any harmful side effects;
- Metabolism, which is how rapidly the drug works and how long it stays effective; and
- Formulation, which is how the drug is administered to patients, for example, orally or by injection.
Drugs created by chemists are generally small in molecular weight relative to targets and are known as small molecule drugs. Small molecule drugs are generally administered orally and remain the preferred treatment for most diseases. They are particularly appropriate for the treatment of chronic diseases requiring the daily administration of medications over many years. Revenue from the 200 top selling drugs in 1999 comprised 41% of the $337 billion worldwide drug market. We estimate that 90% of the revenue in 1999 for these top 200 drugs was attributable to small molecule drugs created through the application of chemistry.
Drug Research and Development Process
Currently, the process of researching and developing a safe and effective drug is slow and expensive and has a high failure rate. This process is estimated to take an average of 12 years and to have a risk adjusted cost of $500 million per drug. This long and costly process is due largely to the inability of science to predict which of a virtually infinite number of possible small molecule drugs will prove to be safe and effective. We believe that improved decision making by chemists early in drug discovery can improve the success rate of, and lower the cost and time required for, the development of safe and effective drugs.
The following is a more detailed description of the drug research and development process, which includes:
- Target discovery, including target identification and validation;
- Drug discovery, including lead generation, lead optimization, and process research and development;
- Pre-clinical development, which involves testing a potential drug candidate for safety and efficacy in animals; and
- Clinical development, which involves testing a drug candidate for safety and efficacy in humans.
[GRAPHIC DEPICTING THE DRUG RESEARCH AND DEVELOPMENT PROCESS]
Target Discovery
The mapping and sequencing of the human genome, which is the set of all human genes, has identified large numbers of genes that encode the chemical information for cells to produce proteins. These proteins determine human physiology, and some cause disease. These disease-related proteins are potential targets for therapeutic intervention with a drug. Biologists identify the targets against which chemists create drugs. Organizations that develop new drugs, principally pharmaceutical and biotechnology companies, are advancing many of these newly identified potential drug targets into drug discovery. Many of these potential drug targets have not yet been validated, meaning that their roles in causing disease are imperfectly understood.
Drug Discovery
LEAD GENERATION
Lead generation is the process of identifying hits, which are chemical compounds that interact with a potential drug target with sufficient potency and selectivity to warrant further testing and refinement as possible drug candidates. These potential drug candidates are called leads.
Assay development and compound screening. Once biologists identify a potential drug target, biochemists must develop tests, called assays, to evaluate, or screen, potential drug compounds against these targets for their therapeutic value. Depending on the target and what is understood about its biology, biologists develop many types of primary assays conducted in test tubes, called in vitro assays, to measure the relative potency and specificity of interaction of a potential drug compound with a target. Biochemists further evaluate the drug characteristics of compounds by creating more complex secondary assays that are both in vitro and conducted in animals, known as in vivo. A typical screening campaign for a given target entails screening small amounts of thousands of chemical compounds from collections of chemical compounds known as libraries.
Compound libraries. Chemists design compound libraries to provide a starting point to identify leads in the drug discovery process and to better understand the biochemistry and therapeutic relevance of targets. A well-designed library increases the likelihood of finding a hit that is suitable for optimization of its drug
characteristics. Screening of low quality libraries often produces either numerous false hits or hits that are not suitable for optimization, creating a bottleneck in secondary screening and downstream chemistry. Therefore, we believe high quality libraries should produce better candidates at a lower cost.
Libraries can consist of newly synthesized compounds or of historical collections of synthetic compounds or natural products. It is estimated that over 10(60), or virtually an infinite number, of possible chemical structures are of an appropriate size and contain the right elements to be potential drugs. Since it would be impossible to create or screen even a small fraction of this universe of possible compounds, the choice of which compounds to synthesize is critical and is based on several factors, including ease of synthesis, desired drug characteristics and chemical properties. A high quality library for drug discovery will contain compounds of high purity and have valuable drug characteristics, from which chemists can rapidly optimize hits to generate leads. At the same time, the design of a high quality library should maximize the differences between compounds, also known as diversity, so that each compound provides important information about its potential as a drug candidate against a specific target. Furthermore, high quality libraries should not contain compounds with metabolic or toxic liabilities or compounds that may interact nonspecifically with many different targets.
Compound synthesis. Compound synthesis is the process by which chemists use a small set of commercially available starting materials called building blocks to create new compounds. Compound synthesis is accomplished by adding building blocks to a core chemical structure, called a scaffold, through a chemical reaction, either one reaction at a time or in a parallel fashion using technology known as automated high-speed synthesis. Chemists determine which compounds to prepare and try to choose a method that will minimize the number of steps and the time required for synthesis. Compound synthesis often involves multiple separate chemical steps. While new technologies have increased productivity, the synthesis of compounds with desirable drug characteristics remains a rate-limiting step in the drug discovery process.
LEAD OPTIMIZATION
Lead optimization is the complex, multi-step process of refining the chemical structure of a hit to improve its drug characteristics, with the goal of producing a pre-clinical drug candidate. The process of lead optimization typically falls between two extremes known as empirical lead optimization and rational drug design. Empirical lead optimization emphasizes screening large numbers of compounds, often generated through combinatorial chemistry, to optimize leads. Combinatorial chemistry relates to the mechanics of mixing and matching different building blocks, in combination with a scaffold, to create a library that may or may not be designed to have optimal drug characteristics and maximum diversity. Combinatorial chemistry typically creates libraries using automated high-speed synthesis. Rational drug design, in contrast, optimizes leads through the detailed analysis of the three-dimensional structure of the target and of the chemical structure required for a potential drug compound to interact with that target. We believe a combination of these two approaches, one that optimizes leads through a continuous, multi-step process based on knowledge gained at each stage, generally results in higher quality potential drug candidates at lower cost than either approach by itself.
Hits to quality leads. By definition, a quality lead can be readily optimized into a potential drug candidate. At the initiation of a drug discovery project, goals defining the desired drug characteristics, or candidate criteria, are established. Medicinal chemistry involves the design, selection and synthesis of compounds to achieve these specified drug characteristics. Any hits obtained from screening against targets are evaluated relative to these candidate criteria. Typically, one or more hits are evaluated in secondary assays, and a set of structurally-related compounds, called analogs, are synthesized and screened as well. Chemists determine which hits or analogs to optimize based on a combination of their potential drug characteristics, ease of synthesis and structure-activity relationship, or SAR. SAR is quantitative information that correlates changes in chemical structure to biological data generated from screening assays. The ability of chemists to make informed decisions as to which changes in structure will optimize a hit's valuable drug characteristics is based mostly on experience and is a key parameter for productivity in drug discovery.
This optimization process can be accomplished by an empirical, linear approach where each analog is evaluated to determine its drug characteristics and, based upon this analysis, an additional analog is synthesized. Alternatively, a rational, parallel approach can be used to simultaneously create multiple analogs, called focused libraries. These focused libraries can be screened against targets to generate a matrix of SAR information, resulting in accelerated optimization.
Leads to pre-clinical candidates. A pre-clinical candidate is a lead that has been optimized to meet particular drug candidate criteria and that is ready for toxicity testing. Chemists utilize SAR information, derived from focused libraries, complex secondary assays, and other technologies, including x-ray crystallography and molecular modeling, to engineer hits with desired drug characteristics into leads. Complex secondary assays, such as those using human tissues and animal models, can help define the potential of drugs to be safe and effective in humans. Technologies that help improve the prediction of clinical success include x-ray crystallography, which can determine the exact three-dimensional structure of potential drug compounds bound to targets, and molecular modeling, a computational method that helps chemists to design more potent and selective compounds. In addition, chemists can use databases correlating chemical structure to biology, generally referred to as chemoinformatics, to help predict SAR to optimize desired drug characteristics. While historically performed in a linear process, chemists now refine drug characteristics in parallel at every point in the lead optimization process, even in library creation. Ultimately, the experience, intuition and synthetic skills of medicinal chemists are still the determining factors in creating a successful drug candidate.
PROCESS RESEARCH AND DEVELOPMENT
The compounds chemists create for screening in lead generation and lead optimization are typically synthesized in relatively small, milligram quantities. The synthetic process to make compounds for screening typically uses a parallel synthesis approach to explore drug characteristics, rather than to optimize ease of synthesis. Before a drug candidate can be taken into pre-clinical and clinical trials, kilogram quantities must be synthesized. The goal of process research is to improve the ease with which compounds can be synthesized in these larger quantities, typically by minimizing the number of synthetic steps, and to determine how to reduce the time and cost of production. Process development refers to the production scale-up and further refinement required for clinical trials and commercial manufacturing.
Pre-Clinical Development
For regulatory purposes, a potential drug candidate must undergo extensive in vitro and in vivo studies to predict human drug safety, including toxicity over a wide range of doses and how the drug is metabolized. The objective of pre-clinical testing is to obtain results that will enable the pre-clinical drug candidate to be approved for human testing by the Food and Drug Administration, or FDA, through an Investigational New Drug, or IND, application.
Clinical Development
Clinical trials, or human tests of a potential drug candidate to determine safety and efficacy, are typically conducted in three sequential phases, although the phases may overlap. A successful clinical trial will result in the filing of a New Drug Application, or NDA, with the FDA to grant permission to market the drug in the United States. Similarly, clinical trials must be conducted and regulatory approvals secured before a drug can be marketed in other countries.
THE OPPORTUNITY
The drug industry. In 1999, worldwide drug sales increased 10.7% to an estimated $337 billion. Pharmaceutical companies in particular are under increasing pressure to introduce novel drugs to grow revenue. It is estimated that research and development spending over the last 20 years has increased approximately five fold, growing from nearly 12% of pharmaceutical company revenue in 1980 to an
estimated 20% in 2000. Despite this increase in research spending, the FDA approved only 36 new drugs in 1999, compared with 22 new drugs in 1989.
Problems with current drug discovery and development. Despite all of the recent technological advances in genomics, biology and chemistry, drug research and development remains slow, expensive and risky. Currently, fewer than 1% of all drug discovery programs yield marketable drugs. The drug industry faces multiple challenges in reducing the cost and time of drug discovery and development. These include the early identification and elimination of unsuccessful potential drug candidates and increasing the success rate at each stage of the drug development process.
Capitalizing on the genomics revolution. The drug research and development process is experiencing a fundamental change fueled by the revolution in genomics and the tremendous progress in the biological understanding of disease. The success of publicly and privately funded genomics initiatives, including the Human Genome Project, in sequencing the entire human genome heralds a new era in drug research and development. Heavy investment in the technologies to work out the biological understanding of gene function is widely expected to result in a dramatic increase in the number of potential drug targets. All of the human therapeutic drugs on the market today are directed at approximately 500 targets. The genomics revolution is projected to expand the number of potential therapeutic targets to between 5,000 and 10,000.
The importance of chemistry. We believe the bottleneck in drug research and development is shifting from the identification and validation of new targets to the creation of safe and effective new drugs for these targets. During the next decade, we believe the significant investment in genomics and biology will give rise to a dramatic increase in investment in discovery chemistry.
The chemical make-up of a drug is the key determinant of its safety and efficacy. Modifications in chemical structure can differentiate drugs and determine their success or failure in the marketplace. A good example of the importance of chemistry is the rapid growth of the cholesterol-lowering drug made by Pfizer, called Lipitor. While on the market for only three years, Lipitor matched the sales in the first half of 2000 of Zocor, the prior market leader which has been sold by Merck for 12 years. During this six-month period, sales of Lipitor grew 43% compared to Zocor's 19%. While the biological target, and therefore the mechanism of action, for Lipitor and Zocor are identical, small changes in chemistry resulted in Lipitor's improved efficacy and greater market acceptance.
While targets are generally used as tools for screening potential drug candidates, chemistry is necessary to create the actual drug provided to a patient. Therefore, while the ultimate value of intellectual property associated with newly identified targets is currently unknown, the value of intellectual property associated with drugs has proven to be significant.
Pharmaceutical industry challenges. The demand for new and improved drugs coupled with the emerging potential of new targets have created a shortage of qualified chemistry resources. Some pharmaceutical companies have revealed plans to significantly increase their internal discovery chemistry capacity over the next five years. However, we believe there will be a continuing shortage of qualified chemists to fill these positions. To the extent that they cannot hire qualified chemists, these companies must substantially increase the productivity of their internal chemistry departments, outsource these activities or otherwise acquire additional discovery capabilities. In fact, many pharmaceutical companies are augmenting their internal chemistry research capacities by outsourcing to discovery research companies.
Biotechnology industry challenges. Many biotechnology companies are increasing their focus on creating drugs against their proprietary targets. Historically, they have partnered with pharmaceutical companies to create small molecule drugs. These arrangements have often resulted in biotechnology companies relinquishing much of the economic value of their potential drug candidates. Accordingly, several biotechnology companies have announced their intention to develop an internal discovery chemistry capability. However, they face barriers in the form of the scale required to justify creating internal chemistry discovery capabilities, hiring and effectively integrating capable chemists and the significant investment necessary to create chemistry laboratories.
THE ARRAY SOLUTION
We address the discovery chemistry bottleneck by offering a broad range of products and services to bridge the gap between target discovery and pre-clinical and clinical development of a potential drug candidate. We are a discovery research company run by experienced chemists. We offer our products and services both individually and on a fully-integrated basis. We provide lead generation and optimization products, including building blocks and compound libraries, on both a custom and nonexclusive basis. We also provide a broad spectrum of drug discovery services, including lead generation, lead optimization and process research and development. Furthermore, we are leveraging our internal capabilities to create our own potential drug candidates, which we plan to optimize, develop and commercialize in collaboration with pharmaceutical and biotechnology companies.
We have developed an information-driven technology platform that we believe enables our scientists to make better decisions at each step of the drug discovery process. Our organizational structure emphasizes large, multi-disciplinary teams to improve problem solving, which we believe streamlines the drug discovery process. We believe that our integrated approach to drug discovery will enable both our collaborators and our internal discovery teams to create higher quality drugs and to do so more quickly and less expensively.
We have assembled a scientific team with experience in both the pharmaceutical and biotechnology industries and with a proven track record of success during their careers in drug discovery. We had the distinct advantage of recruiting 20 former Amgen scientists at our inception. This nucleus afforded us a critical mass of experienced chemists, which we believe has proven to be a competitive advantage in recruiting additional scientists. As of October 20, 2000, after over two years in operation, we had 120 full-time employees, including 89 scientists. Of our scientists, 84 are chemists, 47 have Ph.D.'s and 42 have large pharmaceutical company experience. Importantly, we have recruited scientists who, during their prior careers, have contributed collectively to multiple IND's and 140 drug-related patents and patent applications for pharmaceutical and biotechnology companies.
STRATEGY
Our objective is to become the leading creator of high quality potential drug candidates by providing premium discovery chemistry products and services. Our strategies to achieve this objective are as follows:
Provide an integrated chemistry solution to drug discovery. We provide a broad range of premium drug discovery products and services to bridge the gap between target discovery and pre-clinical testing. In addition to selling our chemistry products and services individually, we seek to expand our existing customer relationships across the full spectrum of our drug discovery capabilities. We further intend to enhance the value we provide by entering into new collaborations that leverage our integrated capabilities. Because of the breadth and quality of our products and services, we expect to become the discovery chemistry partner of choice for pharmaceutical and biotechnology companies.
Combine state-of-the-art technology with innovative chemistry to accelerate drug discovery. We intend to provide premium discovery chemistry to create drugs more efficiently in collaboration with the leading pharmaceutical and biotechnology companies and for our internal drug discovery programs. Central to this strategy are our integrated approach and our proprietary information-driven platform, which support our ability to provide premium products and services across the entire drug discovery process. We rely on our highly qualified and experienced chemists and our proprietary chemoinformatics tools to create the highest quality potential drug candidates by understanding the complex relationships between chemical structure and desirable drug characteristics. We are committed to continuous process improvement, implementation of new technologies, shared learning among our scientists and innovative organizational design.
Create our own potential drug candidates. We intend to maximize the value of our integrated drug discovery platform by creating our own potential drug candidates. We intend to commercialize these potential drug candidates by entering into collaborations in which we both optimize these potential drug candidates and provide other services in exchange for licensing fees, fee-for-service revenue and future value through milestone and/or royalty payments.
Attract world-class scientists. We intend to grow our business by continuing to aggressively recruit world-class scientific talent. Our success in recruiting and retaining these scientists depends on our continued focus on quality science and the maintenance of our culture, which emphasizes innovation and empowerment of our chemists, and our ability to provide industry competitive salaries and equity participation in our company.
Expand our capabilities through internal development and acquisitions. We intend to increase our current capacity by expanding our state-of-the art facilities. In addition, we intend to acquire additional laboratory sites both domestically and internationally to meet our collaborators' needs and improve access to regional scientific talent. We further intend to acquire or develop new technologies and capabilities to expand our existing products and services.
ARRAY'S TECHNOLOGY PLATFORM
We believe we have created an organization able to make better decisions across every aspect of the drug discovery process through the application of predictive tools and technologies. We believe our integrated, information-driven technology platform, as described below, will enable us to reduce the cost and improve the efficiency of drug discovery resulting in more successful clinical development candidates.
Biology. We have assembled an experienced team of biologists from some of the leading biotechnology companies who are experts in protein cloning, expression and purification. We focus this team on the creation of large quantities of highly pure protein and protein crystals that are critical for use in the lead generation and optimization stages of drug discovery.
Assay development and compound screening. We develop assays, format them to run automated high-throughput screens and screen against multiple classes of targets. High-throughput screening refers to the technology that enables biochemists to rapidly screen thousands of chemical compounds against targets. In addition, we have developed complex secondary assays, including those that can help define specificity and predict metabolism. Our automated high-throughput screening capacity can accommodate tens of thousands of compounds per week.
High-speed synthesis automation. As a result of our focus on the creation of quality compound libraries, we have integrated commercial and proprietary instrumentation to create multiple platforms for the automation of high-speed synthesis. These platforms provide us with the flexibility to synthesize multiple classes of compounds in order to identify potential drug candidates with desirable drug characteristics.
Structure-based drug design. Our structure-based drug design process is an iterative method for lead identification and optimization. We integrate high-speed synthesis, high-throughput screening and our predictive databases, as well as x-ray crystallography and molecular modeling, to rapidly create high quality potential drug candidates. Utilizing target proteins that we have cloned, expressed and crystallized, our scientists determine their x-ray crystal structure and conduct screening assays. Based on the SAR information generated, our chemists synthesize focused libraries, which are evaluated for biological relevance in secondary high-throughput screens. The crystal structure is then re-determined with active hits bound to the protein. Based on what is learned from that interaction and utilizing computer modeling, second generation focused libraries are created to improve drug characteristics. These focused libraries are then screened against the therapeutic target, against related family members of the target and in predictive metabolism assays to select the potential drug candidate with the most desirable drug characteristics.
Chemoinformatics. We are continuing to develop a customized database to capture information generated by our scientists, which is accessible to our entire scientific staff. This database provides our scientists with access to this shared information, thereby facilitating experimental design, scientific calculations, data analysis and patent filing.
We have also developed a number of specialized software programs that facilitate the generation of high quality drug leads and their rapid optimization into potential drug candidates. We have created proprietary software to identify promising building blocks, to help design diverse libraries and to evaluate potential drug candidates against the candidate criteria. These tools, which we do not make available commercially, facilitate
the drug discovery efforts of our scientists working with our collaborators, as well as our own drug discovery efforts. These software products include:
- Radical, which identifies promising building blocks by analyzing a database of small molecules that have entered into clinical trials and determining which fragments of these molecules occur repeatedly in drug candidates;
- Cracker, which is designed to eliminate drug-irrelevant building blocks from library design; and
- Eigen, Combiner and Select, which are designed to support optimization of chemical diversity in our libraries.
Predictive databases for human metabolism and toxicology. A majority of drugs fail in clinical development because they cannot be taken in doses sufficient to provide efficacy without unacceptable side effects. We are currently developing a relational database that uses our proprietary compound library, known as our Diversity Library, as a basis to predict human metabolism and toxicity. Our libraries are profiled through well-defined human and in vitro metabolism and toxicity assays to create this predictive SAR database. We expect this information will allow our chemists to make better decisions throughout the drug discovery process and therefore create potential drug candidates with a higher probability of clinical success.
Chemical genomics. The recent mapping of the human genome has created a wealth of information for the development of potential new drugs. However, full elucidation of the function of newly discovered potential targets and their role in disease is expected to require decades of research. Our libraries can be utilized both to identify novel leads and to better understand the biochemistry and therapeutic relevance of targets with unknown function. We currently participate in a chemical genomics collaboration with Neurocrine Biosciences, Inc., in which we create focused libraries that are designed to affect families of targets and define their therapeutic importance.
ARRAY'S PRODUCTS AND SERVICES
We provide a broad range of premium drug discovery products and services, including:
- Optimer building blocks;
- Lead generation;
- Lead optimization; and
- Process research and development.
We offer products and services to collaborators across the drug discovery process and also use them internally for our own drug discovery programs. Our proprietary chemoinformatics platform supports the entire drug discovery process.
[Graphic depicting Array's role in the Drug Discovery Process.]
Optimer building blocks
Quality building blocks enable chemists to make higher quality compounds more rapidly. We have recognized that a rate-limiting step in drug discovery is the availability of high-quality building blocks for initiating chemical synthesis. Our chemists have designed a series of building blocks with desirable drug characteristics, which we refer to as drug-relevant building blocks, using our proprietary Radical software and based on their experience in assessing drug-relevant chemical structures. These building blocks are added to a scaffold during compound synthesis.
Our proprietary building blocks have become an important component of our overall drug discovery strategy. We produce primary building blocks for construction of lead generation libraries, and we use sets of complementary, secondary building blocks for creating focused libraries to determine SAR in lead optimization programs. In addition, we sell approximately 300 of these building blocks under the trade name Optimer. Our building block customers include a number of large pharmaceutical companies such as Astra-Zeneca, Merck and Schering Plough Research Institute, biotechnology companies such as Biogen, Inc., Millennium Pharmaceuticals, Inc. and Vertex Pharmaceutics, Inc., and combinatorial chemistry companies such as ArQule, Inc., BioFocus plc and Siddco, Inc.
Lead generation
Another rate-limiting step in the discovery chemistry process is the availability of high quality compound libraries that have been designed with structures relevant for screening specifically against important target classes and that are designed for rapid lead optimization. We believe that the production of large compound libraries, by itself, has limited value for creating high quality leads. Instead, we design our libraries so that any leads generated require less optimization and will result in clinical candidates with a greater likelihood of clinical success.
Our library design criteria. We design our libraries according to the following criteria:
- Incorporation of drug-relevant building blocks. We use our drug-relevant building blocks to create libraries that facilitate our ability to rapidly optimize a hit due to the availability of secondary building
blocks to create a focused library to study the SAR around that hit. More than 30% of the building blocks used to create our Diversity Library are proprietary to us and not commercially available.
- Target-directed scaffolds. Our chemists create scaffolds directed toward disease-related families of targets. We attach building blocks to these scaffolds to create library compounds.
- Best-in-class quality. Our scientists recognize that it is the best-in-class drug that wins the market. Our library compounds are designed to economically achieve optimal drug characteristics.
- Optimized chemical synthetic processes. We invest significant effort in the process design and synthesis of each library to ensure that the compounds generated are of high purity and can be readily optimized. The library undergoes analysis during each stage of its development to ensure the identity of each compound and maintain quality.
- Biologically-relevant diversity. We have created a number of parameters to define the diversity in a compound library. Our proprietary chemoinformatics tools analyze how changes in chemical structure correlate with biological activity, or SAR, by analyzing published data of known drug candidates and correlating this information with our diversity parameters. Libraries can be constructed to optimize diversity and therefore maximize the information provided by each hit.
Diversity Library. We sell nonexclusive subscriptions to our Diversity Library and retain the right to utilize these compounds for our internal and collaborative programs, as well as the rights to the synthetic processes used to create these compounds. In future years, we intend to increase our compound production for our Diversity Library up to 100,000 compounds annually. We create sub-libraries that interact with specific target families, including G-protein coupled receptors, nuclear receptors, enzymes and protein-protein interactions. The majority of all drugs on the market today are aimed at targets within these families. Celltech Chiroscience Ltd., through its subsidiary Darwin Discovery Limited, Immunex Corporation and Tularik have multi-year subscriptions to our Diversity Library. We have also sold portions of our Diversity Library to Asahi Chemical Industry Co., Ltd., Curis, Inc., DuPont, Fujisawa Pharmaceutical Co., Ltd., ICOS, Schering Plough and Suntory Pharmaceutical Research Laboratories LLC, among others.
Custom libraries. We design custom libraries for our collaborators. These libraries are generally focused towards specific target families or our collaborators' proprietary scaffolds, and the compounds are of very high purity. Merck has been the largest purchaser of custom libraries, working with us for over a year.
Screening. We have the capability to perform high-throughput screening of our compound libraries for lead generation on behalf of our collaborators and in our internal drug discovery programs. Collaborators would pay a per-compound charge and compensate us on a headcount basis for the service. We have the capability to create our own assays or to format assays supplied by a collaborator for high-throughput screening. We also screen our compound libraries against metabolism and toxicology assays both to establish quality and to populate our predictive database.
[Graphic depicting lead optimization of a hit.]
Lead optimization
Our chemists optimize leads generated from multiple starting points, including:
- Leads provided by our collaborators;
- Leads generated internally or by our collaborators through screening our Diversity Library; and
- Leads generated through structure-based drug design.
Regardless of a lead's source, we take an iterative, structure-based approach to lead optimization. This approach typically begins with the design and synthesis of focused libraries to identify the SAR of a lead. From this, we can utilize x-ray crystallography and our chemoinformatics platform to continuously design and synthesize additional focused libraries until we achieve the drug candidate criteria. We screen these libraries against secondary assays to minimize the potential for toxicity or metabolic deficiencies.
Because no single technology exists to accurately predict clinical outcomes for potential drug candidates, experienced chemists with success in generating clinical candidates are vital to an effective lead optimization program. Our approach is to work closely with our collaborators, putting multi-disciplinary teams of experienced chemists on projects to identify potential drug candidates. We have successfully validated this approach to lead optimization with a lead provided to us by ICOS. Within 12 months from the initiation of the program, Array and ICOS scientists identified a potential drug candidate. In addition, our lead optimization capabilities have been recognized by Eli Lilly, which selected us to collaborate on multiple lead optimization programs. We have contracted to supply Eli Lilly with up to 30 scientists to work on some of their medicinal chemistry programs.
Process research and development
The processes to synthesize many pre-clinical candidates can be long, complex and costly to scale-up. Our process chemists have solved significant synthetic challenges in their careers, including the development of patentable processes for synthesizing drugs that have entered clinical trials, and have contributed to the synthesis of several complex drugs derived from natural products, such as rapamycin, brevetoxin and taxol.
Our goal is to apply these skills and experience to create novel yet efficient processes to synthesize complex molecules.
Process design. Once a potential drug candidate has been identified, it is critical to be able to reach a rapid decision whether to advance that candidate into the clinic. In many cases, lack of an adequate quantity of a specific compound for pre-clinical testing delays that decision. Our efforts are designed to take complex medicinal chemistry processes and reduce the number of steps and improve yields to allow for the rapid synthesis and scale-up of pre-clinical and clinical drug candidates.
Custom synthesis. Our chemists can undertake challenging syntheses to produce building blocks, complex intermediates and final products on a custom basis or from small-scale through bulk quantities. We synthesize compounds both on a proprietary and non-proprietary basis. A number of customers have asked us to synthesize larger quantities of compounds we previously produced for them. We expect to create proprietary processes that can be licensed to collaborators as they advance potential drug candidates into clinical trials.
Process scale-up. Often a synthetic process can face unknown challenges upon scale-up. Our chemists have demonstrated their ability to rapidly scale-up compound production to meet customer deadlines. We have the capacity to produce lots of up to 10 kilograms.
PROPRIETARY DRUG DISCOVERY
We leverage all of our capabilities internally to create our own potential drug candidates for partnering with pharmaceutical and biotechnology companies. We generate our own early-stage leads against therapeutically important targets and target families that have been identified in the academic literature or through patent applications. We typically focus on targets to which we believe no promising lead has been identified. We generate quality leads by screening our Diversity Library against the target and applying our chemoinformatic tools. We then apply our iterative structure-based drug design approach. Once we have qualified a valuable lead through secondary screening, we will seek to initiate a collaboration in which we license the lead to a partner for subsequent development and commercialization and in which we participate in the lead optimization program. To date, we have entered into one such collaboration agreement that provides an up-front fee, license fees, payments for each full-time equivalent employee providing lead optimization services and milestone payments. We expect to enter into future collaborations that may provide similar fees and that also allow us to participate in the success of these potential drug candidates through royalty payments.
We have worked on a number of targets, including those related to asthma, diabetes and cancer. Two programs have developed early-stage leads for which we are currently seeking licensing partners for further optimization. These programs address a target for diabetes, phosphotyrosine phosphatase 1B, called PTP1B, and a target for asthma, called tryptase. For example, shortly after the publication of PTP1B as a key target for diabetes in March 1999, we initiated structure-based lead generation and have now identified very promising leads. In October 2000, we licensed these leads to Amgen Inc. and initiated a joint research program with Amgen to identify potential drug candidates targeting PTP1B.
COMMERCIALIZATION
We intend to grow revenue and achieve profitability while sharing in the success we aim to create for our collaborators. We intend to maximize the value we capture by focusing our scientific resources on our proprietary drug programs and collaborations that utilize our full breadth of products and services and that enable us to participate in the success of the potential drug candidates that we create.
Our diverse products and services provide multiple revenue streams. We can sell our Optimer building blocks and license our Diversity Library, once synthesized, to multiple customers, creating a recurring revenue stream. We provide our services on a fee-for-service basis to pharmaceutical and biotechnology companies. Generally, a collaboration begins through a single service or product area. Our intent is to increase revenue by expanding customer relationships across our multiple products and services to eventually
collaborate across the entire discovery chemistry process. As we become more valuable to our collaborators, we intend to add milestones and/or royalty payments to capture a larger portion of the value we create. To date, two of our collaborations provide for milestone payments for achieving key drug discovery events, and one provides for license payments.
We create proprietary drug candidates with the intent of furthering their development and increasing their potential commercial value through collaborating with biotechnology or pharmaceutical partners. We expect generally to license additional potential drug candidates to future partners prior to lead optimization. We will seek collaborations that provide us with an initial licensing fee for exclusive rights to the compound, fee-for-service lead optimization and downstream payments that may include milestone and/or royalty payments.
CUSTOMERS AND COLLABORATORS
The following table lists, in alphabetical order, 15 of our top customers and collaborators based on contracted-for revenue since our inception and indicates the applicable products and services:
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PROCESS OPTIMER PROPRIETARY
LEAD LEAD RESEARCH & BUILDING DRUG
CUSTOMER/COLLABORATOR GENERATION OPTIMIZATION DEVELOPMENT BLOCKS CANDIDATES
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Amgen, Inc. X X X X
Biogen, Inc. X X
Celltech Chiroscience Limited, through its
subsidiary Darwin Discovery Limited X
Chiron Corporation X
CV Therapeutics, Inc. X X X
DuPont X X
Eli Lilly and Company X
Fujisawa Pharmaceuticals Co., Ltd. X
Gilead Sciences, Inc. X
ICOS Corporation X X X
Immunex Corporation X
Merck & Co., Inc. X X X
Neurocrine Biosciences, Inc. X
Schering Plough Research Institute X X
Tularik Inc. X X
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A key element of our strategy is to increase the value we provide to our customers by expanding our relationships with them across complementary products and services. Below we describe several customers that chose to expand their initial relationship with us.
ICOS. ICOS was one of our first customers. Our first agreement with ICOS addressed lead optimization of up to four ICOS targets. This agreement, initiated in December 1998, called for our scientists, in collaboration with ICOS' scientists, to develop clinical candidates from ICOS' preliminary leads. Based upon the success of this program, ICOS expanded this relationship in the spring of 1999, by both initiating a second lead optimization program on a separate set of targets, and subscribing to our Diversity Library. In less than one year, our initial collaboration led to the development of a potential clinical candidate for a target called phosphodiesterase 4, or PDE 4. In order to speed the development of this clinical candidate, ICOS chose to access our chemistry process research service to refine the production process in order to produce sufficient quantities for pre-clinical and early phase clinical testing. In July 2000, ICOS announced that they have expanded and consolidated these earlier lead optimization agreements, providing additional
milestones and more favorable terms. This new agreement includes lead generation on hits identified during ICOS' screening of our Diversity Library.
ICOS has now taken advantage of our lead generation, lead optimization and process chemistry products and services. We anticipate that clinical trials for this PDE 4 inhibitor will be initiated approximately in mid-2001. We are entitled to milestone payments based on the successful clinical development of this drug.
Tularik. Our initial interaction with Tularik came through their interest in our approach to creating lead generation libraries. In order to evaluate the quality of our libraries, Tularik acquired a small subset of our Diversity Library in April 1999. Within three months they initiated a one-year subscription to our entire Diversity Library. Six months later, Tularik exercised an option to subscribe to our entire second-year Diversity Library. We have also expanded our relationship with Tularik by creating focused libraries to an important class of targets called orphan nuclear receptors.
Merck. Merck began working with us in May 1999 by purchasing building blocks from our Optimer collection on a non-exclusive basis. This initial introduction led to an agreement between the parties for the exclusive development and supply of custom synthesized compounds for Merck. Building on this relationship, we announced in September 2000 an agreement with Merck for the exclusive synthesis, development and supply of custom libraries, whereby we will supply high quality focused libraries for Merck's drug discovery programs.
Eli Lilly. In March 2000, Eli Lilly purchased from us medicinal chemistry services of up to 30 of our scientists. To date, this collaboration is moving forward successfully. Our scientists are fully integrated into some of Eli Lilly's drug discovery project teams. Initially this collaboration focused on certain aspects of our lead optimization chemistry; however, Eli Lilly is exploring expansion of joint efforts to other aspects of our technology platform for drug discovery. This exploration may not result in an expanded collaboration.
BUSINESS DEVELOPMENT
To date, our business development activities have been conducted primarily through direct customer contact by our senior management and scientists and through customer referrals. Because our customers are primarily skilled scientists, we use our scientific expertise to initiate and to build upon strong customer relationships. In Japan, we have relied upon the services of a consulting company, Transpect, Inc., to help introduce and promote our company. We market our Optimer building blocks through multiple channels, including targeted mailing of a hardcopy catalog and through an Internet catalog. We plan to continue to grow our business development resources.
RESEARCH AND DEVELOPMENT
Our research and development expenses were approximately $3.3 million in fiscal year 1999, and $4.0 million in fiscal year 2000. We conduct research and development in the following areas:
Assay development and high-throughput screening automation. We are investing in the development of new assay and high speed screening technologies in order to more effectively evaluate potential drug compounds for their therapeutic value, including specificity and metabolism, and to increase the speed of our screening capability.
Chemoinformatics. We are continuing our development of database technology, to more effectively capture, organize and link the data generated by our scientists, and to make this information more seamlessly accessible to any of our drug discovery efforts. In addition, we are continuing the development of internal software technologies designed to increase the speed and efficacy of our lead generation and lead optimization chemistry.
Libraries. We have ongoing projects to develop and refine technologies necessary to create high quality compound libraries composed of drug-relevant compounds that can be rapidly optimized. Our research is focused in the areas of designing drug-relevant building blocks and scaffolds, maximizing drug-like
characteristics of our library compounds, optimizing library synthesis processes and maximizing biologically-relevant compound diversity.
Internal Drug Discovery Projects. We will continue to invest in internal drug discovery programs intended to create our own potential drug candidates. We intend to commercialize any potential drug candidates that we are successful in developing in these programs through partnerships with pharmaceutical and biotechnology companies.
COMPETITORS
Competition across the range of our drug discovery products and services is currently fragmented. We compete, however, with a number of companies in each of the functional areas of drug discovery that we serve. In addition, we compete with the internal research departments of biotechnology, pharmaceutical and contract research companies. Many of these companies, which also represent a significant market for our products and services and some of which are our collaborators or customers, are developing or already possess internally the technologies and services that we offer. Academic institutions and other research organizations are also conducting research in areas in which we provide services, either on their own or through collaborative efforts.
Many of our competitors are larger than we are and have greater financial and other resources. We expect that we will face increased competition in the future as new companies enter the market and advanced technologies become available. Any of our competitors could broaden the scope of their drug discovery offerings through acquisition, collaboration or internal development to integrate their offerings or compete with us comprehensively across the drug discovery process. Our competitors may also develop new, more effective or affordable approaches or technologies that compete with our products and services or render them obsolete.
In addition, we compete with pharmaceutical and biotechnology companies, including our customers and collaborators, academic and research institutions, contract research companies and other firms to hire qualified scientists. Some of our competitors may have stronger financial resources, offer more attractive equity compensation or have a proven operating history, any of which may make our competitors more attractive employers than us to potential employees.
GOVERNMENT REGULATION
In the course of our business, we handle, store and dispose of chemicals. We are subject to various federal, state and local laws and regulations relating to the use, manufacture, storage, handling and disposal of hazardous materials and waste products. These environmental laws generally impose liability regardless of the negligence or fault of a party and may expose us to liability for the conduct of, or conditions caused by, others. We have not incurred, and do not expect to incur, material costs to comply with these laws and regulations. Because the requirements imposed by these laws and regulations change frequently, however, we may be unable to accurately predict the cost of complying with these laws and regulations. In addition, although we believe that we currently comply with the standards prescribed by these laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In that event, we could be liable for any resulting damages, which could exceed our resources and harm our results of operations.
Our customers and collaborators are subject to substantial regulation by governmental agencies in the United States and other countries. Virtually all pharmaceutical products are subject to rigorous pre-clinical and clinical testing and other approval procedures by the FDA and by foreign regulatory agencies. Various federal and state laws and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of these pharmaceutical products. This approval process is time-consuming and expensive and there are no assurances that approval will be granted on a timely basis, or at all. Even if regulatory approvals are granted, a marketed product is subject to continual review. Later discovery of previously unknown problems or a failure to comply with applicable regulatory requirements may result in restrictions on the marketing of a product or the withdrawal of the product, as well as possible civil or criminal sanctions. To the extent our customers or collaborators are unable to obtain the necessary regulatory
approvals to market their products, or fail to continue to comply with regulatory requirements, we may be unable to realize revenue from milestone and/or royalty payments.
We are subject to other regulations, including regulations under the Occupational Safety and Health Act, regulations promulgated by the United States Department of Agriculture, and other federal, state and local laws.
INTELLECTUAL PROPERTY
Our success will depend in part on our ability to protect our proprietary software, potential drug candidates and other intellectual property rights. To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality provisions in our contracts with our collaborators, customers, employees, consultants and other third parties.
We attempt to protect our trade secrets in part by entering into confidentiality agreements with third parties, employees and consultants. Our employees also sign agreements requiring that they assign to us their interests in inventions and original expressions and any corresponding patents and copyrights arising from their work for us. However, it is possible that these agreements may be breached, invalidated or rendered unenforceable, and if so, there may not be an adequate corrective remedy available. Despite the measures we have taken to protect our intellectual property, parties to our agreements may breach the confidentiality provisions in our contracts or infringe or misappropriate our patents, copyrights, trademarks, trade secrets and other proprietary rights. In addition, third parties may independently discover or invent competing technologies or reverse engineer our trade secrets or other technology.
We also have implemented a patent strategy designed to protect technology, inventions and improvements to inventions that are commercially important to our business. We currently have seven patent applications on file in the United States, including three provisional applications, and we are pursuing limited patent coverage in foreign countries. Provisional patent applications provide no substantive rights but do secure a priority date on which later patent applications may be based, including both United States and foreign patent applications. Provisional applications expire one year from the date of filing. Four of our patent applications filed in the United States relate to proprietary compounds that are pharmaceutical candidates, two relate to inventions based on and used in our research efforts, and one relates to compounds that are pharmaceutical candidates and the compound synthesis process. Two of our United States patent applications relating to proprietary pharmaceutical candidates, along with related foreign patent rights, were assigned to us by Amgen Inc. in November 1998.
United States patents issued from applications filed on or after June 8, 1995 have a term of 20 years from the application filing date or earlier claimed priority. All of our patent applications were filed after June 8, 1995. Patents in most other countries have a term of 20 years from the date of filing of the patent application. Because the time from filing patent applications to issuance of patents is often several years, this process may result in a period of patent protection significantly shorter than 20 years, which may adversely affect our ability to exclude competitors from our markets. Our success will depend in part upon our ability to develop proprietary products and technologies and to obtain patent coverage for these products and technologies. We intend to continue to file patent applications covering newly developed products and technologies. We may not, however, commercialize the technology underlying any or all of our existing or future patent applications.
Patents provide some degree of protection for our proprietary technology.
However, the pursuit and assertion of patent rights, particularly in areas like
pharmaceuticals and biotechnology, involve complex legal and factual
determinations and, therefore, are characterized by some uncertainty. In
addition, the laws governing patentability and the scope of patent coverage
continue to evolve, particularly in biotechnology. As a result, patents may not
issue from any of our patent applications or from applications licensed to us.
The scope of any of our patents, if issued, may not be sufficiently broad to
offer meaningful protection. In addition, our patents or patents licensed to us,
if they are issued, may be successfully challenged, invalidated, circumvented or
rendered unenforceable so that our patent rights might not create an effective
competitive
barrier. Moreover, the laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States. Any patents issued to us or our strategic partners may not provide a legal basis for establishing an exclusive market for our products or provide us with any competitive advantages. Moreover, the patents held by others may adversely affect our ability to do business or to continue to use our technologies freely. In view of these factors, our intellectual property positions bear some degree of uncertainty.
The source code for our proprietary software programs is protected both as a trade secret and as a copyrighted work.
We have registrations pending in the United States for the following trademarks: "Array BioPharma," "Array Biopharma The Discovery Research Company," the Array Biopharma logo, "The Discovery Research Company," "Optimer" and "Radical." We may not be able to obtain registrations for these marks in the United States or other jurisdictions in which we may submit applications, or to protect the use of these marks effectively.
Although we are not a party to any legal proceedings, in the future, third parties may file claims asserting that our technologies or products infringe on their intellectual property. We cannot predict whether third parties will assert such claims against us or our licensees or against the licensors of technology licensed to us, or whether those claims will harm our business. If we are forced to defend against such claims, whether they are with or without merit, and whether they are resolved in favor of or against us, our licensees or our licensors, we may incur significant expenses and diversion of management's attention and resources. As a result of such disputes, we may have to develop at a substantial cost non-infringing technology or enter into licensing agreements.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
EMPLOYEES
As of October 20, 2000, we had 120 full-time and 4 part-time employees, consisting of 89 scientists, 47 with Ph.D. degrees in chemistry and 42 with large pharmaceutical company experience. None of our employees is covered by a collective bargaining agreement. We consider our employee relations to be good.
FACILITIES
We are headquartered in Boulder, Colorado, where we lease approximately 26,400 square feet of space under a lease that expires July 15, 2001, or on July 15, 2003 if we exercise our option to extend the term. In February 2000, we leased approximately 24,000 square feet of space in a building in Longmont, Colorado under a lease that expires on May 31, 2005, and has an option to renew for two additional five-year terms. We have exercised an option to lease an additional 19,200 square feet at our Longmont facility and are scheduled to occupy this space in April 2001. We also have an option to lease an additional 28,800 square feet in a building adjacent to our Longmont facility when it becomes available for lease. We believe that these facilities, including our option to expand our Longmont facility, will be sufficient for our anticipated growth for the next 12 months.
CERTAIN KEY CONTRACTS
Collaboration Agreements with Potential Milestones
ICOS. In July 2000, we consolidated and expanded our lead optimization agreements with ICOS into a drug discovery collaboration agreement for lead optimization on undisclosed targets. Under the agreement, ICOS has the exclusive worldwide right to develop and market any products resulting from the collaboration. We are compensated based on an annual rate for each full-time equivalent employee working on an ICOS project and will receive milestone payments upon achievement of identified development and commercialization goals for products resulting from the collaboration. To date, we have not received any
milestone payments from ICOS. The agreement expires in July 2002, and may be terminated upon 90 days' notice by ICOS following the first anniversary of the agreement.
Amgen. In October 2000, we entered into a Research and License Agreement with Amgen. Under the terms of this agreement, we granted Amgen an exclusive license to our existing PTP1B program and we intend to initiate a joint research program in November 2000 to identify, characterize and optimize potential drug candidates targeting PTP1B. Amgen has the exclusive worldwide right to develop and commercialize any drugs that target PTP1B developed under this collaboration. The agreement provides for an initial up-front fee of $1.8 million payable in November 2000, license fees, quarterly payments for each full-time equivalent employee working on the PTP1B project, and milestone payments upon achievement of identified research, development and commercialization goals for products resulting from the collaboration. To date, we have not received any milestone payments from Amgen. The initial term of the research program is two years, and Amgen may terminate the research program with six months written notice during this term.
Our agreements with ICOS and Amgen provide for potential milestone payments that may be as high as $63.0 million in the aggregate. These payments depend upon our achievement of research objectives and upon other factors that we cannot control, including these collaborators' financial, competitive, marketing and strategic considerations and the approval of regulatory agencies in the United States and abroad. As a result, we may not realize all or any of these milestone payments.
Other Collaboration Agreements
Merck. In May 1999, we entered into a custom synthesis agreement with Merck under which we provide custom compounds. Under the terms of this agreement, we have entered into multiple exclusive custom library agreements with Merck in which we are reimbursed on a headcount and per compound basis. In September 2000, we entered into a custom synthesis development and supply agreement with Merck under which we synthesize and develop custom libraries specified by Merck. We are compensated for development services and for the delivery of compounds. The agreement begins in January 2001 and expires in December 2003, and may be terminated by Merck upon six months' prior notice after the first anniversary of the agreement.
Eli Lilly. In March 2000, we entered into a Research Services Agreement with Eli Lilly to form a chemistry-based research collaboration. Under the terms of the agreement, up to 30 of our scientists will provide drug research services in collaboration with Eli Lilly scientists on identified Eli Lilly drug discovery projects. We are compensated based on an annual rate for each full-time equivalent employee working on an Eli Lilly project. Eli Lilly may terminate the agreement upon payment of an early termination payment.
Compound Library Agreements.
We have entered into agreements with customers, including Celltech Chiroscience Ltd., through its subsidiary Darwin Discovery Limited, in April 1999, Tularik in June 1999, which Tularik extended in April 2000, DuPont in August 2000, and Immunex in September 2000, providing nonexclusive access on a fee basis to compounds in our Diversity Library for their internal lead generation efforts. These customers have the option to gain exclusive rights to compounds they intend to commercialize upon payment of either a one-time activation fee or annual fees. We retain ownership of the intellectual property rights to the compounds, our Diversity Library and to any inventions made by our scientists working under these agreements. These agreements are terminable upon breach or insolvency of a party.
SCIENTIFIC ADVISORS
We have established a group of scientific advisors made up of leading scholars in various functional disciplines of synthetic and medicinal chemistry. Our scientific advisors are as follows:
ADVISOR TITLE AND INSTITUTION
------------------------------------ ------------------------------------------------------
Gregory C. Fu, Ph.D. ............... Professor, Department of Chemistry, Massachusetts
Institute of Technology
Ashit Ganguly, Ph.D. ............... Former Vice President of Chemistry, Schering Plough,
Professor of Chemistry, Stevens Institute of
Technology
K.C. Nicolaou, Ph.D. ............... Chairman, Department of Chemistry, The Scripps
Research Institute
Nicos A. Petasis, Ph.D. ............ Professor of Chemistry, University of Southern
California
Masakatsu Shibasaki, Ph.D. ......... Professor, The University of Tokyo
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
Shown below are the names, ages and positions of our executive officers, directors and other key employees as of September 30, 2000:
NAME AGE POSITION WITH US
--------------------------------------- --- --------------------------------------------
Robert E. Conway....................... 46 Chief Executive Officer and Director
Kevin Koch, Ph.D....................... 40 President, Chief Science Officer and
Director
David L. Snitman, Ph.D................. 48 Chief Operating Officer, Vice President,
Business Development and Director
Michael Carruthers..................... 43 Chief Financial Officer and Secretary
Anthony D. Piscopio, Ph.D.............. 39 Vice President, Chemistry and Director of
Process Chemistry
John A. Josey, Ph.D.................... 40 Senior Director of High-Speed Synthesis
Laurence Burgess, Ph.D................. 38 Senior Director of Medicinal Chemistry and
Lead Optimization
Joanna K. Money, Ph.D.................. 39 Director of Business Development
Kyle Lefkoff (a)(b).................... 41 Chairman
Francis J. Bullock, Ph.D. (a)(b)....... 63 Director
Marvin H. Caruthers, Ph.D.............. 60 Director
Kirby L. Cramer (a).................... 62 Director
Robert W. Overell, Ph.D. (b)........... 45 Director
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(a) Member of our audit committee.
(b) Member of our compensation committee.
Robert E. Conway has served as our Chief Executive Officer and a member of our board of directors since November 1999. From October 1996 to October 1999, Mr. Conway was the Chief Operating Officer and Executive Vice President of the Clinical Trials Division of Hill Top Research, Inc. where he managed 22 company-owned research centers conducting clinical trials for pharmaceutical and biotechnology companies. From 1979 until 1996, Mr. Conway held various executive positions with Corning, Inc., including Corporate Vice President and General Manager of Corning Hazleton, Inc., a pre-clinical contract research organization, where he was responsible for North American operations. Mr. Conway serves on the board of directors of DEMCO, Inc. Mr. Conway received a B.S. in accounting from Marquette University, received an M.B.A. from the University of Cincinnati and is a Certified Public Accountant.
Kevin Koch, Ph.D. has served as our President, our Chief Science Officer and a member of our board of directors since May 1998. Prior to joining us, Dr. Koch was an Associate Director of Medicinal Chemistry and Project Leader for the Protease Inhibitor and New Leads project teams from May 1995 to April 1998 for Amgen Inc. From September 1988 until May 1995, Dr. Koch held various positions with Pfizer Central Research, including Senior Research Investigator-Project Coordinator for the Cellular Migration and Immunology Project Teams. Dr. Koch is chairman of the Strategic Research Institute's Anti-inflammatory Drug Discovery Summit and is an elected board member of the Inflammation Research Association. Dr. Koch received a B.S. in chemistry and in biochemistry from the State University of New York at Stony Brook and a Ph.D. in synthetic organic chemistry from the University of Rochester.
David L. Snitman, Ph.D. has served as our Vice President, Business Development, our Chief Operating Officer and a member of our board of directors since May 1998. Prior to joining us, Dr. Snitman held various positions with Amgen Inc. since December 1981, including Associate Director, New Products and Technology and Manager of Amgen's Boulder facility. Dr. Snitman received a B.S. in chemistry from Northeastern University, received a Ph.D. in the synthesis of natural products from the University of Colorado and was a National Institutes of Health Postdoctoral Fellow at the Massachusetts Institute of Technology.
Michael Carruthers has served as our Chief Financial Officer and Secretary since December 1998. Prior to joining us, Mr. Carruthers was Chief Financial Officer from October 1993 until December 1998 of Sievers Instrument, Inc. From May 1989 until October 1993 Mr. Carruthers was the treasurer and controller for the Waukesha division of Dover Corporation. Mr. Carruthers is a Certified Public Accountant and was previously employed as an accountant with Coopers & Lybrand, LLP. Mr. Carruthers received a B.S. in accounting from the University of Colorado and an M.B.A. from the University of Chicago.
Anthony D. Piscopio, Ph.D. has served as our Vice President, Chemistry and Director of Process Chemistry since May 1998. Prior to joining us, Dr. Piscopio had been employed by Amgen Inc. since June 1995 in various capacities, including as a founder of Amgen's small molecule drug discovery program. While at Amgen, Dr. Piscopio worked in the area of protease inhibition and pioneered novel high-speed synthesis methodologies for the preparation of B-turn mimetics and other heterocyclic classes. From August 1992 until June 1995, Dr. Piscopio was employed with Pfizer, Inc.'s Inflammation Group and worked in the areas of G-protein coupled receptor modulation and computer-assisted design of protease inhibitors. Dr. Piscopio received a B.A. in chemistry from West Virginia University, received a Ph.D. in synthetic organic chemistry from the University of Wisconsin-Madison and completed his postdoctoral fellowship at the Scripps Research Institute in La Jolla, California as a National Institutes of Health Postdoctoral Fellow.
John A. Josey, Ph.D. has served as our Senior Director of High-Speed Synthesis since May 1998. Prior to joining us, Dr. Josey had been employed by Amgen Inc. since September 1995 in the New Leads/ Combinatoral Chemistry Group of Amgen's small molecule drug discovery program. From August 1991 until September 1995, Dr. Josey was a research investigator in the Medicinal Chemistry Department of Glaxo Research Institute. Dr. Josey received a B.S. in chemistry from Colorado State University, received a Ph.D. in organic chemistry from the University of Texas at Austin and was a Damon Runyon-Walter Winchell Fellow at the California Institute of Technology.
Laurence Burgess, Ph.D. has served as our Senior Director of Medicinal Chemistry and Lead Optimization since May 1998. Prior to joining us, Dr. Burgess had been employed by Amgen Inc. since August 1995 in various capacities, including as a project leader in its small molecule drug discovery research program in the areas of respiratory and allergic disease. From February 1992 until August 1995, Dr. Burgess was employed by Pfizer Central Research working in the areas of inflammation and immunology. Dr. Burgess received a B.S. in chemistry from the Georgia Institute of Technology, received a Ph.D. from the University of Texas and completed his postdoctoral research at Colorado State University.
Joanna K. Money, Ph.D. has served as our Director of Business Development since September 1999. Prior to joining us, Dr. Money was the Director of Business Development from May 1998 to July 1999 for NeXstar Pharmaceuticals. From September 1987 to April 1998, Dr. Money held various positions with Amoco Chemical Company's Research Center, including research chemist and business development manager for the Asia Pacific Region as well as positions in marketing, strategic planning and product management. Dr. Money received a B.Sc. in chemistry from Imperial College, London and a Ph.D. in inorganic chemistry from Indiana University.
Kyle Lefkoff has served as the Chairman of our board of directors since May 1998. Since 1995, Mr. Lefkoff has been a General Partner of Boulder Ventures Limited, a venture capital firm and investor in our company. From June 1986 until June 1995, Mr. Lefkoff was employed by Colorado Venture Management, a venture capital firm. Mr. Lefkoff serves on the boards of directors of Trust Company of America, Vexcel Corporation and Metabolite Laboratories Inc. Mr. Lefkoff received a B.A. in economics from Vassar College and an M.B.A. from the University of Chicago.
Francis J. Bullock, Ph.D. has served as a member of our board of directors since May 1998. Since 1993, Dr. Bullock has been a senior consultant for Arthur D. Little, Inc., concentrating on pharmaceutical and biotechnology research and development, as well as the fine chemicals and agricultural chemicals industries. From April 1981 until September 1993, Dr. Bullock served as Senior Vice President, Research Operations at Schering Plough Research Institute. Dr. Bullock serves on the boards of directors of Genzyme Transgenics Corporation, Neogenesis and Atherex. Dr. Bullock received a B.S. in pharmacy from the Massachusetts
College of Pharmacy, an A.M. in organic chemistry from Harvard University and a Ph.D. in organic chemistry from Harvard University.
Marvin H. Caruthers, Ph.D. has served as a member of our board of directors since August 1998. Since 1979, Dr. Caruthers has been a Professor of Biochemistry and Bioorganic Chemistry at the University of Colorado. Dr. Caruthers is a member of the National Academy of Sciences and the American Academy of Arts and Sciences and was previously a member of the scientific advisory board of Amgen Inc. Dr. Caruthers serves on the boards of directors of Oxigene and Genomica Corporation. Dr. Caruthers received a B.S. in chemistry from Iowa State University and a Ph.D. in chemistry from Northwestern University.
Kirby L. Cramer has served as a member of our board of directors since August 2000. Mr. Cramer is the Chairman Emeritus of Hazleton Laboratories Corporation, a Covance company, Chairman of the Board of Directors of Northwestern Trust and Investors Advisory Company and Chairman of the Board of Directors of SonoSite, Inc. From 1987 until 1991, Mr. Cramer served as the Chairman of the Board of Directors of Kirschner Medical Corporation. Mr. Cramer serves on the boards of directors of Immunex Corporation, Northwestern Trust and Investors Advisory Company, SonoSite, Inc., Huntingdon Life Sciences Group plc, Landec Corporation, D.J. Orthopedics, Inc. and Commerce Bank of Washington. Mr. Cramer received a B.A. in history from Northwestern University, received an M.B.A. from the University of Washington and is a graduate of Harvard Business School's Advanced Management Program. Mr. Cramer is a Chartered Financial Analyst.
Robert W. Overell, Ph.D. has served as a member of our board of directors since December 1999. Since 1996, Dr. Overell has been with Frazier & Company, a venture capital firm and investor in our company, and has served as a General Partner since 1998 and a venture partner from 1996 until 1998. Dr. Overell's operational experience in biotechnology companies includes joining Immunex Corporation early in its development and co-founding Target Genetics. Dr. Overell serves on the board of directors of FastTrack Systems, GeneMachines, InPharos, Inc., SkeleTech, Inc. and XenoPort, Inc. Dr. Overell received his B.S. in biological sciences from the University of Newcastle-upon-Tyne and a Ph.D. in biochemistry from the Institute of Cancer Research, University of London.
Certain of our current directors were elected as designees of our preferred stockholders and our founders in accordance with voting agreements that will terminate following this offering. The current designees of our preferred stockholders are Dr. Caruthers, Dr. Overell and Messrs. Lefkoff and Cramer, and the current designees of our founders are Dr. Bullock, Dr. Koch and Dr. Snitman.
BOARD COMPOSITION
Our board of directors currently consists of eight directors. Upon completion of this offering, our board of directors will be divided into three classes: Class I, whose term will expire at the annual meeting of stockholders to be held in 2001; Class II, whose term will expire at the annual meeting of stockholders to be held in 2002; and Class III, whose term will expire at the annual meeting of stockholders to be held in 2003. The initial Class I directors will be Dr. Overell and Dr. Snitman, the initial Class II directors will be Messrs. Conway and Lefkoff and Dr. Caruthers, and the initial Class III directors will be Dr. Bullock, Dr. Koch and Mr. Cramer.
At each annual meeting of the stockholders beginning in 2001, the successors to the class of directors whose terms expired will be elected to serve three-year terms. If the number of directors on our board increases, the newly created directorships will be distributed among the three classes so that each class will, as nearly as possible, consist of one-third of the directors. The classification of our board of directors may delay or prevent changes in our control or management. In addition, our directors may be removed only with cause and upon the vote of holders of two-thirds of our outstanding common stock.
BOARD COMMITTEES
Our board of directors has established an audit committee and a compensation committee.
The audit committee consists of Dr. Bullock, Mr. Cramer and Mr. Lefkoff. The audit committee meets periodically with management and our independent accountants to review their work and confirm that they are properly discharging their respective responsibilities. The audit committee also:
- recommends the appointment of independent accountants to audit our financial statements and perform services related to the audit;
- reviews the scope and results of the audit with the independent accountants;
- reviews with management and the independent accountants our annual operating results;
- considers the adequacy of the internal accounting control procedures; and
- considers the independence of our accountants.
The compensation committee consists of Dr. Bullock, Mr. Lefkoff and Dr. Overell. The compensation committee determines the salary and incentive compensation of our officers and provides recommendations for the salaries and incentive compensation of our other employees. The compensation committee also administers our stock option plan and our employee stock purchase plan, including reviewing management recommendations with respect to option grants and taking other actions as may be required in connection with our compensation and incentive plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee currently consists of Dr. Bullock, Mr. Lefkoff and Dr. Overell. No current member of the compensation committee has been an officer or employee of ours at any time. None of our executive officers serve as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as a member of our board of directors, nor has such a relationship existed in the past. Prior to July 2000, our board of directors, as a whole, including Mr. Conway, Dr. Koch and Dr. Snitman, made decisions relating to the compensation of our executive officers following recommendations from the compensation committee. In July 2000, our board of directors delegated its authority to determine salaries of our executive officers and administer our benefit plan to the compensation committee. Mr. Conway, our Chief Executive Officer, served as a member of the compensation committee from November 1999 through August 2000.
DIRECTOR COMPENSATION
We reimburse our directors for reasonable out-of-pocket expenses related to attending board and committee meetings. Following the completion of this offering, we intend to compensate each non-employee director who is not affiliated with one of our preferred stock investors $12,000 annually, $1,000 for attending each board meeting and each committee meeting and $1,000 for serving as chairman of a board meeting or a committee meeting. We have granted certain non-employee directors non-qualified options to purchase our common stock, including 10,000 options to Dr. Bullock in July 2000 for service during fiscal year 2000 and 20,000 options to each of Dr. Bullock and Mr. Cramer in August 2000 for service during fiscal year 2001. We intend to grant non-employee directors who are not affiliated with our venture capital investors non- qualified options to purchase shares of our common stock on a yearly basis in an amount and with a vesting schedule to be determined by the compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the compensation we paid during the fiscal year ended June 30, 2000 to our chief executive officer and each of our other four most highly compensated executive officers who were serving as executive officers at June 30, 2000. We refer to these individuals as our named executive officers.
EXECUTIVE COMPENSATION SUMMARY
COMPENSATION FOR THE LONG-TERM
FISCAL YEAR ENDED COMPENSATION
JUNE 30, 2000 ------------------
-------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
--------------------------- --------- -------- ------------------ ------------
Robert E. Conway(a)........................ $141,477 $60,000 800,000 $78,458(b)
Chief Executive Officer
Kevin Koch, Ph.D. ......................... 160,500 -- 58,125 --
President and Chief Science Officer
David L. Snitman, Ph.D. ................... 160,500 -- 58,125 --
Chief Operating Officer and Vice
President, Business Development
Anthony D. Piscopio, Ph.D. ................ 139,800 -- 50,625 --
Vice President, Chemistry and Director of
Process Chemistry
Michael Carruthers......................... 112,300 -- 41,250 --
Chief Financial Officer and Secretary
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(a) Mr. Conway became Chief Executive Officer in November 1999. His annual
salary during the first year of his employment agreement is $225,000.
(b) Consists of reimbursement of relocation expenses.
OPTION GRANTS DURING THE FISCAL YEAR ENDED JUNE 30, 2000
The following table sets forth information related to each grant of stock options to our named executive officers during the fiscal year ended June 30, 2000. We have never granted any stock appreciation rights.
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF SHARE PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(c)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR(a) SHARE(b) DATE 5% 10%
---- ---------- -------------- --------- ---------- ------------- -------------
Robert E. Conway(d)........... 800,000 44.1% $0.600 11/15/09 $12,551,157 $20,269,940
Kevin Koch, Ph.D.(e).......... 58,125 3.2 0.235 7/1/09 933,136 1,493,953
David L. Snitman, Ph.D.(e).... 58,125 3.2 0.235 7/1/09 933,136 1,493,953
Anthony D. Piscopio,
Ph.D.(e).................... 50,625 2.8 0.235 7/1/09 812,731 1,301,185
Michael Carruthers(e)......... 41,250 2.3 0.235 7/1/09 662,225 1,060,225
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(a) Based on options to purchase an aggregate of 1,815,740 shares of common
stock granted to our employees between June 30, 1999 and June 30, 2000.
(b) The exercise price per share of each option was equal to the fair market
value of our common stock on the date of grant as determined by the board
of directors.
(c) Potential realizable values are computed by (1) multiplying the number of shares of common stock subject to a given option by the assumed initial public offering price of $10.00 per share, (2) assuming that the aggregate stock value derived from that calculation compounds at the annual 5% or 10% rate shown in the table for the entire ten-year term of the option, and (3) subtracting from that result the aggregate option exercise price. The 5% and 10% assumed annual rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not represent our estimate or projection of future common stock prices.
(d) Of Mr. Conway's 800,000 options, 133,333 vested on December 31, 1999 based on his continuous service as of such date and 106,667 vested on July 1, 2000 based on our achievement of certain performance milestones. If we do not close an initial public offering of our common stock, the vesting of the remaining 560,000 unvested options is based on Mr. Conway's continuous service in accordance with the following schedule: 55,000 will vest on November 15, 2000; 5,000 will vest each month between December 15, 2000 and October 15, 2003; 10,000 will vest on November 15, 2003 and 320,000 will vest on July 1, 2005. Upon the closing of this offering, the vesting of 420,000 of Mr. Conway's unvested options will be accelerated and become immediately exercisable, and the remaining 140,000 unvested options will vest and become exercisable between November 15, 2000 and one year from the date of the closing of this offering.
(e) All options vest monthly over a four-year period ending June 1, 2003.
OPTIONS EXERCISED DURING THE FISCAL YEAR ENDED JUNE 30, 2000, AND OPTION VALUES
AS OF JUNE 30, 2000
The following table provides summary information for each of our named executive
officers with respect to stock options held as of June 30, 2000, and with
respect to stock options exercised during the fiscal year ended June 30, 2000.
The value realized upon exercise and the value of unexercised in-the-money
options shown below have been calculated on the basis of the assumed initial
public offering price of $10.00 per share, less the applicable exercise price
per share, multiplied by the number of shares underlying these options.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AS OF MONEY OPTIONS AS OF
SHARES JUNE 30, 2000 JUNE 30, 2000
ACQUIRED ON VALUE --------------------------- -----------------------------
NAME EXERCISE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- ----------- -------- ------------- ----------- -------------- ------------
Robert E. Conway................. -- $ -- 666,667 133,333 $6,266,670 $1,253,330
Kevin Koch, Ph.D................. 7,265 70,943 43,594 7,266 425,695 70,952
David L. Snitman, Ph.D........... -- -- 43,594 14,531 425,695 141,895
Anthony D. Piscopio, Ph.D........ 10,546 102,982 38,969 2,110 380,532 20,604
Michael Carruthers............... 34,401 335,928 80,938 5,911 790,360 57,721
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EMPLOYMENT AGREEMENTS
Effective November 15, 1999, we entered into an employment agreement with Mr. Conway to serve as our Chief Executive Officer. The agreement is for an initial term of two years and may be then renewed for additional one-year terms. Either party may terminate the agreement for any reason upon 30 days' prior notice to the other party during the initial term or any additional term. Under the agreement, we will pay Mr. Conway an annual salary of $225,000 subject to subsequent adjustment. In addition, we granted to Mr. Conway options to purchase 800,000 shares of our common stock that vest periodically over a six-year term, subject to his continued employment. Upon the closing of this offering, 75% of Mr. Conway's options will vest and become immediately exercisable and all remaining options will vest between November 15, 2000 and one year from the date of the closing of this offering. If Mr. Conway elects to terminate his employment agreement following the closing of this offering, he would be entitled to exercise any vested options during the 30-day period following such termination. Mr. Conway is also eligible to receive a cash bonus each fiscal year beginning in 2001 based on a percentage of his base salary provided he meets minimum performance criteria to be established by our board of directors. The cash bonus, if any, may be paid in equity in lieu of cash. We also agreed to reimburse Mr. Conway for reasonable out-of-pocket expenses he incurred in connection with his performance of services under this agreement and for relocation costs of up to $80,000 for moving him and his family from Cincinnati, Ohio to Boulder, Colorado.
If Mr. Conway's employment is terminated as a result of his disability or by us without cause, we agreed to pay him a severance payment equal to one year of his then current base salary in equal monthly
installments and he will be entitled to receive, pro-rated to the date of termination, any cash performance bonus he would have received for that year and any performance options that would have vested in that year. Mr. Conway agreed to execute a release acceptable to us in consideration for our severance obligations under the agreement. If Mr. Conway terminates his employment without cause, he will not receive any performance bonus for that year or acceleration of any of his options granted under the agreement. Mr. Conway is also subject to a non-compete agreement in which he agreed for a period of two years not to engage in any competing activities in a 50-mile radius of any area where we are doing business and not to recruit or solicit any of our employees or customers.
Effective September 1, 2000, we entered into employment agreements with Dr. Koch, Dr. Snitman, Dr. Piscopio, Mr. Carruthers, Dr. Josey, Dr. Burgess and Dr. Money. These agreements are for an initial term of two years and may then be renewed for additional one-year terms. Either party may terminate for any reason upon 30 days' prior notice to the other. Under these agreements we will pay the employees annual salaries ranging from $120,000 to $175,000. If the employee is terminated as a result of disability or by us without cause, including a reduction in the employee's salary, we have agreed to pay the employee a severance payment equal to the greater of one year, or the remaining term, of his or her then-current base salary in equal monthly installments. Upon a change of control of the company, 75% of each employee's outstanding options will vest and the remaining 25% of such options will vest one year later, if the employee is still working for us. Each of these employees is also subject to a non-compete agreement in which he or she has agreed for a period of two years following his or her termination not to engage in any competing activities within a 50-mile radius of any area where we are doing business and not to recruit or solicit any of our employees or customers.
In connection with our employment agreements with Dr. Koch and Dr. Piscopio, we agreed to extend the due dates for a $100,000 note that we hold from Dr. Koch and a $125,000 note that we hold from Dr. Piscopio to coincide with the initial term of their employment agreements and to reduce the number of shares of our common stock pledged as security for these notes to 50,000 shares each.
EMPLOYEE BENEFIT PLANS
Amended and Restated Stock Option and Incentive Plan
Our Amended and Restated Stock Option and Incentive Plan is the successor equity incentive program to our 1998 Stock Option Plan. Our amended stock option plan was adopted by our board of directors and approved by our stockholders in September 2000. Upon the closing of this offering, our amended stock option plan will become effective, and we will make no further grants under our current stock option plan. At that time, all awards under our current stock option plan will be transferred to our amended stock option plan, however, such awards will continue to be subject to their existing terms. The primary differences between our current stock option plan and our amended stock option plan are described below. This summary is qualified in its entirety by the detailed provisions of our current stock option plan and our amended stock option plan, which have been filed as exhibits to the registration statement of which this prospectus is a part.
At September 30, 2000, there were 4,837,500 shares of common stock reserved for issuance under the stock option plan and options to purchase 729,446 shares of common stock remain available for issuance under the stock option plan. Effective as of the closing of this offering, there will be 7,000,000 shares of common stock reserved for issuance under the stock option plan. The stock option plan provides that the number of shares reserved for issuance under the stock option plan shall be increased, but not decreased, by any additional authorized shares. Additional authorized shares, for purposes of the stock option plan, means on any given day the difference between:
- 25% of our issued and outstanding shares of common stock, on a fully diluted, as converted basis, minus
- the number of outstanding shares relating to awards under the stock option plan plus the number of shares available for future grants of awards under the stock option plan on that date.
The number of shares available for issuance under the stock option plan as incentive stock options may not initially exceed 7,000,000 shares, provided that this number will be increased each January 1 for the next five years beginning in 2001 by 250,000 shares. At no time can the number of shares available for issuance under our stock option plan as incentive stock options exceed the total number of shares reserved for issuance under our stock option plan.
The maximum number of shares subject to options that can be awarded under the stock option plan to any person is 2,000,000 per year. The maximum number of shares that can be awarded under the stock option plan to any person, other than pursuant to an option, is 400,000 per year. The maximum amount that may be earned as an annual incentive award or other cash award in any fiscal year by any one person is $1,000,000 and the maximum amount that may be earned as a performance award or other cash award in respect of a performance period by any one person is $3,000,000.
Administration. The stock option plan is administered by our compensation committee. Subject to the terms of the stock option plan, the compensation committee may select participants to receive awards, determine the types of awards and terms and conditions of awards, and interpret provisions of the stock option plan.
The common stock issued or to be issued under the stock option plan consists of authorized but unissued shares. Shares covered by an award that are not purchased or that are forfeited will again be available for issuance as awards under the stock option plan.
Eligibility. Awards may be made under our stock option plan to our employees, officers, directors or consultants, or to any of our affiliates, or their officers or directors, and to any other individual whose participation in the stock option plan our compensation committee determines to be in our best interests.
Amendment or Termination of the Plan. The board of directors may terminate or amend the stock option plan at any time and for any reason as long as the amendment does not adversely impair the rights of grantees with respect to outstanding awards. Further, unless terminated earlier, the stock option plan will terminate on the date 10 years from the date of the closing of this offering. Amendments will be submitted for stockholder approval to the extent required by the Internal Revenue Code or other applicable laws.
Options. We may grant options under the stock option plan that are either intended to qualify as incentive stock options under the Internal Revenue Code or not to qualify as incentive stock options, referred to as non-qualified stock options.
The exercise price of each stock option may not be less than 100% of the fair market value of our common stock on the date of grant. In the case of specified 10% stockholders who receive incentive stock options, the exercise price may not be less than 110% of the fair market value of our common stock on the date of grant. An exception to these requirements is made for options that we grant in substitution for options held by employees of companies that we acquire. In this case, the exercise price is adjusted to preserve the economic value of the employee's stock option from his or her former employer.
The term of each stock option is fixed by the compensation committee and may not exceed 10 years from the date of grant. The compensation committee determines when each option may be exercised and the period of time, if any, after retirement, death, disability or termination of employment during which options may be exercised. Options granted under our current stock option plan, however, are generally exercisable, to the extent vested, for up to 30 days after the optionee terminates employment without cause if the termination occurs more than six months after the option is granted, unless the option agreement provides otherwise.
Options may be exercisable in installments. Options granted under our current stock option plan vest 25% per year over a four-year period based on continued service with us, unless the option agreement provides otherwise. The exercisability of options may be accelerated by the compensation committee.
In general, an optionee may pay the exercise price of an option by cash, certified check, by tendering shares of our common stock, which if acquired from us have been held by the optionee for at least six months, or by means of a broker-assisted cashless exercise.
Stock options granted under our stock option plan may not be sold, transferred, pledged, or assigned other than by will or under applicable laws of descent and distribution. However, we may permit limited transfers of non-qualified options for the benefit of immediate family members of grantees to help with estate planning concerns.
Other Awards. The compensation committee may also award under the stock option plan:
- shares of common stock subject to restrictions;
- deferred stock, credited as deferred stock units, but ultimately payable in the form of unrestricted shares of common stock in accordance with the participant's deferral election;
- common stock units subject to restrictions;
- unrestricted shares of common stock, which are shares of common stock issued at no cost or for a purchase price determined by the compensation committee which are free from any restrictions under the stock option plan;
- dividend equivalent rights entitling the grantee to receive credits for dividends that would be paid if the grantee had held a specified number of shares of common stock;
- a right to receive a number of shares or, in the discretion of the compensation committee, an amount in cash or a combination of shares and cash, based on the increase in the fair market value of the shares underlying the right during a stated period specified by the compensation committee;
- a right to receive a number of shares, subject to the attainment of specified performance goals; and
- performance and annual incentive awards, ultimately payable in stock or cash, as determined by the compensation committee. The compensation committee may grant multi-year and annual incentive awards subject to achievement of specified performance goals tied to business criteria described below.
Section 162(m) of the Internal Revenue Code limits publicly-held companies to an annual deduction for federal income tax purposes of $1,000,000 for compensation paid to their chief executive officer and the four highest compensated executive officers (other than the chief executive officer) determined at the end of each year. However, performance-based compensation is excluded from this limitation. Although our stock option plan is currently not subject to Section 162(m) because Section 162(m) provides for a grace period following an initial public offering, the stock option plan is designed to permit the compensation committee to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m) after the stock option plan becomes subject to Section 162(m).
Business Criteria. The compensation committee may use exclusively one or more of the following business criteria to establish performance goals for awards granted to "covered employees" as defined by to Section 162(m) of the Internal Revenue Code:
- total stockholder return;
- such total stockholder return as compared to total return, on a comparable basis, of a publicly available index such as, but not limited to, the Standard & Poor's 500 Stock Index;
- net income;
- pretax earnings;
- earnings before interest expense, taxes, depreciation and amortization;
- pretax operating earnings after interest expense and before bonuses, service fees, and extraordinary or special items;
- operating margin;
- earnings per share;
- return on equity;
- return on capital;
- return on investment;
- operating earnings;
- working capital;
- ratio of debt to stockholders' equity; and
- revenue.
Effect of Certain Corporate Transactions. Certain change of control transactions involving us, such as a sale of all or substantially all of our assets or stock, may cause awards granted under the stock option plan to vest, unless the awards are continued or substituted for by the surviving company in connection with the change of control transaction.
Adjustments for Stock Dividends and Similar Events. The compensation committee will make appropriate adjustments in outstanding awards and the number of shares available for issuance under the stock option plan, including the individual limitations on awards, to reflect common stock dividends, stock splits and other similar events.
Employee Stock Purchase Plan
The following is a summary description of our Employee Stock Purchase Plan, which our board of directors adopted and stockholders approved in September 2000, effective upon the closing of this offering. Our stock purchase plan has been filed as an exhibit to the registration statement of which this prospectus is a part.
The purpose of our stock purchase plan is to permit eligible employees to purchase shares of our common stock at a discount. Our stock purchase plan is administered by the compensation committee. All of our employees whose customary employment is more than 20 hours per week and for more than 5 months in any calendar year will be eligible to participate in this plan, provided that any employee who would own 5% or more of the total combined voting power or value of our common stock immediately after any grant is not eligible to participate.
We have reserved 800,000 shares of common stock for issuance under our stock purchase plan. We intend that our stock purchase plan meet the requirements for an employee stock purchase plan under Section 423 of the Internal Revenue Code.
During an offering period, we will withhold amounts through payroll deductions for eligible employees who elect to participate in the stock purchase plan. At the end of each offering period, we will use accumulated payroll deductions to purchase, on behalf of eligible employees who are participating in the plan, stock at a price equal to the lesser of 85% of the market price of the common stock at either the beginning of the offering period or the end of the offering period. The duration of each offering period will be determined by the compensation committee.
An employee may not sell shares of common stock purchased under the stock purchase plan until three months have elapsed from the date the shares were purchased on the employee's behalf. Shares of common stock purchased under the stock purchase plan will be held in the custody of an agent appointed by the board of directors until two years have elapsed since the first day of the offering period in which the shares were purchased and one year has elapsed since the date the shares were purchased.
401(k) Savings Plan
We sponsor a 401(k) Savings Plan, a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code. All employees who are at least 21 years old are eligible to participate. Participants may make pre-tax contributions to our 401(k) plan of up to 15% of their eligible earnings, subject to a statutorily prescribed annual limit. We may make matching contributions at 50% up to the first 4% contributed by employees under the 401(k) plan. Each participant is fully vested in his or her contributions. Our matching contributions vest over four years. Contributions by the participants or by us to the 401(k) plan, and the income earned on such contributions, are generally not taxable to the participants until withdrawn. Our contributions, if any, are generally deductible when made. All contributions are held in trust as required by law. Individual participants may direct the trustee to invest their accounts in authorized investment alternatives.
RELATED PARTY TRANSACTIONS
Since our inception, we have issued shares of common and preferred stock in private placement transactions as follows:
On May 18, 1998, we issued and sold 2,913,367 shares of our common stock at a purchase price of $0.235 per share and 2,500,000 shares of our Series A preferred stock at a purchase price of $1.00 per share. Between August 8, 1998 and January 15, 1999, we issued and sold an additional 4,135,000 shares of our Series A preferred stock at a purchase price of $1.00 per share. On November 16, 1999, we issued and sold 3,199,999 shares of our Series B preferred stock at a purchase price of $2.50 per share. On August 31, 2000, we issued and sold 1,666,667 shares of our Series C preferred stock at a purchase price of $6.00 per share. Each share of Series A preferred stock, Series B preferred stock and Series C preferred stock currently converts into one share of common stock. Upon the closing of this offering, the following shares of preferred stock convert into common stock at a rate of one share of common stock for each share of preferred stock.
The following table identifies our executive officers, directors and five percent stockholders who have made equity investments in our company, excluding the exercise of options to purchase shares of our common stock. See "Principal and Selling Stockholders" for additional information relating to the beneficial ownership of shares of our preferred and common stock of these stockholders.
SHARES OF SHARES OF SHARES OF
SHARES OF SERIES A SERIES B SERIES C
COMMON PREFERRED PREFERRED PREFERRED
NAME STOCK STOCK STOCK STOCK
---- --------- --------- --------- ---------
EXECUTIVE OFFICERS
Kevin Koch, Ph.D.(a)................................. 648,654 5,000 54,000 --
David L. Snitman, Ph.D. ............................. 648,654 250,000 385,548 266,667
Anthony D. Piscopio, Ph.D. .......................... 648,654 -- 30,000 1,667
Michael Carruthers................................... -- 25,000 16,000 3,332
DIRECTORS
Kyle Lefkoff(b)...................................... 150,000 1,000,000 463,409 161,163
Marvin H. Caruthers, Ph.D.(c)........................ 18,750 250,000 80,000 33,936
Kirby L. Cramer...................................... -- -- -- 83,333
Robert Overell, Ph.D.(d)............................. -- 1,500,000 604,446 16,667
FIVE PERCENT STOCKHOLDERS
ARCH Venture Fund III, L.P. ......................... -- 1,500,000 604,446 204,779
Boulder Ventures II, L.P.(e)......................... 150,000 1,000,000 463,409 156,997
Falcon Technology Partners L.P. ..................... 150,000 1,000,000 463,409 156,997
Frazier Healthcare II, L.P. ......................... -- 1,500,000 604,446 16,667
K.C. Nicolaou, Ph.D. ................................ 648,654 -- 252,000 50,000
Rovent II Limited Partnership........................ -- 750,000 120,000 50,000
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(a) Includes 5,000 shares of Series A preferred stock and 2,000 shares of Series B preferred stock purchased by Dr. Koch's spouse.
(b) Includes 130,500 shares of common stock, 870,000 shares of Series A preferred stock, 403,166 shares of Series B preferred stock and 136,587 shares of Series C preferred stock purchased by Boulder Ventures II, L.P.; 19,500 shares of common stock, 130,000 shares of Series A preferred stock, 60,243 shares of Series B preferred stock and 20,410 shares of Series C preferred stock purchased by Boulder Ventures II (Annex), L.P., an affiliate of Boulder Ventures II, L.P. and 4,166 shares of Series C preferred stock purchased by Mr. Lefkoff's father. The general partner of Boulder Ventures II L.P. and Boulder Ventures II (Annex), L.P. is BV Partners II, LLC. Mr. Lefkoff is a member and manager of BV Partners II, LLC, and he disclaims beneficial ownership in the above shares except to the extent of his pecuniary interest in such shares.
(c) All shares of common stock and preferred stock were purchased by The Caruthers Family, L.L.C., of which Dr. Caruthers is the manager and a member. Dr. Caruthers disclaims beneficial ownership of such shares except to the extent of his pecuniary interest in the shares.
(d) Includes 1,500,000 shares of Series A preferred stock, 604,446 shares of Series B preferred stock and 16,667 shares of Series C preferred stock purchased by Frazier Healthcare II, L.P. The general partner of Frazier Healthcare II, L.P. is FHMII, L.L.C., and the managing member of FHMII, L.L.C. is Frazier Management, L.L.C. Dr. Overell is a member of Frazier Management, L.L.C., and he disclaims beneficial ownership in the above shares except to the extent of his pecuniary interest in such shares.
(e) Includes 19,500 shares of common stock, 130,000 shares of Series A preferred stock, 60,243 shares of Series B preferred stock and 20,410 shares of Series C preferred stock purchased by Boulder Ventures II, (Annex) L.P., an affiliate of Boulder Ventures II, L.P.
We believe that the terms of all the above-described transactions were no less favorable than we could have obtained from unaffiliated third parties.
In connection with the above-described transactions, we entered into an agreement with the investors providing for registration rights with respect to the shares of common stock, including those issuable upon conversion of each series of preferred stock. For more information, please see "Description of Capital Stock -- Registration Rights."
Mr. Lefkoff is a manager and member of BV Partners II, LLC, which is the general partner of Boulder Ventures II, L.P. and Boulder Ventures II (Annex), L.P., and he was appointed as one of our directors by our stockholders under the terms of a voting agreement that will terminate upon the consummation of this offering. Dr. Overell is a member of Frazier Management, L.L.C., which is the managing member of FHMII, L.L.C., which is the general partner of Frazier Healthcare II, L.P., and he was appointed as one of our directors by Frazier Healthcare II, L.P.
In connection with Dr. Koch's purchase of 648,655 shares of our common stock on May 18, 1998, he issued us a promissory note with a principal balance of $100,000, an interest rate of 6.0% per annum and a maturity date on the earlier of May 18, 2001 or the date he voluntarily terminates his employment with us. Dr. Koch initially pledged all 648,655 shares of common stock as security for his loan. On September 1, 2000, we released 598,655 shares of common stock from Dr. Koch's pledge and extended the maturity date of his loan to the earlier of September 1, 2002 or the date Dr. Koch voluntarily terminates his employment with us.
In connection with Dr. Nicolaou's purchase of 648,655 shares of our common stock on May 18, 1998, he issued us a promissory note with a principal balance of $125,000, an interest rate of 6.0% per annum and a maturity date of the earlier of May 18, 2002 or the date Dr. Nicolaou terminates his consulting arrangement with us. Dr. Nicolaou pledged all 648,655 shares of common stock as security for his loan.
In connection with Dr. Piscopio's purchase of 648,655 shares of our common stock on May 18, 1998, he issued us a promissory note with a principal balance of $125,000, an interest rate of 6.0% per annum and a maturity date of the earlier of May 18, 2002 or the date Dr. Piscopio terminates his employment with us. Dr. Piscopio initially pledged all 648,655 shares of common stock as security for his loan. On September 1, 2000, we released 598,655 shares of common stock from Dr. Piscopio's pledge and extended the maturity date of his loan to the earlier of September 1, 2002 or the date Dr. Piscopio voluntarily terminates his employment with us.
Stock option grants to our directors and executive officers are described in this prospectus under the heading "Management -- Director Compensation" and "Management -- Executive Compensation." In addition, we have employment agreements with our executive officers and some of our other employees, which are discussed under "Management -- Employment Agreements."
PRINCIPAL AND SELLING STOCKHOLDERS
The following table shows information with respect to beneficial ownership of our common stock, as of September 30, 2000, after giving pro forma effect to the conversion of all of our outstanding shares of preferred stock into common stock on a one-to-one basis, and as adjusted to reflect the sale of the common stock offered by us in this offering, for:
- each of our named executive officers;
- each of our directors;
- all of our directors and executive officers as a group; and
- each person known by us to beneficially own more than 5% of our common stock.
We have calculated the percentage of stock beneficially owned based on 15,404,332 shares of common stock outstanding as of September 30, 2000, after giving effect to the conversion of our convertible preferred stock, and 21,404,332 shares of common stock outstanding after completion of this offering.
PERCENTAGE OF SHARES
NUMBER OF NUMBER OF BENEFICIALLY OWNED(B)
SHARES SHARES ----------------------
BENEFICIALLY BEING BEFORE AFTER
NAME OWNED OFFERED(a) OFFERING OFFERING
---- ------------ ---------- --------- ---------
NAMED EXECUTIVE OFFICERS
Robert E. Conway(c)................................... 695,000 4.5% 3.3%
Kevin Koch, Ph.D.(d).................................. 728,994 50,000 4.7 3.4
David L. Snitman, Ph.D.(e)............................ 1,539,543 10.0 7.2
Anthony D. Piscopio, Ph.D.(f)......................... 701,289 50,000 4.6 3.3
Michael Carruthers(g)................................. 93,273 * *
DIRECTORS
Kyle Lefkoff(h)....................................... 1,770,406 11.5 8.3
Francis J. Bullock, Ph.D.(i).......................... 40,000 * *
Marvin H. Caruthers, Ph.D.(j)......................... 382,686 2.5 1.8
Kirby L. Cramer....................................... 83,333 * *
Robert W. Overell, Ph.D.(k)........................... 2,121,113 13.8 9.9
All directors and executive officers as a group (10
persons)(l)......................................... 8,155,637 51.1 38.0
FIVE PERCENT STOCKHOLDERS
ARCH Venture Fund III, L.P.(m)........................ 2,309,225 15.0 10.8
Boulder Ventures II, L.P.(n).......................... 1,770,406 11.5 8.3
Falcon Technology Partners L.P.(o).................... 1,770,406 11.5 8.3
Frazier Healthcare II, L.P.(p)........................ 2,121,113 13.8 9.9
K.C. Nicolaou, Ph.D.(q)............................... 950,654 6.2 4.4
Rovent II Limited Partnership(r)...................... 920,000 6.0 4.3
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* Less than 1% beneficial ownership.
(a) Certain of our stockholders have granted the underwriters an over-allotment option. If the over-allotment option is exercised in full, Dr. Koch and Dr. Piscopio will each sell 50,000 shares of common stock in this offering. The percentage of shares beneficially owned after the offering in the table above assumes no exercise of the over-allotment option. If the over-allotment option is exercised in full, Dr. Koch's and Dr. Piscopio's percentage of shares beneficially owned after the offering would be 3.1% and 2.9%, respectively.
(b) Beneficial ownership is determined under the rules of the Securities and Exchange Commission and includes voting or investment power with respect to the securities. Unless indicated by footnote, the address for each listed director, officer and principal stockholder is Array BioPharma Inc., 1885 33rd Street, Boulder, Colorado 80301. Except as indicated by footnote, 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. The number of shares of common stock outstanding used in calculating the percentage for each listed person includes the shares of common stock underlying options held by that person that are currently exercisable or are exercisable within 60 days of September 30, 2000, but excludes shares of common stock underlying options held by any other person.
(c) Includes 20,000 shares of common stock held in uniform gift to minor accounts for the benefit of Mr. Conway's children, options to purchase 420,000 shares that will become exercisable upon the closing of this offering and options to purchase an additional 55,000 shares that are exercisable within 60 days of September 30, 2000.
(d) Includes options to purchase 8,332 shares of common stock that are exercisable within 60 days of September 30, 2000, and the following shares held by Dr. Koch's spouse: options to purchase 2,309 shares of common stock that are exercisable within 60 days of September 30, 2000, 10,457 shares of common stock, 5,000 shares of Series A preferred stock and 12,500 shares of Series B preferred stock.
(e) Includes options to purchase 8,332 shares of common stock that are exercisable within 60 days of September 30, 2000, and 100,000 shares of common stock held in trust for the benefit of Dr. Snitman's children.
(f) Includes options to purchase 6,645 shares of common stock that are exercisable within 60 days of September 30, 2000.
(g) Includes options to purchase 12,436 shares of common stock that are exercisable within 60 days of September 30, 2000.
(h) Includes 130,500 shares of common stock, 870,000 shares of Series A preferred stock, 403,166 shares of Series B preferred stock and 136,587 shares of Series C preferred stock held by Boulder Ventures II, L.P., and 19,500 shares of common stock, 130,000 shares of Series A preferred stock, 60,243 shares of Series B preferred stock and 20,410 shares of Series C preferred stock held by Boulder Ventures II (Annex), L.P., an affiliate of Boulder Ventures II, L.P. The general partner of Boulder Ventures II L.P. and Boulder Ventures II (Annex), L.P. is BV Partners II, LLC. Mr. Lefkoff is a member and manager of BV Partners II, LLC, and he shares voting and dispositive power in these shares. Mr. Lefkoff disclaims beneficial ownership in these shares except to the extent of his pecuniary interest in such shares.
(i) Includes options to purchase 30,000 shares of common stock that are exercisable within 60 days of September 30, 2000.
(j) All shares of stock are held by The Caruthers Family, L.L.C., of which Dr. Caruthers is the manager and a member. Dr. Caruthers disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in such shares.
(k) Includes 1,500,000 shares of Series A preferred stock, 604,446 shares of Series B preferred stock and 16,667 shares of Series C preferred stock owned by Frazier Healthcare II, L.P. The general partner of Frazier Healthcare II, L.P. is FHMII, L.L.C., and the managing member of FHMII, L.L.C. is Frazier Management, L.L.C. Dr. Overell is a member of Frazier Management, L.L.C., and he shares voting and dispositive power in these shares. Dr. Overell disclaims beneficial ownership in these shares except to the extent of his pecuniary interest in such shares.
(l) Includes options to purchase 543,054 shares of common stock that are exercisable within 60 days of September 30, 2000 or upon consummation of this offering.
(m) The general partner of ARCH Venture Fund III, L.P. is Arch Venture Partners, LLC. Steven Lazarus, Robert Nelsen, Keith Crandell, Clinton Bybee, Alex Knight and Karen Kerr are each managers of Arch Venture Partners, LLC and share voting and dispositive power for these shares. Messrs. Lazarus, Nelsen, Crandell, Bybee and Knight and Ms. Kerr disclaim beneficial ownership in these shares except to the extent of their respective pecuniary interest in such shares. The business address of ARCH Venture Fund III, L.P. is 8725 West Higgins Road, Suite 290, Chicago, IL 60631.
(n) Includes 19,500 shares of common stock, 130,000 shares of Series A preferred stock, 60,243 shares of Series B preferred stock and 20,410 shares of Series C preferred stock held by Boulder Ventures II (Annex), L.P., an affiliate of Boulder Ventures II, L.P. The general partner of Boulder Ventures II, L.P. and Boulder Ventures II (Annex), L.P. is BV Partners II, LLC. Mr. Lefkoff, one of our directors, Josh E. Fidler and Lawrence M. Macks are each members and managers of BV Partners II, LLC and share voting and dispositive power for these shares. Messrs. Lefkoff, Fidler and Macks disclaim beneficial ownership in these shares except to the extent of their respective precuniary interest in such shares. The business address of Boulder Ventures II, L.P. and Boulder Ventures II (Annex), L.P. is 1941 Pearl Street, No. 300, Boulder, CO 80302.
(o) The general partner of Falcon Technology L.P. is James L. Rathmann. Mr. Rathmann has voting and dispositive power for these shares. Mr. Rathmann disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in such shares. The business address of Falcon Technology Partners L.P. is 600 Dorset Road, Devon, PA 19333.
(p) The general partner of Frazier Healthcare II, L.P. is FHMII, L.L.C., and the managing member of FHMII, L.L.C. is Frazier Management, L.L.C. Dr. Overell, one of our directors, Fred E. Silverstein, Alan Frazier, Nadar Naini and Jon Gilbert are each directly or indirectly members of Frazier Management, L.L.C. and share voting and dispositive power for these shares. Dr. Overell, Dr. Silverstein and Messrs. Frazier, Naini and Gilbert disclaim beneficial ownership in these shares except to the extent of their respective pecuniary interest in such shares. The business address of Frazier Healthcare II, L.P. is 601 Union Street, Suite 3300, Seattle, WA 98101.
(q) The business address of Dr. Nicolaou is 10550 North Torrey Pines Road, La Jolla, CA 92037.
(r) The business address of Rovent II Limited Partnership is 75 State Street, Boston, MA 02109.
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and material provisions of our certificate of incorporation and bylaws, which will become effective upon the closing of this offering, is only a summary. The description is qualified in its entirety by the complete provisions of our certificate of incorporation and bylaws, which have been filed as exhibits to the registration statement of which this prospectus is a part. Upon the closing of this offering, our certificate of incorporation will authorize the issuance of up to 60,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. As of September 30, 2000, 3,902,666 shares of common stock were outstanding and 11,501,666 shares of convertible preferred stock, convertible on a one-to-one basis into shares of common stock upon the completion of this offering, were issued and outstanding. As of September 30, 2000, we had 89 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. Holders of common stock are not entitled to cumulative voting rights with respect to the election of directors. Subject to preferences that may be applicable to any preferred stock outstanding at the time, holders of common stock are entitled to receive ratable dividends, if any, as may be declared from time to time by the board of directors out of funds legally available for that purpose. In the event of our liquidation, dissolution or winding up, holders of common stock would be entitled to share ratably in all assets remaining after the payment of liabilities and liquidation preferences on any outstanding 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 shares of common stock offered by us in this offering, when issued and paid for, will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of our preferred stock will convert into shares of common stock on a one-to-one basis. Thereafter, our board of directors will be authorized, without stockholder approval, to issue up to an aggregate of 10,000,000 shares of preferred stock in one or more series. The board of directors can fix the rights, preferences and privileges of, and any qualifications, limitations or restrictions on, the shares of each series of our preferred stock.
The issuance of preferred stock may have the effect of delaying or preventing a change in our control or make removal of our management more difficult. Additionally, the issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of the common stock or could adversely affect the rights and powers, including voting rights, of the holders of our common stock. The issuance of preferred stock could also cause the market price of our common stock to decline. At present, we have no plans to issue any shares of preferred stock.
WARRANTS
Prior to the closing of this offering, we will have outstanding warrants to purchase a total of 53,750 shares of Series A preferred stock and 57,000 shares of Series B preferred stock, including warrants to purchase 40,000 shares of Series A preferred stock at $1.00 per share held by Silicon Valley Bank, which will expire on October 9, 2005; warrants to purchase 13,750 shares of Series A preferred stock at $3.00 per share held by Leasing Technologies International, Inc., which will expire on March 31, 2006; warrants to purchase 7,000 shares of Series B preferred stock at $2.50 per share held by Silicon Valley Bank, which will expire on March 9, 2006; and warrants to purchase 50,000 shares of Series B preferred stock at $5.00 per share held by Silicon Valley Bank, which will expire on May 17, 2007. Upon completion of this offering, warrants to purchase 110,750 shares of preferred stock will convert automatically into warrants to purchase an equal number of shares of common stock.
REGISTRATION RIGHTS
At any time following three months from the effective date of this offering, the holders of up to 14,356,901 shares of our common stock, or their transferees, will be entitled to require the registration of those shares under the Securities Act. Under an agreement with these holders, the holders of at least 30% of these shares may on up to two occasions require us to register their shares under the Securities Act, subject to some limitations described in the agreement. In connection with this offering, some of our stockholders have agreed with the underwriters not to exercise any demand registration rights for a period of 365 days from the effective date of this offering. In addition, these holders can require us to include their shares in future registrations of our shares for our account or the account of another stockholder. After we become eligible to register securities on Form S-3, these holders may require us to register their shares on up to two occasions in any calendar year on Form S-3. These registration rights are subject to limitations and conditions, including the right of underwriters to limit the number of shares of common stock held by existing stockholders to be included in a registration. The registration rights as to any holder will terminate when all securities held by the holder entitled to registration rights can be sold within a three-month period under Rule 144 of the Securities Act and when the number of shares held by the holder is less than 1% of our outstanding capital stock on an as converted to common stock basis. In addition, we are generally required to bear all expenses of registration, including the reasonable fees of a single counsel acting on behalf of all selling stockholders, except underwriting discounts and selling commissions.
Registration of any shares with registration rights would result in those shares becoming freely tradeable without restriction under the Securities Act. Sales of these shares could have a material adverse effect on the trading price of our common stock.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, our certificate of incorporation effective upon the closing of this offering provides that our directors are not personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our stockholders;
- for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, relating to unlawful dividends or unlawful stock purchases or redemptions; or
- for any transaction from which the director derives an improper personal benefit.
As a result of this provision, we and our stockholders may be unable to obtain monetary damages from a director for breach of his or her duty of care.
Upon the closing of this offering, our bylaws will provide for the indemnification of our directors and officers to the fullest extent authorized by the Delaware General Corporation Law. We will indemnify a director or officer in connection with an action initiated by that person if the action was authorized by our board of directors. The indemnification provided under our bylaws includes the right to be paid expenses in advance of the final disposition of a proceeding for which indemnification may be had if the director or officer agrees to repay all amounts paid in advance if it is ultimately determined that the director or officer is not entitled to be indemnified. Under our bylaws, if we do not pay a claim for indemnification within 60 days after we have received a written claim, the director or officer may bring an action to recover the unpaid amount of the claim. If successful, the director or officer also will be entitled to be paid the expense of prosecuting the action to recover these unpaid amounts.
Our bylaws also authorize us to purchase and maintain insurance on behalf of any person who is or was one of our directors, officers, employees or agents, or is or was serving at our request as a director, officer, employee, partner or agent of another corporation or other entity or enterprise, against any liability asserted
against the person or incurred by the person in any of these capacities, or arising out of the person's fulfilling one of these capacities, and related expenses. We may obtain this insurance whether or not we would have the power to indemnify the person against the claim under the provisions of the Delaware General Corporation Law. We have purchased director and officer liability insurance on behalf of our directors and officers. The indemnification provisions under our certificate of incorporation and bylaws are not exclusive of any other rights to indemnification under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
ANTI-TAKEOVER PROVISIONS
General
Upon the closing of this offering, our certificate of incorporation and bylaws will contain some provisions that are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by our board of directors. In addition, provisions of Delaware law may hinder or delay an attempted takeover of us other than through negotiation with our board of directors. These provisions could have the effect of discouraging attempts to acquire us or remove incumbent management even if some or a majority of our stockholders believe this action is in their best interest, including attempts that might result in the stockholders receiving a premium over the market price for the shares of common stock they hold.
Classified Board
Our certificate of incorporation provides for the division of our board of directors into three classes of directors serving staggered three-year terms. Our certificate of incorporation further provides that the approval of the holders of at least two-thirds of the shares entitled to vote is necessary for the alteration, amendment or repeal of sections of our certificate of incorporation relating to the election and classification of our board of directors, limitation of director liability, indemnification and the vote requirements for these amendments to our certificate of incorporation. These provisions may have the effect of deterring hostile takeovers or delaying changes in control or management.
Removal of Directors and Vacancies
Our certificate of incorporation provides that directors may be removed only with cause upon the affirmative vote of holders representing two-thirds of our outstanding shares. In addition, vacancies and newly created directorships resulting from any increase in the size of the board of directors may be filled only by the affirmative vote of a majority of the directors then in office, even if they do not constitute a quorum, or by the sole remaining director. These provisions would prevent stockholders from removing incumbent directors without cause and filling the resulting vacancies with their own nominees.
Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations of Directors
Our bylaws establish an advance notice procedure with regard to the nomination, other than by the board of directors, of candidates for election to the board of directors and with regard to matters to be brought before an annual meeting of our stockholders by a stockholder. For nominations and other business to be brought properly before an annual meeting by a stockholder, the stockholder must notify us between 60 and 90 days prior to the first anniversary of the preceding year's annual meeting. Separate provisions based on public notice by us specify how this advance notice requirement operates if the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from the anniversary date. The stockholder's notice must contain specified information regarding the stockholder and its holdings, as well as background information regarding any director nominee, together with that person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected, and a brief description of any business desired to be brought before the meeting, the reasons for conducting the business at the meeting and any material interest of the stockholder in the business proposed. Although our bylaws do not give our
board of directors any power to approve or disapprove stockholder nominations for the election of directors or any other business desired by stockholders to be conducted at an annual meeting, the bylaws:
- may have the effect of precluding a nomination for the election of directors or precluding the conduct of business at a particular annual meeting if the proper procedures are not followed; or
- may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of us, even if the conduct of this solicitation or the attempt to obtain control might be beneficial to us and our stockholders.
Special Stockholders' Meetings
Under our certificate of incorporation and bylaws, special meetings of stockholders, unless otherwise prescribed by statute, may be called only by the board of directors, the chairperson, or the chief executive officer.
Stockholder Action Only by Written Consent
Our certificate of incorporation provides that any action required or permitted to be taken at a stockholders' meeting may be taken only by unanimous written consent.
Section 203 of the Delaware General Corporation Law
Under Section 203 of the Delaware General Corporation Law, we may not engage in a "business combination," which includes a merger or sale of more than 10% of our assets, with any "interested stockholder," namely, a stockholder who owns 15% or more of our outstanding voting stock, as well as affiliates and associates of any of these persons, for three years following the time that stockholder became an interested stockholder, unless:
- the transaction in which the stockholder became an interested stockholder is approved by our board of directors prior to the time the interested stockholder attained that status;
- upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers; or
- at or after the time the stockholder became an interested stockholder the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
Authorized but Unissued Shares
The authorization of undesignated preferred stock makes it possible for the board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our company. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of our company.
TRANSFER AGENT AND REGISTRAR
We will retain a transfer agent and registrar for our common stock prior to the closing of this offering.
LISTING
We have applied to have our common stock approved for quotation on the Nasdaq National Market under the trading symbol "ARRY."
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of common stock, including shares issued upon the exercise of outstanding options, in the public market following this offering, the market price of our common stock could fall. These sales also may make it more difficult for us to sell equity or equity-related securities in the future and at a time and price that we deem appropriate.
Upon completion of this offering, we will have outstanding an aggregate of 21,404,332 shares of our common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options, based on the number of shares issued and outstanding as of September 30, 2000. Of these shares, all of the shares sold in this offering will be freely tradeable without restriction or further registration under the Securities Act, unless these shares are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. This leaves 15,404,332 shares eligible for sale in the public market as follows:
NUMBER OF SHARES DATE
----------------------------------------- -----------------------------------------
483,275.................................. After 90 days from the date of this
prospectus.
13,224,990............................... After 180 days from the date of this
prospectus (subject, in some cases, to
volume limitations).
1,696,067................................ At various times after 180 days from the
date of this prospectus (subject, in some
cases, to volume limitations).
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LOCK-UP AGREEMENTS
All of our officers and directors and stockholders holding substantially all of our outstanding stock have signed lock-up agreements with our underwriters under which they agreed not to transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, for a period of 180 days after the date of this prospectus. Transfers or dispositions can be made sooner with the prior written consent of Lehman Brothers Inc. This consent may be given at any time without public notice.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock 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:
- 1% of the number of shares of our common stock then outstanding, which will equal approximately 214,043 shares immediately after this offering; or
- the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, Rule 144(k) shares may be sold immediately upon the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect, any of our employees, consultants or advisors who purchase shares of our common stock from us in connection with a compensatory stock or option plan or other written agreement is eligible to resell those shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144. As of September 30, 2000, a total of 4,108,054 shares of common stock had been issued or were issuable upon the exercise of options. Of these shares of common stock, 1,730,658 will be restricted by lock-up agreements.
REGISTRATION RIGHTS
After this offering, the holders of 14,356,901 shares of our common stock, or certain of their transferees, will be entitled to rights with respect to the registration of those shares under the Securities Act. After such a registration, these shares of our common stock become freely tradeable without restriction under the Securities Act. Sales of these shares could have a material adverse effect on the trading price of our common stock.
STOCK OPTIONS
As soon as practicable after this offering, we intend to file a registration statement on Form S-8 covering the shares of common stock reserved for issuance under our stock option plan and our employee stock purchase plan. As of September 30, 2000, options to purchase 3,118,754 shares of common stock were outstanding. The registration statement is expected to be filed and become effective as soon practicable after the effective date of this offering. Shares of common stock registered under any registration statement will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market, unless the shares are subject to vesting restrictions or the lock-up agreements described above.
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the registration statement relating to this prospectus, the underwriters named below, for whom Lehman Brothers Inc., Deutsche Bank Securities Inc. and Legg Mason Wood Walker, Incorporated are acting as representatives, have each agreed to purchase from us the respective number of shares of common stock shown opposite its name below:
NUMBER OF
UNDERWRITER SHARES
----------- ---------
Lehman Brothers Inc. .......................................
Deutsche Bank Securities Inc. ..............................
Legg Mason Wood Walker, Incorporated........................
---------
Total............................................. 6,000,000
=========
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The underwriting agreement provides that the underwriters' obligations to purchase shares of common stock depend on the satisfaction of the conditions contained in the underwriting agreement. It also provides that, if any of the shares of common stock are purchased by the underwriters under the underwriting agreement, all of the shares of common stock that the underwriters have agreed to purchase under the underwriting agreement must be purchased. The conditions contained in the underwriting agreement include the requirements that:
- the representations and warranties made by us to the underwriters are true;
- there is no material change in the financial markets; and
- we deliver to the underwriters customary closing documents.
The representatives have advised us that the underwriters propose to offer the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus, and to dealers, who may include the underwriters, at this public offering price. The underwriters may allow, and the dealers may reallow, a concession not in excess of $ per share to brokers and dealers. After completion of the offering, the underwriters may change the offering price and other selling terms.
We have granted the underwriters an option to purchase up to an additional 800,000 shares of common stock and two of our founding stockholders, Dr. Koch and Dr. Piscopio, have granted the underwriters an option to purchase up to an additional 100,000 shares of common stock, exercisable solely to cover over- allotments, if any, at the public offering price less the underwriting discount shown on the cover page of this prospectus. The underwriters may exercise this option at any time until 30 days after the date of the underwriting agreement. If this option is exercised, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares of common stock proportionate to the underwriter's initial commitment as indicated in the table above, and we and the selling stockholders will be obligated, under the over-allotment option, to sell the shares of common stock to the underwriters. If this option is exercised and the selling stockholders fail to deliver some or all of the 100,000 shares, we have agreed to deliver to the underwriters an amount of shares that will permit the underwriters to exercise this option in full.
We have agreed not to, without the prior consent of Lehman Brothers Inc., directly or indirectly, offer, sell or otherwise dispose of any shares of common stock or any securities which may be converted into or exchanged for any such shares of common stock for a period of 180 days from the date of this prospectus. All of our executive officers, directors and the holders of substantially all of our shares of capital stock have agreed under lock-up agreements that, without the prior written consent of Lehman Brothers Inc., they will not, directly or indirectly, offer, sell or otherwise dispose of any shares of common stock or any securities which may be converted into or exchanged for any such shares for the period ending 180 days after the date of this prospectus. See "Shares Eligible for Future Sale," included elsewhere in this prospectus.
The underwriting discount is equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting discount is % of the public offering price. We have agreed to pay the underwriters the following total amount, assuming either no exercise or full exercise by the underwriters of their over-allotment option:
TOTAL FEES
---------------------------------
NO FULL
EXERCISE EXERCISE
OF OVER- OF OVER-
PER ALLOTMENT ALLOTMENT
SHARE OPTIONS OPTIONS
--------- --------- ---------
Underwriting discount paid by Array BioPharma.......... $ $ $
Underwriting discount paid by selling stockholders..... --
--- ---
Total........................................ $ $
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In addition, we estimate that our share of the total expenses of this offering, excluding the underwriting discount, will be approximately $800,000.
Before this offering, there has been no public market for the shares of common stock. The initial public offering price was negotiated between the representatives and us. In determining the initial public offering price of the common stock, the representatives considered, among other things and in addition to prevailing market conditions:
- our historical performance and capital structure;
- estimates of our business potential and earning prospects;
- an overall assessment of our management; and
- the consideration of the above factors in relation to market valuations of companies in related businesses.
We have applied to list our common stock for quotation on the Nasdaq National Market under the symbol "ARRY."
We have agreed to indemnify the underwriters against liabilities, including liabilities under the Securities Act and liabilities arising from breaches of the representations and warranties contained in the underwriting agreement, and to contribute to payments that the underwriters may be required to make for these liabilities.
Until the distribution of the common stock is completed, rules of the Securities and Exchange Commission may limit the ability of the underwriters and selling group members to bid for and purchase shares of common stock. As an exception to these rules, the representatives are permitted to engage in transactions that stabilize the price of the common stock. These transactions may consist of bids or purchases for the purposes of pegging, fixing or maintaining the price of the common stock.
The underwriters have informed us that they do not intend to confirm sales to discretionary accounts that exceed 5% of the total number of shares of common stock offered by them.
The underwriters may purchase and sell shares of common stock in the open
market. These transactions may include short sales, stabilizing transactions and
purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from the
issuer in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. "Naked" short sales are any sales in excess of such
option. The underwriters must close out any naked short position by purchasing
shares in the open market. A naked short position is more likely to be created
if the underwriters are concerned that
there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor any of the underwriters makes any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the requirements to file a prospectus in the relevant province of Canada in which the sale is made.
Purchasers of the shares of common stock offered in this prospectus may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover of this prospectus.
At our request, the underwriters have reserved up to 300,000 shares of the common stock offered by this prospectus for sale to our officers, directors, employees and their family members and to our business associates at the initial public offering price set forth on the cover page of this prospectus. These persons must commit to purchase no later than the close of business on the day following the date of this prospectus. The number of shares available for sale to the general public will be reduced to the extent these persons purchase the reserved shares.
LEGAL MATTERS
The validity of the shares of common stock offered in this prospectus will be passed upon for us by Hogan & Hartson L.L.P., Boulder, Colorado. Legal matters relating to the sale of common stock in this offering will be passed upon for the underwriters by Latham & Watkins, Costa Mesa, California. William R. Roberts and Christopher D. Ozeroff, partners of Hogan & Hartson L.L.P., own 13,607 shares and 37,621 shares, respectively, of our preferred stock. These shares will be converted on a one-to-one basis into shares of our common stock upon completion of this offering.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial statements at June 30, 2000 and 1999, and for each of the two years in the period ended June 30, 2000 and the period from February 6, 1998 (inception) to June 30, 1998, 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 SEC a registration statement on Form S-1, including amendments to it, relating to the common stock offered by us. This prospectus does not contain all of the information in the registration statement and its exhibits and schedules. For further information with respect to our company and our common stock, you should review the registration statement and its exhibits and schedules. You may inspect a copy of the registration statement and the exhibits and schedules to the registration statement without charge at the SEC's principal office in Washington, D.C. You may obtain copies of all or any part of the registration statement from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, the New York Regional Office located at Seven World Trade Center, New York, New York 10048, and the Chicago Regional Office located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of fees prescribed by the SEC. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a Web site that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC. The address of the SEC's Web site is www.sec.gov.
We intend to furnish our stockholders with annual reports containing audited financial statements certified by our independent auditors.
ABOUT THIS PROSPECTUS
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. This prospectus is not an offer to sell or a solicitation of an offer to buy our common stock in any jurisdiction where it is unlawful. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. This preliminary prospectus is subject to completion prior to this offering.
ARRAY BIOPHARMA INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Array BioPharma Inc.
We have audited the accompanying balance sheets of Array BioPharma Inc. as of June 30, 2000 and 1999, and the related statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended June 30, 2000 and the period from February 6, 1998 (inception) to June 30, 1998. 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 Array BioPharma Inc. at June 30, 2000 and 1999, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2000 and the period from February 6, 1998 (inception) to June 30, 1998, in conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Denver, Colorado
July 28, 2000,
|
except for the third paragraph
of Note 6, as to which the date is
September 1, 2000
ARRAY BIOPHARMA INC.
BALANCE SHEETS
PRO FORMA
STOCKHOLDERS'
EQUITY
AS OF JUNE 30, AS OF AS OF
------------------------- SEPTEMBER 30, SEPTEMBER 30,
1999 2000 2000 2000
----------- ----------- ------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 2,185,915 $ 3,846,407 $ 9,764,709
Marketable securities.............................. -- 1,937,099 594,798
Accounts receivable................................ 507,242 885,522 1,163,248
Deposits........................................... 252,888 120,129 293,743
Inventories........................................ 979,158 1,557,376 1,943,174
Prepaid expenses and advances...................... 79,323 201,560 420,310
----------- ----------- -----------
Total current assets........................ 4,004,526 8,548,093 14,179,982
Property, plant and equipment, net................... 2,871,854 6,910,757 10,236,264
Other assets......................................... 248,244 364,342 370,458
----------- ----------- -----------
Total assets................................ $ 7,124,624 $15,823,192 $24,786,704
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade........................... $ 713,379 $ 1,708,750 $ 1,334,975
Advance payments from customers.................... 1,063,754 1,940,433 1,533,193
Accrued compensation............................... 65,127 359,871 751,295
Current portion of long-term debt.................. 764,206 1,723,837 2,416,574
Other current liabilities.......................... 137,794 605,309 598,308
----------- ----------- -----------
Total current liabilities................... 2,744,260 6,338,200 6,634,345
Long-term debt, less current portion................. 1,823,490 2,832,423 3,619,643
Stockholders' equity:
Preferred stock, par value $0.001, 11,825,000
shares authorized actual and pro forma...........
Series A convertible preferred stock; 6,635,000
shares issued and outstanding at June 30, 1999
and 2000 and September 30, 2000, no shares
outstanding pro forma; preference in liquidation
of $6,635,000 at June 30, 2000 and September 30,
2000............................................. 6,635 6,635 6,635 $ --
Series B convertible preferred stock; 3,199,999
shares issued and outstanding at June 30, 2000
and September 30, 2000, no shares outstanding pro
forma; preference in liquidation of $8,000,000 at
June 30, 2000 and September 30, 2000............. -- 3,200 3,200 --
Series C convertible preferred stock; 1,666,667
shares issued and outstanding at September 30,
2000, no shares outstanding pro forma; preference
in liquidation of $10,000,000 at September 30,
2000............................................. -- -- 1,667 --
----------- ----------- ----------- -----------
Total preferred stock....................... 6,635 9,835 11,502 --
Common stock, $0.001 par value;
20,225,000 shares authorized actual and pro
forma, 2,923,367, 3,370,207, 3,902,666 and
15,404,332 shares issued and outstanding at June
30, 1999 and 2000, September 30, 2000 and pro
forma, respectively.............................. 2,923 3,370 3,902 15,404
Additional paid-in capital......................... 7,276,776 21,168,078 37,417,704 37,417,704
Accumulated deficit................................ (4,356,710) (9,489,113) (12,574,956) (12,574,956)
Notes receivable for common stock - related
party............................................ (372,750) (393,750) (399,000) (399,000)
Deferred compensation.............................. -- (4,645,851) (9,926,436) (9,926,436)
----------- ----------- ----------- -----------
Total stockholders' equity.................. 2,556,874 6,652,569 14,532,716 $14,532,716
----------- ----------- ----------- ===========
Total liabilities and stockholders'
equity................................... $ 7,124,624 $15,823,192 $24,786,704
=========== =========== ===========
|
See accompanying notes.
ARRAY BIOPHARMA INC.
STATEMENTS OF OPERATIONS
PERIOD FROM
FEBRUARY 6,
1998 THREE MONTHS ENDED
(INCEPTION) TO YEARS ENDED JUNE 30, SEPTEMBER 30,
JUNE 30, -------------------------- -------------------------
1998 1999 2000 1999 2000
-------------- ----------- ------------ ----------- -----------
(UNAUDITED)
Revenue................................ $ -- $ 1,503,859 $ 6,773,634 $ 1,349,812 $ 2,761,204
Cost of revenue*....................... -- 1,032,910 4,444,958 817,037 2,407,992
-------- ----------- ------------ ----------- -----------
Gross profit........................... -- 470,949 2,328,676 532,775 353,212
Expenses:
Research and development expenses*... -- 3,300,941 3,962,969 695,789 1,701,591
Selling, general and administrative
expenses*......................... 62,359 1,522,067 3,469,969 438,529 1,693,978
-------- ----------- ------------ ----------- -----------
Total operating expenses.......... 62,359 4,823,008 7,432,938 1,134,318 3,395,569
-------- ----------- ------------ ----------- -----------
Loss from operations.............. (62,359) (4,352,059) (5,104,262) (601,543) (3,042,357)
Interest expense....................... -- (135,904) (384,378) (83,715) (173,249)
Interest income........................ 13,055 180,557 356,237 24,793 129,763
-------- ----------- ------------ ----------- -----------
Net loss............................... (49,304) (4,307,406) (5,132,403) (660,465) (3,085,843)
Deemed dividend related to beneficial
conversion feature of preferred
stock................................ -- -- -- -- (5,000,001)
-------- ----------- ------------ ----------- -----------
Net loss applicable to common
stockholders......................... $(49,304) $(4,307,406) $ (5,132,403) $ (660,465) $(8,085,844)
======== =========== ============ =========== ===========
Basic and diluted net loss
per share applicable to common
stockholders......................... $ (0.06) $ (1.48) $ (1.68) $ (0.22) $ (2.17)
======== =========== ============ =========== ===========
Shares used in computing basic and
diluted net loss per share........... 863,964 2,918,367 3,063,439 2,968,575 3,718,550
======== =========== ============ =========== ===========
Pro forma basic and diluted net loss
per share applicable to common
stockholders (unaudited)............. $ (0.44) $ (0.57)
============ ===========
Shares used in computing pro forma
basic and diluted net loss per share
(unaudited).......................... 11,697,343 14,109,105
============ ===========
*Includes compensation related to stock option grants:
Cost of revenue...................... $ 42,689 $ 209,732
Research and development expenses.... 34,928 139,822
Selling, general and administrative
expenses.......................... 1,040,179 357,112
------------ -----------
Total........................ $ 1,117,796 $ 706,666
============ ===========
|
See accompanying notes.
ARRAY BIOPHARMA INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
NOTES
RECEIVABLE
FOR COMMON
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK --
-------------------- ------------------ PAID-IN ACCUMULATED RELATED DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT PARTY COMPENSATION
---------- ------- --------- ------ ----------- ------------ ---------- ------------
Balance at February 6, 1998
(inception).............. -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock
for cash and notes
receivable............... -- -- 2,913,367 2,913 681,493 -- (350,000) --
Issuance of Series A
convertible preferred
stock, net of issuance
cost of $30,116.......... 2,500,000 2,500 -- -- 2,467,384 -- -- --
Interest accrued on notes
receivable............... -- -- -- -- -- -- (1,750) --
Net loss................... -- -- -- -- -- (49,304) -- --
---------- ------- --------- ------ ----------- ------------ --------- -----------
Balance at June 30, 1998... 2,500,000 2,500 2,913,367 2,913 3,148,877 (49,304) (351,750) --
Issuance of Series A
convertible preferred
stock, net of issuance
costs of $60,381......... 4,135,000 4,135 -- -- 4,070,484 -- -- --
Exercise of stock
options.................. -- -- 10,000 10 2,340 -- -- --
Interest accrued on notes
receivable............... -- -- -- -- -- -- (21,000) --
Warrants issued in
connection with equipment
financing................ -- -- -- -- 55,075 -- -- --
Net loss................... -- -- -- -- -- (4,307,406) -- --
---------- ------- --------- ------ ----------- ------------ --------- -----------
Balance at June 30, 1999... 6,635,000 6,635 2,923,367 2,923 7,276,776 (4,356,710) (372,750) --
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $63,204......... 3,199,999 3,200 -- -- 7,933,594 -- -- --
Exercise of stock
options.................. -- -- 446,840 447 104,561 -- -- --
Interest accrued on notes
receivable............... -- -- -- -- -- -- (21,000) --
Compensation related to
stock option grants...... -- -- -- -- 5,763,647 -- -- (4,645,851)
Warrants issued in
connection with equipment
financing................ -- -- -- -- 89,500 -- -- --
Net loss................... -- -- -- -- -- (5,132,403) -- --
---------- ------- --------- ------ ----------- ------------ --------- -----------
Balance at June 30, 2000... 9,834,999 9,835 3,370,207 3,370 21,168,078 (9,489,113) (393,750) (4,645,851)
Issuance of Series C
convertible preferred
stock, net of issuance
costs of $4,325
(unaudited).............. 1,666,667 1,667 -- -- 9,994,005 -- -- --
Exercise of stock options
(unaudited).............. -- -- 532,459 532 268,370 -- -- --
Interest accrued on notes
receivable (unaudited)... -- -- -- -- -- -- (5,250) --
Compensation related to
stock option grants
(unaudited).............. -- -- -- -- 5,987,251 -- -- (5,280,585)
Net loss (unaudited)....... -- -- -- -- -- (3,085,843) -- --
---------- ------- --------- ------ ----------- ------------ --------- -----------
Balance at September 30,
2000 (unaudited)......... 11,501,666 $11,502 3,902,666 $3,902 $37,417,704 $(12,574,956) $(399,000) $(9,926,436)
========== ======= ========= ====== =========== ============ ========= ===========
TOTAL
-----------
Balance at February 6, 1998
(inception).............. $ --
Issuance of common stock
for cash and notes
receivable............... 334,406
Issuance of Series A
convertible preferred
stock, net of issuance
cost of $30,116.......... 2,469,884
Interest accrued on notes
receivable............... (1,750)
Net loss................... (49,304)
-----------
Balance at June 30, 1998... 2,753,236
Issuance of Series A
convertible preferred
stock, net of issuance
costs of $60,381......... 4,074,619
Exercise of stock
options.................. 2,350
Interest accrued on notes
receivable............... (21,000)
Warrants issued in
connection with equipment
financing................ 55,075
Net loss................... (4,307,406)
-----------
Balance at June 30, 1999... 2,556,874
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $63,204......... 7,936,794
Exercise of stock
options.................. 105,008
Interest accrued on notes
receivable............... (21,000)
Compensation related to
stock option grants...... 1,117,796
Warrants issued in
connection with equipment
financing................ 89,500
Net loss................... (5,132,403)
-----------
Balance at June 30, 2000... 6,652,569
Issuance of Series C
convertible preferred
stock, net of issuance
costs of $4,325
(unaudited).............. 9,995,672
Exercise of stock options
(unaudited).............. 268,902
Interest accrued on notes
receivable (unaudited)... (5,250)
Compensation related to
stock option grants
(unaudited).............. 706,666
Net loss (unaudited)....... (3,085,843)
-----------
Balance at September 30,
2000 (unaudited)......... $14,532,716
===========
|
See accompanying notes.
ARRAY BIOPHARMA INC.
STATEMENTS OF CASH FLOWS
PERIOD FROM THREE MONTHS ENDED
FEBRUARY 6, 1998 YEARS ENDED JUNE 30, SEPTEMBER 30,
(INCEPTION) TO ------------------------- -------------------------
JUNE 30, 1998 1999 2000 1999 2000
---------------- ----------- ----------- ----------- -----------
(UNAUDITED)
OPERATING ACTIVITIES:
Net loss................................... $ (49,304) $(4,307,406) $(5,132,403) $ (660,465) $(3,085,843)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation............................. -- 530,932 989,127 210,817 453,805
Accrued interest on notes receivable for
common stock........................... (1,750) (21,000) (21,000) (172) (5,250)
Compensation related to stock option
grants................................. -- -- 1,117,796 -- 706,666
Accreted interest related to warrants.... -- 6,683 15,053 2,875 9,036
Changes in operating assets and
liabilities:
Accounts receivable.................... -- (507,242) (378,280) (50,844) (277,726)
Deposits............................... (190,500) (62,388) 132,759 250,338 (173,614)
Inventories............................ -- (979,158) (578,218) (214,759) (385,798)
Prepaid expenses and advances.......... (1,668) (77,655) (122,237) (109,547) (218,750)
Accounts payable -- trade.............. -- 713,379 995,371 (376,879) (373,775)
Advance payments from customers........ -- 1,063,754 876,679 20,644 (407,240)
Accrued compensation................... 37,922 27,205 294,744 (1,459) 391,424
Other current liabilities.............. 18,869 118,925 467,515 123,706 (7,001)
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities..................... (186,431) (3,493,971) (1,343,094) (805,745) (3,374,066)
INVESTING ACTIVITIES:
Purchases of property, plant and
equipment................................ (5,794) (3,396,992) (5,028,030) (252,437) (3,779,312)
Purchase of marketable securities.......... -- -- (1,937,099) -- 1,342,301
Additions to other long-term assets........ (4,144) (244,100) (116,098) -- (6,116)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities..................... (9,938) (3,641,092) (7,081,227) (252,437) (2,443,127)
FINANCING ACTIVITIES:
Proceeds from sale of preferred and
common stock, net of issuance costs...... 2,804,290 4,074,619 7,936,794 (4,587) 9,995,672
Proceeds from exercise of stock options.... -- 2,350 105,008 15,120 268,902
Proceeds from the issuance of long-term
debt..................................... -- 2,837,917 2,913,792 575,741 2,000,000
Payment on long-term debt.................. -- (201,829) (870,781) (209,711) (529,079)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities..................... 2,804,290 6,713,057 10,084,813 376,563 11,735,495
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents........... 2,607,921 (422,006) 1,660,492 (681,619) 5,918,302
Cash and cash equivalents, beginning of
period................................... -- 2,607,921 2,185,915 2,185,915 3,846,407
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period... $ 2,607,921 $ 2,185,915 $ 3,846,407 $ 1,504,296 $ 9,764,709
=========== =========== =========== =========== ===========
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest was $0, $90,516 and $301,111 in the fiscal years ended June 30, 1998, 1999 and 2000, respectively. Cash paid for interest during the three-month periods ended September 30, 1999 and 2000 was materially consistent with interest expense for those respective periods.
See accompanying notes.
ARRAY BIOPHARMA INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations
Array BioPharma Inc. (the "Company") offers a broad range of products and services to biotechnology and pharmaceutical companies to bridge the gap between target discovery and pre-clinical and clinical development of a potential drug candidate. In addition, the Company has developed an information-driven technology platform to enable its scientists to make better decisions at each stage of the drug discovery process. The Company also leverages its capabilities internally to develop proprietary drug candidates in collaboration with its customers.
Initial Public Offering
In September 2000, the Board of Directors authorized management of the Company to file a registration statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock to the public. If the initial public offering ("IPO") is closed under the terms presently anticipated, all of the convertible preferred stock outstanding at the time of the IPO will automatically convert into 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 sheets.
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalents consists of money market accounts, commercial paper and overnight deposits. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Company's marketable securities, classified as available-for-sale securities for purposes of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, consist of high-grade corporate bonds maturing between July 15, 2000 and June 15, 2003. As of June 30, 2000, there were no unrealized gains or losses related to the Company's marketable securities.
Inventories
Inventories primarily consisting of Optimer building blocks, diversity libraries and fine chemicals and solvents are stated at the lower of cost (first-in, first-out basis) or market. The Company designs and produces diversity libraries and optimer building blocks and begins capitalizing costs into inventory only after technological feasibility has been established. Inventories are reviewed periodically, and items considered to be slow moving or obsolete are reduced to estimated net realizable value through an appropriate reserve.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Repairs and maintenance are charged to operations as incurred, and significant expenditures for additions and improvements are capitalized. Depreciation and amortization of equipment are computed using the straight-line method based on the following estimated useful lives:
ESTIMATED
TYPE OF PROPERTY AND EQUIPMENT USEFUL LIFE
------------------------------ -----------
Computer hardware and software........................... 3 years
Leasehold improvements................................... 4 years
Laboratory and analytical equipment...................... 5 years
Furniture and fixtures................................... 7 years
|
ARRAY BIOPHARMA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Long-lived Assets
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Recoverability is measured by comparison of the assets' carrying amount to future net undiscounted cash flows the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the projected discounted future net cash flows arising from the assets.
Revenue Recognition
Net revenue from product sales is recognized as products are shipped and revenues from the Company's full-time equivalent contracts are recognized on a per diem basis as work is performed. Development and fixed fee type contract revenues are recognized on a percentage of completion basis. In general, contract provisions include predetermined payment schedules, or the submission of appropriate billing detail. The Company does not separately report product and service revenue on the basis that these revenues originate from the same types of customers, via the same distribution channels, and typically result in the creation of chemical compounds for the Company's customers. The Company's revenues are therefore from a single source and are not separately identifiable for purposes of Rule 5-03(1) of Regulation S-X. The Company will continue to evaluate its revenue sources to determine whether the facts and circumstances warrant separate reporting. To date, the Company has not received any milestone, royalty, license or up-front payments.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, accounts receivable and investments in marketable securities. The Company maintains its cash balances in the form of bank demand deposits and money market accounts with financial institutions that management believes are creditworthy. Accounts receivable are typically unsecured and are concentrated in the pharmaceutical and biotechnology industries. Accordingly, the Company may be exposed to credit risk generally associated with pharmaceutical and biotechnology companies. The Company has had no bad debts since inception, and therefore, an allowance for doubtful accounts has not yet been required. The Company has no financial instruments with off-balance sheet risk of accounting loss, such as foreign exchange contracts, option contracts or other foreign currency hedging arrangements.
During fiscal year 2000, revenue from three of the Company's customers represented approximately 45%, 11% and 8% of total revenue. During the three months ended September 30, 2000, revenue from two of the Company's customers represented approximately 36% and 26% of total revenue.
Research and Development Costs
Research and development costs are expensed as incurred.
Advertising and Promotion Expenses
Advertising and promotion costs are expensed when incurred. The amount charged against operations for the years ended June 30, 1999 and 2000 was approximately $18,000 and $70,000, respectively. There were no such expenses incurred during the period ended June 30, 1998.
ARRAY BIOPHARMA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and long-term debt. The carrying values of cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. The carrying amount of the Company's long-term debt approximates fair value as these borrowings are at an interest rate comparable to the current market rate.
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 accompanying notes. Actual results could differ from those estimates.
Accounting for Stock-Based Compensation
The Company accounts for its stock compensation arrangements under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related pronouncements. Under the provisions of APB 25, no compensation expense is recognized when stock options are granted with exercise prices equal to or greater than market value on the date of grant.
Segment Information
Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of and Enterprise and Related Information," establishes standards for the reporting of information about operating segments. Since its inception, the Company has conducted its operations in one operating segment.
The Company sells its products and services directly to pharmaceutical and biotechnology companies throughout the United States, Europe and Japan. International revenue represented 8% and 9% of the Company's total revenue during fiscal years 1999 and 2000, respectively.
Internally Developed Software
The Company accounts for its software and information technology in compliance with Statement of Position 98-1 (SOP 98-1), Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1 defines the types of computer software project costs that may be capitalized. All other costs are expensed in the period incurred. In order for costs to be capitalized, the computer software project must be intended to create a new system or add identifiable functionality to an existing system. All capitalized costs are being amortized over a period of 3 to 5 years.
Employee Savings Plan
The Company has a 401(k) plan which allows participants to contribute 1% to 15% of their salary, subject to eligibility requirements and annual limits. All employees are eligible to participate in the plan on January 1, April 1, July 1, or October 1. The Company's Board of Directors may, at its sole discretion, approve matching contributions and profit sharing contributions. No such matching contributions were made during fiscal 1998, 1999 or 2000.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net
ARRAY BIOPHARMA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
loss for the period by the weighted average number of common and potential common shares outstanding during the period, if their effect is dilutive. Potential common shares include incremental shares of common stock issuable upon the exercise of stock options and warrants and upon the conversion of convertible preferred stock. The potential shares of common stock have not been included in the diluted net loss per share calculation because to do so would be anti-dilutive. Such shares totaled 0 and 1,115,702 for the years ended June 30, 1999 and 2000, respectively, and 490,159 and 1,341,022 for the three-month periods ended September 30, 1999 and 2000, respectively.
Pro Forma Stockholders' Equity and Pro Forma Net Loss Per Share
Immediately prior to the effective date of the offering, all of the convertible preferred stock outstanding will automatically convert into common stock at a one-to-one ratio. The pro forma effects of these transactions are unaudited and have been reflected in the accompanying unaudited Pro Forma Stockholders' Equity as of September 30, 2000. Pro forma net loss per share for the year ended June 30, 2000 and the three month period ended September 30, 2000 is computed using the weighted average number of common shares outstanding including the pro forma effects of the automatic conversion of the Company's convertible preferred stock into shares of the Company's common stock effective upon the closing of the Company's initial public offering as if such conversion occurred on July 1, 1999, or at the date of original issue, if later. The resulting pro forma adjustment includes an increase in the weighted average shares used to compute basic net loss of 8,633,904 shares for the year ended June 30, 2000 and 10,390,555 for the three month period ended September 30, 2000. The calculation of pro forma diluted net loss per share excludes incremental common stock issuable upon the exercise of stock options and warrants as their effect would be anti-dilutive.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS No. 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of relationship that exists. In July 1999, the Financial Accounting Standards Board issued SFAS 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133. SFAS No. 137 deferred the effective date until fiscal years beginning after June 15, 2000. The Company has not engaged in hedging activities or invested in derivative instruments.
In December 1999, the Securities and Exchange Commission ("SEC") issued SAB 101, Revenue Recognition, which provides guidance on the recognition, presentation and disclosure on revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. The Company believes that its current revenue recognition policy is in compliance with SAB 101.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB 25 ("FIN 44"). This interpretation clarifies (1) the definition of employee for purposes of applying APB 25; (2) the criteria for determining whether a plan qualifies as a noncompensatory plan; (3) the accounting consequences of various modifications to the terms of a previously fixed stock option or award; and (4) the accounting for an exchange of stock compensation awards in a business combination. This interpretation is effective July 1, 2000, but certain conclusions in this interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. To the
ARRAY BIOPHARMA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
extent that this interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this interpretation are recognized on a prospective basis from July 1, 2000. The adoption of FIN 44 did not impact the Company's financial statements.
Interim Results (Unaudited)
The balance sheet as of September 30, 2000, the statements of operations and cash flows for the three months ended September 30, 1999 and 2000, and the statement of stockholders' equity for the three months ended September 30, 2000 are unaudited. In the opinion of management, the statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the results of the interim periods. Operating results for the three months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending June 30, 2001.
2. BALANCE SHEET COMPONENTS
AS OF JUNE 30,
-------------------------
1999 2000
----------- -----------
Property, plant and equipment:
Laboratory and analytical equipment........................ $ 2,571,256 $ 5,875,863
Computer hardware and software............................. 692,554 1,369,293
Leasehold improvements..................................... 97,954 751,132
Furniture and fixtures..................................... 41,022 409,866
----------- -----------
3,402,786 8,406,154
Less accumulated depreciation.............................. (530,932) (1,495,397)
----------- -----------
Total property, plant and equipment, net......... $ 2,871,854 $ 6,910,757
=========== ===========
Inventories:
Fine chemicals and solvents................................ $ 393,827 $ 372,562
Optimer building blocks and diversity libraries............ 585,331 1,184,814
----------- -----------
Total inventories................................ $ 979,158 $ 1,557,376
=========== ===========
|
3. LEASES
The Company leases office space and equipment under various noncancelable operating lease agreements. Rental expense was $540,242 and $682,551 for the years ended June 30, 1999 and 2000, respectively, and was immaterial for the period ended June 30, 1998. As of June 30, 2000, future minimum rental commitments, by fiscal year and in the aggregate, for the Company's operating leases are as follows:
AMOUNT
----------
2001..................................................... $ 854,952
2002..................................................... 317,419
2003..................................................... 248,244
2004..................................................... 7,332
2005..................................................... 4,800
----------
Total minimum lease payments................... $1,432,747
==========
|
ARRAY BIOPHARMA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
4. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS 109, Accounting for Income Taxes. Under the provisions of Statement No. 109, a deferred tax liability or asset (net of a valuation allowance) is provided in the financial statements by applying the provisions of applicable tax laws to measure the deferred tax consequences of temporary differences that will result in net taxable or deductible amounts in future years as a result of events recognized in the financial statements in the current or preceding years.
At June 30, 2000, the Company has federal and state net operating loss carryforwards for income tax purposes of approximately $8,403,000 which expire as follows:
Fiscal year
2018 $ 49,000
2019 4,468,000
2020 3,886,000
----------
$8,403,000
==========
|
The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carryforwards if there has been a "change of ownership" as described in Section 382 of the Internal Revenue Code. Such a change of ownership may limit the Company's utilization of its net operating loss and tax credit carryforwards, and could be triggered by an initial public offering or by subsequent sales of securities by the Company or its stockholders.
The components of the Company's deferred tax assets and liabilities as of June 30 are as follows:
AS OF JUNE 30,
-------------------------
1999 2000
----------- -----------
Deferred tax assets:
Net operating loss carryforwards......................... $ 1,485,891 $ 2,856,869
Organizational costs..................................... 3,575 2,680
----------- -----------
1,489,466 2,859,549
Valuation allowance........................................ (1,425,586) (2,780,379)
----------- -----------
63,880 79,170
Deferred tax liabilities:
Depreciation............................................. (63,880) (79,170)
----------- -----------
Net deferred tax assets and liabilities.................... $ -- $ --
=========== ===========
|
The Company has recorded a valuation allowance equal to the excess of deferred tax assets over deferred tax liabilities as the Company was unable to determine that it is more likely than not that the deferred tax asset will be realized.
5. EMPLOYEE AND CONSULTANT STOCK OPTION PLAN AND STOCK WARRANTS
Stock Options
In July 1998, the Company's Board of Directors approved the Option Plan (the "1998 Plan") pursuant to which (including subsequent amendments) a total of 4,837,500 shares of common stock have been reserved for issuance to eligible employees, consultants and directors of the Company.
ARRAY BIOPHARMA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
5. EMPLOYEE AND CONSULTANT STOCK OPTION PLAN AND STOCK WARRANTS -- (CONTINUED) The 1998 Plan provides for awards of both nonstatutory stock options and incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and stock purchase rights to purchase shares of the Company's common stock.
The 1998 Plan is administered by the compensation committee of the Board of Directors, which has the authority to select the individuals to whom awards will be granted and to determine whether and to what extent stock options and stock purchase rights are to be granted, the number of shares of common stock to be covered by each award, the vesting schedule of stock options, generally straight-line over a period of four years, and all other terms and conditions of each award. A summary of activity in the Plan is as follows:
NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
Balance, July 1, 1998
Granted................................................. 1,532,500 $0.235
Exercised............................................... 10,000 0.235
Terminated or expired................................... 26,000 0.235
--------- ------
Balance, June 30, 1999.................................... 1,496,500 0.235
Granted................................................. 1,815,740 0.469
Exercised............................................... 446,840 0.235
Terminated or expired................................... 10,556 0.235
--------- ------
Balance, June 30, 2000.................................... 2,854,844 0.384
Granted (unaudited)..................................... 1,239,836 0.719
Exercised (unaudited)................................... 532,459 0.995
Terminated or expired (unaudited)....................... 443,467 0.589
--------- ------
Balance, September 30, 2000 (unaudited)................... 3,118,754 $0.467
========= ======
|
A summary of options outstanding as of June 30, 2000 is as follows:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
-------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE SHARES
EXERCISE SHARES UNDER REMAINING WEIGHTED-AVERAGE CURRENTLY WEIGHTED-AVERAGE
PRICE OPTION CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------ ------------ ---------------- ---------------- ----------- ----------------
(IN YEARS)
$0.235 1,688,544 8.5 $0.235 366,741 $0.235
0.600 1,166,300 9.5 0.600 133,333 0.600
--------- --- ------ ------- ------
2,854,844 8.9 $0.384 500,074 $0.332
========= === ====== ======= ======
|
A summary of options outstanding as of September 30, 2000 (unaudited) is as follows:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
-------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE SHARES
EXERCISE SHARES UNDER REMAINING WEIGHTED-AVERAGE CURRENTLY WEIGHTED-AVERAGE
PRICE OPTION CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------ ------------ ---------------- ---------------- ----------- ----------------
(IN YEARS)
$0.235 1,405,541 8.2 $0.235 249,136 $0.235
0.600 1,672,213 9.7 0.600 32,027 0.600
3.000 41,000 9.9 3.000 20,000 3.000
--------- --- ------ ------- ------
3,118,754 9.0 $0.467 301,163 $0.457
========= === ====== ======= ======
|
ARRAY BIOPHARMA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
5. EMPLOYEE AND CONSULTANT STOCK OPTION PLAN AND STOCK WARRANTS -- (CONTINUED)
Fair Value Disclosure
As described in Note 1, the Company accounts for its stock compensation arrangements under the provisions of APB 25, Accounting for Stock Issued to Employees, and intends to continue to do so.
Pro forma information regarding net loss is required by SFAS 123, Accounting and Disclosure of Stock-Based Compensation, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the minimum value method available to nonpublic companies under SFAS 123. Under this method, option value is determined as the excess of the fair value of the stock at the date of grant over the present value of both the exercise price (lump sum) and the expected dividend payments (annuity), each discounted at the risk-free rate, over the expected exercise life of the option. A risk-free interest rate of 5.0% for 1999 and 6.25% for 2000, a dividend yield of 0% for 1999 and 2000, and an expected life of five years were applied for 1999 and 2000 grants. The weighted average fair value of options granted during 1999 and 2000 was $0.05 and $1.81 per share, respectively. As discussed further below, the Company recorded approximately $1.1 million of stock-based compensation under APB 25 during fiscal year 2000. The amount of expense reported under APB 25 for fiscal year 2000 exceeded the pro forma expense calculated under SFAS 123. As a result, the fiscal year 2000 pro forma expense under SFAS 123 was reported as $0.
Option valuation models such as the minimum value method described above require the input of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
The following summarized, pro forma results of operations assume the estimated fair value of the options granted is amortized to expense over the option vesting period.
YEARS ENDED JUNE 30,
-------------------------
1999 2000
----------- -----------
Net loss................................................... $(4,307,406) $(5,132,403)
Pro forma expense under Statement No. 123................ (76,625) --
----------- -----------
Pro forma net loss....................................... $(4,384,031) $(5,132,403)
=========== ===========
Pro forma basic and diluted net loss per share........... $ (1.50) $ (1.68)
=========== ===========
|
Deferred Stock-Based Compensation
As of June 30 and September 30, 2000, the Company has recorded $4,645,851 and $9,926,436 (unaudited) of deferred stock compensation, respectively, in accordance with APB 25, SFAS 123 and FIN 44, related to stock options granted to employees. Stock compensation expense is being recognized on a straight-line basis over the vesting periods of the related options, which is generally four years, except for performance options. During fiscal year 2000, the Company granted performance based options with vesting terms contingent upon the achievement of certain operational milestones. As of June 30, 2000, certain of these options vested upon meeting the performance criteria and compensation has been recorded as of this measurement date. Additionally, on July 1, 2000, the remaining performance based options were canceled and new time accelerated options were awarded which cliff vest on July 1, 2005. These time accelerated awards, which were measured on the grant date, are subject to an accelerating of vesting based on various performance criteria including operational goals, a successful public offering, or a change of control. The
ARRAY BIOPHARMA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
5. EMPLOYEE AND CONSULTANT STOCK OPTION PLAN AND STOCK WARRANTS -- (CONTINUED)
Company is recognizing compensation related to these time accelerated options over the vesting period or achievement of the performance criteria, as appropriate. The Company has accounted for the above options under the requirements of APB 25 and FIN 44. The Company recognized stock compensation expense of $1,117,796 and $706,666 for the year ended June 30, 2000 and the three months ended September 30, 2000 (unaudited), respectively.
Stock Warrants
The Company has issued warrants to purchase shares of the Company's preferred stock, generally in connection with the Company's equipment financing. Upon consummation of an IPO, assuming the automatic conversion of the Series A and Series B preferred stock, these warrants are exercisable into the same number of shares of common stock. The warrants expire on various dates through fiscal 2009.
The following table summarizes warrant data at June 30, 2000:
Issued and outstanding.................................. 110,750 Exercise price.......................................... $1.00-$5.00 Weighted-average exercise price......................... $3.15 |
6. COMMON AND PREFERRED STOCK
Common Stock
On May 18, 1998, the Company completed a private sale of 2,913,367 shares of its common stock to a group of private investors and founders at a purchase price of $0.235 per share. The net proceeds to the Company from the sale were $334,406, plus notes receivable from founders of $350,000. The notes, including accrued interest at 6.0% per year, totaled $393,750 as of June 30, 2000, and are payable in full in May 2002. The notes are secured only by the underlying stock certificates and have been included with related accrued interest as a component of stockholders' equity. During fiscal years 1999 and 2000, various employees exercised stock options to purchase 10,000 and 446,840 shares of common stock, respectively.
Preferred Stock
Concurrent with the May 1998 sale of common stock, the Company sold 2,500,000 shares of Series A convertible preferred stock (Series A preferred), in a first closing, to a group of private investors at a purchase price of $1.00 per share. The net proceeds to the Company from the sale were $2,469,884. During August 1998, the Company completed issuance of 4,135,000 shares of Series A preferred stock, in a second closing, to another group of private investors in which the net proceeds to the Company were $4,074,619. In November 1999, the Company issued 3,199,999 shares of Series B convertible preferred stock (Series B preferred) to substantially the same owners as Series A preferred, at a purchase price of $2.50 per share. The net proceeds to the Company were $7,936,794. All of the preferred shares have preferences before common stock in liquidation equal to the initial preferred purchase price, plus any accrued but unpaid non-cumulative dividends.
On August 31, 2000, the Company issued 1,666,667 shares of its Series C convertible preferred stock (Series C preferred) at $6.00 per share to investors resulting in gross proceeds of $10.0 million. Subsequent to the commencement of the initial public offering process, the Company reevaluated the fair value of its Series C preferred stock as of August 31, 2000 and determined it to be $9.00 per share. Accordingly, the incremental fair value of $5.0 million, or $3.00 per share, is deemed to be the equivalent of a dividend on the Series C preferred. The Company recorded the deemed dividend at the date of issuance by offsetting charges
ARRAY BIOPHARMA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
6. COMMON AND PREFERRED STOCK -- (CONTINUED)
and credits to preferred stock, without any effect on total stockholders' equity. The preferred stock dividend increases the loss applicable to common stockholders in the calculation of basic net loss per share for fiscal year 2001 and the related interim periods.
The preferred shares are convertible into common on a one-to-one basis (subject to certain anti-dilution provisions) at the option of the preferred shareholder and automatically convert in the event of an initial public offering exceeding $15.0 million. The preferred shares have voting rights, on a per share basis, equal to the Company's common stock.
7. LONG-TERM DEBT
Long-term debt as of June 30, 2000 is for equipment loan facilities negotiated with financial institutions. The facilities allow for $2.0 million in borrowings beyond the $4.7 million outstanding as of June 30, 2000. The agreements require monthly principal and interest payments over a term of 36 to 42 months, at which time, on certain facilities, a final payment representing 8.0% of the amount borrowed is due.
The interest rate on these borrowings approximates 11.4% at June 30, 2000. All assets acquired under the equipment loan facilities represent collateral for the amounts outstanding and the Company must conform to certain loan covenants, for which the Company was in compliance as of June 30, 2000.
In connection with the negotiated equipment loan facilities during 2000 and 1999, the Company issued warrants to purchase 110,750 shares of its preferred stock at exercise prices ranging from $1.00 to $5.00 per share. The warrants expire during, or prior to fiscal year 2009. In accordance with EITF 86-35, Debenture with Detachable Stock Purchase Warrants, the Company is required to assess the value of these warrants, and allocate the debt proceeds between the debt liability and the related warrant. The Company assessed the value of these warrants using the Black-Scholes methodology, which ascribed a cumulative value of approximately $145,000 to these warrants. As a result, an allocation between the warrant and the related loan has been made for these warrant grants. Total accreted interest expense was $6,683 and $15,053, respectively, during fiscal years 1999 and 2000.
Aggregate debt maturities as of June 30, 2000 in each of the following fiscal years are:
2001..................................................... $1,723,837
2002..................................................... 1,765,719
2003..................................................... 1,101,392
2004..................................................... 88,151
----------
4,679,099
Less unamortized discount associated with warrants....... (122,839)
----------
$4,556,260
==========
|
Subsequent to June 30, 2000, the Company borrowed the remaining $2.0 million on its $4.0 million line of credit.
8. COLLABORATIVE AGREEMENTS
ICOS Corporation. In July 2000, the Company consolidated and expanded its lead optimization agreements with ICOS into a drug discovery collaboration agreement for lead optimization on undisclosed targets. Under the agreement, ICOS has the exclusive worldwide right to develop and market any products resulting from the collaboration. The Company is compensated based on an annual rate for each full-time equivalent employee working on an ICOS project and will receive milestone payments upon achievement of
ARRAY BIOPHARMA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
8. COLLABORATIVE AGREEMENTS -- (CONTINUED)
identified development and commercialization goals for products resulting from the collaboration. The agreement expires in July 2002 and may be terminated upon 90 days notice by ICOS following the first anniversary of the agreement.
Eli Lilly and Company. In March 2000, the Company entered into a Research Services Agreement with Eli Lilly to form a chemistry-based research collaboration. Under the terms of the agreement, up to 30 of the Company's scientists will provide drug research services in collaboration with Eli Lilly scientists on identified Eli Lilly drug discovery projects. The Company is compensated based on an annual rate for each full-time equivalent employee working on an Eli Lilly project. Eli Lilly may terminate the agreement upon payment of an early termination payment.
Amgen. (Unaudited) In October 2000, the Company entered into a Research and License Agreement with Amgen. Under the terms of this agreement, the Company granted Amgen an exclusive license to its existing program to address a target for diabetes, called PTP1B and the Company intends to initiate a joint research program in November 2000 to identify, characterize and optimize potential drug candidates targeting PTP1B. Amgen has the exclusive worldwide right to develop and commercialize any drugs that target PTP1B developed under this collaboration. The agreement provides for an initial up-front fee of $1.8 million payable in November 2000, license fees, quarterly payments for each full-time equivalent employee working on the PTP1B project, and milestone payments upon achievement of identified research, development and commercialization goals for products resulting from the collaboration. To date, the Company has not received any milestone payments from Amgen. The initial term of the research program is two years, and Amgen may terminate the research program with six months written notice during this term.
Compound Library Agreements. The Company has entered into agreements with customers, including Celltech Chiroscience in April 1999, Tularik in June 1999, which Tularik extended in January 2000, and DuPont in August 2000, providing nonexclusive access on a fee basis to compounds in the Company's Diversity Library for their internal lead generation efforts. The agreements generally have terms of one to two years. These customers have the option to gain exclusive rights to compounds they intend to commercialize upon payments of either a one-time activation fee or annual fees. The Company retains all ownership of the intellectual property rights to the compounds and to the Company's Diversity Library, and to any inventions made by its scientists working under these agreements. These agreements are terminable only upon breach or insolvency of a party. At June 30, 2000, the Company had a net customer deposit related to these agreements of approximately $122,000.
6,000,000 SHARES
[Array BioPharma Logo]
COMMON STOCK
LEHMAN BROTHERS
DEUTSCHE BANC ALEXJ BROWN
LEGG MASON WOOD WALKER
(INCORPORATED)
LOGO
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table shows the various fees and expenses, other than the underwriting discounts and commissions, payable by Registrant in connection with the sale of the common stock being registered under this registration statement. All amounts shown are estimates except for the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market listing fee.
Registration fee............................................ $ 20,038
NASD filing fee............................................. 7,700
Nasdaq National Market listing fee.......................... 88,500
Printing and engraving expenses............................. 175,000
Legal fees and expenses..................................... 360,000
Accounting fees and expenses................................ 140,000
Blue Sky fees and expenses (including legal fees)........... 5,000
Transfer agent and registrar fees and expenses.............. 2,500
Miscellaneous............................................... 1,262
--------
Total............................................. $800,000
========
The Registrant will bear all expenses shown above
|
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Upon completion of this offering, the Bylaws of Registrant will provide for the indemnification of Registrant's directors and officers to the fullest extent authorized by, and subject to the conditions set forth in the Delaware General Corporation Law (the "DGCL"), except that Registrant will indemnify a director or officer in connection with a proceeding (or part thereof) initiated by the person only if the proceeding (or part thereof) was authorized by Registrant's Board of Directors. The indemnification provided under the Bylaws includes the right to be paid by Registrant, the expenses (including attorneys' fees) for any proceeding for which indemnification may be had in advance of its final disposition, provided that the payment of those expenses (including attorneys' fees) incurred by a director or officer in advance of the final disposition of a proceeding may be made only upon delivery to Registrant of an undertaking by or on behalf of the director or officer to repay all amounts so paid in advance if it is ultimately determined that the director or officer is not entitled to be indemnified. Under the Bylaws of Registrant, if Registrant does not pay a claim for indemnification within 60 days after it has received a written claim, the director or officer may bring an action to recover the unpaid amount of the claim and, if successful, the director or officer also will be entitled to be paid the expense of prosecuting the action to recover these unpaid amounts.
As permitted by the DGCL, Registrant's Certificate of Incorporation will
provide that directors of Registrant shall not be liable to Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
Registrant 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 DGCL, relating to unlawful payment of dividends or unlawful
stock purchase or redemption or (iv) for any transaction from which the director
derived an improper personal benefit. As a result of this provision, Registrant
and its stockholders may be unable to obtain monetary damages from a director
for breach of his or her duty of care.
Under the Bylaws, Registrant will have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of Registrant, or is or was serving at the request of Registrant as a director, officer, employee, partner or agent of another corporation or of a partnership, joint venture, limited liability company, trust or other enterprise, against any liability asserted against the person or
II-1
incurred by the person in that capacity, or arising out of the person's fulfilling one of these capacities, and related expenses, whether or not Registrant would have the power to indemnify the person against the claim under the provisions of the DGCL. Registrant has in force as of date of this offering director and officer liability insurance on behalf of its directors and officers in the amount of $2 million.
The Underwriting Agreement provides that the underwriters must, under specified circumstances, indemnify Registrant's directors, officers and controlling persons against specified liabilities, including liabilities under the Securities Act of 1933, as amended. Reference is made to the form of Underwriting Agreement to be filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities issued or sold by
Registrant within the last three years. All such securities were offered and
sold in reliance upon the exemption from registration under Section 3(b) or
Section 4(2) of the Securities Act, including offers and sales under Regulation
D or Rule 701 of the Securities Act.
The sales of securities were made without the use of an underwriter and the certificates evidencing the shares bear a restrictive legend permitting the transfer thereof only upon registration of the shares or an exemption under the Securities Act.
(1) On February 6, 1998, Registrant issued in total 1,000 shares of its common stock to Kevin Koch, K.C. Nicolaou, Anthony Piscopio and David Snitman in connection with its incorporation for an aggregate purchase price of $400.
(2) On May 18, 1998, Registrant entered into a Preferred and Common Stock Purchase Agreement, as amended on August 7, 1998, with certain accredited investors pursuant to which Registrant issued between May 19, 1998 and January 15, 1999 a total of 6,635,000 shares of Series A preferred stock for an aggregate purchase price of $6,635,000 and 2,912,367 shares of common stock for an aggregate purchase price of $684,406.
(3) From July 1, 1998 to June 30, 2000, Registrant granted options to purchase an aggregate of 3,348,240 shares of common stock to employees, directors and consultants under its 1998 Stock Option Plan dated July 1, 1998, as amended. As of June 30, 2000, 456,840 shares have been purchased for an aggregate purchase price of $107,358. In addition, 500,074 shares were fully vested and 36,556 shares have been cancelled.
(4) On October 9, 1998, Registrant entered into a Loan and Security Agreement with Silicon Valley Bank and, in connection with the loan, Registrant issued the bank a warrant to purchase 40,000 shares of Series A preferred stock at an initial exercise price of $1.00 per share.
(5) On February 26, 1999, Registrant entered into a Master Note and Security Agreement with Leasing Technologies International, Inc. and in connection with the line of credit, Registrant issued Leasing Technologies International, Inc. a warrant to purchase 13,750 shares of Series A preferred stock at an initial exercise price of $3.00 per share.
(6) On March 26, 1999, Registrant entered into a Loan and Security Agreement with Silicon Valley Bank and in connection with the loan, Registrant issued the bank a warrant to purchase 7,000 shares of Series B preferred stock at an initial exercise price of $2.50 per share.
(7) On November 16, 1999, Registrant entered into a Series B Preferred Stock Purchase Agreement with certain accredited investors for the issuance of 3,199,999 shares of Series B preferred stock for an aggregate purchase price of approximately $8,000,000.
(8) On May 17, 2000, Registrant entered into a Loan and Security Agreement with Silicon Valley Bank and, in connection with the loan, Registrant issued the bank a warrant to purchase 50,000 shares of Series B preferred stock at an initial exercise price of $5.00 per share.
II-2
(9) On August 31, 2000, Registrant entered into a Series C Preferred Stock Purchase Agreement with certain accredited investors for the issuance of 1,666,667 shares of Series C preferred stock for an aggregate purchase price of approximately $10,000,000.
The issuances of securities described in paragraph (3) above were deemed to be exempt from the registration requirements of the Securities Act in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701.
The issuances described in paragraphs (1), (2) and (4) through (9) above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) and pursuant to Regulation D, Rule 506 of the Securities Act.
The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1* -- Form of Underwriting Agreement
3.1- -- Amended and Restated Certificate of Incorporation of
Array BioPharma Inc.
3.2 -- Form of Amended and Restated Certificate of Incorporation
of Array BioPharma Inc. to be effective upon the closing
of the offering being made pursuant to this Registration
Statement
3.3- -- Amended and Restated Bylaws of Array BioPharma Inc.
3.4 -- Form of Amended and Restated Bylaws of Array BioPharma
Inc. to be effective upon the closing of the offering
being made pursuant to this Registration Statement
4.1 -- Specimen certificate representing the common stock
5.1* -- Opinion of Hogan & Hartson L.L.P. with respect to
legality of the common stock
10.1- -- 1998 Stock Option Plan effective July 1, 1998, as amended
10.2 -- Form of Amended and Restated Stock Option and Incentive
Plan to be effective upon the closing of the offering
being made pursuant to this Registration Statement
10.3* -- Form of Employee Stock Purchase Plan to be effective upon
the closing of the offering being made pursuant to this
Registration Statement
10.4- -- Preferred and Common Stock Purchase Agreement between
Registrant and the parties whose signatures appear on the
signature pages thereto dated May 18, 1998
10.5- -- Amendment to Preferred and Common Stock Purchase
Agreement dated August 7, 1998
10.6- -- Series B Preferred Stock Purchase Agreement between
Registrant and the parties whose signatures appear on the
signature pages thereto dated November 16, 1999
10.7- -- Series C Preferred Stock Purchase Agreement between
Registrant and the parties whose signatures appear on the
signature pages thereto dated August 31, 2000
10.8- -- Lease Agreement by and between Registrant, as Tenant, and
Amgen Inc., as Landlord, dated July 1998
|
II-3
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.9- -- First Amendment to Lease Agreement by and between
Registrant, as Tenant, and Amgen Inc., as Landlord, dated
April 1, 1999
10.10- -- Lease Agreement by and between Registrant, as Tenant, and
Pratt Land Limited Liability Company, as Landlord, dated
February 28, 2000
10.11- -- Revised Employment Agreement by and between Registrant
and Robert E. Conway dated November 16, 1999
10.12* -- Form of Employment Agreement dated September 1, 2000 by
and between Registrant and each of Laurence Burgess,
Jonathan Josey, Anthony D. Piscopio, David L. Snitman,
Kevin Koch, Michael Carruthers and Joanna Money
10.13- -- Promissory Note and Pledge Agreement of Kevin Koch to
Registrant dated May 18, 1998, as amended
10.14- -- Promissory Note and Pledge Agreement of KC Nicolaou to
Registrant dated May 18, 1998
10.15- -- Promissory Note and Pledge Agreement of Anthony D.
Piscopio to Registrant dated May 18, 1998, as amended
10.16- -- Amended and Restated Investors Rights Agreement between
Registrant and the parties whose signatures appear on the
signature pages thereto dated November 16, 1999
10.17- -- Amendment No. 1 to Amended and Restated Investors Rights
Agreement between Registrant and the parties listed on
the signature pages thereto dated August 31, 2000
10.18- -- Amended and Restated Stockholders Agreement between
Registrant and the parties whose signatures appear on the
signature pages thereto dated November 16, 1999
10.19- -- First Amendment to Amended and Restated Stockholders
Agreement between Registrant and the parties listed on
the signature pages thereto dated April 2000
10.20- -- Amendment No. 2 to Amended and Restated Stockholders
Agreement between Registrant and the parties listed on
the signature pages thereto dated August 31, 2000
10.21- -- Loan and Security Agreement by and between Registrant and
Silicon Valley Bank dated October 9, 1998
10.22- -- Warrant to Purchase 40,000 Shares of Series A Preferred
Stock issued to Silicon Valley Bank, issue date October
9, 1998
10.23- -- Loan and Security Agreement by and between Registrant and
Silicon Valley Bank dated March 26, 1999
10.24- -- Warrant to Purchase Shares of Series Preferred Stock
issued to Silicon Valley Bank, issue date March 31, 1999
10.25- -- Loan and Security Agreement by and between Registrant and
Silicon Valley Bank dated May 17, 2000
10.26- -- Warrant to Purchase Stock issued to Silicon Valley Bank,
issue date May 17, 2000
10.27- -- Master Note and Security Agreement by and between
Registrant and Leasing Technologies International, Inc.
dated February 26, 1999
10.28- -- Warrant to Purchase 13,750 Shares of Series A Preferred
Stock issued to Leasing Technologies International, Inc.,
issue date March 30, 1999
10.29-+ -- Custom Synthesis Fee-For-Service Agreement between
Registrant and Merck & Co., Inc. dated May 14, 1999
|
II-4
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.30-+ -- Array Library Screening Agreement between Registrant and
E.I. du Pont de Nemours and Company dated August 1, 2000
10.31-+ -- Lead Optimization Agreement between Registrant and ICOS
Corporation dated December 22, 1998
10.32-+ -- Cell Cycle Checkpoint Optimization Agreement between
Registrant and ICOS Corporation dated April 6, 1999
10.33-+ -- Drug Discovery Collaboration Agreement between Registrant
and ICOS Corporation dated July 31, 2000
10.34-+ -- Compound Library Agreement between Registrant and Darwin
Discovery Limited dated April 22, 1999
10.35-+ -- Diversity Library Screening Agreement between Registrant
and Tularik Inc. dated June 10, 1999, as amended
10.36-+ -- Research Services Agreement between Registrant and Eli
Lilly and Company dated March 22, 2000, as amended
10.37-+ -- Custom Synthesis Development and Supply Agreement between
Registrant and Merck & Co., Inc. dated September 6, 2000
10.38P -- Research and License Agreement between Registrant and
Amgen Inc. dated October 26, 2000
16.1- -- List of Subsidiaries
23.1 -- Consent of Independent Auditors -- Ernst & Young LLP
23.2* -- Consent of Hogan & Hartson L.L.P. (included in Exhibit
5.1)
24.1- -- Power of Attorney (included on signature page)
27.1- -- Financial Data Schedule
27.2 -- Amended and Restated Financial Data Schedule
|
* To be filed by amendment.
+ Confidential treatment applied for.
- Previously filed.
PTo be filed by amendment and confidential treatment to be applied for.
(b) Financial Statement Schedules:
All other schedules are omitted because they are not required, are not applicable or the information is included in the consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant 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 Securities Act may be permitted to directors, officers and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, 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 Registrant of expenses incurred or paid by a director, officer or controlling person of 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
II-5
registered, 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 Securities Act of 1933, 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 Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities 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 Securities Act of 1933, 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-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant has duly caused this Amendment No. 1 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Boulder, State of Colorado, on October 27, 2000.
Array BioPharma Inc.
By: /s/ ROBERT E. CONWAY
----------------------------------
Robert E. Conway
Chief Executive Officer
|
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT E. CONWAY Chief Executive Officer and October 27, 2000
----------------------------------------------------- Director (Principal
Robert E. Conway Executive Officer)
* Chairman of the Board of October 27, 2000
----------------------------------------------------- Directors
Kyle Lefkoff
/s/ MICHAEL CARRUTHERS Chief Financial Officer October 27, 2000
----------------------------------------------------- (Principal Financial and
Michael Carruthers Accounting Officer)
* Director October 27, 2000
-----------------------------------------------------
Francis J. Bullock, Ph.D.
* Director October 27, 2000
-----------------------------------------------------
Marvin H. Caruthers, Ph.D.
* Director October 27, 2000
-----------------------------------------------------
Kirby L. Cramer
* Director October 27, 2000
-----------------------------------------------------
Kevin Koch, Ph.D.
* Director October 27, 2000
-----------------------------------------------------
Robert W. Overell, Ph.D.
/s/ DAVID L. SNITMAN, PH.D. Director October 27, 2000
-----------------------------------------------------
David L. Snitman, Ph.D.
*By his signature below, the undersigned, pursuant to duly authorized powers of attorney filed with the
Securities and Exchange Commission, has signed this Amendment No. 1 to the registration statement on
behalf of the persons indicated.
/s/ ROBERT E. CONWAY
-----------------------------------------------------
Robert E. Conway
|
II-7
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1* -- Form of Underwriting Agreement
3.1- -- Amended and Restated Certificate of Incorporation of
Array BioPharma Inc.
3.2 -- Form of Amended and Restated Certificate of Incorporation
of Array BioPharma Inc. to be effective upon the closing
of the offering being made pursuant to this Registration
Statement
3.3- -- Amended and Restated Bylaws of Array BioPharma Inc.
3.4 -- Form of Amended and Restated Bylaws of Array BioPharma
Inc. to be effective upon the closing of the offering
being made pursuant to this Registration Statement
4.1 -- Specimen certificate representing the common stock
5.1* -- Opinion of Hogan & Hartson L.L.P. with respect to
legality of the common stock
10.1- -- 1998 Stock Option Plan effective July 1, 1998, as amended
10.2 -- Form of Amended and Restated Stock Option and Incentive
Plan to be effective upon the closing of the offering
being made pursuant to this Registration Statement
10.3* -- Form of Employee Stock Purchase Plan to be effective upon
the closing of the offering being made pursuant to this
Registration Statement
10.4- -- Preferred and Common Stock Purchase Agreement between
Registrant and the parties whose signatures appear on the
signature pages thereto dated May 18, 1998
10.5- -- Amendment to Preferred and Common Stock Purchase
Agreement dated August 7, 1998
10.6- -- Series B Preferred Stock Purchase Agreement between
Registrant and the parties whose signatures appear on the
signature pages thereto dated November 16, 1999
10.7- -- Series C Preferred Stock Purchase Agreement between
Registrant and the parties whose signatures appear on the
signature pages thereto dated August 31, 2000
10.8- -- Lease Agreement by and between Registrant, as Tenant, and
Amgen Inc., as Landlord, dated July 1998
10.9- -- First Amendment to Lease Agreement by and between
Registrant, as Tenant, and Amgen Inc., as Landlord, dated
April 1, 1999
10.10- -- Lease Agreement by and between Registrant, as Tenant, and
Pratt Land Limited Liability Company, as Landlord, dated
February 28, 2000
10.11- -- Revised Employment Agreement by and between Registrant
and Robert E. Conway dated November 16, 1999
10.12* -- Form of Employment Agreement dated September 1, 2000 by
and between Registrant and each of Laurence Burgess,
Jonathan Josey, Anthony D. Piscopio, David L. Snitman,
Kevin Koch, Michael Carruthers and Joanna Money
10.13- -- Promissory Note and Pledge Agreement of Kevin Koch to
Registrant dated May 18, 1998, as amended
10.14- -- Promissory Note and Pledge Agreement of KC Nicolaou to
Registrant dated May 18, 1998
10.15- -- Promissory Note and Pledge Agreement of Anthony D.
Piscopio to Registrant dated May 18, 1998, as amended
10.16- -- Amended and Restated Investors Rights Agreement between
Registrant and the parties whose signatures appear on the
signature pages thereto dated November 16, 1999
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.17- -- Amendment No. 1 to Amended and Restated Investors Rights
Agreement between Registrant and the parties listed on
the signature pages thereto dated August 31, 2000
10.18- -- Amended and Restated Stockholders Agreement between
Registrant and the parties whose signatures appear on the
signature pages thereto dated November 16, 1999
10.19- -- First Amendment to Amended and Restated Stockholders
Agreement between Registrant and the parties listed on
the signature pages thereto dated April 2000
10.20- -- Amendment No. 2 to Amended and Restated Stockholders
Agreement between Registrant and the parties listed on
the signature pages thereto dated August 31, 2000
10.21- -- Loan and Security Agreement by and between Registrant and
Silicon Valley Bank dated October 9, 1998
10.22- -- Warrant to Purchase 40,000 Shares of Series A Preferred
Stock issued to Silicon Valley Bank, issue date October
9, 1998
10.23- -- Loan and Security Agreement by and between Registrant and
Silicon Valley Bank dated March 26, 1999
10.24- -- Warrant to Purchase Shares of Series Preferred Stock
issued to Silicon Valley Bank, issue date March 31, 1999
10.25- -- Loan and Security Agreement by and between Registrant and
Silicon Valley Bank dated May 17, 2000
10.26- -- Warrant to Purchase Stock issued to Silicon Valley Bank,
issue date May 17, 2000
10.27- -- Master Note and Security Agreement by and between
Registrant and Leasing Technologies International, Inc.
dated February 26, 1999
10.28- -- Warrant to Purchase 13,750 Shares of Series A Preferred
Stock issued to Leasing Technologies International, Inc.,
issue date March 30, 1999
10.29-+ -- Custom Synthesis Fee-For-Service Agreement between
Registrant and Merck & Co., Inc. dated May 14, 1999
10.30-+ -- Array Library Screening Agreement between Registrant and
E.I. du Pont de Nemours and Company dated August 1, 2000
10.31-+ -- Lead Optimization Agreement between Registrant and ICOS
Corporation dated December 22, 1998
10.32-+ -- Cell Cycle Checkpoint Optimization Agreement between
Registrant and ICOS Corporation dated April 6, 1999
10.33-+ -- Drug Discovery Collaboration Agreement between Registrant
and ICOS Corporation dated July 31, 2000
10.34-+ -- Compound Library Agreement between Registrant and Darwin
Discovery Limited dated April 22, 1999
10.35-+ -- Diversity Library Screening Agreement between Registrant
and Tularik Inc. dated June 10, 1999, as amended
10.36-+ -- Research Services Agreement between Registrant and Eli
Lilly and Company dated March 22, 2000, as amended
10.37-+ -- Custom Synthesis Development and Supply Agreement between
Registrant and Merck & Co., Inc. dated September 6, 2000
10.38P -- Research and License Agreement between Registrant and
Amgen Inc. dated October 26, 2000
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
16.1- -- List of Subsidiaries
23.1 -- Consent of Independent Auditors -- Ernst & Young LLP
23.2* -- Consent of Hogan & Hartson L.L.P. (included in Exhibit
5.1)
24.1- -- Power of Attorney (included on signature page)
27.1 -- Financial Data Schedule
|
* To be filed by amendment.
+ Confidential treatment applied for.
- Previously filed.
PTo be filed by amendment and confidential treatment applied for.
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ARRAY BIOPHARMA INC.
Robert Conway hereby certifies that:
ONE: He is the duly elected and acting Chief Executive Officer of Array BioPharma Inc., a Delaware corporation originally incorporated as of February 6, 1998.
TWO: This Amended and Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation in accordance with the provisions of Sections 242 and 245 of the Delaware General Corporation Law and was duly adopted by vote of the stockholders of the Corporation in accordance with the provisions of Sections 228 and 242 of the Delaware General Corporation Law.
THREE: The Certificate of Incorporation of this corporation is hereby amended and restated in its entirety to read as follows:
ARTICLE 1. NAME
The name of the corporation is Array BioPharma Inc. (the
"CORPORATION").
ARTICLE 2. REGISTERED OFFICE AND AGENT
The registered office of the Corporation shall be located at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 in the County of New Castle. The registered agent of the Corporation at such address shall be The Corporation Trust Company.
ARTICLE 3. PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "DELAWARE GENERAL CORPORATION LAW"). The Corporation shall have all power necessary or convenient to the conduct, promotion or attainment of such acts and activities.
ARTICLE 4. CAPITAL STOCK
4.1 AUTHORIZED SHARES. The total number of shares of all classes of stock that the Corporation shall have the authority to issue is 70,000,000, of which 60,000,000 shall be Common Stock, all of one class, having a par value of $.001 per share (the "COMMON STOCK"), and 10,000,000 of such shares shall be Preferred Stock, having a par value of $.001 per share (the "PREFERRED STOCK").
4.2 COMMON STOCK.
4.2.1 RELATIVE RIGHTS. The Common Stock shall be subject to all of the rights, privileges, preferences and priorities of the Preferred Stock as set forth in the certificate of designations filed to establish the respective series of Preferred Stock. Each share of Common Stock shall have the same relative rights as and be identical in all respects to all the other shares of Common Stock. The Board of Directors is authorized, subject to the limitations prescribed by the Delaware General Corporation Law and the provisions of this Amended and Restated Certificate of Incorporation, to provide, by resolution or resolutions from time to time for the issuance of shares of Common Stock.
4.2.2 DIVIDENDS. Whenever there shall have been paid, or declared and set aside for payment, to the holders of shares of any class of stock having preference over the Common Stock as to the payment of dividends, the full amount of dividends and of sinking fund or retirement payments, if any, to which such holders are respectively entitled in preference to the Common Stock, then dividends may be paid on the Common Stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends thereon, but only when and as declared by the Board of Directors of the Corporation.
4.2.3 DISSOLUTION, LIQUIDATION, WINDING UP. In the event of any dissolution, liquidation, or winding up of the Corporation, whether voluntary or involuntary, the holders of the Common Stock, and holders of any class or series of stock entitled to participate therewith, in whole or in part, as to the distribution of assets in such event, shall become entitled to participate in the distribution of any assets of the Corporation remaining after the Corporation shall have paid, or provided for payment of, all debts and liabilities of the Corporation and after the Corporation shall have paid, or set aside for payment, to the holders of any class of stock having preference over the Common Stock in the event of dissolution, liquidation or winding up the full preferential amounts (if any) to which they are entitled.
4.2.4 VOTING RIGHTS. Each holder of shares of Common Stock shall be entitled to attend all special and annual meetings of the stockholders of the Corporation and, share for share and without regard to class, together with the holders of all other classes of stock entitled to attend such meetings and to vote (except any class or series of stock having special voting rights), to cast one vote for each outstanding share of Common Stock so held upon any matter or thing (including, without limitation, the election of one or more directors) properly considered and acted upon by the stockholders.
4.3 PREFERRED STOCK. The Board of Directors is authorized, subject to limitations prescribed by the Delaware General Corporation Law and the provisions of this Amended and Restated Certificate of Incorporation, to provide, by resolution or resolutions from time to time and by filing a certificate of designations pursuant to the Delaware General Corporation Law, for the issuance of the shares of Preferred Stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the powers, designations,
preferences and relative, participating, optional or other special rights of the shares of each such series and to fix the qualifications, limitations or restrictions thereof.
4.4 PREEMPTIVE RIGHTS. Ownership of shares of any class of the capital stock of the Corporation shall not entitle the holders thereof to any preemptive right to subscribe for or purchase or to have offered to them for subscription or purchase any additional shares of capital stock of any class of the Corporation or any securities convertible into any class of capital stock of the corporation, whether now or hereafter authorized, however acquired, issued or sold by the corporation, it being the purpose and intent hereof that the Board of Directors shall have the full right, power and authority to offer for subscription or sell or to make any disposal of any or all unissued shares of the capital stock of the Corporation or any securities convertible into stock or any or all shares of stock or convertible securities issued and thereafter acquired by the Corporation, for such consideration, in money or property, as the Board of Directors in its sole discretion shall determine.
ARTICLE 5. BOARD OF DIRECTORS
5.1 STAGGERED BOARD, NUMBER, ELECTION. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public (the "INITIAL PUBLIC OFFERING"), the directors shall be divided into three classes, as nearly equal in number as possible, designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting.
The number of directors constituting the whole Board or Directors shall not be fewer than three or more than fifteen. The number of directors may be altered from time to time as provided in the Bylaws. Unless and except to the extent that the Bylaws of the Corporation shall otherwise require, the election of directors of the Corporation need not be by written ballot. Except as otherwise provided in this Amended and Restated Certificate of Incorporation, each director of the Corporation shall be entitled to one vote per director on all matters voted or acted upon by the Board of Directors.
5.2 VACANCIES. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by the affirmative vote of a majority of the directors then in office, although fewer than a quorum, or by a sole remaining director. A director shall hold office for the remainder of the term of the class of director to which the vacancy occurred or the new directorship was created. 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 this Amended and Restated Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by the affirmative vote of 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. Each director so chosen shall hold office until the next election of directors of the class to which such director was appointed, and until such director's successor is elected and qualified, or until the director's earlier death, resignation or removal. In the event that one or more directors resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office until the next election of directors for such class or series, and until such director's successor is elected and qualified, or until the director's earlier death, resignation or removal.
5.3 REMOVAL OF DIRECTORS. A director may be removed only for cause and only by an affirmative vote of at least the holders of two-thirds of the outstanding stock entitled to vote thereon.
5.4 MANAGEMENT OF BUSINESS AND AFFAIRS OF THE CORPORATION. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
5.5 LIMITATION OF LIABILITY. No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this provision shall not eliminate or limit the liability of a director (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders; (b) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (c) under Section 174 of the Delaware General Corporation Law; or (d) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Section 5.5 shall be prospective only and shall not adversely affect any right or protection of, or any limitation of the liability of, a director of the Corporation existing at, or arising out of facts or incidents occurring prior to, the effective date of such repeal or modification.
ARTICLE 6. STOCKHOLDER ACTION
6.1 ACTION WITHOUT A MEETING BY UNANIMOUS WRITTEN CONSENT. Any action required or permitted to be taken at a stockholders' meeting may be taken without a meeting only by the unanimous written consent of all stockholders entitled to vote on such matter. The action must be evidenced by one or more written consents describing the action taken, signed by all of
the stockholders entitled to vote on such action, and delivered to the Corporation in the manner prescribed by the Delaware General Corporation Law for inclusion in the minute book.
6.2 SPECIAL MEETINGS. Unless the Delaware General Corporation Law shall provide otherwise, no stockholder or any group thereof shall have the right to call a special meeting of the stockholders.
ARTICLE 7. BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
The Corporation by this provision hereby elects to be governed by
Section 203 of the Delaware General Corporation Law.
ARTICLE 8. COMPROMISE OR ARRANGEMENTS
Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.
ARTICLE 9. ACQUISITION PROPOSALS
In determining whether the acquisition proposal is in the long-term best interests of the Corporation and its stockholders, the Board of Directors may consider the effect of both an acquisition proposal and a potential acquisition on creditors, customers and employees of the Corporation and on the community in general, the risks of non-consummation of an acquisition proposal, the identity, prior background and other business experiences of the person or entity making an acquisition proposal, and the business plans of both the Corporation and the person or entity making an acquisition proposal and their respective effects on stockholder interests. The Board of Directors is authorized to take such action as it may determine to be reasonably necessary or desirable to encourage any person or entity to enter into negotiations with the Board of Directors and management of the Corporation respecting any transaction that may result in a change of control and to contest or oppose any such transaction that the Board of Directors
determines to be unfair, abusive or otherwise undesirable to the Corporation or its stockholders, business, customers, employees or other constituencies.
ARTICLE 10. AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the Delaware General Corporation Law, the Board of Directors of the Corporation is expressly authorized and empowered to adopt, amend and repeal the Bylaws of the Corporation by an affirmative vote of at least two-thirds of the directors then in office. The Bylaws of the Corporation may also be adopted, amended or repealed upon the affirmative vote of the holders of at least two-thirds of the outstanding stock entitled to vote thereon, voting together as a single class.
ARTICLE 11. RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time, and from time to time, to amend, alter, change, or repeal any provision contained in this Amended and Restated Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences, and privileges of any nature conferred upon stockholders, directors, or any other persons by and pursuant to this Amended and Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this Article 11. With respect to action to be taken by the stockholders to amend Sections 4.3 and 4.4, and Articles 5, 6, 7, 9, 10 and 11 of this Amended and Restated Certificate of Incorporation, upon the affirmative vote of the holders of at least two-thirds of the outstanding stock entitled to vote thereon, voting together as a single class.
*******
IN WITNESS WHEREOF, Array BioPharma Inc. has caused this Amended and Restated Certificate of Incorporation to be executed by its Chief Executive Officer, who hereby certifies that the facts hereinabove stated are truly set forth, this day of ___________, 2000.
ARRAY BIOPHARMA INC.
Signature Page
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
ARRAY BIOPHARMA INC.
ADOPTED
SEPTEMBER 8, 2000
TABLE OF CONTENTS
Page
----
1. Offices.........................................................................................1
1.1. Registered Office......................................................................1
1.2. Other Offices..........................................................................1
2. Meetings of Stockholders........................................................................1
2.1. Place of Meetings......................................................................1
2.2. Annual Meetings........................................................................1
2.3. Special Meetings.......................................................................3
2.4. Notice of Meetings.....................................................................3
2.5. Waivers of Notice......................................................................3
2.6. List of Stockholders...................................................................3
2.7. Quorum at Meetings.....................................................................4
2.8. Voting; Proxies........................................................................4
2.9. Required Vote..........................................................................4
2.10. Inspectors.............................................................................5
3. Directors.......................................................................................5
3.1. Powers.................................................................................5
3.2. Number and Election....................................................................6
3.3. Nomination; Vacancies..................................................................6
3.4. Meetings...............................................................................6
3.4.1. Regular Meetings...............................................................6
3.4.2. Special Meetings...............................................................6
3.4.3. Telephone Meetings.............................................................6
3.4.4. Action Without Meeting.........................................................7
3.4.5. Waiver of Notice of Meeting....................................................7
3.5. Quorum and Vote at Meetings............................................................7
3.6. Committees of Directors................................................................7
3.7. Compensation of Directors..............................................................8
4. Officers........................................................................................8
4.1. Positions..............................................................................8
4.2. Chairperson............................................................................8
4.3. Chief Executive Officer................................................................9
4.4. President..............................................................................9
4.5. Chief Operating Officer................................................................9
4.6. Chief Financial Officer................................................................9
4.7. Chief Science Officer..................................................................9
4.8. Executive Vice President...............................................................10
4.9. Senior Vice President..................................................................10
4.10. Vice President.........................................................................10
4.11. Secretary..............................................................................10
4.12. Assistant Secretary....................................................................10
|
4.13. Treasurer..............................................................................11
4.14. Assistant Treasurer....................................................................11
4.15. Term of Office.........................................................................11
4.16. Compensation...........................................................................11
4.17. Fidelity Bonds.........................................................................11
5. Capital Stock...................................................................................11
5.1. Certificates of Stock; Uncertificated Shares...........................................11
5.2. Lost Certificates......................................................................12
5.3. Record Date............................................................................12
5.3.1. Actions by Stockholders........................................................12
5.3.2. Payments.......................................................................13
5.4. Stockholders of Record.................................................................13
6. INDEMNIFICATION; INSURANCE......................................................................13
6.1. Authorization of Indemnification.......................................................13
6.2. Right of Claimant to Bring Action Against the Corporation..............................14
6.3. Non-exclusivity........................................................................15
6.4. Survival of Indemnification............................................................15
6.5. Insurance..............................................................................15
6.6. Offset.................................................................................15
6.7. Effect of Amendments...................................................................16
7. General Provisions..............................................................................16
7.1. Inspection of Books and Records........................................................16
7.2. Dividends..............................................................................16
7.3. Reserves...............................................................................16
7.4. Execution of Instruments...............................................................16
7.5. Fiscal Year............................................................................16
7.6. Seal...................................................................................17
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AMENDED AND RESTATED
BYLAWS
OF
ARRAY BIOPHARMA INC.
1. OFFICES
1.1 REGISTERED OFFICE
The registered office of the Corporation shall be Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, and the initial registered agent in charge thereof shall be The Corporation Trust Company.
1.2 OTHER OFFICES
The Corporation may also have offices at such other places, both within and outside the State of Delaware, as the Board of Directors may from time to time determine or as may be necessary or useful in connection with the business of the Corporation.
2. MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
All meetings of the stockholders shall be held at such place as may be fixed from time to time by the Board of Directors, the Chairperson or the Chief Executive Officer.
2.2 ANNUAL MEETINGS
(a) The Corporation shall hold annual meetings of stockholders on such
dates and at such times as the Board, the Chairperson or the Chief Executive
Officer designates from time to time. At an annual meeting, the stockholders
shall elect by a plurality vote (as provided in SECTION 2.9 hereof) directors
to succeed those whose terms expire and to fill any vacancies and any newly
created directorships (resulting from any increase in the number of directors
comprising the full Board) existing at the time of the annual meeting. The
nomination of persons for election to the Board and the proposal of any other
business to be transacted at an annual meeting may be made only (i) by or at
the direction of the Board or (ii) by any stockholder of record who gives
notice in accordance with the procedures set forth in paragraph (b) of this
SECTION 2.2 and who is a stockholder of record both on the date of giving such
notice and on the record date for the determination of stockholders entitled to
vote at such annual meeting; only persons thereby nominated shall be eligible
to serve as a directors and only business thereby proposed shall be transacted
at an annual meeting. The presiding officer of the annual meeting shall
determine whether a nomination or any proposal of business complies or complied
with this SECTION 2.2.
(b) For nominations and other business to be brought properly before
an annual meeting by a stockholder pursuant to clause (ii) of paragraph (a) of
this SECTION 2.2, the stockholder must deliver notice to the Secretary at the
principal executive offices of the Corporation in accordance with this SECTION
2.2(b). The notice must be received by the Secretary not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, the stockholder must so deliver the notice not earlier
than the 120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or the tenth
day following the day on which public announcement of the date of such meeting
is first made; provided further, however, that in the event that the number of
directors to be elected to the Board is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board made by the Corporation at least 70 days prior to the first
anniversary of the preceding annual meeting, with respect to nominees for any
new position created by the increase, the stockholder must so deliver the
notice not later than the close of business on the tenth day following the day
on which such public announcement is first made. For the purposes of the
Corporation's first annual meeting after 2000, the anniversary date shall be
deemed to be September 15, 2001. The stockholder's notice must set forth: (i)
as to each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and resolutions thereunder (together with
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected), whether or not the
Corporation is then subject to Section 14(a) and such rules and regulations;
(ii) as to any other business that the stockholder proposes to transact at the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting the business at the meeting and any
material interest in the business of the stockholder and of the beneficial
owner, if any, on whose behalf the proposal is made; and (iii) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, the name and address of the stockholder, as
they appear on the Corporation's books, and of such beneficial owner, the class
and number of shares of the Corporation that are owned beneficially and of
record by such stockholder and such beneficial owner and a representation that
the stockholder intends to appear in person or by proxy at the annual meeting
to bring such business before the meeting. For purposes of this SECTION 2.2 and
SECTION 2.3 hereof, a "public announcement" means disclosure in a press release
reported by the Dow Jones News Service, Associated Press or comparable news
service, in a document publicly filed with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act (or their
successor provisions), or in a notice of meeting or proxy statement mailed
generally to the Corporation's stockholders. In giving notice under this
SECTION 2.2, a stockholder must also comply with state law and the Exchange Act
(and the rules and regulations thereunder). Nothing in this SECTION 2.2 shall
be deemed to affect the rights of a stockholder to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 (or its
successor provision) under the Exchange Act.
2.3 SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Board of Directors, the Chairperson or the Chief Executive Officer. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice (or to the purposes for which the meeting is called if such notice is waived or is not required as provided in the General Corporation Law of the State of Delaware (the "DELAWARE GENERAL CORPORATION LAW").
2.4 NOTICE OF MEETINGS
Written notice of any meeting of stockholders, stating the place, date and hour of the meeting, and if it is a special meeting the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting (except to the extent that such notice is waived or is not required as provided in Delaware General Corporation Law or these Bylaws). Such notice shall be given in accordance with, and shall be deemed effective as set forth in, Section 222 (or any successor section) of the Delaware General Corporation Law.
2.5 WAIVERS OF NOTICE
Whenever the giving of any notice is required by statute, the Certificate of Incorporation or these Bylaws, a waiver thereof, in writing and delivered to the Corporation, signed by the person or persons entitled to said notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance of a stockholder at a meeting shall constitute a waiver of notice (i) of such meeting, except when the stockholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (ii) if it is a special meeting of consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the stockholder objects to considering the matter at the beginning of the meeting.
2.6 LIST OF STOCKHOLDERS
After the record date for a meeting of stockholders has been fixed, at least 10 days before such meeting, the officer who has charge of the stock ledger of the Corporation shall make a list of all stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place in the city where the meeting is to be held, which place is to be specified in the notice of the meeting, or at the place where the meeting is to be held. Such list shall also, for the duration of the meeting, be produced and kept open to the examination of any stockholder who is present at the time and place of the meeting.
2.7 QUORUM AT MEETINGS
Stockholders may take action on a matter at a meeting only if a quorum exists with respect to that matter. Except as otherwise provided by statute or by the Certificate of Incorporation, the holders of a majority of the shares entitled to vote at the meeting, and who are present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. Where a separate vote by a class or series or classes or series is required, a majority of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter. Once a share is represented for any purpose at a meeting other than solely to object (i) to holding the meeting or transacting business at the meeting, or (ii) if it is a special meeting to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for the adjourned meeting. The holders of a majority of the voting shares represented at a meeting, whether or not a quorum is present, may adjourn such meeting from time to time.
2.8 VOTING AND PROXIES
Unless otherwise provided in the Delaware General Corporation Law or in the Corporation's Certificate of Incorporation, and subject to the other provisions of these Bylaws, each stockholder shall be entitled to one vote on each matter, in person or by proxy, for each share of the Corporation's capital stock that has voting power and that is held by such stockholder. Cumulative voting shall not be allowed in the election of directors or for any other reason. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed appointment of proxy shall be irrevocable if the appointment form states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power.
2.9 REQUIRED VOTE
When a quorum is present at any meeting of stockholders, all matters shall be determined, adopted and approved by the affirmative vote (which need not be by ballot) of the holders of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote with respect to the matter, unless the proposed action is one upon which, by express provision of statutes, of the Certificate of Incorporation or of these Bylaws, a different vote is specified and required, in which case such express provision shall govern and control with respect to that vote on that matter. Where a separate vote by a class or classes is required, the affirmative vote of the holders of a majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. Notwithstanding the foregoing, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.
2.10 INSPECTORS
Prior to any meeting of stockholders, the Board or the Chief Executive Officer shall appoint one or more inspectors to act at such meeting and make a written report thereof and may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at the meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall ascertain the number of shares outstanding and the voting power of each, determine the shares represented at the meeting and the validity of proxies and ballots, count all votes and ballots, determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors and certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons to assist them in the performance of their duties. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxy or vote, nor any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted therewith, any information provided by a stockholder who submits a proxy by telegram, cablegram or other electronic transmission from which it can be determined that the proxy was authorized by the stockholder, ballots and the regular books and records of the corporation, and they may also consider other reliable information for the limited purposes of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons that represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for such purpose, they shall, at the time they make their certification, specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable.
3. DIRECTORS
3.1 POWERS
The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things, subject to any limitation set forth in the Certificate of Incorporation or as otherwise may be provided in the Delaware General Corporation Law.
3.2 NUMBER AND ELECTION
The number of directors constituting the whole Board or Directors shall not be fewer than three or more than fifteen. Directors need not be stockholders. Within the limits above specified, the number of directors shall be fixed by the affirmative vote of two-thirds of the directors then in office. The directors shall be elected at the annual meeting of the stockholders, except as provided in the Certificate of Incorporation, and each director elected shall hold office until such director's successor is elected and qualified or until the director's earlier death, resignation or removal, provided, however, that if the Board decreases the number of directors constituting the board, the eliminated directorships resulting from such decrease shall be apportioned by the Board among the three classes of directors so a to maintain such classes as nearly equal in number as possible. A director holding a directorship that is eliminated by the Board shall cease to hold office upon the expiration of such director's current term unless such director is nominated and elected to another directorship on the Board.
3.3 NOMINATION AND VACANCIES
The Board of Directors shall nominate candidates to stand for election as directors; and other candidates also may be nominated by any stockholder of the Corporation in accordance with the procedures set forth in SECTION 2.2. The Board of Directors shall be elected or removed and vacancies filled as set forth in the Certificate of Incorporation.
3.4 MEETINGS
3.4.1. REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors.
3.4.2. SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by the Chairperson or Chief Executive Officer on one day's notice to each director, either personally or by telephone, express delivery service (so that the scheduled delivery date of the notice is at least one day in advance of the meeting), telegram or facsimile transmission, and on five days' notice by mail (effective upon deposit of such notice in the mail). The notice need not describe the purpose of a special meeting.
3.4.3. TELEPHONE MEETINGS
Members of the Board of Directors may participate in a meeting of the board by any communication by means of which all participating directors can simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.
3.4.4. ACTION WITHOUT MEETING
Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if the action is taken by all members of the Board. The action must be evidenced by one or more written consents describing the action taken, signed by each director, and delivered to the Corporation for inclusion in the minute book.
3.4.5. WAIVER OF NOTICE OF MEETING
A director may waive any notice required by statute, the Certificate of Incorporation or these Bylaws before or after the date and time stated in the notice. Except as set forth below, the waiver must be in writing, signed by the director entitled to the notice, and delivered to the Corporation for inclusion in the minute book. Notwithstanding the foregoing, a director's attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.
3.5 QUORUM AND VOTE AT MEETINGS
At all meetings of the board, a quorum of the Board of Directors
consists of a majority of the total number of directors prescribed pursuant to
SECTION 3.2 of these Bylaws. The vote of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by
the Certificate of Incorporation or by these Bylaws.
3.6 COMMITTEES OF DIRECTORS
The Board of Directors may designate one or more committees, each committee to consist of one or more directors. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present and not disqualified from voting, whether or not such member or members constitute a quorum, may, by unanimous vote, appoint another member of the Board of Directors to act at the meeting in the place of such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers requiring it; but no such committee shall have the power or authority in reference to approving or adopting, or recommending to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval or adopting, amending or repealing any Bylaw of the Corporation; and unless the resolution designating the committee, these 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 Delaware General Corporation Law. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors, when required. Unless otherwise specified in the Board resolution appointing the Committee, all provisions of the Delaware General Corporation Law and these Bylaws relating to meetings, action without meetings, notice (and waiver thereof), and quorum and voting requirements of the Board of Directors apply, as well, to such committees and their members.
3.7 COMPENSATION OF DIRECTORS
The Board of Directors shall have the authority to fix the compensation of directors. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
4. OFFICERS
4.1 POSITIONS
The officers of the Corporation shall be a Chairperson, a Chief Executive Officer, a President, a Treasurer, and a Secretary, and such other officers as the Board (or an officer authorized by the Board) from time to time may appoint, including a Chief Operating Officer, Chief Financial Officer, Chief Science Officer, one or more Vice Chairpersons, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Secretaries and Assistant Treasurers. Each such officer shall exercise such powers and perform such duties as shall be set forth below and such other powers and duties as from time to time may be specified by the Board or by any officer(s) authorized by the Board to prescribe the duties of such other officers. Any number of offices may be held by the same person, except that in no event shall the President and the Secretary be the same person. Each of the Chairperson, Chief Executive Officer, President, Chief Operating Officer, Chief Financial Officer and/or any Vice President may execute bonds, mortgages, contracts, and other instruments and documents under the seal of the Corporation, if required, except where required or permitted by law to be otherwise executed and except where the execution thereof shall be expressly delegated by the Board to some other officer or agent of the Corporation.
4.2 CHAIRPERSON
The Chairperson shall (when present and unless otherwise provided by resolution of the Board or delegated by the Chairperson) preside at all meetings of the Board and stockholders, and shall ensure that all orders and resolutions of the Board and stockholders are carried into effect.
4.3 CHIEF EXECUTIVE OFFICER
The Chief Executive Officer of the Corporation shall see that all orders and resolutions of the Board are carried into effect and shall oversee the strategic planning and policy development of the Corporation. The Chief Executive Officer shall have the authority to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board to some other officer or agent of the Corporation. The Chief Executive Officer shall perform other duties commonly incident to this office and shall perform such other duties and have such other powers as the Board may from time to time prescribe.
4.4 PRESIDENT
The President shall have general supervision of the business of the Corporation. In the event the position of Chairperson shall not be occupied or the Chairperson shall be absent or otherwise unable to act, the President shall preside at meetings of the stockholders and directors and shall discharge the duties of the presiding officer. The President shall have the authority to execute bonds, mortgages and other contracts requiring a seal under the seal of the Corporation, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board to some other officer or agent of the Corporation. The President shall perform whatever duties the Board may from time to time prescribe.
4.5 CHIEF OPERATING OFFICER
The Board may designate a Chief Operating Officer who shall have such responsibilities and duties as are assigned by the Chief Executive Officer, the President, the Board or the Executive Committee (if any).
4.6 CHIEF FINANCIAL OFFICER
The Board may designate a Chief Financial Officer who shall have such responsibilities and duties as are assigned by the Chief Executive Officer, the President, the Board or the Executive Committee (if any). Such responsibilities may include all responsibilities assumed by the Treasurer, and may also include the management of any and all Treasurers and Assistant Treasurers.
4.7 CHIEF SCIENCE OFFICER
The Board may designate a Chief Science Officer who shall be the principal science officer of the Corporation, shall assist the Chief Executive Officer in all science-related aspects of the Corporation and shall perform such duties as may be assigned to him by the Chief Executive Officer, the President, the Board or the Executive Committee (if any).
4.8 EXECUTIVE VICE PRESIDENT
The Board may designate one or more Executive Vice Presidents who shall have such responsibilities and duties as are assigned by the Chief Executive Officer, the President or the Board. The responsibilities of any such Executive Vice President may include all responsibilities assumed by any Senior Vice President or Vice President, and may also include the management of any and all Senior Vice Presidents and Vice Presidents.
4.9 SENIOR VICE PRESIDENT
The Board may designate one or more Senior Vice Presidents who shall have such responsibilities and duties as are assigned by the Chief Executive Officer, the President or the Board. The responsibilities of any such Senior Vice President may include all responsibilities assumed by any Vice President, and may also include the management of any and all Vice Presidents.
4.10 VICE PRESIDENT
In the absence of the President or in the event of the President's inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform 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.
4.11 SECRETARY
The Secretary shall have responsibility for preparation of minutes of meetings of the Board of Directors and of the stockholders and for authenticating records of the Corporation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors. The Secretary or an Assistant Secretary may also attest all instruments signed by any other officer of the Corporation.
4.12 ASSISTANT SECRETARY
The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, perform the duties and exercise the powers of the Secretary.
4.13 TREASURER
The Treasurer shall have responsibility for the custody of the corporate funds and securities and shall see to it that full and accurate accounts of receipts and disbursements are kept in books belonging to the Corporation. The Treasurer shall render to the Chairperson, the President, and the Board of Directors, upon request, an account of all financial transactions and of the financial condition of the Corporation.
4.14 ASSISTANT TREASURER
The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer's inability or refusal to act, perform the duties and exercise the powers of the Treasurer.
4.15 TERM OF OFFICE
The officers of the Corporation shall hold office until their successors are chosen and qualify or until their earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Any officer elected or appointed by the Board of Directors may be removed at any time, with or without cause, by the affirmative vote of a majority of the Board of Directors.
4.16 COMPENSATION
The compensation of officers of the Corporation shall be fixed by the Board of Directors or by any officer(s) authorized by the Board of Directors to prescribe the compensation of such other officers.
4.17 FIDELITY BONDS
The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise.
5. CAPITAL STOCK
5.1 CERTIFICATES OF STOCK AND UNCERTIFICATED SHARES
The shares of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution that some or all of any or all classes or series of the Corporation's 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 (representing the number of shares registered in certificate form) signed in the name of the Corporation by the Chairperson, President or any Vice President, and by the Treasurer, Secretary or any Assistant Treasurer or Assistant Secretary of the Corporation. Any or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar whose signature or facsimile signature appears on a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.
5.2 LOST CERTIFICATES
The Board of Directors, Chairperson, Chief Executive Officer, President or Secretary may direct a new certificate of stock to be issued in place of any certificate theretofore issued by the Corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming that the certificate of stock has been lost, stolen or destroyed. When authorizing such issuance of a new certificate, the board or any such officer may, as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or such owner's legal representative, to advertise the same in such manner as the board or such officer shall require and/or to give the Corporation a bond or indemnity, in such sum or on such terms and conditions as the board or such officer may direct, as indemnity against any claim that may be made against the Corporation on account of the certificate alleged to have been lost, stolen or destroyed or on account of the issuance of such new certificate or uncertificated shares.
5.3 RECORD DATE
5.3.1. ACTIONS BY STOCKHOLDERS
In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 days nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. 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.
In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 10 days after
the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the Delaware General Corporation Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in the manner prescribed by Section 213(b) of the Delaware General Corporation Law. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the Delaware General Corporation Law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
5.3.2. PAYMENTS
In order that the Corporation may determine 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 change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
5.4 STOCKHOLDERS OF RECORD
The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, to receive notifications, to vote as such owner, and to exercise all the rights and powers of an owner. The Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise may be provided by the Delaware General Corporation Law.
6. INDEMNIFICATION AND INSURANCE
6.1 AUTHORIZATION OF INDEMNIFICATION
Each person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether by or in the right of the Corporation or otherwise (a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, partner (limited or general) or agent of another corporation or of a partnership, joint venture, limited liability company, trust or other enterprise, including service with respect to an employee benefit plan, shall be (and shall be deemed to have a contractual right to be) indemnified and held harmless by the Corporation
(and any successor to the Corporation by merger or otherwise) to the fullest extent authorized by, and subject to the conditions and (except as provided herein) procedures set forth in the Delaware General Corporation Law, as the same exists or may hereafter be amended (but any such amendment shall not be deemed to limit or prohibit the rights of indemnification hereunder for past acts or omissions of any such person insofar as such amendment limits or prohibits the indemnification rights that said law permitted the Corporation to provide prior to such amendment), against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person (except for a suit or action pursuant to SECTION 6.2 hereof) only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. Persons who are not directors or officers of the Corporation and are not so serving at the request of the Corporation may be similarly indemnified in respect of such service to the extent authorized at any time by the Board of Directors of the Corporation. The indemnification conferred in this SECTION 6.1 also shall include the right to be paid by the Corporation (and such successor) the expenses (including attorneys' fees) incurred in the defense of or other involvement in any such proceeding in advance of its final disposition; provided, however, that, if and to the extent the Delaware General Corporation Law requires, the payment of such expenses (including attorneys' fees) incurred by a director or officer in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer to repay all amounts so paid in advance if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this SECTION 6.1 or otherwise; and provided further, that, such expenses incurred by other employees and agents may be so paid in advance upon such terms and conditions, if any, as the Board of Directors deems appropriate.
6.2 RIGHT OF CLAIMANT TO BRING ACTION AGAINST THE CORPORATION
If a claim under SECTION 6.1 is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring an action against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting 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 proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed or is otherwise not entitled to indemnification under SECTION 6.1, but the burden of proving such defense shall be on the Corporation. The failure of the Corporation (in the manner provided under the Delaware General Corporation Law) to have made a determination prior to or after the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law shall not be a defense to the action or
create a presumption that the claimant has not met the applicable standard of conduct. Unless otherwise specified in an agreement with the claimant, an actual determination by the Corporation (in the manner provided under the Delaware General Corporation Law) after the commencement of such action that the claimant has not met such applicable standard of conduct shall not be a defense to the action, but shall create a presumption that the claimant has not met the applicable standard of conduct.
6.3 NON-EXCLUSIVITY
The rights to indemnification and advance payment of expenses provided by SECTION 6.1 hereof shall not be deemed exclusive of any other rights to which those seeking indemnification and advance payment of expenses may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office.
6.4 SURVIVAL OF INDEMNIFICATION
The indemnification and advance payment of expenses and rights thereto provided by, or granted pursuant to, SECTION 6.1 hereof shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee, partner or agent and shall inure to the benefit of the personal representatives, heirs, executors and administrators of such person.
6.5 INSURANCE
The Corporation shall have power to 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, partner (limited or general) or agent of another corporation or of a partnership, joint venture, limited liability company, trust or other enterprise, against any liability asserted against such person or incurred by such person in any such capacity, or arising out of such person's status as such, and related expenses, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of the Delaware General Corporation Law.
6.6 OFFSET
The Corporation's obligation, if any, to indemnify or to advance expenses to any covered officer or director who was or is serving at its request as a director, officer, employee or agent of another company, partnership, joint venture, trust, enterprise or nonprofit entity will be reduced by any amount that the covered officer or director may collect as indemnification or advancement of expenses from such other company, partnership, joint venture, trust, enterprise or nonprofit entity.
6.7 EFFECT OF AMENDMENTS
Any repeal or modification of the relevant provisions of the Bylaws will not adversely affect any right or protection thereunder of any covered officer or director in respect of any act or omission occurring prior to the time of such repeal or modification.
7. GENERAL PROVISIONS
7.1 INSPECTION OF BOOKS AND RECORDS
Any stockholder, 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 reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing authorizing 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 or at its principal place of business.
7.2 DIVIDENDS
The Board of Directors may declare dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation and the laws of the State of Delaware.
7.3 RESERVES
The directors of the Corporation may set apart, out of the funds of the Corporation available for dividends, a reserve or reserves for any proper purpose and may abolish any such reserve.
7.4 EXECUTION OF INSTRUMENTS
All checks, drafts or other orders for the payment of money, and promissory notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
7.5 FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
7.6 SEAL
The corporate seal shall be in such form as the Board of Directors shall approve. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.
* * * * *
The foregoing Amended and Restated Bylaws were adopted by the Board of Directors on September 8, 2000 to be effective upon the closing of the Corporation's initial public offering of shares of common stock.
EXHIBIT 4.1
[LOGO OF ARRAY BIOPHARMA INC. APPEARS HERE]
NUMBER SHARES
ARRAY BIOPHARMA INC.
SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP
AND STATEMENTS AS TO THE RIGHTS, ----------- PREFERENCES, PRIVILEGES AND RESTRICTIONS ON SHARES |
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This certifies that
is the owner of
fully paid and non-assessable shares of common stock, par value $.001 per share of
ARRAY BIOPHARMA INC.
(the "Corporation"), a Delaware Corporation
The shares represented by this certificate are transferable only on the stock transfer books of the Corporation by the holder of record hereof or by duly authorized attorney upon the surrender of this certificate properly endorsed. This certificate is not valid until countersigned and registered by the Corporation's transfer agent and registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused a facsimile of its corporate seal to be hereunto affixed.
Dated:
[SEAL OF ARRAY BIOPHARMA INC. APPEARS HERE]
TREASURER PRESIDENT
COUNTERSIGNED AND REGISTERED
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
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The Corporation is authorized to issue more than one class or series of stock. The Corporation will furnish without charge to each stockholder who so requests a statement of the powers, assignations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such request may be made to the Secretary of the Corporation.
The following abbreviations, when used in the inscription on the face of each certificate, shall be construed as though they were written out in full according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIT TRANSFER PIN ACT - Custodian
------------------- --------------
(Cust) (Minor)
|
Additional abbreviations may also be used though not in the above list.
For value received __________________ hereby sell(s), assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
of the common stock evidenced by this certificate, and do (does) hereby irrevocably constitute and appoint
to transfer the said shares on the books of the Corporation, with full power of substitution.
Dated
-------------------------- -----------------------------------
Signature
-----------------------------
Signature
In presence of
------------------
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NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
EXHIBIT 10.2
AMENDED AND RESTATED
ARRAY BIOPHARMA INC.
TABLE OF CONTENTS
PAGE
----
1. PURPOSE........................................................................................1
2. DEFINITIONS....................................................................................1
3. ADMINISTRATION OF THE PLAN.....................................................................6
3.1. Board.................................................................................6
3.2. Committee.............................................................................6
3.3. Terms of Awards.......................................................................7
3.4. No Liability..........................................................................8
4. STOCK SUBJECT TO THE PLAN......................................................................8
5. EFFECTIVE DATE AND TERM OF THE PLAN............................................................8
5.1. Effective Date........................................................................8
5.2. Term..................................................................................9
6. AWARD ELIGIBILITY..............................................................................9
6.1. Company or Subsidiary Employees; Service Providers; Other Persons.....................9
6.2. Successive Awards.....................................................................9
7. LIMITATIONS ON GRANTS..........................................................................9
7.1. Limitation on Shares of Stock Subject to Awards and Cash Awards.......................9
7.2. Limitations on Incentive Stock Options................................................9
8. AWARD AGREEMENT...............................................................................10
9. OPTION PRICE..................................................................................10
10. VESTING, TERM AND EXERCISE OF OPTIONS.........................................................10
10.1. Vesting..............................................................................10
10.2. Term.................................................................................11
10.3. Acceleration.........................................................................11
10.4. Termination of Service...............................................................11
10.5. Limitations on Exercise of Option....................................................11
10.6. Method of Exercise...................................................................11
10.7. Form of Payment......................................................................12
10.8. Rights of Holders of Options.........................................................12
10.9. Delivery of Stock Certificates.......................................................12
10.10. Reload Options.......................................................................13
11. TRANSFERABILITY OF OPTIONS....................................................................13
11.1. Transferability of Options...........................................................13
11.2. Family Transfers.....................................................................13
12. STOCK APPRECIATION RIGHTS.....................................................................14
12.1. Right to Payment.....................................................................14
12.2. Other Terms..........................................................................14
13. RESTRICTED STOCK..............................................................................14
13.1. Grant of Restricted Stock or Restricted Stock Units..................................14
13.2. Restrictions.........................................................................14
13.3. Restricted Stock Certificates........................................................15
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13.4. Rights of Holders of Restricted Stock................................................15
13.5. Rights of Holders of Restricted Stock Units..........................................15
13.6. Termination of Service...............................................................15
13.7. Delivery of Stock and Payment Therefor...............................................16
14. DEFERRED STOCK AWARDS.........................................................................16
14.1. Nature of Deferred Stock Awards......................................................16
14.2. Election to Receive Deferred Stock Awards in Lieu of Compensation....................16
14.3. Rights as a Stockholder..............................................................17
14.4. Restrictions on Transfer.............................................................17
14.5. Termination..........................................................................17
15. UNRESTRICTED STOCK AWARDS.....................................................................17
16. PERFORMANCE STOCK AWARDS......................................................................17
16.1. Nature of Performance Stock Awards...................................................17
16.2. Rights as a Stockholder..............................................................18
16.3. Termination of Service...............................................................18
17. DIVIDEND EQUIVALENT RIGHTS....................................................................18
17.1. Dividend Equivalent Rights...........................................................18
17.2. Interest Equivalents.................................................................19
17.3. Termination of Service...............................................................19
18. CERTAIN PROVISIONS APPLICABLE TO AWARDS.......................................................19
18.1. Stand-Alone, Additional, Tandem, and Substitute Awards...............................19
18.2. Form and Timing of Payment Under Awards; Deferrals...................................19
18.3. Performance and Annual Incentive Awards..............................................20
18.3.1. Performance Conditions.......................................................20
18.3.2. Performance or Annual Incentive Awards Granted to Designated Covered
Employees....................................................................20
18.3.3. Written Determinations.......................................................22
18.3.4. Status of Section 18.3.2 Awards Under Code Section 162(m)....................22
19. PARACHUTE LIMITATIONS.........................................................................23
20. REQUIREMENTS OF LAW...........................................................................23
20.1. General..............................................................................23
20.2. Rule 16b-3...........................................................................24
20.3. Limitation Following a Hardship Distribution.........................................24
21. AMENDMENT AND TERMINATION OF THE PLAN.........................................................25
22. EFFECT OF CHANGES IN CAPITALIZATION...........................................................25
22.1. Changes in Stock.....................................................................25
22.2. Reorganization in Which the Company Is the Surviving
Entity and in Which No Change in Control Occurs......................................26
22.3. Reorganization, Sale of Assets or Sale of Stock Which
Involves a Change in Control.........................................................26
22.4. Adjustments..........................................................................26
22.5. No Limitations on Company............................................................27
23. POOLING.......................................................................................27
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24. DISCLAIMER OF RIGHTS...........................................................................27 25. NONEXCLUSIVITY OF THE PLAN.....................................................................28 26. WITHHOLDING TAXES..............................................................................28 27. CAPTIONS.......................................................................................29 28. OTHER PROVISIONS...............................................................................29 29. NUMBER AND GENDER..............................................................................29 30. SEVERABILITY...................................................................................29 31. GOVERNING LAW..................................................................................29 |
AMENDED AND RESTATED
ARRAY BIOPHARMA INC.
STOCK OPTION AND INCENTIVE PLAN
Array BioPharma Inc., a Delaware corporation (the "Company"), sets forth herein the terms of the Company's Amended and Restated Stock Option and Incentive Plan (the "Plan").
1. PURPOSE
The purpose of the Plan is to enhance the Company's ability to attract, retain, and compensate highly qualified officers, key employees, and other persons, and to motivate such officers, key employees, and other persons to serve the Company and its Affiliates (as defined herein) and to expend maximum effort to improve the business results and earnings of the Company, by providing to such officers, key employees and other persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company and with other financial incentives. To this end, the Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock awards, unrestricted stock awards, performance stock awards, dividend equivalent rights, performance awards and annual incentive awards in accordance with the terms hereof. Stock options granted under the Plan may be non-qualified stock options or incentive stock options, as provided herein.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including Award Agreements), the following definitions shall apply:
2.1 "AFFILIATE" means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.
2.2 "ANNUAL INCENTIVE AWARD" means a conditional right granted to a Grantee under SECTION 18.3.2 hereof to receive a cash payment, Stock or other Award, unless otherwise determined by the Committee, after the end of a specified fiscal year.
2.3 "AWARD" means a grant of an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Deferred Stock, Unrestricted Stock,
Performance Stock, Dividend Equivalent Rights, Performance or Annual Incentive Awards under the Plan.
2.4 "AWARD AGREEMENT" means the written agreement between the Company and a Grantee that evidences and sets out the terms and conditions of an Award.
2.5 "BENEFIT ARRANGEMENT" shall have the meaning set forth in SECTION 19 hereof.
2.6 "BOARD" means the Board of Directors of the Company.
2.7 "CAUSE" means, as determined by the Board and unless otherwise provided in an applicable employment agreement with the Company or an Affiliate, (i) gross negligence or willful misconduct in connection with the performance of duties; (ii) conviction of a criminal offense (other than minor traffic offenses); or (iii) material breach of any term of any employment, consulting or other services, confidentiality, intellectual property or non-competition agreements, if any, between the Service Provider or employee and the Company or an Affiliate.
2.8 "CHANGE IN CONTROL" means (i) the dissolution or liquidation of
the Company or a merger, consolidation, or reorganization of the Company with
one or more other entities in which the Company is not the surviving entity,
(ii) a sale of substantially all of the assets of the Company to another person
or entity, or (iii) any transaction (including without limitation a merger or
reorganization in which the Company is the surviving entity) which results in
any person or entity (other than persons who are shareholders or Affiliates
immediately prior to the transaction) owning 50% or more of the combined voting
power of all classes of stock of the Company.
2.9 "CODE" means the Internal Revenue Code of 1986, as now in effect or as hereafter amended.
2.10 "COMMITTEE" means a committee of, and designated from time to time by resolution of, the Board, which shall consist of no fewer than two members of the Board, none of whom shall be an officer or other salaried employee of the Company or any Affiliate.
2.11 "COMPANY" means the Array BioPharma Inc.
2.12 "COVERED EMPLOYEE" means a Grantee who is a Covered Employee within the meaning of Section 162(m)(3) of the Code.
2.13 "DEFERRED STOCK" means a right, granted to a Grantee under
SECTION 14 hereof, to receive Stock, cash or a combination thereof at the end
of a specified deferral period."
2.7 "DISABILITY" means the Grantee is unable to perform each of the essential duties of such Grantee's position by reason of a medically determinable physical or mental impairment which is potentially permanent in character or which can be expected to last for a continuous period of not less than 12 months; provided, however, that, with respect to rules regarding expiration of an Incentive Stock Option following termination of the Grantee's Service, Disability shall mean the Grantee is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
2.14 "DIVIDEND EQUIVALENT" means a right, granted to a Grantee under
SECTION 17 hereof, to receive cash, Stock, other Awards or other property equal
in value to dividends paid with respect to a specified number of shares of
Stock, or other periodic payments.
2.15 "EFFECTIVE DATE" of the Plan means the date of the closing of the initial public offering of the Company's common stock.
2.16 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as now in effect or as hereafter amended.
2.17 "FAIR MARKET VALUE" means the value of a share of Stock, determined as follows: if on the Grant Date or other determination date the Stock is listed on an established national or regional stock exchange, is admitted to quotation on The Nasdaq Stock Market, or is publicly traded on an established securities market, the Fair Market Value of a share of Stock shall be the closing price of the Stock on such exchange or in such market (if there is more than one such exchange or market the Board shall determine the appropriate exchange or market) on the Grant Date or such other determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the highest bid and lowest asked prices or between the high and low sale prices on such trading day) or, if no sale of Stock is reported for such trading day, on the next preceding day on which any sale shall have been reported. If the Stock is not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value shall be the value of the Stock as determined by the Board in good faith.
2.18 "FAMILY MEMBER" means a person who is a spouse, child, stepchild, grandchild, parent, stepparent, grandparent, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of the Grantee, any person sharing the Grantee's household
(other than a tenant or employee), a trust in which any one or more these persons have more than fifty percent of the beneficial interest, a foundation in which any one or more of these persons (or the Grantee) control the management of assets, and any other entity in which one or more these persons (or the Grantee) own more than fifty percent of the voting interests.
2.19 "GRANT DATE" means, as determined by the Board or authorized Committee, the latest to occur of (i) the date as of which the Board approves an Award, (ii) the date on which the recipient of an Award first becomes eligible to receive an Award under SECTION 6 hereof, or (iii) such other date as may be specified by the Board.
2.20 "GRANTEE" means a person who receives or holds an Award under the Plan.
2.21 "INCENTIVE STOCK OPTION" means an "incentive stock option" within the meaning of Section 422 of the Code, or the corresponding provision of any subsequently enacted tax statute, as amended from time to time.
2.22 "NON-QUALIFIED STOCK OPTION" means an Option that is not an Incentive Stock Option.
2.23 "OPTION" means an option to purchase one or more shares of Stock pursuant to the Plan.
2.24 "OPTION PRICE" means the purchase price for each share of Stock subject to an Option.
2.25 "OTHER AGREEMENT" shall have the meaning set forth in SECTION 19 hereof.
2.26 "OUTSIDE DIRECTOR" means a member of the Board who is not an officer or employee of the Company.
2.27 "PERFORMANCE AWARD" means a conditional right granted to a Grantee under SECTION 18.3 hereof to receive a cash payment, Stock or other Award, unless otherwise determined by the Committee, after the end of a period of up to 10 years.
2.28 "PERFORMANCE STOCK AWARD" means Awards granted pursuant to
SECTION 16.
2.29 "PLAN" means this Amended and Restated Array BioPharma Inc. Stock Option and Incentive Plan.
2.30 "REPORTING PERSON" means a person who is required to file reports under Section 16(a) of the Exchange Act.
2.31 "RESTRICTED PERIOD" means the period during which Restricted Stock or Restricted Stock Units are subject to restrictions or conditions pursuant to SECTION 13.2 hereof.
2.32 "RESTRICTED STOCK" means shares of Stock, awarded to a Grantee pursuant to SECTION 13 hereof, that are subject to restrictions and to a risk of forfeiture.
2.33 "RESTRICTED STOCK UNIT" means a unit awarded to a Grantee pursuant to SECTION 13 hereof, which represents a conditional right to receive a share of Stock in the future, and which is subject to restrictions and to a risk of forfeiture.
2.34 "SECURITIES ACT" means the Securities Act of 1933, as now in effect or as hereafter amended.
2.35 "SERVICE" means service as an employee, officer, director or other Service Provider of the Company or an Affiliate. Unless otherwise stated in the applicable Award Agreement, a Grantee's change in position or duties shall not result in interrupted or terminated Service, so long as such Grantee continues to be an employee, officer, director or other Service Provider of the Company or an Affiliate. Subject to the preceding sentence, whether a termination of Service shall have occurred for purposes of the Plan shall be determined by the Board, which determination shall be final, binding and conclusive.
2.36 "SERVICE PROVIDER" means a consultant or adviser to the Company, a manager of the Company's properties or affairs, or other similar service provider or Affiliate, and employees of any of the foregoing, as such persons may be designated from time to time by the Board pursuant to SECTION 6 hereof.
2.37 "STOCK" means the common stock, par value $.001 per share, of the Company.
2.38 "STOCK APPRECIATION RIGHT" or "SAR" means a right granted to a Grantee under SECTION 12 hereof.
2.39 "SUBSIDIARY" means any "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code.
2.40 "TERMINATION DATE" means the date upon which an Option shall terminate or expire, as set forth in SECTION 10.2 hereof.
2.41 "UNRESTRICTED STOCK AWARD" means an Award granted pursuant to
SECTION 15 hereof.
3. ADMINISTRATION OF THE PLAN
3.1. BOARD
The Board shall have such powers and authorities related to the administration of the Plan as are consistent with the Company's certificate of incorporation and by-laws and applicable law. The Board shall have full power and authority to take all actions and to make all determinations required or provided for under the Plan, any Award or any Award Agreement, and shall have full power and authority to take all such other actions and make all such other determinations not inconsistent with the specific terms and provisions of the Plan that the Board deems to be necessary or appropriate to the administration of the Plan, any Award or any Award Agreement. All such actions and determinations shall be by the affirmative vote of a majority of the members of the Board present at a meeting or by unanimous consent of the Board executed in writing in accordance with the Company's certificate of incorporation and by-laws and applicable law. The interpretation and construction by the Board of any provision of the Plan, any Award or any Award Agreement shall be final and conclusive. To the extent permitted by law, the Board may delegate its authority under the Plan to a member of the Board or to an executive officer of the Company who is a member of the Board.
3.2. COMMITTEE.
The Board from time to time may delegate to a Committee such powers and authorities related to the administration and implementation of the Plan, as set forth in SECTION 3.1 above and in other applicable provisions, as the Board shall determine, consistent with the certificate of incorporation and by-laws of the Company and applicable law. In the event that the Plan, any Award or any Award Agreement entered into hereunder provides for any action to be taken by or determination to be made by the Board, such action may be taken or such determination may be made by the Committee if the power and authority to do so has been delegated to the Committee by the Board as provided for in this Section. Unless otherwise expressly determined by the Board, any such action or determination by the Committee shall be final, binding and conclusive. To the extent permitted by law, the Committee may delegate its authority under the Plan to a member of the Board or an executive officer of the Company who is a member of the Board.
3.3. TERMS OF AWARDS.
Subject to the other terms and conditions of the Plan, the Board shall have full and final authority:
(i) to designate Grantees,
(ii) to determine the type or types of Awards to be made to a Grantee,
(iii) to determine the number of shares of Stock to be subject to an Award,
(iv) to establish the terms and conditions of each Award (including, but not limited to, the exercise price of any Option, the nature and duration of any restriction or condition (or provision for lapse thereof) relating to the vesting, exercise, transfer, or forfeiture of an Award or the shares of Stock subject thereto, and any terms or conditions that may be necessary to qualify Options as Incentive Stock Options),
(v) to prescribe the form of each Award Agreement evidencing an Award,
(vi) to amend, modify, or supplement the terms of any outstanding Award, and
(vii) Such authority specifically includes the authority, in order to effectuate the purposes of the Plan but without amending the Plan, to modify Awards to eligible individuals who are foreign nationals or are individuals who are employed outside the United States to recognize differences in local law, tax policy, or custom.
As a condition to any subsequent Award, the Board shall have the right, at its discretion, to require Grantees to return to the Company Awards previously made under the Plan. Subject to the terms and conditions of the Plan, any such new Award shall be upon such terms and conditions as are specified by the Board at the time the new Award is made. The Board shall have the right, in its discretion, to make Awards in substitution or exchange for any other award under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate. The Company may retain the right in an Award Agreement to cause a forfeiture of the gain realized by a Grantee on account of actions taken by the Grantee in violation or breach of or in conflict with any non-competition agreement, any agreement prohibiting solicitation of employees or clients of the Company or any Affiliate thereof or any confidentiality obligation with respect to the Company or any Affiliate thereof or otherwise in competition with the Company or any Affiliate thereof, to the extent specified in such Award Agreement applicable to the Grantee. Furthermore, the Company may annul an Award if the Grantee is an employee of the Company or an Affiliate thereof and is terminated for Cause as defined in the applicable Award Agreement or the Plan, as applicable. The grant of any Award shall be contingent upon the Grantee executing the appropriate Award Agreement.
3.4. NO LIABILITY.
No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award or Award Agreement.
4. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in SECTION 22 hereof, the number of shares of Stock available for issuance under the Plan shall be 7,000,000, which number shall be increased, but not decreased, by any "Additional Authorized Shares." Additional Authorized Shares, for purposes of the Plan, means on any given day the difference between (1) the Company's issued and outstanding shares of Stock (on a fully diluted, as converted basis) multiplied by a factor of 25% minus (2) the number of outstanding shares of Stock relating to Awards plus the number of shares of Stock available for future grants of Awards on such date. The number of shares of Stock available for issuance under the Plan as incentive stock options may not exceed 7,000,000 shares, which number shall be increased each January 1 for the next five years beginning in 2001 by 250,000 shares; provided, that, at no time may the number of shares of Stock available for issuance under the Plan as incentive stock options exceed the total number of shares reserved for issuance under the Plan. If any shares covered by an Award are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Stock subject thereto, then the number of shares of Stock counted against the aggregate number of shares available under the Plan with respect to such Award shall, to the extent of any such forfeiture or termination, again be available for making Awards under the Plan. If the exercise price of any Option granted under the Plan is satisfied by tendering shares of Stock to the Company (by either actual delivery or by attestation), only the number of shares of Stock issued net of the shares of Stock tendered shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan.
5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1. EFFECTIVE DATE.
The Plan shall be effective as of the Effective Date, subject to approval of the Plan by the Company's stockholders within one year of the Effective Date. Upon approval of the Plan by the stockholders of the Company as set forth above, all Awards made under the Plan on or after the Effective Date shall be fully effective as if the stockholders of the Company had approved the Plan on the Effective Date. If the stockholders fail to approve the Plan within one year after the Effective Date, any Awards made hereunder shall be null and void and of no effect.
5.2. TERM.
The Plan shall terminate automatically ten (10) years after its
adoption by the Board and may be terminated on any earlier date as provided in
SECTION 21.
6. AWARD ELIGIBILITY
6.1. COMPANY OR SUBSIDIARY EMPLOYEES; SERVICE PROVIDERS; OTHER PERSONS.
Subject to Section 7, Awards may be made under the Plan to: (i) any employee of, or a Service Provider to, the Company or of any Affiliate, including any such employee or Service Provider who is an officer or director of the Company, or of any affiliate, as the Board shall determine and designate from time to time, (ii) any Outside Director, and (iii) any other individual whose participation in the Plan is determined to be in the best interests of the Company by the Board.
6.2. SUCCESSIVE AWARDS.
An eligible person may receive more than one Award, subject to such restrictions as are provided herein.
7. LIMITATIONS ON GRANTS
7.1. LIMITATION ON SHARES OF STOCK SUBJECT TO AWARDS AND CASH AWARDS.
During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, the maximum number of shares of Stock subject to Options that can be awarded under the Plan to any person eligible for an Award under SECTION 6 hereof is two million (2,000,000) per year. During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, the maximum number of shares that can be awarded under the Plan, other than pursuant to an Option to any person eligible for an Award under SECTION 6 hereof is four hundred thousand (400,000) per year. The preceding limitations in this SECTION 7.1 are subject to adjustment as provided in SECTION 22 hereof. The maximum amount that may be earned as an Annual Incentive Award or other cash Award in any fiscal year by any one Grantee shall be $1,000,000 and the maximum amount that may be earned as a Performance Award or other cash Award in respect of a performance period by any one Grantee shall be $3,000,000.
7.2. LIMITATIONS ON INCENTIVE STOCK OPTIONS.
An Option shall constitute an Incentive Stock Option only (i) if the Grantee of such Option is an employee of the Company or any Subsidiary of the Company; (ii) to the extent specifically provided in the related Award Agreement; and (iii) to the
extent that the aggregate Fair Market Value (determined at the time the Option is granted) of the shares of Stock with respect to which all Incentive Stock Options held by such Grantee become exercisable for the first time during any calendar year (under the Plan and all other plans of the Grantee's employer and its Affiliates) does not exceed $100,000. This limitation shall be applied by taking Options into account in the order in which they were granted.
8. AWARD AGREEMENT
Each Award granted pursuant to the Plan shall be evidenced by an Award Agreement, to be executed by the Company and by the Grantee, in such form or forms as the Board shall from time to time determine. Award Agreements granted from time to time or at the same time need not contain similar provisions but shall be consistent with the terms of the Plan. Each Award Agreement evidencing an Award of Options shall specify whether such Options are intended to be Non-qualified Stock Options or Incentive Stock Options, and in the absence of such specification such options shall be deemed Non-qualified Stock Options.
9. OPTION PRICE
The Option Price of each Option shall be fixed by the Board and stated in the Award Agreement evidencing such Option. The Option Price shall be at least the aggregate Fair Market Value on the Grant Date of the shares of Stock subject to the Option; provided, however, that in the event that a Grantee would otherwise be ineligible to receive an Incentive Stock Option by reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating to ownership of more than ten percent of the Company's outstanding Stock), the Option Price of an Option granted to such Grantee that is intended to be an Incentive Stock Option shall be not less than the greater of the par value of a share of Stock or 110 percent of the Fair Market Value of a share of Stock on the Grant Date. In no case shall the Option Price of any Option be less than the par value of a share of Stock.
10. VESTING, TERM AND EXERCISE OF OPTIONS
10.1. VESTING.
Subject to SECTIONS 10.2 AND 22.3 hereof, each Option granted under the Plan shall become exercisable at such times and under such conditions as shall be determined by the Board and stated in the Award Agreement. For purposes of this SECTION 10.1, fractional numbers of shares of Stock subject to an Option shall be rounded down to the next nearest whole number. The Board may provide, for example, in the Award Agreement for (i) accelerated exercisability of the Option in the event the Grantee's Service terminates on account of death, Disability or another event, (ii) expiration of the Option prior to its term in the event of the termination of the Grantee's Service, (iii) immediate forfeiture of the Option in the
event the Grantee's Service is terminated for Cause or (iv) unvested Options to be exercised subject to the Company's right of repurchase with respect to unvested shares of Stock.
10.2. TERM.
Each Option granted under the Plan shall terminate, and all rights to purchase shares of Stock thereunder shall cease, upon the expiration of ten years from the date such Option is granted, or under such circumstances and on such date prior thereto as is set forth in the Plan or as may be fixed by the Board and stated in the Award Agreement relating to such Option (the "Termination Date"); provided, however, that in the event that the Grantee would otherwise be ineligible to receive an Incentive Stock Option by reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating to ownership of more than ten percent of the outstanding Stock), an Option granted to such Grantee that is intended to be an Incentive Stock Option shall not be exercisable after the expiration of five years from its Grant Date.
10.3. ACCELERATION.
Any limitation on the exercise of an Option contained in any Award Agreement may be rescinded, modified or waived by the Board, in its sole discretion, at any time and from time to time after the Grant Date of such Option, so as to accelerate the time at which the Option may be exercised. Notwithstanding any other provision of the Plan, no Option shall be exercisable in whole or in part prior to the date the Plan is approved by the stockholders of the Company as provided in SECTION 5.1 hereof.
10.4. TERMINATION OF SERVICE.
Each Award Agreement shall set forth the extent to which the Grantee shall have the right to exercise the Option following termination of the Grantee's Service. Such provisions shall be determined in the sole discretion of the Board, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service.
10.5. LIMITATIONS ON EXERCISE OF OPTION.
Notwithstanding any other provision of the Plan, in no event may any Option be exercised, in whole or in part, prior to the date the Plan is approved by the stockholders of the Company as provided herein, or after ten years following the Grant Date, or after the occurrence of an event referred to in SECTION 22 hereof which results in termination of the Option.
10.6. METHOD OF EXERCISE.
An Option that is exercisable may be exercised by the Grantee's delivery to the Company of written notice of exercise on any business day, at the Company's principal office, on the form specified by the Company. Such notice shall specify the
number of shares of Stock with respect to which the Option is being exercised and shall be accompanied by payment in full of the Option Price of the shares for which the Option is being exercised. The minimum number of shares of Stock with respect to which an Option may be exercised, in whole or in part, at any time shall be the lesser of (i) 100 shares or such lesser number set forth in the applicable Award Agreement and (ii) the maximum number of shares available for purchase under the Option at the time of exercise.
10.7. FORM OF PAYMENT.
Payment of the Option Price for the shares purchased pursuant to the exercise of an Option shall be made (i) in cash or in cash equivalents acceptable to the Company; (ii) through the tender to the Company of shares of Stock, which shares, if acquired from the Company, shall have been held for at least six months and which shall be valued, for purposes of determining the extent to which the Option Price has been paid thereby, at their Fair Market Value on the date of exercise; or (iii) by a combination of the methods described in (i) and (ii). Unless the Board provides otherwise in the Award Agreement, payment in full of the Option Price need not accompany the written notice of exercise provided that the notice of exercise directs that the certificate or certificates for the shares of Stock for which the Option is exercised be delivered to a licensed broker acceptable to the Company as the agent for the individual exercising the Option and, at the time such certificate or certificates are delivered, the broker tenders to the Company cash (or cash equivalents acceptable to the Company) equal to the Option Price for the shares of Stock purchased pursuant to the exercise of the Option plus the amount (if any) of federal and/or other taxes which the Company may in its judgment, be required to withhold with respect to the exercise of the Option. An attempt to exercise any Option granted hereunder other than as set forth above shall be invalid and of no force and effect.
10.8. RIGHTS OF HOLDERS OF OPTIONS.
Unless otherwise stated in the applicable Award Agreement, an individual holding or exercising an Option shall have none of the rights of a shareholder (for example, the right to receive cash or dividend payments or distributions attributable to the subject shares of Stock or to direct the voting of the subject shares of Stock ) until the shares of Stock covered thereby are fully paid and issued to him. Except as provided in SECTION 22 hereof, no adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date of such issuance.
10.9. DELIVERY OF STOCK CERTIFICATES.
Promptly after the exercise of an Option by a Grantee and the payment in full of the Option Price, such Grantee shall be entitled to the issuance of a stock certificate or certificates evidencing his or her ownership of the shares of Stock subject to the Option.
10.10. RELOAD OPTIONS.
At the discretion of the Board and subject to such restrictions, terms and conditions as the Board may establish, Options granted under the Plan may include a "reload" feature pursuant to which a Grantee exercising an Option by the delivery of a number of shares of Stock in accordance with SECTION 10.7 hereof would automatically be granted an additional Option (with an exercise price equal to the Fair Market Value of the Stock on the date the additional Option is granted and with such other terms as the Board may provide) to purchase that number of shares of Stock equal to the number delivered to exercise the original Option with an Option term equal to the remainder of the original Option term unless the Board otherwise determines in the Option Award Agreement for the original grant.
11. TRANSFERABILITY OF OPTIONS
11.1. TRANSFERABILITY OF OPTIONS
Except as provided in SECTION 11.2, during the lifetime of a Grantee, only the Grantee (or, in the event of legal incapacity or incompetency, the Grantee's guardian or legal representative) may exercise an Option. Except as provided in SECTION 11.2, no Option shall be assignable or transferable by the Grantee to whom it is granted, other than by will or the laws of descent and distribution.
11.2. FAMILY TRANSFERS.
If authorized in the applicable Award Agreement, a Grantee may transfer, not for value, all or part of an Option which is not an Incentive Stock Option to any Family Member. For the purpose of this SECTION 11.2, a "not for value" transfer is a transfer which is (i) a gift, (ii) a transfer under a domestic relations order in settlement of marital property rights; or (iii) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in that entity. Following a transfer under this SECTION 11.2, any such Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. Subsequent transfers of transferred Options are prohibited except to Family Members of the original Grantee in accordance with this SECTION 11.2 or by will or the laws of descent and distribution. The events of termination of Service of SECTION 10.4 hereof shall continue to be applied with respect to the original Grantee, following which the Option shall be exercisable by the transferee only to the extent, and for the periods specified, in SECTION 10.4.
12. STOCK APPRECIATION RIGHTS
The Board is authorized to grant SARs to Grantees on the following terms and conditions:
12.1. RIGHT TO PAYMENT.
A SAR shall confer on the Grantee to whom it is granted a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value of one share of Stock on the date of exercise over (B) the grant price of the SAR as determined by the Board. The grant price of an SAR shall not be less than the Fair Market Value of a share of Stock on the date of grant except as provided in SECTION 18.1.
12.2. OTHER TERMS.
The Board shall determine at the date of grant or thereafter, the time or times at which and the circumstances under which a SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the time or times at which SARs shall cease to be or become exercisable following termination of Service or upon other conditions, the method of exercise, method of settlement, form of consideration payable in settlement, method by or forms in which Stock will be delivered or deemed to be delivered to Grantees, whether or not a SAR shall be in tandem or in combination with any other Award, and any other terms and conditions of any SAR. SARs may be either freestanding or in tandem with other Awards.
13. RESTRICTED STOCK
13.1. GRANT OF RESTRICTED STOCK OR RESTRICTED STOCK UNITS.
The Board may from time to time grant Restricted Stock or Restricted Stock Units to persons eligible to receive Awards under SECTION 6 hereof, subject to such restrictions, conditions and other terms as the Board may determine.
13.2. RESTRICTIONS.
At the time a grant of Restricted Stock or Restricted Stock Units is made, the Board shall establish a period of time (the "Restricted Period") applicable to such Restricted Stock or Restricted Stock Units. Each Award of Restricted Stock or Restricted Stock Units may be subject to a different Restricted Period. The Board may, in its sole discretion, at the time a grant of Restricted Stock or Restricted Stock Units is made, prescribe restrictions in addition to or other than the expiration of the Restricted Period, including the satisfaction of corporate or individual performance objectives, which may be applicable to all or any portion of the Restricted Stock or Restricted Stock Units in accordance with SECTION 18.3.1 and 18.3.2. Neither Restricted Stock nor Restricted Stock Units may be sold, transferred, assigned,
pledged or otherwise encumbered or disposed of during the Restricted Period or prior to the satisfaction of any other restrictions prescribed by the Board with respect to such Restricted Stock or Restricted Stock Units.
13.3. RESTRICTED STOCK CERTIFICATES.
The Company shall issue, in the name of each Grantee to whom Restricted Stock has been granted, stock certificates representing the total number of shares of Restricted Stock granted to the Grantee, as soon as reasonably practicable after the Grant Date. The Board may provide in an Award Agreement that either (i) the Secretary of the Company shall hold such certificates for the Grantee's benefit until such time as the Restricted Stock is forfeited to the Company or the restrictions lapse, or (ii) such certificates shall be delivered to the Grantee, provided, however, that such certificates shall bear a legend or legends that complies with the applicable securities laws and regulations and makes appropriate reference to the restrictions imposed under the Plan and the Award Agreement.
13.4. RIGHTS OF HOLDERS OF RESTRICTED STOCK.
Unless the Board otherwise provides in an Award Agreement, holders of Restricted Stock shall have the right to vote such Stock and the right to receive any dividends declared or paid with respect to such Stock. The Board may provide that any dividends paid on Restricted Stock must be reinvested in shares of Stock, which may or may not be subject to the same vesting conditions and restrictions applicable to such Restricted Stock. All distributions, if any, received by a Grantee with respect to Restricted Stock as a result of any stock split, stock dividend, combination of shares, or other similar transaction shall be subject to the restrictions applicable to the original Grant.
13.5. RIGHTS OF HOLDERS OF RESTRICTED STOCK UNITS.
Unless the Board otherwise provides in an Award Agreement, holders of Restricted Stock Units shall have no rights as stockholders of the Company. The Board may provide in an Award Agreement evidencing a grant of Restricted Stock Units that the holder of such Restricted Stock Units shall be entitled to receive, upon the Company's payment of a cash dividend on its outstanding Stock, a cash payment for each Restricted Stock Unit held equal to the per-share dividend paid on the Stock. Such Award Agreement may also provide that such cash payment will be deemed reinvested in additional Restricted Stock Units at a price per unit equal to the Fair Market Value of a share of Stock on the date that such dividend is paid.
13.6. TERMINATION OF SERVICE.
Unless the Board otherwise provides in an Award Agreement or in writing after the Award Agreement is issued, upon the termination of a Grantee's Service, any Restricted Stock or Restricted Stock Units held by such Grantee that have not vested, or with respect to which all applicable restrictions and conditions have not
lapsed, shall immediately be deemed forfeited. Upon forfeiture of Restricted Stock or Restricted Stock Units, the Grantee shall have no further rights with respect to such Award, including but not limited to any right to vote Restricted Stock or any right to receive dividends with respect to shares of Restricted Stock or Restricted Stock Units.
13.7. DELIVERY OF STOCK AND PAYMENT THEREFOR.
Upon the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Board, the restrictions applicable to shares of Restricted Stock or Restricted Stock Units shall lapse, and, unless otherwise provided in the Award Agreement, upon payment by the Grantee to the Company, in cash or by check, of the aggregate par value of the shares of Stock represented by such Restricted Stock or Restricted Stock Units (or such other higher purchase price determined by the Board), a stock certificate for such shares shall be delivered, free of all such restrictions, to the Grantee or the Grantee's beneficiary or estate, as the case may be.
14. DEFERRED STOCK AWARDS
14.1. NATURE OF DEFERRED STOCK AWARDS.
A Deferred Stock Award is an Award of phantom stock units to a Grantee, subject to restrictions and conditions as the Board may determine at the time of grant. Conditions may be based on continuing Service and/or achievement of pre-established performance goals and objectives. The terms and conditions of each such agreement shall be determined by the Board, and such terms and conditions may differ among individual Awards and Grantees. At the end of the deferral period, the Deferred Stock Award, to the extent vested, shall be paid to the Grantee in the form of shares of Stock.
14.2. ELECTION TO RECEIVE DEFERRED STOCK AWARDS IN LIEU OF COMPENSATION.
The Board may, in its sole discretion, permit a Grantee to elect to receive a portion of the cash compensation or Restricted Stock Award otherwise due to such Grantee in the form of a Deferred Stock Award. Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Board and in accordance with rules and procedures established by the Board. The Board shall have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as the Board deems appropriate.
14.3. RIGHTS AS A STOCKHOLDER.
During the deferral period, a Grantee shall have no rights as a stockholder; provided, however, that the Grantee may be credited with Dividend Equivalent Rights with respect to the phantom stock units underlying his Deferred Stock Award, subject to such terms and conditions as the Board may determine.
14.4. RESTRICTIONS ON TRANSFER.
A Deferred Stock Award may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of during the deferral period.
14.5. TERMINATION.
Except as may otherwise be provided by the Board either in the Award Agreement or, in writing after the Award Agreement is issued, a Grantee's right in all Deferred Stock Awards that have not vested shall automatically terminate upon the Grantee's termination of Service for any reason.
15. UNRESTRICTED STOCK AWARDS
The Board may, in its sole discretion, grant (or sell at par value or such other higher purchase price determined by the Board) an Unrestricted Stock Award to any Grantee pursuant to which such Grantee may receive shares of Stock free of any restrictions ("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such Grantee.
16. PERFORMANCE STOCK AWARDS
16.1. NATURE OF PERFORMANCE STOCK AWARDS.
A Performance Stock Award is an Award entitling the recipient to acquire shares of Stock upon the attainment of specified performance goals. The Board may make Performance Stock Awards independent of or in connection with the granting of any other Award under the Plan. The Board in its sole discretion shall determine whether and to whom Performance Stock Awards shall be made, the performance goals applicable under each such Award, the periods during which performance is to be measured, and all other limitations and conditions applicable to the awarded Performance Stock; provided, however, that the Board may rely on the performance goals and other standards applicable to other performance unit plans of the Company in setting the standards for Performance Stock Awards under the Plan.
At any time prior to the Grantee's termination of Service, the Board may in its sole discretion accelerate, waive or amend any or all of the goals, restrictions or conditions imposed under any Performance Stock Award.
16.2. RIGHTS AS A STOCKHOLDER.
A Grantee receiving a Performance Stock Award shall have the rights of a stockholder only as to shares actually received by the Grantee under the Plan and not with respect to shares subject to the Award but not actually received by the Grantee. A Grantee shall be entitled to receive a stock certificate evidencing the acquisition of Stock under a Performance Stock Award only upon satisfaction of all conditions specified in the written instrument evidencing the Performance Stock Award (or in a performance plan adopted by the Board).
16.3. TERMINATION OF SERVICE.
Except as may otherwise be provided by the Board either in the Award Agreement or in writing after the Award Agreement is issued, a Grantee's rights in all Performance Stock Awards shall automatically terminate upon the Grantee's termination of Service for any reason.
17. DIVIDEND EQUIVALENT RIGHTS
17.1. DIVIDEND EQUIVALENT RIGHTS.
A Dividend Equivalent Right is an Award entitling the recipient to receive credits based on cash distributions that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the recipient. A Dividend Equivalent Right may be granted hereunder to any Grantee as a component of another Award or as a freestanding award. The terms and conditions of Dividend Equivalent Rights shall be specified in the grant. Dividend Equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment. Dividend Equivalent Rights may be settled in cash or Stock or a combination thereof, in a single installment or installments, all determined in the sole discretion of the Board. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other award. A Dividend Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other award.
17.2. INTEREST EQUIVALENTS.
Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may provide in the grant for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant.
17.3. TERMINATION OF SERVICE.
Except as may otherwise be provided by the Board either in the Award Agreement or in writing after the Award Agreement is issued, a Grantee's rights in all Dividend Equivalent Rights or interest equivalents shall automatically terminate upon the Grantee's termination of Service for any reason.
18. CERTAIN PROVISIONS APPLICABLE TO AWARDS
18.1. STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS.
Awards granted under the Plan may, in the discretion of the Board, be granted either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate, or any other right of a Grantee to receive payment from the Company or any Affiliate. Such additional, tandem, and substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another Award, the Board shall require the surrender of such other Award in consideration for the grant of the new Award. In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans of the Company or any Affiliate, in which the value of Stock subject to the Award is equivalent in value to the cash compensation (for example, Deferred Stock or Restricted Stock), or in which the exercise price, grant price or purchase price of the Award in the nature of a right that may be exercised is equal to the Fair Market Value of the underlying Stock minus the value of the cash compensation surrendered (for example, Options granted with an exercise price "discounted" by the amount of the cash compensation surrendered).
18.2. FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS.
Subject to the terms of the Plan and any applicable Award Agreement, payments to be made by the Company or an Affiliate upon the exercise of an Option or other Award or settlement of an Award may be made in such forms as the Board shall determine, including, without limitation, cash, Stock, other Awards or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis. The settlement of any Award may be accelerated, and cash paid in
lieu of Stock in connection with such settlement, in the discretion of the Board or upon occurrence of one or more specified events. Installment or deferred payments may be required by the Board or permitted at the election of the Grantee on terms and conditions established by the Board. Payments may include, without limitation, provisions for the payment or crediting of a reasonable interest rate on installment or deferred payments or the grant or crediting of Dividend Equivalents or other amounts in respect of installment or deferred payments denominated in Stock.
18.3. PERFORMANCE AND ANNUAL INCENTIVE AWARDS.
18.3.1. PERFORMANCE CONDITIONS.
The right of a Grantee to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Board. The Board may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce the amounts payable under any Award subject to performance conditions, except as limited under SECTIONS 18.3.2 hereof in the case of a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m). If and to the extent required under Code Section 162(m), any power or authority relating to a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m), shall be exercised by the Committee and not the Board.
18.3.2. PERFORMANCE OR ANNUAL INCENTIVE AWARDS GRANTED TO DESIGNATED COVERED EMPLOYEES.
If and to the extent that the Committee determines that a Performance or Annual Incentive Award to be granted to a Grantee who is designated by the Committee as likely to be a Covered Employee should qualify as "performance-based compensation" for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Performance or Annual Incentive Award shall be contingent upon achievement of preestablished performance goals and other terms set forth in this SECTION 18.3.2.
(i) Performance Goals Generally. The
performance goals for such Performance or Annual Incentive
Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each
of such criteria, as specified by the Committee consistent
with this SECTION 18.3.2. Performance goals shall be
objective and shall otherwise meet the requirements of Code
Section 162(m) and regulations thereunder including the
requirement that the level or levels of performance targeted
by the Committee result in the achievement of performance
goals being "substantially
uncertain." The Committee may determine that such Performance or Annual Incentive Awards shall be granted, exercised and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise and/or settlement of such Performance or Annual Incentive Awards. Performance goals may differ for Performance or Annual Incentive Awards granted to any one Grantee or to different Grantees.
(ii) Business Criteria. One or more of the
following business criteria for the Company, on a
consolidated basis, and/or specified subsidiaries or business
units of the Company (except with respect to the total
stockholder return and earnings per share criteria), shall be
used exclusively by the Committee in establishing performance
goals for such Performance or Annual Incentive Awards: (1)
total stockholder return; (2) such total stockholder return
as compared to total return (on a comparable basis) of a
publicly available index such as, but not limited to, the
Standard & Poor's 500 Stock Index; (3) net income; (4) pretax
earnings; (5) earnings before interest expense, taxes,
depreciation and amortization; (6) pretax operating earnings
after interest expense and before bonuses, service fees, and
extraordinary or special items; (7) operating margin; (8)
earnings per share; (9) return on equity; (10) return on
capital; (11) return on investment; (12) operating earnings;
(13) working capital; (14) ratio of debt to stockholders'
equity and (15) revenue.
(iii) Performance Period; Timing For
Establishing Performance Goals. Achievement of performance
goals in respect of Performance Awards shall be measured over
a performance period of up to ten years and achievement of
performance goals in respect of Annual Incentive Awards shall
be measured over a performance period of up to one year, as
specified by the Committee. Performance goals shall be
established not later than 90 days after the beginning of any
performance period applicable to such Performance or Annual
Incentive Awards, or at such other date as may be required or
permitted for "performance-based compensation" under Code
Section 162(m).
(iv) Performance or Annual Incentive Award Pool. The Committee may establish a Performance or Annual Incentive Award pool, which shall be an unfunded pool, for purposes of measuring Company performance in connection with Performance or Annual Incentive Awards.
(v) Settlement of Performance or Annual Incentive Awards; Other Terms. Settlement of such Performance or Annual
Incentive Awards shall be in cash, Stock, other Awards or other property, in the discretion of the Committee. The Committee may, in its discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance or Annual Incentive Awards. The Committee shall specify the circumstances in which such Performance or Annual Incentive Awards shall be paid or forfeited in the event of termination of Service by the Grantee prior to the end of a performance period or settlement of Performance Awards.
18.3.3. WRITTEN DETERMINATIONS.
All determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards and as to the achievement of performance goals relating to Performance Awards, and the amount of any Annual Incentive Award pool or potential individual Annual Incentive Awards and the amount of final Annual Incentive Awards, shall be made in writing in the case of any Award intended to qualify under Code Section 162(m). To the extent required to comply with Code Section 162(m), the Committee may delegate any responsibility relating to such Performance Awards or Annual Incentive Awards.
18.3.4. STATUS OF SECTION 18.3.2 AWARDS UNDER CODE SECTION 162(m).
It is the intent of the Company that Performance Awards and Annual Incentive Awards under SECTION 18.3.2 hereof granted to persons who are designated by the Committee as likely to be Covered Employees within the meaning of Code Section 162(m) and regulations thereunder shall, if so designated by the Committee, constitute "qualified performance-based compensation" within the meaning of Code Section 162(m) and regulations thereunder. Accordingly, the terms of SECTION 18.3.2, including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Grantee will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee, at the time of grant of Performance Awards or an Annual Incentive Award, as likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan or any agreement relating to such Performance Awards or Annual Incentive Awards does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.
19. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other agreement, contract, or understanding heretofore or hereafter entered into by a Grantee with the Company or any Affiliate, except an agreement, contract, or understanding hereafter entered into that expressly modifies or excludes application of this paragraph (an "Other Agreement"), and notwithstanding any formal or informal plan or other arrangement for the direct or indirect provision of compensation to the Grantee (including groups or classes of Grantees or beneficiaries of which the Grantee is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Grantee (a "Benefit Arrangement"), if the Grantee is a "disqualified individual," as defined in Section 280G(c) of the Code, any Option, Restricted Stock or Restricted Stock Unit held by that Grantee and any right to receive any payment or other benefit under this Plan shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for the Grantee under this Plan, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Grantee under this Plan to be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment") and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Grantee from the Company under this Plan, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by the Grantee without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Plan, in conjunction with all other rights, payments, or benefits to or for the Grantee under any Other Agreement or any Benefit Arrangement would cause the Grantee to be considered to have received a Parachute Payment under this Plan that would have the effect of decreasing the after-tax amount received by the Grantee as described in clause (ii) of the preceding sentence, then the Grantee shall have the right, in the Grantee's sole discretion, to designate those rights, payments, or benefits under this Plan, any Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the payment or benefit to the Grantee under this Plan be deemed to be a Parachute Payment.
20. REQUIREMENTS OF LAW
20.1. GENERAL.
The Company shall not be required to sell or issue any shares of Stock under any Award if the sale or issuance of such shares would constitute a violation by the Grantee, any other individual exercising an Option, or the Company of any provision of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of any shares
subject to an Award upon any securities exchange or under any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares hereunder, no shares of Stock may be issued or sold to the Grantee or any other individual exercising an Option pursuant to such Award unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Award. Specifically, in connection with the Securities Act, upon the exercise of any Option or the delivery of any shares of Stock underlying an Award, unless a registration statement under such Act is in effect with respect to the shares of Stock covered by such Award, the Company shall not be required to sell or issue such shares unless the Board has received evidence satisfactory to it that the Grantee or any other individual exercising an Option may acquire such shares pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares of Stock pursuant to the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable until the shares of Stock covered by such Option are registered or are exempt from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption.
20.2. RULE 16b-3.
During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, it is the intent of the Company that Awards pursuant to the Plan and the exercise of Options granted hereunder will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan or action by the Board does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Board, and shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify this Plan in any respect necessary to satisfy the requirements of, or to take advantage of any features of, the revised exemption or its replacement.
20.3. LIMITATION FOLLOWING A HARDSHIP DISTRIBUTION.
To the extent required to comply with Treasury Regulation
Section 1.401(k)-1(d)(2)(iv)(B)(4), or any amendment or successor thereto, a
Grantee's "elective and employee contributions" (within the meaning of such
Treasury Regulation) under the Plan shall be suspended for a period of twelve
months following such Grantee's receipt of a hardship distribution made in
reliance on such Treasury Regulation from any plan containing a cash or
deferred arrangement under Section 401(k) of
the Code maintained by the Company or a related party within the provisions of subsections (b), (c), (m) or (o) of Section 414 of the Code.
21. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any shares of Stock as to which Awards have not been made; provided, however, that the Board shall not, without approval of the Company's shareholders, amend the Plan such that it does not comply with the Code. Except as permitted under this SECTION 21 or SECTION 22 hereof, no amendment, suspension, or termination of the Plan shall, without the consent of the Grantee, alter or impair rights or obligations under any Award theretofore awarded under the Plan.
22. EFFECT OF CHANGES IN CAPITALIZATION
22.1. CHANGES IN STOCK.
If the number of outstanding shares of Stock is increased or decreased or the shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company on account of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Company occurring after the Effective Date, the number and kinds of shares for which grants of Options and other Awards may be made under the Plan shall be adjusted proportionately and accordingly by the Company. In addition, the number and kind of shares for which Awards are outstanding shall be adjusted proportionately and accordingly so that the proportionate interest of the Grantee immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in outstanding Options shall not change the aggregate Option Price payable with respect to shares that are subject to the unexercised portion of an Option outstanding but shall include a corresponding proportionate adjustment in the Option Price per share. The conversion of any convertible securities of the Company shall not be treated as an increase in shares effected without receipt of consideration. Notwithstanding the foregoing, in the event of a spin-off that results in no change in the number of outstanding shares of Stock of the Company, the Company may, in such manner as the Company deems appropriate, adjust (i) the number and kind of shares subject to outstanding Awards and/or (ii) the exercise price of outstanding Options and Stock Appreciation Rights.
22.2. REORGANIZATION IN WHICH THE COMPANY IS THE SURVIVING ENTITY AND IN WHICH NO CHANGE IN CONTROL OCCURS.
Subject to SECTION 22.3 hereof, if the Company shall be the surviving entity in any reorganization, merger, or consolidation of the Company with one or more other entities in which no Change in Control occurs, any Option theretofore granted pursuant to the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to such Option would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the Option Price per share so that the aggregate Option Price thereafter shall be the same as the aggregate Option Price of the shares remaining subject to the Option immediately prior to such reorganization, merger, or consolidation. Subject to any contrary language in an Award Agreement evidencing an Award, any restrictions applicable to such Award shall apply as well to any replacement shares received by the Grantee as a result of the reorganization, merger or consolidation.
22.3. REORGANIZATION, SALE OF ASSETS OR SALE OF STOCK WHICH INVOLVES A CHANGE IN CONTROL.
(a) Subject to SECTION 22.3(b), upon any transaction that results in a Change in Control, (i) all outstanding shares subject to Awards shall be deemed to have vested, and all restrictions and conditions applicable to such shares subject to Awards shall be deemed to have lapsed, immediately prior to the occurrence of such event, and (ii) all Options outstanding hereunder shall become immediately exercisable for a period of fifteen days immediately prior to the scheduled consummation of the event. Any exercise of an Option during such fifteen-day period shall be conditioned upon the consummation of the event and shall be effective only immediately before the consummation of the event. Upon consummation of any such event, the Plan and all outstanding but unexercised Options shall terminate. The Board shall send written notice of an event that will result in such a termination to all individuals who hold Options not later than the time at which the Company gives notice thereof to its shareholders.
(b) SECTION 22.3(a) shall not apply to the extent provision is made in writing in connection with a transaction described in SECTION 22.3(a) for the assumption of such Options theretofore granted, or for the substitution for such Options of new options covering the stock of a successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares or units and exercise prices, in which event the Plan and Options theretofore granted shall continue in the manner and under the terms so provided.
22.4. ADJUSTMENTS.
Adjustments under this SECTION 22 related to shares of Stock or securities of the Company shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. No fractional shares or other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest
whole share. The Board may provide in the Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, for different provisions to apply to an Award in place of those described in SECTIONS 22.1, 22.2 and 22.3. 22.5. NO LIMITATIONS ON COMPANY.
The making of Awards pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets.
23. POOLING
In the event any provision of the Plan or the Award Agreement would prevent the use of pooling of interests accounting in a corporate transaction involving the Company and such transaction is contingent upon pooling of interests accounting, then that provision shall be deemed amended or revoked to the extent required to preserve such pooling of interests. The Company may require in an Award Agreement that a Grantee who receives an Award under the Plan shall, upon advice from the Company, take (or refrain from taking, as appropriate) all actions necessary or desirable to ensure that pooling of interests accounting is available.
24. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Award or Award Agreement shall be construed to confer upon any individual the right to remain in the employ or service of the Company or any Affiliate, or to interfere in any way with any contractual or other right or authority of the Company either to increase or decrease the compensation or other payments to any individual at any time, or to terminate any employment or other relationship between any individual and the Company. In addition, notwithstanding anything contained in the Plan to the contrary, unless otherwise stated in the applicable Award Agreement, no Award granted under the Plan shall be affected by any change of duties or position of the Grantee, so long as such Grantee continues to be a director, officer, consultant or employee of the Company or an Affiliate. The obligation of the Company to pay any benefits pursuant to this Plan shall be interpreted as a contractual obligation to pay only those amounts described herein, in the manner and under the conditions prescribed herein. The Plan shall in no way be interpreted to require the Company to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any Grantee or beneficiary under the terms of the Plan. No Grantee shall have any of the rights of a shareholder with respect to the shares of Stock subject to an Option except to the extent the certificates for such shares of Stock shall have been issued upon the exercise of the Option.
25. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the shareholders of the Company for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals) as the Board in its discretion determines desirable, including, without limitation, the granting of stock options otherwise than under the Plan.
26. WITHHOLDING TAXES
The Company or an Affiliate, as the case may be, shall have the right to deduct from payments of any kind otherwise due to a Grantee any Federal, state, or local taxes of any kind required by law to be withheld with respect to the vesting of or other lapse of restrictions applicable to an Award or upon the issuance of any shares of Stock upon the exercise of an Option or pursuant to an Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to the Company or the Affiliate, as the case may be, any amount that the Company or the Affiliate may reasonably determine to be necessary to satisfy such withholding obligation. Subject to the prior approval of the Company or the Affiliate, which may be withheld by the Company or the Affiliate, as the case may be, in its sole discretion, the Grantee may elect to satisfy such obligations, in whole or in part, (i) by causing the Company or the Affiliate to withhold shares of Stock otherwise issuable to the Grantee or (ii) by delivering to the Company or the Affiliate shares of Stock already owned by the Grantee. The shares of Stock so delivered or withheld shall have an aggregate Fair Market Value equal to such withholding obligations. The Fair Market Value of the shares of Stock used to satisfy such withholding obligation shall be determined by the Company or the Affiliate as of the date that the amount of tax to be withheld is to be determined. A Grantee who has made an election pursuant to this SECTION 26 may satisfy his or her withholding obligation only with shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
27. CAPTIONS
The use of captions in this Plan or any Award Agreement is for the convenience of reference only and shall not affect the meaning of any provision of the Plan or such Award Agreement.
28. OTHER PROVISIONS
Each Award granted under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Board, in its sole discretion.
29. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, etc., as the context requires.
30. SEVERABILITY
If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.
31. GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing the Grants awarded hereunder shall be governed by the laws of the State of Colorado, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Plan and the instruments evidencing the Awards awarded hereunder to the substantive laws of any other jurisdiction.
* * *
To record adoption the amendment and restatement of the Plan by the Board as of September 8, 2000, and approval of the Plan by the stockholders on September 8, 2000, in each case so that the Plan is effective upon the closing of the initial public offering of the Company's common stock, the Company has caused its authorized officer to execute the Plan as amended and restated.
Array BioPharma Inc.
EXHIBIT 23.1
CONSENT OF 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 July 28, 2000 (except for the third paragraph of Note 6, as to which the date is September 1, 2000), in Amendment No. 1 to the Registration Statement on Form S-1 and related prospectus of Array BioPharma Inc. dated October 27, 2000.
/s/ Ernst & Young LLP
Denver, Colorado
October 27, 2000
|
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ARRAY BIOPHARMA INC., AS AND FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| PERIOD TYPE | 3 MOS |
| FISCAL YEAR END | JUN 30 2000 |
| PERIOD START | JUL 01 2000 |
| PERIOD END | SEP 30 2000 |
| CASH | 9,764,709 |
| SECURITIES | 594,798 |
| RECEIVABLES | 1,163,248 |
| ALLOWANCES | 0 |
| INVENTORY | 1,943,174 |
| CURRENT ASSETS | 14,179,982 |
| PP&E | 12,185,466 |
| DEPRECIATION | 1,949,202 |
| TOTAL ASSETS | 24,786,704 |
| CURRENT LIABILITIES | 6,634,345 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 11,502 |
| COMMON | 3,902 |
| OTHER SE | 14,517,312 |
| TOTAL LIABILITY AND EQUITY | 24,786,704 |
| SALES | 0 |
| TOTAL REVENUES | 2,761,204 |
| CGS | 2,407,992 |
| TOTAL COSTS | 2,407,992 |
| OTHER EXPENSES | 1,701,591 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 173,249 |
| INCOME PRETAX | (3,085,843) |
| INCOME TAX | 0 |
| INCOME CONTINUING | (3,085,843) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (3,085,843) |
| EPS BASIC | (2.17) |
| EPS DILUTED | (2.17) |