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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
January 20,
2006 (January 18, 2006)
CYTOKINETICS, INCORPORATED
(Exact name of registrant as specified in its charter)
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| DELAWARE
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000-50633
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94-3291317 |
| (State or other jurisdiction
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(Commission File Number)
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(IRS Employer |
| of incorporation)
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Identification No.) |
280 East Grand Avenue
South San Francisco, California 94080
(Address of principal executive offices, including zip code)
650-624-3000
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
TABLE OF CONTENTS
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On January 18, 2006, Cytokinetics, Incorporated (the “Company”) and General Electric Capital
Corporation (“GE”) signed an extension to the line of credit that was subject to the Master
Security Agreement between the Company and GE, dated as of February 2, 2001, as amended on March
24, 2005 (the “MSA”).
Under the MSA, funds borrowed by the Company from GE, and other obligations of the Company to GE,
are secured by property and equipment of the Company purchased by such borrowed funds and other
collateral agreed to by the Company.
GE is extending the funding period for the January 2004 $4.5 million line of credit between the
Company and GE to December 31, 2006, which would allow the Company to make additional draws on
amounts available under such line of credit until such date. A copy of the Loan Proposal is
attached to this Current Report on Form 8-K (“Current Report”) as Exhibit 10.61, and is
incorporated herein by reference.
ITEM 8.01. OTHER EVENTS.
As reported in the Company’s Current Report on Form 8-K filed with the Securities and Exchange
Commission (“SEC”) on November 2, 2005, on October 28, 2005, the Company entered into a Common
Stock Purchase Agreement and Registration Rights Agreement with Kingsbridge Capital Limited
(“Kingsbridge”), and issued a warrant to Kingsbridge in connection with the Company’s entry into
such agreements. Copies of the Common Stock Purchase Agreement, Registration Rights Agreement and
warrant are attached to this Current Report as Exhibit 10.57, Exhibit 4.15 and Exhibit 4.16,
respectively.
On January 20, 2006, the Company filed a Rule 424(b)(2) prospectus supplement (the “Prospectus”)
with the SEC in connection with its shelf Registration Statement on
Form S-3 (File No.: 333-125786), containing the risk factors attached to this Current Report as
exhibit 99.1.
This Current Report is being filed for the purpose of incorporating the risk factors from the
Prospectus and the other Exhibits listed below by reference into this
report, into the
Registration Statements on Form S-3 declared effective by the SEC on July 14, 2005 (SEC File No.:
333-125786) and December 2, 2005 (SEC File No.: 333-129786) and
into other registration statements and reports that the Company files
with the SEC.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
The following Exhibits are filed as part of this Current Report:
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| Exhibit No. |
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Description |
| 4.15
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Warrant for the purchase of shares of common stock, dated October 28, 2005, issued
by the Registrant to Kingsbridge Capital Limited. |
| 4.16
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Registration Rights Agreement, dated October 28, 2005, by and between the Registrant
and Kingsbridge Capital Limited. |
| 10.57
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Common Stock Purchase Agreement, dated as of October 28, 2005, by and between the
Registrant and Kingsbridge Capital Limited. |
| 10.61
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GE Loan Proposal, dated as of January 18, 2006, by and between the Registrant and GE. |
| 99.1
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Information from Prospectus. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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CYTOKINETICS, INCORPORATED
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By: |
/s/
James
H. Sabry |
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James H. Sabry |
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President and Chief Executive Officer |
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Date: January 20, 2006
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EXHIBIT INDEX
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| Exhibit No. |
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Description |
| 4.15
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Warrant for the purchase of shares of common stock, dated October 28, 2005, issued
by the Registrant to Kingsbridge Capital Limited. |
| 4.16
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Registration Rights Agreement, dated October 28, 2005, by and between the Registrant
and Kingsbridge Capital Limited. |
| 10.57
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Common Stock Purchase Agreement, dated as of October 28, 2005, by and between the
Registrant and Kingsbridge Capital Limited. |
| 10.61
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GE Loan Proposal, dated as of January 18, 2006, by and between the Registrant and GE. |
| 99.1
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Information from Prospectus. |
exv4w15
Exhibit 4.15
Execution Copy
WARRANT
THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN
ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF,
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
OCTOBER 28, 2005
Warrant to Purchase up to 244,000 shares of Common Stock of Cytokinetics, Incorporated (the
“Company”).
In consideration for Kingsbridge Capital Limited (the “Investor”) agreeing to enter into that
certain Common Stock Purchase Agreement, dated as of the date hereof, between the Investor and the
Company (the “Agreement”), the Company hereby agrees that the Investor or any other Warrant Holder
(as defined below) is entitled, on the terms and conditions set forth below, to purchase from the
Company at any time during the Exercise Period (as defined below) up to 244,000 fully paid and
nonassessable shares of common stock, par value $0.001 per share, of the Company (the “Common
Stock”) at the Exercise Price (hereinafter defined), as the same may be adjusted from time to time
pursuant to Section 6 hereof. The resale of the shares of Common Stock or other securities
issuable upon exercise or exchange of this Warrant is subject to the provisions of the Registration
Rights Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings
given them in the Agreement.
Section 1. Definitions.
“Affiliate” shall mean any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under direct or indirect common control with
any other Person. For the purposes of this definition, “control,” when used with respect to any
Person, means the power to direct the management and policies of such Person, directly or
indirectly through the ownership of voting securities, and the term “controls” and “controlled”
have meanings correlative to the foregoing.
“Closing Price” as of any particular day shall mean the closing price per share of the
Company’s Common Stock as reported by Bloomberg L.P. on such day.
“Exercise Period” shall mean that period beginning six months after the date of this
Warrant and continuing until (i) the expiration of the five-year period thereafter, or (ii) a
Funding Default, subject in each case to earlier termination in accordance with Section 6 hereof.
“Exercise Price” as of the date hereof shall mean nine dollars and thirteen cents
($9.13), representing 130% of the average Closing Price of the Common Stock during the five (5)
Trading Days immediately preceding the date of this Warrant.
“Funding Default” shall mean a failure by Investor to accept a Draw Down Notice made
by the Company and to acquire and pay for the Shares in accordance therewith within three (3)
Trading Days following the delivery of such Shares to the Investor, provided such Draw Down Notice
was made in
accordance with the terms and conditions of the Agreement (including the satisfaction
or waiver of the conditions to the obligation of the Investor to accept a Draw Down set forth in
Article VII of the Agreement), provided further, that such failure was reasonably within the
control of the Investor.
“Per Share Warrant Value” shall mean the difference resulting from subtracting the
Exercise Price from the Closing Price on the Trading Day immediately preceding the Exercise Date.
“Person” shall mean an individual, a corporation, a partnership, a limited liability
company, an association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
“Principal Market” shall mean the Nasdaq National Market, the Nasdaq SmallCap Market,
the American Stock Exchange or the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock.
“SEC” shall mean the United States Securities and Exchange Commission.
“Trading Day” shall mean any day other than a Saturday or a Sunday on which the
Principal Market is open for trading in equity securities.
“Warrant Holder” shall mean the Investor or any permitted assignee or permitted
transferee of all or any portion of this Warrant.
“Warrant Shares” shall mean those shares of Common Stock received upon exercise of
this Warrant.
Section 2. Exercise.
(a) Method of Exercise. This Warrant may be exercised in whole or in part (but not as
to a fractional share of Common Stock), at any time and from time to time during the Exercise
Period, by the Warrant Holder by surrender of this Warrant, with the form of exercise attached
hereto as Exhibit A completed and duly executed by the Warrant Holder (the “Exercise
Notice”), to the Company at the address set forth in Section 10.04 of the Agreement,
accompanied by payment of the Exercise Price multiplied by the number of shares of Common Stock for
which this Warrant is being exercised (the “Aggregate Exercise Price”). The later of the
date on which an Exercise Notice or payment of the Exercise Price (unless this Warrant is exercised
in accordance with Section 2(c) below) is received by the Company in accordance with this clause
(a) shall be deemed an “Exercise Date.”
(b) Payment of Aggregate Exercise Price. Subject to paragraph (c) below, payment of
the Aggregate Exercise Price shall be made by wire transfer of immediately available funds to an
account designated by the Company. If the amount of the payment received by the Company is less
than the Aggregate Exercise Price, the Warrant Holder will be notified of the deficiency and shall
make payment in that amount within three (3) Trading Days. In the event the payment exceeds the
Aggregate Exercise Price, the Company will refund the excess to the Warrant Holder within five (5)
Trading Days of receipt.
(c) Cashless Exercise. In the event that the Warrant Shares to be received by the
Warrant Holder upon exercise of the Warrant may not be resold pursuant to an effective registration
statement or an exemption to the registration requirements of the Securities Act of 1933, as
amended, and applicable state laws, the Warrant Holder may, as an alternative to payment of the Aggregate Exercise Price
upon exercise in accordance with paragraph (b) above, elect to effect a cashless exercise by so
indicating on the Exercise Notice and including a calculation of the number of shares of Common
Stock to be issued upon
Page 2 of 11
such exercise in accordance with the terms hereof (a “Cashless
Exercise”). If a registration statement on Form S-1 under the Securities Act of 1933, as
amended, or such other form as deemed appropriate by counsel to the Company for the registration
for the resale by the Warrant Holder of (x) the shares of Common Stock of the Company that may be
purchased under the Agreement, (y) the Warrant Shares, or (z) any securities issued or issuable
with respect to any of the foregoing by way of exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise, has been declared effective by the SEC and remains effective, the
Company may, in its sole discretion, permit the Warrant Holder to effect a Cashless Exercise or
require the Warrant Holder to pay the Exercise Price of the Warrant Shares being purchased by the
Warrant Holder under this Warrant. In the event of a Cashless Exercise, the Warrant Holder shall
receive that number of shares of Common Stock determined by (i) multiplying the number of Warrant
Shares for which this Warrant is being exercised by the Per Share Warrant Value and (ii) dividing
the product by the Closing Price on the Trading Day immediately preceding the Exercise Date,
rounded to the nearest whole share. The Company shall cancel the total number of Warrant Shares
equal to the excess of the number of the Warrant Shares for which this Warrant is being exercised
over the number of Warrant Shares to be received by the Warrant Holder pursuant to such Cashless
Exercise.
(d) Replacement Warrant. In the event that the Warrant is not exercised in full, the
number of Warrant Shares shall be reduced by the number of such Warrant Shares for which this
Warrant is exercised, and the Company, at its expense, shall forthwith issue and deliver to or upon
the order of the Warrant Holder a new Warrant of like tenor in the name of the Warrant Holder,
reflecting such adjusted number of Warrant Shares.
Section 3. Ten Percent Limitation. The Warrant Holder may not exercise this Warrant
such that the number of Warrant Shares to be received pursuant to such exercise aggregated with all
other shares of Common Stock then owned by the Warrant Holder beneficially or deemed beneficially
owned by the Warrant Holder would result in the Warrant Holder owning more than 9.9% of all of such
Common Stock as would be outstanding on such Exercise Date, as determined in accordance with
Section 13(d) of the Exchange Act of 1934 and the rules and regulations promulgated thereunder.
Section 4. Delivery of Warrant Shares.
(a) Subject to the terms and conditions of this Warrant, as soon as practicable after the
exercise of this Warrant in full or in part, and in any event within ten (10) Trading Days
thereafter, the Company at its expense (including, without limitation, the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to the Warrant Holder,
or as the Warrant Holder may lawfully direct, a certificate or certificates for, or make deposit
with the Depositary Trust Company via book-entry of, the number of validly issued, fully paid and
non-assessable Warrant Shares to which the Warrant Holder shall be entitled on such exercise,
together with any other stock or other securities or property (including cash, where applicable) to
which the Warrant Holder is entitled upon such exercise in accordance with the provisions hereof.
(b) This Warrant may not be exercised as to fractional shares of Common Stock. In the event
that the exercise of this Warrant, in full or in part, would result in the issuance of any
fractional share of Common Stock, then in such event the Warrant Holder shall receive the number of
shares rounded to the nearest whole share.
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Section 5. Representations, Warranties and Covenants of the Company.
(a) The Warrant Shares, when issued in accordance with the terms hereof, will be duly
authorized and, when paid for or issued in accordance with the terms hereof, shall be validly
issued, fully paid and non-assessable.
(b) The Company shall take all commercially reasonable action and proceedings as may be
required and permitted by applicable law, rule and regulation for the legal and valid issuance of
this Warrant and the Warrant Shares to the Warrant Holder.
(c) The Company has authorized and reserved for issuance to the Warrant Holder the requisite
number of shares of Common Stock to be issued pursuant to this Warrant. The Company shall at all
times reserve and keep available, solely for issuance and delivery as Warrant Shares hereunder,
such shares of Common Stock as shall from time to time be issuable as Warrant Shares.
(d) From the date hereof through the last date on which this Warrant is exercisable, the
Company shall take all steps commercially reasonable to ensure that the Common Stock remains listed
or quoted on the Principal Market.
Section 6. Adjustment of the Exercise Price. The Exercise Price and, accordingly, the
number of Warrant Shares issuable upon exercise of the Warrant, shall be subject to adjustment from
time to time upon the happening of certain events as follows:
(a) Reclassification, Consolidation, Merger, Mandatory Share Exchange, Sale or Transfer.
(i) Upon occurrence of any of the events specified in subsection (a)(ii) below (the
“Adjustment Events”) while this Warrant is unexpired and not exercised in full, the Warrant
Holder may in its sole discretion require the Company, or any successor or purchasing corporation,
as the case may be, without payment of any additional consideration therefor, to execute and
deliver to the Warrant Holder a new Warrant providing that the Warrant Holder shall have the right
to exercise such new Warrant (upon terms not less favorable to the Warrant Holder than those then
applicable to this Warrant) and to receive upon such exercise, in lieu of each share of Common
Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money or property receivable upon such Adjustment Event by the holder of one
share of Common Stock issuable upon exercise of this Warrant had this Warrant been exercised
immediately prior to such Adjustment Event. Such new Warrant shall provide for adjustments that
shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section
6.
(ii) The Adjustment Events shall be (1) any reclassification or change of Common Stock (other
than a change in par value, as a result of a subdivision or combination of Common Stock or in
connection with an Excluded Merger or Sale), (2) any consolidation, merger or mandatory share
exchange of the Company with or into another corporation (other than a merger or mandatory share
exchange with another corporation in which the Company is a continuing corporation and which does
not result in any reclassification or change other than a change in par value or as a result of a
subdivision or combination of Common Stock), other than (each of the following referred to as an
“Excluded Merger or Sale”) a transaction involving (A) sale of all or substantially all of
the assets of the Company, (B) any merger, consolidation or similar transaction where the
consideration payable to the shareholders of the Company by the acquiring Person consists
substantially of cash or publicly traded securities, or a combination thereof, or where the
acquiring Person does not agree to assume the obligations of the Company under outstanding warrants
(including this Warrant). In the event of an Excluded Merger or Sale, the Company shall deliver a
notice to the Warrant Holder at least 10 days before the consummation
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of such Excluded Merger or Sale, the Warrant Holder may exercise this Warrant at any time
before the consummation of such Excluded Merger or Sale (and such exercise may be made contingent
upon the consummation of such Excluded Merger or Sale), and any portion of this Warrant that has
not been exercised before consummation of such Excluded Merger or Sale shall terminate and expire,
and shall no longer be outstanding.
(b) Subdivision or Combination of Shares. If the Company, at any time while this
Warrant is unexpired and not exercised in full, shall subdivide its Common Stock, the Exercise
Price shall be proportionately reduced as of the effective date of such subdivision, or, if the
Company shall take a record of holders of its Common Stock for the purpose of so subdividing, as of
such record date, whichever is earlier. If the Company, at any time while this Warrant is
unexpired and not exercised in full, shall combine its Common Stock, the Exercise Price shall be
proportionately increased as of the effective date of such combination, or, if the Company shall
take a record of holders of its Common Stock for the purpose of so combining, as of such record
date, whichever is earlier.
(c) Stock Dividends. If the Company, at any time while this Warrant is unexpired and
not exercised in full, shall pay a dividend or other distribution in shares of Common Stock to all
holders of Common Stock, then the Exercise Price shall be adjusted, as of the date the Company
shall take a record of the holders of its Common Stock for the purpose of receiving such dividend
or other distribution (or if no such record is taken, as at the date of such payment or other
distribution), to that price determined by multiplying the Exercise Price in effect immediately
prior to such payment or other distribution by a fraction: (i) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution. The provisions of this subsection (c)
shall not apply under any of the circumstances for which an adjustment is provided in subsections
(a) or (b).
(d) Liquidating Dividends, Etc. If the Company, at any time while this Warrant is
unexpired and not exercised in full, makes a distribution of its assets or evidences of
indebtedness to the holders of its Common Stock as a dividend in liquidation or by way of return of
capital or other than as a dividend payable out of earnings or surplus legally available for
dividends under applicable law or any distribution to such holders made in respect of the sale of
all or substantially all of the Company’s assets (other than under the circumstances provided for
in the foregoing subsections (a) through (c)), then the Warrant Holder shall be entitled to receive
upon exercise of this Warrant in addition to the Warrant Shares receivable in connection therewith,
and without payment of any consideration other than the Exercise Price, the kind and amount of such
distribution per share of Common Stock multiplied by the number of Warrant Shares that, on the
record date for such distribution, are issuable upon such exercise of the Warrant (with no further
adjustment being made following any event which causes a subsequent adjustment in the number of
Warrant Shares issuable), and an appropriate provision therefor shall be made a part of any such
distribution. The value of a distribution that is paid in other than cash shall be determined in
good faith by the Board of Directors of the Company. Notwithstanding the foregoing, in the event
of a proposed dividend in liquidation or distribution to the shareholders made in respect of the
sale of all or substantially all of the Company’s assets, the Company shall deliver a notice to the
Warrant Holder at least 10 days before the consummation of such event, the Warrant Holder may
exercise this Warrant at any time before the consummation of such event (and such exercise may be
made contingent upon the consummation of such event), and any portion of this Warrant that has not
been exercised before consummation of such event shall terminate and expire, and shall no longer be
outstanding.
Section 7. Notice of Adjustments. Whenever the Exercise Price or number of Warrant
Shares shall be adjusted pursuant to Section 6 hereof, the Company shall promptly prepare a
certificate signed by its Chief Executive Officer or Chief Financial Officer setting forth in
reasonable detail the event requiring
Page 5 of 11
the adjustment, the amount of the adjustment, the method by which such adjustment was
calculated (including a description of the basis on which the Company’s Board of Directors made any
determination hereunder), and the Exercise Price and number of Warrant Shares purchasable at that
Exercise Price after giving effect to such adjustment, and shall promptly cause copies of such
certificate to be sent by overnight courier to the Warrant Holder.
Section 8. No Impairment. The Company will not, by amendment of its Amended and
Restated Certificate of Incorporation or By-Laws or through any reorganization, transfer of assets,
consolidation, merger, dissolution or issue or sale of securities, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Warrant Holder against impairment.
Without limiting the generality of the foregoing, the Company (a) will not increase the par value
of any Warrant Shares above the amount payable therefor on such exercise, and (b) will take all
such action as may be reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares on the exercise of this Warrant.
Section 9. Rights As Stockholder. Except as set forth in Section 6 above, prior to
exercise of this Warrant, the Warrant Holder shall not be entitled to any rights as a stockholder
of the Company with respect to the Warrant Shares, including (without limitation) the right to vote
such shares, receive dividends or other distributions thereon or be notified of stockholder
meetings.
Section 10. Replacement of Warrant. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of the Warrant and, in the case of any
such loss, theft or destruction of the Warrant, upon delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation,
on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver,
in lieu thereof, a new Warrant of like tenor.
Section 11. Choice of Law. This Warrant shall be construed under the laws of the
State of New York.
Section 12. Entire Agreement; Amendments. Except for any written instrument
concurrent or subsequent to the date hereof executed by the Company and the Investor, this Warrant
and the Agreement contain the entire understanding of the parties with respect to the matters
covered hereby and thereby. No provision of this Warrant may be waived or amended other than by a
written instrument signed by the party against whom enforcement of any such amendment or waiver is
sought.
Section 13. Restricted Securities.
(a) Registration or Exemption Required. This Warrant has been issued in a transaction
exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance
upon the provisions of Section 4(2) thereof. This Warrant and the Warrant Shares issuable upon
exercise of this Warrant may not be resold except pursuant to an effective registration statement
or an exemption to the registration requirements of the Securities Act of 1933 and applicable state
laws.
(b) Legend. Any replacement Warrants issued pursuant to Section 2 and Section 10
hereof and, unless a registration statement has been declared effective by the SEC in accordance
with the Securities Act of 1933, as amended, with respect thereto, any Warrant Shares issued upon
exercise hereof, shall bear the following legend:
Page 6 of 11
“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY
OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.”
(c) No Other Legend or Stock Transfer Restrictions. No legend other than the one
specified in Section 13(b) has been or shall be placed on the share certificates representing the
Warrant Shares and no instructions or “stop transfer orders” (so called “stock transfer
restrictions”) or other restrictions have been or shall be given to the Company’s transfer agent
with respect thereto other than as expressly set forth in this Section 13.
(d) Assignment. Assuming the conditions of Section 13(a) above regarding registration
or exemption have been satisfied, the Warrant Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant (each of the foregoing, a “Transfer”), in whole or in part, but
only to an Affiliate of the Warrant Holder. The Warrant Holder shall deliver a written notice to
Company, substantially in the form of the Assignment attached hereto as Exhibit B, indicating the
person or persons to whom the Warrant shall be Transferred and the respective number of warrants to
be Transferred to each assignee. The Company shall effect the Transfer within ten (10) days, and
shall deliver to the Transferee(s) designated by the Warrant Holder a Warrant or Warrants of like
tenor and terms for the appropriate number of shares. In connection with and as a condition of any
such proposed Transfer, the Company may request the Warrant Holder to provide an opinion of counsel
to the Warrant Holder in form and substance reasonably satisfactory to the Company to the effect
that the proposed Transfer complies with all applicable federal and state securities laws.
(e) Investor’s Compliance. Nothing in this Section 13 shall affect in any way the
Investor’s obligations under any agreement to comply with all applicable securities laws upon
resale of the Common Stock.
Section 14. Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be given in accordance with Section 10.04 of
the Purchase Agreement.
Section 15. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
Page 7 of 11
Section 16. Company Call Right.
(a) If a Funding Default occurs, the Company shall have the right to demand the surrender of
this Warrant or any remaining portion thereof, Shares and/or cash from the Investor as follows (the
“Call Right”):
(i) If the Investor has not previously exercised this Warrant in full, then the Company shall
have a right to demand the surrender of this Warrant, or remaining portion thereof, from the
Investor without compensation, and the Investor shall promptly surrender this Warrant, or remaining
portion thereof. Following such demand for surrender, this Warrant shall automatically be deemed to
have been canceled and shall have no further force or effect.
(ii) If, prior to receiving a Call Right Notice, the Investor has previously exercised this
Warrant with respect to some or all of the Warrant Shares, and the Investor has not previously sold
such Warrant Shares, then Company shall have a right to purchase from the Investor that number of
shares of Common Stock equal to the number of shares of Common Stock issued in connection with the
exercise(s) of the Warrant, at a repurchase price per share equal to the price per share paid by
the Investor in connection with such exercise(s). For greater certainty, (a) if Warrant Shares were
exercised for cash, the purchase price per share under the Call Right shall be equal to the
Exercise Price, (b) if Warrant Shares were exercised on a cashless exercise basis, the purchase
price per share for such Warrant Shares under the Call Right shall be zero, and (c) if such Warrant
Shares were exercised on both a cash and cashless exercise basis, the purchase price per share
under the Call Right shall be equal to the total amount of cash paid in connection with such cash
exercise(s) divided by the total number of shares of Common Stock issued in connection with all
exercises of the Warrant (whether on a cash or cashless basis).
(iii) If, prior to receiving a Call Right Notice, the Investor has previously exercised this
Warrant with respect to some or all of the Warrant Shares, and the Investor subsequently sold such
Warrant Shares, then the Investor shall remit to the Company the excess, if any, of (x) the
proceeds received by Investor through the sale of such Warrant Shares, over (y) the aggregate
Exercise Price for such Warrant Shares. In the event that the Investor obtained such Warrant Shares
through a Cashless Exercise, then the Investor shall instead remit to the Company all proceeds
received by the Investor through the sale of such Warrant Shares. For the avoidance of doubt, in
the event that the Investor has sold some or all of the Warrant Shares prior to receiving a Call
Right Notice, then the right set forth in this paragraph (iii) shall constitute the sole Call Right
of the Company with respect to such Warrant Shares which have been sold.
(b) Company may exercise the Call Right by delivering a notice (the “Call Right
Notice”) to Investor within thirty (30) days after the occurrence of a Funding Default. On the
tenth (10th) business day following delivery of the Call Right Notice to Investor,
Company shall tender the purchase price, if any, and Investor shall tender shares of Common Stock,
if any, to be sold to Company pursuant to the Call Right Notice, immediately following which
Company and Investor shall consummate such purchase and sale. The Call Right shall survive both the
assignment of the Warrant by the Investor and the disposition of the Warrant Shares by the Investor
following exercise of the Warrant.
Page 8 of 11
IN WITNESS WHEREOF, this Warrant was duly executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
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CYTOKINETICS, INCORPORATED |
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/s/ James Sabry |
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James Sabry |
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President and Chief Executive Officer |
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Investor acknowledges and agrees to the terms and conditions of this Warrant.
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KINGSBRIDGE CAPITAL LIMITED |
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/s/ Maria O’Donoghue |
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Maria O’Donoghue |
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Director |
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Page 9 of 11
EXHIBIT A TO THE WARRANT
EXERCISE FORM
CYTOKINETICS, INCORPORATED
The undersigned hereby irrevocably exercises the right to purchase shares
of Common Stock of Cytokinetics, Incorporated, a Delaware corporation, evidenced by the attached
Warrant, and (CIRCLE EITHER (i) or (ii)) (i) tenders herewith payment of the Aggregate Exercise
Price with respect to such shares in full, in the amount of $ , in cash, by certified or
official bank check or by wire transfer for the account of the Company or (ii) elects, pursuant to
Section 2(c) of the Warrant, to convert such Warrant into shares of Common Stock of Cytokinetics,
Incorporated on a cashless exercise basis, all in accordance with the conditions and provisions of
said Warrant.
The undersigned requests that stock certificates for such Warrant Shares be issued, and a
Warrant representing any unexercised portion hereof be issued, pursuant to this Warrant, in the
name of the registered Warrant Holder and delivered to the undersigned at the address set forth
below.
Dated:
Signature of Registered Holder
Name of Registered Holder (Print)
Address
EXHIBIT B TO THE WARRANT
ASSIGNMENT
(To be executed by the registered Warrant Holder desiring to transfer the Warrant)
FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached Warrant hereby sells,
assigns and transfers unto the persons below named the right to purchase shares of
Common Stock of Cytokinetics, Incorporated (the “Company”) evidenced by the attached Warrant and
does hereby irrevocably constitute and appoint attorney to transfer the said
Warrant on the books of the Company, with full power of substitution in the premises.
Dated:
Signature
Fill in for new Registration of Warrant:
Name
Address
Please print name and address of assignee
(including zip code number)
exv4w16
Exhibit 4.16
Execution Copy
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of October 28, 2005,
is by and between CYTOKINETICS, INCORPORATED (the “Company”) and KINGSBRIDGE CAPITAL
LIMITED (the “Investor”).
WHEREAS, the Company and the Investor have entered into that certain Common Stock Purchase
Agreement, dated as of the date hereof (the “Purchase Agreement”), pursuant to which the
Company may issue, from time to time, to the Investor up to $75 million worth of shares of Common
Stock as provided for therein;
WHEREAS, pursuant to the terms of, and in partial consideration for the Investor entering
into, the Purchase Agreement, the Company has issued to the Investor a warrant, exercisable from
time to time within five (5) years following the six-month anniversary of the date of issuance (the
“Warrant”) for the purchase of an aggregate of up to 244,000 shares of Common Stock at a
price specified in such Warrant;
WHEREAS, pursuant to the terms of, and in partial consideration for, the Investor’s agreement
to enter into the Purchase Agreement, the Company has agreed to provide the Investor with certain
registration rights with respect to the Registrable Securities (as defined in the Purchase
Agreement) as set forth herein;
NOW, THEREFORE, in consideration of the premises, the representations, warranties, covenants
and agreements contained herein, in the Warrant, and in the Purchase Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, intending
to be legally bound hereby, the parties hereto agree as follows (capitalized terms used herein and
not defined herein shall have the respective meanings ascribed to them in the Purchase Agreement):
ARTICLE I
REGISTRATION RIGHTS
Section 1.1. Registration Statement.
(a) Filing of the Registration Statement. Upon the terms and subject to the
conditions set forth in this Agreement, the Company shall file with the Commission within sixty
(60) calendar days after the Closing Date a registration statement on Form S-3 under the Securities
Act or such other form as deemed appropriate by counsel to the Company for the registration for the
resale by the Investor of the Registrable Securities (the “Registration Statement”).
(b) Effectiveness of the Registration Statement. The Company shall use commercially
reasonable efforts (i) to have the Registration Statement declared effective by the Commission as
soon as reasonably practicable, but in any event no later than one hundred eighty (180) calendar
days after the Closing Date and (ii) to ensure that the Registration Statement remains in effect
throughout the term of this Agreement as set forth in Section 4.2, subject to the terms and
conditions of this Agreement.
(c) Regulatory Disapproval. The contemplated effective date for the Registration
Statement as described in Section 1.1(b) shall be extended without default or liquidated damages
hereunder or under the Purchase Agreement in the event that the Company’s failure to obtain the
effectiveness of the Registration Statement on a timely basis results solely from the Commission’s
disapproval of the structure of the transactions contemplated by the Purchase Agreement. In such event, the parties agree
to cooperate with one another in good faith to arrive at a resolution acceptable to the Commission.
(d) Failure to Maintain Effectiveness of Registration Statement. In the event the
Company fails to maintain the effectiveness of the Registration Statement (or the Prospectus)
throughout the period set forth in Section 4.2, other than temporary suspensions as set forth in
Section 1.1(e) and the Investor holds any Registrable Securities at any time during the period of
such ineffectiveness (an “Ineffective Period”), the Company shall pay to the Investor in
immediately available funds into an account designated by the Investor an amount equal to the
product of (x) the total number of Registrable Securities issued to the Investor under the Purchase
Agreement (which, for the avoidance of doubt, shall not include any Warrant Shares) and owned by
the Investor at any time during such Ineffective Period and (y) the result, if greater than zero,
obtained by subtracting the VWAP on the Trading Day immediately following the last day of such
Ineffective Period from the VWAP on the Trading Day immediately preceding the day on which any such
Ineffective Period began; provided, however, (i) that the foregoing payments shall
not apply in respect of Registrable Securities that are otherwise freely tradable by the Investor.
(e) Deferral or Suspension During a Blackout Period. Notwithstanding the provisions
of Section 1.1(d), if in the good faith judgment of the Company, following consultation with legal
counsel, it would be detrimental to the Company or its stockholders for the Registration Statement
to be filed or for resales of Registrable Securities to be made pursuant to the Registration
Statement due to (i) the existence of a material development or potential material development
involving the Company that the Company would be obligated to disclose in the Registration
Statement, which disclosure would be premature or otherwise inadvisable at such time or would have
a Material Adverse Effect on the Company or its stockholders, or (ii) a filing of a
Company-initiated registration of any class of its equity securities, which, in the good faith
judgment of the Company, would adversely effect or require premature disclosure of the filing of
such Company-initiated registration (notice thereof, a “Blackout Notice”), the Company
shall have the right to (A) immediately defer such filing for a period of not more than sixty (60)
days beyond the date by which such Registration Statement was otherwise required hereunder to be
filed or (B) suspend use of such Registration Statement for a period of not more than thirty (30)
days (any such deferral or suspension period, a “Blackout Period”). The Investor
acknowledges that it would be seriously detrimental to the Company and its stockholders for such
Registration Statement to be filed (or remain in effect) during a Blackout Period and therefore
essential to defer such filing (or suspend the use thereof) during such Blackout Period and agrees
to cease any disposition of the Registrable Securities during such Blackout Period. The Company
may not utilize any of its rights under this Section 1.1(e) to defer the filing of a Registration
Statement (or suspend its effectiveness) more than six (6) times in any twelve (12) month period.
In the event that, within fifteen (15) Trading Days following any Settlement Date, the Company
gives a Blackout Notice to the Investor and the VWAP on the Trading Day immediately preceding such
Blackout Period (“Old VWAP”) is greater than the VWAP on the first Trading Day following
such Blackout Period that the Investor may sell its Registrable Securities pursuant to an effective
Registration Statement (“New VWAP”), then the Company shall pay to the Investor, by wire
transfer of immediately available funds to an account designated by the Investor, the “Blackout
Amount.” For the purposes of this Agreement, Blackout Amount means a percentage equal to: (1)
seventy-five percent (75%) if such Blackout Notice is delivered prior to the fifth (5th) Trading
Day following such Settlement Date; (2) fifty percent (50%) if such Blackout Notice is delivered on
or after the fifth (5th) Trading Day following such Settlement Date, but prior to the tenth (10th)
Trading Day following such Settlement Date; (3) twenty-five percent (25%) if such Blackout Notice
is delivered on or after the tenth (10th) Trading Day following such Settlement Date, but prior to
the fifteenth (15th) Trading Day following such Settlement Date; and (4) zero percent (0%)
thereafter of: the product of (i) the number of Registrable Securities purchased by the Investor
pursuant to the most recent Draw Down and actually held by the Investor immediately prior to the
Blackout Period and (ii) the result, if greater than zero, obtained by subtracting the New VWAP
from the Old VWAP. For any Blackout
Period in respect of which a Blackout Amount becomes due and payable, rather than paying the
Blackout Amount, the Company may at is sole discretion, issue to the Investor shares of Common
Stock with an
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aggregate market value determined as of the first Trading Day following such Blackout
Period equal to the Blackout Amount (“Blackout Shares”).
(f) Liquidated Damages. The Company and the Investor hereto acknowledge and agree
that the amounts payable under Sections 1.1(d) and 1.1(e) and the Blackout Shares deliverable under
Section 1.1(e) above shall constitute liquidated damages and not penalties. The parties further
acknowledge that (i) the amount of loss or damages likely to be incurred by the Investor is
incapable or is difficult to precisely estimate, (ii) the amounts specified in such subsections
bear a reasonable proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred in connection with any failure by the Company to obtain or maintain the
effectiveness of the Registration Statement, (iii) one of the reasons for the Company and the
Investor reaching an agreement as to such amounts was the uncertainty and cost of litigation
regarding the question of actual damages, and (iv) the Company and the Investor are sophisticated
business parties and have been represented by sophisticated and able legal and financial counsel
and negotiated this Agreement at arm’s length.
(g) Additional Registration Statements. In the event and to the extent that the
Registration Statement fails to register a sufficient amount of Common Stock necessary for the
Company to issue and sell to the Investor and the Investor to purchase from the Company all of the
Registrable Securities to be issued, sold and purchased under the Purchase Agreement and the
Warrant, the Company shall, upon a timetable mutually agreeable to both the Company and the
Investor, prepare and file with the Commission an additional registration statement or statements
in order to effectuate the purpose of this Agreement, the Purchase Agreement, and the Warrant.
ARTICLE II
REGISTRATION PROCEDURES
Section 2.1. Filings; Information. The Company shall effect the registration with
respect to the sale of the Registrable Securities by the Investor in accordance with the intended
methods of disposition thereof. Without limiting the foregoing, the Company in each such case will
do the following as expeditiously as possible, but in no event later than the deadline, if any,
prescribed therefor in this Agreement:
(a) Subject to Section 1.1(e), the Company shall (i) prepare and file with the Commission the
Registration Statement; (ii) use commercially reasonable efforts to cause such filed Registration
Statement to become and to remain effective (pursuant to Rule 415 under the Securities Act or
otherwise); (iii) prepare and file with the Commission such amendments and supplements to the
Registration Statement and the Prospectus used in connection therewith as may be necessary to keep
such Registration Statement effective for the time period prescribed by Section 4.2 and in order to
effectuate the purpose of this Agreement, the Purchase Agreement, and the Warrant; and (iv) comply
with the provisions of the Securities Act with respect to the disposition of all securities covered
by such Registration Statement during such period in accordance with the intended methods of
disposition by the Investor set forth in such Registration Statement; provided,
however, that the Investor shall be responsible for the delivery of the Prospectus to the
Persons to whom the Investor sells the Shares and the Warrant Shares, and the Investor agrees to
dispose of Registrable Securities in compliance with the plan of distribution described in the
Registration Statement and otherwise in compliance with applicable federal and state securities
laws.
(b) The Company shall deliver to the Investor and its counsel, in accordance with the notice
provisions of Section 4.8, such number of copies of the Registration Statement, each amendment and
supplement thereto (in each case including all exhibits thereto), the Prospectus (including
each preliminary prospectus) and such other documents or information as the Investor or counsel may
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reasonably request in order to facilitate the disposition of the Registrable Securities, provided,
however, that to the extent reasonably practicable, such delivery may be accomplished via
electronic means.
(c) After the filing of the Registration Statement, the Company shall promptly notify the
Investor of any stop order issued or threatened by the Commission in connection therewith and take
all commercially reasonable actions required to prevent the entry of such stop order or to remove
it if entered.
(d) The Company shall use commercially reasonable efforts to (i) register or qualify the
Registrable Securities under such other securities or blue sky laws of each jurisdiction in the
United States as the Investor may reasonably (in light of its intended plan of distribution)
request, and (ii) cause the Registrable Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary by virtue of the
business and operations of the Company and do any and all other customary acts and things that may
be reasonably necessary or advisable to enable the Investor to consummate the disposition of the
Registrable Securities; provided, however, that the Company will not be required to
qualify generally to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 2.1(e), subject itself to taxation in any such jurisdiction, consent
or subject itself to general service of process in any such jurisdiction, change any existing
business practices, benefit plans or outstanding securities or amend or otherwise modify the
Charter or Bylaws.
(e) The Company shall make available to the Investor (and will deliver to Investor’s counsel),
(A) subject to restrictions imposed by the United States federal government or any agency or
instrumentality thereof, copies of all public correspondence between the Commission and the Company
concerning the Registration Statement and will also make available for inspection by the Investor
and any attorney, accountant or other professional retained by the Investor (collectively, the
“Inspectors”), (B) upon reasonable advance notice during normal business hours all
financial and other records, pertinent corporate documents and properties of the Company
(collectively, the “Records”) as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company’s officers and employees to supply all
information reasonably requested by any Inspectors in connection with the Registration Statement;
provided, however, that any such Inspectors must agree in writing for the benefit
of the Company not to use or disclose any such Records except as provided in this Section 2.1(f).
Records that the Company determines, in good faith, to be confidential and that it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless the disclosure or
release of such Records is requested or required pursuant to oral questions, interrogatories,
requests for information or documents or a subpoena or other order from a court of competent
jurisdiction or other judicial or governmental process; provided, however, that
prior to any disclosure or release pursuant to the immediately preceding clause, the Inspectors
shall provide the Company with prompt notice of any such request or requirement so that the Company
may seek an appropriate protective order or waive such Inspectors’ obligation not to disclose such
Records; and, provided, further, that if failing the entry of a protective order or
the waiver by the Company permitting the disclosure or release of such Records, the Inspectors,
upon advice of counsel, are compelled to disclose such Records, the Inspectors may disclose that
portion of the Records that counsel has advised the Inspectors that the Inspectors are compelled to
disclose; provided, however, that upon any such required disclosure, such Inspector
shall use his or her best efforts to obtain reasonable assurances that confidential treatment will
be afforded such information. The Investor agrees that information obtained by it solely as a
result of such inspections (not including any information obtained from a third party who, insofar
as is known to the Investor after reasonable inquiry, is not prohibited from providing such
information by a contractual, legal or fiduciary obligation to the Company) shall be deemed
confidential and shall not be used for any purposes other than as indicated above or by it as the
basis for any market transactions in the securities of the Company or its affiliates unless
and until such information is made generally available to the public. The Investor further agrees
that it will, upon
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learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of the Records deemed confidential.
(f) The Company shall otherwise comply with all applicable rules and regulations of the
Commission, including, without limitation, compliance with applicable reporting requirements under
the Exchange Act.
(g) The Company shall appoint a transfer agent and registrar for all of the Registrable
Securities covered by such Registration Statement not later than the effective date of such
Registration Statement.
(h) The Investor shall cooperate with the Company, as reasonably requested by the Company, in
connection with the preparation and filing of any Registration Statement hereunder. The Company
may require the Investor to promptly furnish in writing to the Company such information as may be
required in connection with such registration including, without limitation, all such information
as may be requested by the Commission or the NASD or any state securities commission and all such
information regarding the Investor, the Registrable Securities held by the Investor and the
intended method of disposition of the Registrable Securities. The Investor agrees to provide such
information requested in connection with such registration within five (5) business days after
receiving such written request and the Company shall not be responsible for any delays in obtaining
or maintaining the effectiveness of the Registration Statement caused by the Investor’s failure to
timely provide such information.
(i) Upon receipt of a Blackout Notice from the Company, the Investor shall immediately
discontinue disposition of Registrable Securities pursuant to the Registration Statement covering
such Registrable Securities until (i) the Company advises the Investor that the Blackout Period has
terminated and (ii) the Investor receives copies of a supplemented or amended prospectus, if
necessary. If so directed by the Company, the Investor will deliver to the Company (at the expense
of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in
the Investor’s possession (other than a limited number of file copies) of the prospectus covering
such Registrable Securities that is current at the time of receipt of such notice.
Section 2.2. Registration Expenses. Except as set forth in Section 10.01 of the
Purchase Agreement, the Company shall pay all registration expenses incurred in connection with the
Registration Statement (the “Registration Expenses”), including, without limitation: (i)
all registration, filing, securities exchange listing and fees required by the National Association
of Securities Dealers, (ii) all registration, filing, qualification and other fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel
in connection with blue sky qualifications of the Registrable Securities), (iii) all word
processing, duplicating, printing, messenger and delivery expenses, (iv) the Company’s internal
expenses (including, without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), (v) the fees and expenses incurred by the Company in
connection with the listing of the Registrable Securities, (vi) reasonable fees and disbursements
of counsel for the Company and customary fees and expenses for independent certified public
accountants retained by the Company (including the expenses of any special audits or comfort
letters or costs associated with the delivery by independent certified public accountants of such
special audit(s) or comfort letter(s), (vii) the fees and expenses of any special experts retained
by the Company in connection with such registration and amendments and supplements to the
Registration Statement and Prospectus, and (viii) premiums and other costs of the Company for
policies of insurance against liabilities arising out of any public offering of the Registrable
Securities being registered. Any fees and disbursements of underwriters, broker-dealers or
investment bankers, including without limitation
underwriting fees, discounts, transfer taxes or commissions, and any other fees or expenses
(including legal fees and expenses) if any, attributable to the sale of Registrable Securities,
shall be payable by each
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holder of Registrable Securities pro rata on the basis of the number of
Registrable Securities of each such holder that are included in a registration under this
Agreement.
ARTICLE III
INDEMNIFICATION
Section 3.1. Indemnification. The Company agrees to indemnify and hold harmless the
Investor, its partners, affiliates, officers, directors, employees and duly authorized agents, and
each Person or entity, if any, who controls the Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, together with the partners, affiliates, officers,
directors, employees and duly authorized agents of such controlling Person or entity (collectively,
the “Controlling Persons”), from and against any loss, claim, damage, liability, costs and
expenses (including, without limitation, reasonable attorneys’ fees and disbursements and costs and
expenses of investigating and defending any such claim) (collectively, “Damages”), joint or
several, and any action or proceeding in respect thereof to which the Investor, its partners,
affiliates, officers, directors, employees and duly authorized agents, and any Controlling Person,
may become subject under the Securities Act or otherwise, as incurred, insofar as such Damages (or
actions or proceedings in respect thereof) arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in any Registration Statement, or in any
preliminary prospectus, final prospectus, summary prospectus, amendment or supplement relating to
the Registrable Securities or arises out of, or are based upon, any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make the statements
therein under the circumstances not misleading, and shall reimburse the Investor, its partners,
affiliates, officers, directors, employees and duly authorized agents, and each such Controlling
Person, for any legal and other expenses reasonably incurred by the Investor, its partners,
affiliates, officers, directors, employees and duly authorized agents, or any such Controlling
Person, as incurred, in investigating or defending or preparing to defend against any such Damages
or actions or proceedings; provided, however, that the Company shall not be liable
to the extent that any such Damages arise out of the Investor’s (or any other indemnified Person’s)
failure to send or give a copy of the final prospectus or supplement (as then amended or
supplemented) to the persons asserting an untrue statement or alleged untrue statement or omission
or alleged omission at or prior to the written confirmation of the sale of Registrable Securities
to such person if such statement or omission was corrected in such final prospectus or supplement;
provided, further, that the Company shall not be liable to the extent that any such
Damages arise out of or are based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in such Registration Statement, or any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Investor or any other person
who participates as an underwriter in the offering or sale of such securities, in either case,
specifically stating that it is for use in the preparation thereof. In connection with any
Registration Statement with respect to which the Investor is participating, the Investor will
indemnify and hold harmless, to the same extent and in the same manner as set forth in the
preceding paragraph, the Company, each of its partners, affiliates, officers, directors, employees
and duly authorized agents of such controlling Person (each a “Company Indemnified Person”)
against any Damages to which any Company Indemnified Person may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such Damages arise out of or are based upon (a) any
untrue statement or alleged untrue statement of a material fact contained in any Registration
Statement, or in any preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement relating to the Registrable Securities or arise out of, or are based upon, any omission
or alleged omission to state therein a material fact required to be stated therein or necessary to
make the statements therein under the circumstances not misleading to the extent that such
violation occurs in reliance upon and in conformity with written information furnished to the
Company by the Investor or on behalf of the Investor expressly
for use in connection with such Registration Statement, or (b) any failure by the Investor to
comply with
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prospectus delivery requirements of the Securities Act, the Exchange Act or any other
law or legal requirement applicable to sales under the Registration Statement.
Section 3.2. Conduct of Indemnification Proceedings. All claims for indemnification
under Section 3.1 shall be asserted and resolved in accordance with the provisions of Section 9.02
and 9.03 of the Purchase Agreement.
Section 3.3. Additional Indemnification. Indemnification similar to that specified in
the preceding paragraphs of this Article 3 (with appropriate modifications) shall be given by the
Company with respect to any required registration or other qualification of securities under any
federal or state law or regulation of any governmental authority other than the Securities Act.
The provisions of this Article III shall be in addition to any other rights to indemnification,
contribution or other remedies which an Indemnified Party or a Company Indemnified Person may have
pursuant to law, equity, contract or otherwise.
To the extent that any indemnification provided for herein is prohibited or limited by law,
the indemnifying party will make the maximum contribution with respect to any amounts for which it
would otherwise be liable under this Article III to the fullest extent permitted by law. However,
(a) no contribution will be made under circumstances where maker of such contribution would not
have been required to indemnify the indemnified party under the fault standards set forth in this
Article III, (b) if the Investor is guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) the Investor will not be entitled to contribution from any
Person who is not guilty of such fraudulent misrepresentation, and (c) contribution (together with
any indemnification obligations under this Agreement) by the Investor will be limited in amount to
the proceeds received by the Investor from sales of Registrable Securities.
ARTICLE IV
MISCELLANEOUS
Section 4.1. No Outstanding Registration Rights. Except as otherwise disclosed in
accordance with the Purchase Agreement or in the Commission Documents, the Company represents and
warrants to the Investor that there is not in effect on the date hereof any agreement by the
Company pursuant to which any holders of securities of the Company have a right to cause the
Company to register or qualify such securities under the Securities Act or any securities or blue
sky laws of any jurisdiction.
Section 4.2. Term. The registration rights provided to the holders of Registrable
Securities hereunder, and the Company’s obligation to keep the Registration Statement effective,
shall terminate at the earlier of (i) such time that is two years following the termination of the
Purchase Agreement, (ii) such time as all Registrable Securities have been issued and have ceased
to be Registrable Securities, or (iii) upon the consummation of an “Excluded Merger or Sale” as
defined in the Warrant. Notwithstanding the foregoing, paragraph (d) of Section 1.1, Article III,
Section 4.7, Section 4.8, Section 4.9, Section 4.10 and Section 4.13 shall survive the termination
of this Agreement.
Section 4.3. Rule 144. The Company will, at its expense, promptly take such action as
holders of Registrable Securities may reasonably request to enable such holders of Registrable
Securities to sell Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act (“Rule
144”), as such Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission. If at any time the Company is not required to file such
reports, it will, at its expense, forthwith upon the written request of any holder of Registrable
Securities, make available adequate current public
information with respect to the Company within the meaning of paragraph (c)(2) of Rule 144 or
such
7
other information as necessary to permit sales pursuant to Rule 144. Upon the request of the
Investor, the Company will deliver to the Investor a written statement, signed by the Company’s
principal financial officer, as to whether it has complied with such requirements.
Section 4.4. Certificate. The Company will, at its expense, forthwith upon the
request of any holder of Registrable Securities, deliver to such holder a certificate, signed by
the Company’s principal financial officer, stating (a) the Company’s name, address and telephone
number (including area code), (b) the Company’s Internal Revenue Service identification number, (c)
the Company’s Commission file number, (d) the number of shares of each class of Stock outstanding
as shown by the most recent report or statement published by the Company, and (e) whether the
Company has filed the reports required to be filed under the Exchange Act for a period of at least
ninety (90) days prior to the date of such certificate and in addition has filed the most recent
annual report required to be filed thereunder.
Section 4.5. Amendment And Modification. Any provision of this Agreement may be
waived, provided that such waiver is set forth in a writing executed by both parties to this
Agreement. The provisions of this Agreement, including the provisions of this sentence, may be
amended, modified or supplemented, and waivers or consents to departures from the provisions hereof
may be given, with the written consent of the Investor and the Company. No course of dealing
between or among any Person having any interest in this Agreement will be deemed effective to
modify, amend or discharge any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
Section 4.6. Successors and Assigns; Entire Agreement. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. The Company may assign this Agreement at any time in
connection with a sale or acquisition of the Company, whether by merger, consolidation, sale of all
or substantially all of the Company’s assets, or similar transaction, without the consent of the
Investor, provided that the successor or acquiring Person or entity agrees in writing to assume all
of the Company’s rights and obligations under this Agreement. Investor may assign its rights and
obligations under this Agreement only with the prior written consent of the Company, and any
purported assignment by the Investor absent the Company’s consent shall be null and void. This
Agreement, together with the Purchase Agreement and the Warrant sets forth the entire agreement and
understanding between the parties as to the subject matter hereof and merges and supersedes all
prior discussions, agreements and understandings of any and every nature among them.
Section 4.7. Severability. If any provision of this Agreement becomes or is declared
by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall
continue in full force and effect without said provision; provided that, if the severance
of such provision materially changes the economic benefits of this Agreement to either party as
such benefits are anticipated as of the date hereof, then such party may terminate this Agreement
on five (5) business days prior written notice to the other party. In such event, the Purchase
Agreement will terminate simultaneously with the termination of this Agreement.
Section 4.8. Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be given in accordance with Section 10.04 of
the Purchase Agreement.
Section 4.9. Governing Law; Dispute Resolution. This Agreement shall be construed
under the laws of the State of New York.
8
Section 4.10. Headings. The headings in this Agreement are for convenience of
reference only and shall not constitute a part of this Agreement, nor shall they affect their
meaning, construction or effect.
Section 4.11. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original instrument and all of which together shall
constitute one and the same instrument.
Section 4.12. Further Assurances. Each party shall cooperate and take such action as
may be reasonably requested by another party in order to carry out the provisions and purposes of
this Agreement and the transactions contemplated hereby.
Section 4.13. Absence of Presumption. This Agreement shall be construed without
regard to any presumption or rule requiring construction or interpretation against the party
drafting or causing any instrument to be drafted.
9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.
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KINGSBRIDGE CAPITAL LIMITED |
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By: |
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/s/ Maria O’Donoghue |
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Maria O’Donoghue |
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Director |
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CYTOKINETICS, INCORPORATED |
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By: |
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/s/ James Sabry |
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James Sabry |
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President and Chief Executive Officer |
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10
exv10w57
Exhibit 10.57
Execution Copy
COMMON STOCK PURCHASE AGREEMENT
by and between
KINGSBRIDGE CAPITAL LIMITED
and
CYTOKINETICS, INCORPORATED
dated as of October 28, 2005
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS |
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Section 1.01. “Blackout Amount” |
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Section 1.02. “Blackout Shares” |
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Section 1.03. “Certificate” |
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Section 1.04. “Closing Date” |
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Section 1.05. “Commission” |
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Section 1.06. “Commission Documents” |
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Section 1.07. “Commitment Period” |
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Section 1.08. “Common Stock” |
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Section 1.09. “Condition Satisfaction Date” |
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Section 1.10. “Damages” |
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Section 1.11. “Draw Down” |
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Section 1.12. “Draw Down Amount” |
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Section 1.13. “Draw Down Discount Price” |
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Section 1.14. “Draw Down Notice” |
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Section 1.15. “Draw Down Pricing Period” |
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Section 1.16. “DTC” |
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Section 1.17. “Effective Date” |
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Section 1.18. “Exchange Act” |
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Section 1.19. “Excluded Merger or Sale” |
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Section 1.20. “Knowledge” |
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Section 1.21. “Make Whole Amount” |
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Section 1.22. “Market Capitalization” |
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Section 1.23. “Material Adverse Effect” |
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Section 1.24. “Maximum Commitment Amount” |
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Section 1.25. “Maximum Draw Down Amount” |
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Section 1.26. “NASD” |
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Section 1.27. “Permitted Transaction” |
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Section 1.28. “Person” |
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Section 1.29. “Principal Market” |
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Section 1.30. “Prohibited Transaction” |
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Section 1.31. “Prospectus” |
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Section 1.32. “Registrable Securities” |
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TABLE OF CONTENTS
(Continued)
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Section 1.33. “Registration Rights Agreement” |
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Section 1.34. “Registration Statement” |
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Section 1.35. “Regulation D” |
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Section 1.36. “Section 4(2)” |
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Section 1.37. “Securities Act” |
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Section 1.39. “Shares” |
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Section 1.40. “Trading Day” |
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Section 1.41. “VWAP” |
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Section 1.42. “Warrant” |
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Section 1.43. “Warrant Shares” |
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ARTICLE II PURCHASE AND SALE OF COMMON STOCK |
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Section 2.01. Purchase and Sale of Stock |
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Section 2.02. Closing |
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Section 2.03. Registration Statement and Prospectus |
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Section 2.04. Warrant |
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Section 2.05. Blackout Shares |
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ARTICLE III DRAW DOWN TERMS |
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Section 3.01. Draw Down Notice |
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Section 3.02. Number of Shares |
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Section 3.03. Limitation on Draw Downs |
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Section 3.04. Trading Cushion |
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Section 3.05. Settlement |
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Section 3.06. Delivery of Shares; Payment of Draw Down Amount |
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Section 3.07. Failure to Deliver Shares |
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
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Section 4.01. Organization, Good Standing and Power |
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Section 4.02. Authorization; Enforcement |
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Section 4.03. Capitalization |
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Section 4.04. Issuance of Shares |
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Section 4.05. No Conflicts |
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Section 4.06. Commission Documents, Financial Statements |
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Section 4.07. No Material Adverse Change |
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TABLE OF CONTENTS
(Continued)
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Section 4.08. No Undisclosed Liabilities |
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Section 4.09. No Undisclosed Events or Circumstances |
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Section 4.10. Actions Pending |
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Section 4.11. Compliance with Law |
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Section 4.12. Certain Fees |
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Section 4.13. Disclosure |
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Section 4.14. Material Non-Public Information |
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Section 4.15. Exemption from Registration; Valid Issuances |
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Section 4.16. No General Solicitation or Advertising in Regard to this Transaction |
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Section 4.17. No Integrated Offering |
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Section 4.18. Acknowledgment Regarding Investor’s Purchase of Shares |
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ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR |
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Section 5.01. Organization and Standing of the Investor |
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Section 5.02. Authorization and Power |
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Section 5.03. No Conflicts |
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Section 5.04. Financial Capability |
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Section 5.05. Information |
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Section 5.06. Trading Restrictions |
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Section 5.07. Statutory Underwriter Status |
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Section 5.08. Not an Affiliate |
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Section 5.09. Manner of Sale |
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Section 5.10. Prospectus Delivery |
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ARTICLE VI COVENANTS OF THE COMPANY |
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Section 6.01. Securities |
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Section 6.02. Reservation of Common Stock |
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Section 6.03. Registration and Listing |
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Section 6.04. Registration Statement |
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Section 6.05. Compliance with Laws |
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Section 6.06. Other Financing |
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Section 6.07. Prohibited Transactions |
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Section 6.08. Corporate Existence |
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Section 6.09. Non-Disclosure of Non-Public Information |
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TABLE OF CONTENTS
(Continued)
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Section 6.10. Notice of Certain Events Affecting Registration; Suspension of Right
to Request a Draw Down |
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Section 6.11. Amendments to the Registration Statement |
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Section 6.12. Prospectus Delivery |
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ARTICLE VII CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN |
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Section 7.01. Accuracy of the Company’s Representations and Warranties |
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Section 7.02. Performance by the Company |
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Section 7.03. Compliance with Law |
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Section 7.04. Effective Registration Statement |
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Section 7.05. No Knowledge |
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Section 7.06. No Suspension |
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Section 7.07. No Injunction |
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Section 7.08. No Proceedings or Litigation |
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Section 7.09. Sufficient Shares Registered for Resale |
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Section 7.10. Warrant |
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Section 7.11. Opinion of Counsel |
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Section 7.12. Accuracy of Investor’s Representation and Warranties |
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ARTICLE VIII TERMINATION |
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Section 8.01. Term |
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Section 8.02. Other Termination |
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Section 8.03. Effect of Termination |
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Section 9.01. Indemnification |
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Section 9.02. Notification of Claims for Indemnification |
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ARTICLE X MISCELLANEOUS |
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Section 10.01. Fees and Expenses |
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Section 10.02. Reporting Entity for the Common Stock |
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Section 10.03. Brokerage |
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Section 10.04. Notices |
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Section 10.05. Assignment |
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Section 10.06. Amendment; No Waiver |
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Section 10.07. Entire Agreement |
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Section 10.08. Severability |
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TABLE OF CONTENTS
(Continued)
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Section 10.09. |
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Title and Subtitles |
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Section 10.10. |
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Counterparts |
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Section 10.11. |
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Choice of Law |
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Section 10.12. |
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Specific Enforcement, Consent to Jurisdiction |
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Section 10.13. |
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Survival |
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Section 10.14. |
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Publicity |
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Section 10.15. |
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Assurances |
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v
COMMON STOCK PURCHASE AGREEMENT
by and between
KINGSBRIDGE CAPITAL LIMITED
and
CYTOKINETICS, INCORPORATED
dated as of October 28, 2005
This COMMON STOCK PURCHASE AGREEMENT (this “Agreement”) is entered into as of the
28th day of October, 2005, by and between KINGSBRIDGE CAPITAL LIMITED, an entity
organized and existing under the laws of the British Virgin Islands (the “Investor”) and
CYTOKINETICS, INCORPORATED, a corporation organized and existing under the laws of the State of
Delaware (the “Company”).
WHEREAS, the parties desire that, upon the terms and subject to the conditions and limitations
set forth herein, the Company may issue and sell to the Investor, from time to time as provided
herein, and the Investor shall purchase from the Company, up to $75 million worth of shares of
Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions of Section 4(2)
(“Section 4(2)”) and Regulation D (“Regulation D”) of the United States Securities
Act of 1933, as amended and the rules and regulations promulgated thereunder (the “Securities
Act”), and/or upon such other exemption from the registration requirements of the Securities
Act as may be available with respect to any or all of the investments in Common Stock to be made
hereunder; and
WHEREAS, the parties hereto are concurrently entering into a Registration Rights Agreement in
the form of Exhibit A hereto (the “Registration Rights Agreement”) pursuant to which the
Company shall register the Common Stock issued and sold to the Investor under this Agreement and
under the Warrant (as defined below), upon the terms and subject to the conditions set forth
therein; and
WHEREAS, in consideration for the Investor’s execution and delivery of, and its performance of
its obligations under, this Agreement, the Company is concurrently issuing to the Investor a
Warrant in the form of Exhibit B hereto (the “Warrant”) pursuant to which the Investor may
purchase from the Company up to 244,000 shares of Common Stock, upon the terms and subject to the
conditions set forth therein;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. “Blackout Amount” shall have the meaning assigned to such term in the
Registration Rights Agreement.
Section 1.02. “Blackout Shares” shall have the meaning assigned to such term in the
Registration Rights Agreement.
Section 1.03. “Certificate” shall have the meaning assigned to such term in Section
4.03 hereof.
Section 1.04. “Closing Date” means the date on which this Agreement is executed and
delivered by the Company and the Investor.
Section 1.05. “Commission” means the United States Securities Exchange Commission.
Section 1.06. “Commission Documents” shall have the meaning assigned to such term in
Section 4.06 hereof.
Section 1.07. “Commitment Period” means the period commencing on the Effective Date
and expiring on the earliest to occur of (i) the date on which the Investor shall have purchased
Shares pursuant to this Agreement for an aggregate purchase price equal to the Maximum Commitment
Amount, (ii) the date this Agreement is terminated pursuant to Article VIII hereof, and (iii) the
date occurring thirty-six (36) months from the Effective Date.
Section 1.08. “Common Stock” means the common stock of the Company, par value $0.001
per share.
Section 1.09. “Condition Satisfaction Date” shall have the meaning assigned to such
term in Article VII hereof.
Section 1.10. “Damages” means any loss, claim, damage, liability, costs and expenses
(including, without limitation, reasonable attorneys’ fees and expenses and costs and reasonable
expenses of expert witnesses and investigation).
Section 1.11. “Draw Down” shall have the meaning assigned to such term in Section 3.01
hereof.
Section 1.12. “Draw Down Amount” means the actual amount of a Draw Down paid to the
Company.
Section 1.13. “Draw Down Discount Price” means (i) 90% of the VWAP on any Trading Day
during a Draw Down Pricing Period when the VWAP equals or exceeds $3.50 but is less than or equal
to $7.00, (ii) 92% of the VWAP on any Trading Day during the Draw Down Pricing Period when VWAP
exceeds $7.00 but is less than or equal to $10.05, or (ii) 94% of the VWAP on any Trading Day
during the Draw Down Pricing Period when VWAP exceeds $10.05.
2
Section 1.14. “Draw Down Notice” shall have the meaning assigned to such term in
Section 3.01 hereof.
Section 1.15. “Draw Down Pricing Period” shall mean, with respect to each Draw Down, a
period of eight (8) consecutive Trading Days beginning on the first Trading Day specified in a Draw
Down Notice.
Section 1.16. “DTC” shall mean the Depository Trust Company, or any successor thereto.
Section 1.17. “Effective Date” means the first Trading Day immediately following the
date on which the Registration Statement is declared effective by the Commission.
Section 1.18. “Exchange Act” means the U.S. Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.19. “Excluded Merger or Sale” shall have the meaning assigned to such term
in the Warrant.
Section 1.20. “Knowledge” means the actual knowledge of the Chief Executive Officer,
Chief Financial Officer or any Executive Vice President, Senior Vice President or Vice President of
the Company.
Section 1.21. “Make Whole Amount” shall have the meaning specified in Section 3.07.
Section 1.22. “Market Capitalization” means, as of any Trading Day, the product of (i)
the closing sale price of the Company’s Common Stock as reported by Bloomberg L.P. using the AQR
function and (ii) the number of outstanding shares of Common Stock of the Company as reported by
Bloomberg L.P. using the DES function.
Section 1.23. “Material Adverse Effect” means any continuing effect on the business,
operations, properties or financial condition of the Company and its consolidated subsidiaries that
is material and adverse to the Company and such subsidiaries, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise interfere with the ability
of the Company to perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Warrant in any material respect; provided, that none of the following
shall constitute a “Material Adverse Effect”: (i) the effects of conditions or events that are
generally applicable to the capital, financial, banking or currency markets and the biotechnology
industry, (ii) any changes or effects resulting from the announcement or consummation of the
transactions contemplated by this Agreement, including, without limitation, any changes or effects
associated with any particular Draw Down, and (iii) changes in the market price of the Common
Stock.
Section 1.24. “Maximum Commitment Amount” means the lesser of (i) $75 million in
aggregate Draw Down Amounts or (ii) 5,703,488 shares of Common Stock (as adjusted for stock splits,
stock combinations, stock dividends and recapitalizations that occur on or after the date of this
Agreement).
Section 1.25. “Maximum Draw Down Amount” means the lesser of (i) 2.5% of the Company’s
Market Capitalization at the time of the Draw Down, or (ii) $15 million.
Section 1.26. “NASD” means the National Association of Securities Dealers, Inc.
3
Section 1.27. “Permitted Transaction” shall have the meaning assigned to such term in
Section 6.06 hereof.
Section 1.28. “Person” means any individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including any government or
political subdivision or an agency or instrumentality thereof.
Section 1.29. “Principal Market” means the Nasdaq National Market, the Nasdaq SmallCap
Market, the American Stock Exchange or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.
Section 1.30. “Prohibited Transaction” shall have the meaning assigned to such term in
Section 6.07 hereof.
Section 1.31. “Prospectus” as used in this Agreement means the prospectus in the form
included in the Registration Statement, as supplemented from time to time pursuant to Rule 424(b)
of the Securities Act.
Section 1.32. “Registrable Securities” means (i) the Shares, (ii) the Warrant Shares,
and (iii) any securities issued or issuable with respect to any of the foregoing by way of
exchange, stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall cease to be Registrable Securities when
(w) the Registration Statement has been declared effective by the SEC and such Registrable
Securities have been disposed of pursuant to the Registration Statement, (x) such Registrable
Securities have been sold under circumstances under which all of the applicable conditions of Rule
144 (or any similar provision then in force) under the Securities Act (“Rule 144”) are met,
(y) such time as such Registrable Securities have been otherwise transferred to holders who may
trade such shares without restriction under the Securities Act, and the Company has delivered a new
certificate or other evidence of ownership for such securities not bearing a restrictive legend or
(z) in the opinion of counsel to the Company such Registrable Securities may be sold without
registration and without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.
Section 1.33. “Registration Rights Agreement” shall have the meaning set forth in the
recitals of this Agreement.
Section 1.34. “Registration Statement” shall have the meaning assigned to such term in
the Registration Rights Agreement.
Section 1.35. “Regulation D” shall have the meaning set forth in the recitals of this
Agreement.
Section 1.36. “Section 4(2)” shall have the meaning set forth in the recitals of this
Agreement.
Section 1.37. “Securities Act” shall have the meaning set forth in the recitals of
this Agreement.
Section 1.38. “Settlement Date” shall have the meaning assigned to such term in
Section 3.05 hereof.
4
Section 1.39. “Shares” means the shares of Common Stock of the Company that are and/or
may be purchased hereunder.
Section 1.40. “Trading Day” means any day other than a Saturday or a Sunday on which
the Principal Market is open for trading in equity securities.
Section 1.41. “VWAP” means the volume weighted average price (the aggregate sales
price of all trades of Common Stock during each Trading Day divided by the total number of shares
of Common Stock traded during such Trading Day) of the Common Stock during any Trading Day as
reported by Bloomberg, L.P. using the AQR function.
Section 1.42. “Warrant” shall have the meaning set forth in the recitals of this
Agreement.
Section 1.43. “Warrant Shares” means the shares of Common Stock issuable to the
Investor upon exercise of the Warrant.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.01. Purchase and Sale of Stock. Upon the terms and subject to the
conditions set forth in this Agreement, the Company shall to the extent it elects to make Draw
Downs in accordance with Article III hereof, issue and sell to the Investor and the Investor shall
purchase from the Company Common Stock for an aggregate (in Draw Down Amounts) of up to the Maximum
Commitment Amount, consisting of purchases based on Draw Downs in accordance with Article III
hereof.
Section 2.02. Closing. In consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement, the Company agrees
to issue and sell to the Investor, and the Investor agrees to purchase from the Company, that
number of the Shares to be issued in connection with each Draw Down. The execution and delivery of
this Agreement (the “Closing”) shall take place at the offices of Clifford Chance US LLP,
31 West 52nd Street, New York, NY 10019 at 2:00 p.m. local time on October 28, 2005, or
at such other time and place or on such date as the Investor and the Company may agree upon (the
“Closing Date”). Each party shall deliver at or prior to the Closing all documents,
instruments and writings required to be delivered at the Closing by such party pursuant to this
Agreement.
Section 2.03. Registration Statement and Prospectus. The Company shall prepare and
file with the Commission the Registration Statement (including the Prospectus) in accordance with
the provisions of the Securities Act and the Registration Rights Agreement.
Section 2.04. Warrant. On the Closing Date, the Company shall issue and deliver the
Warrant to the Investor.
Section 2.05. Blackout Shares. The Company shall deliver any Blackout Amount or issue
and deliver any Blackout Shares to the Investor in accordance with Section 1(e) of the Registration
Rights Agreement.
5
ARTICLE III
DRAW DOWN TERMS
Subject to the satisfaction of the conditions hereinafter set forth in this Agreement, the
parties agree as follows:
Section 3.01. Draw Down Notice. The Company, may, in its sole discretion, issue a
Draw Down Notice (defined below) specifying the dollar amount of Shares it elects to sell to the
Investor (each such election a “Draw Down”) up to a Draw Down Amount equal to the Maximum
Draw Down Amount during the Commitment Period, which Draw Down the Investor will be obligated to
accept. The Company shall inform the Investor in writing via facsimile transmission, with a copy
to the Investor’s counsel, as to such Draw Down Amount before commencement of trading on the first
Trading Day of the related Draw Down Pricing Period (the “Draw Down Notice”). In addition
to the Draw Down Amount, each Draw Down Notice shall designate the first Trading Day of the Draw
Down Pricing Period. In no event shall any Draw Down Amount exceed the Maximum Draw Down Amount.
Each Draw Down Notice shall be accompanied by a certificate, signed by the Chief Executive Officer
or Chief Financial Officer dated, as of the date of such Draw Down Notice, in the form of
Exhibit C hereof.
Section 3.02. Number of Shares. Subject to Section 3.06(b), the number of Shares to
be issued in connection with each Draw Down shall be equal to the sum of the number of shares
issuable on each Trading Day of the Draw Down Pricing Period. The number of shares issuable on a
Trading Day during a Draw Down Pricing Period shall be equal to the quotient of one eighth
(1/8th) of the Draw Down Amount divided by the Draw Down Discount Price for such Trading
Day.
Section 3.03. Limitation on Draw Downs. Only one Draw Down shall be permitted for
each Draw Down Pricing Period.
Section 3.04. Trading Cushion. Unless the parties agree in writing otherwise, there
shall be a minimum of three (3) Trading Days between the expiration of any Draw Down Pricing Period
and the beginning of the next succeeding Draw Down Pricing Period.
Section 3.05. Settlement. The number of Shares purchased by the Investor in any Draw
Down shall be determined and settled on two separate dates. Shares purchased by the Investor
during the first four Trading Days of any Draw Down Pricing Period shall be determined and settled
no later than the sixth Trading Day of such Draw Down Pricing Period. Shares purchased by the
Investor during the second four Trading Days of any Draw Down Pricing Period shall be determined
and settled no later than the second Trading Day after the last Trading Day of such Draw Down
Pricing Period. Each date on which settlement of the purchase and sale of Shares occurs hereunder
being referred to as a “Settlement Date.” The Investor shall provide the Company with
delivery instructions for the Shares to be issued at each Settlement Date at least two Trading Days
in advance of such Settlement Date. The number of Shares actually issued shall be rounded to the
nearest whole number of Shares.
Section 3.06. Delivery of Shares; Payment of Draw Down Amount.
(a) On each Settlement Date, the Company shall deliver the Shares purchased by the Investor to
the Investor or its designees exclusively via book-entry through the DTC to an account designated
by the Investor, and upon receipt of the Shares, the Investor shall cause
6
payment therefor to be
made to the Company’s designated account by wire transfer of immediately available funds, if the
Shares are received by the Investor no later than 1:00 p.m. (Eastern Time), or next day available
funds, if the Shares are received thereafter.
(b) For each Trading Day during a Draw Down Pricing Period that the VWAP is less than the
greater of (i) 85% of the Closing Price of the Company’s Common Stock on the Trading Day
immediately preceding the commencement of such Draw Down Pricing Period, or (ii) $3.50, such
Trading Day shall not be used in calculating the number of Shares to be issued in connection with
such Draw Down, and the Draw Down Amount in respect of such Draw Down Pricing Period shall be
reduced by one eighth (1/8th) of the initial Draw Down Amount specified in the Draw Down
Notice. If trading in the Company’s Common Stock is suspended for any reason for more than three
(3) consecutive or non-consecutive hours during any Trading Day during a Draw Down Pricing Period,
such Trading Day shall not be used in calculating the number of Shares to be issued in connection
with such Draw Down, and the Draw Down Amount in respect of such Draw Down Pricing Period shall be
reduced by one eighth (1/8th) of the initial Draw Down Amount specified in the Draw Down Notice.
Section 3.07. Failure to Deliver Shares. If on any Settlement Date, the Company fails
to take all actions within the reasonable control of the Company to cause the delivery of the
Shares purchased by the Investor, and such failure is not cured within two (2) Trading Days
following such Settlement Date, the Company shall pay to the Investor on demand in cash by wire
transfer of immediately available funds to an account designated by the Investor the “Make
Whole Amount;” provided, however, that in the event that the Company is
prevented from delivering Shares in respect of any such Settlement Date in a timely manner by any
fact or circumstance that is reasonably within the control of, or directly attributable to, the
Investor, then such two (2) Trading Day period shall be automatically extended until such time as
such fact or circumstance is cured. As used herein, the Make Whole Amount shall be an amount equal
to the sum of (i) the Draw Down Amount actually paid by the Investor in respect of such Shares plus
(ii) an amount equal to the actual loss suffered by the Investor in respect of sales to subsequent
purchasers, pursuant to transactions entered into before the Settlement Date, of the Shares that
were required to be delivered by the Company, which shall be based upon documentation reasonably
satisfactory to the Company demonstrating the difference (if greater than zero) between (A) the
price per share paid by the Investor to purchase such number of shares of Common Stock necessary
for the Investor to meet its share delivery obligations to such subsequent purchasers minus (B) the
average Draw Down Discount Price during the applicable Draw Down Pricing Period. In the event that
the Make Whole Amount is not paid within two (2) Trading Days following a demand therefor from the
Investor, the Make Whole Amount shall accrue interest compounded daily at a rate of five percent
(5%) per annum up to and including the date on which the Make Whole Amount is actually paid.
Notwithstanding anything to the contrary set forth in this Agreement, in the event that the Company
pays the Make Whole Amount (plus interest, if applicable) in respect of any Settlement Date in
accordance with this Section 3.07, such payment shall be the Investor’s sole remedy in respect of
the Company’s failure to deliver Shares in respect of such Settlement Date, and the Company shall
not be obligated to deliver such Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby makes the following representations and warranties to the Investor:
7
Section 4.01. Organization, Good Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the State of Delaware and
has all requisite power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Except as set forth in the Commission Documents (as defined
below), the Company does not own more than fifty percent (50%) of the outstanding capital stock of
or control any other business entity, other than any wholly-owned subsidiary that is not
“significant” within the meaning of Regulation S-X promulgated by the Commission. The Company is
duly qualified as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify or be in good standing
would not have a Material Adverse Effect.
Section 4.02. Authorization; Enforcement. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement and the Warrant and to issue the Shares, the Warrant, the Warrant
Shares and any Blackout Shares (except to the extent that the number of Blackout Shares required to
be issued exceeds the number of authorized shares of Common Stock under the Certificate); (ii) the
execution and delivery of this Agreement and the Registration Rights Agreement, and the execution,
issuance and delivery of the Warrant, by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or stockholders is
required (other than as contemplated by Section 6.05); and (iii) each of this Agreement and the
Registration Rights Agreement has been duly executed and delivered, and the Warrant has been duly
executed, issued and delivered, by the Company and constitutes a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, securities, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors’ rights and remedies, or
indemnification or by other equitable principles of general application.
Section 4.03. Capitalization. The authorized capital stock of the Company and the
shares thereof issued and outstanding as of June 30, 2005 are set forth on a schedule (the
“Disclosure Schedule”) previously delivered to the Investor. All of the outstanding shares
of the Common Stock have been duly and validly authorized and issued, and are fully paid and
non-assessable. Except as set forth in this Agreement or as previously disclosed on the Disclosure
Schedule, as of June 30, 2005, no shares of Common Stock were entitled to preemptive rights or
registration rights and there were no outstanding options, warrants, scrip, rights to subscribe to,
call or commitments of any character whatsoever relating to, or securities or rights convertible
into or exchangeable for or giving any right to subscribe for, any shares of capital stock of the
Company. Except as set forth in this Agreement, the Commission Documents, or as previously
disclosed to the Investor in the Disclosure Schedule, as of June 30, 2005, there were no contracts,
commitments, understandings, or arrangements by which the Company is or may become bound to issue
additional shares of the capital stock of the Company or options, securities or rights convertible
into or exchangeable for or giving any right to subscribe for any shares of capital stock of the
Company. Except as described in the Commission Documents or as previously disclosed to the
Investor in the Disclosure Schedule, as of the date hereof the Company is not a
party to any agreement granting registration rights to any Person with respect to any of its
equity or debt securities. Except as set forth in the Commission Documents or as previously
disclosed to the Investor in writing, as of the date hereof the Company is not a party to, and it
has no Knowledge of, any agreement restricting the voting or transfer of any shares of the capital
stock of the Company. The offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued during the twenty-four month period immediately prior to
the
8
Closing complied in all material respects with all applicable federal and state securities
laws, and no stockholder has a right of rescission or damages with respect thereto that could
reasonably be expected to have a Material Adverse Effect. The Company has furnished or made
available to the Investor true and correct copies of the Company’s Certificate of Incorporation, as
amended and in effect on the date hereof (the “Certificate”), and the Company’s Bylaws, as
amended and in effect on the date hereof (the “Bylaws”).
Section 4.04. Issuance of Shares. Subject to Section 6.05, the Shares, the Warrant
and the Warrant Shares have been, and any Blackout Shares will be, duly authorized by all necessary
corporate action (except to the extent that the number of Blackout Shares required to be issued
exceeds the number of authorized shares of Common Stock under the Certificate) and, when issued and
paid for in accordance with the terms of this Agreement, the Registration Rights Agreement and the
Warrant, and subject to, and in reliance on, the representations, warranties and covenants made
herein by the Investor, the Shares and the Warrant Shares shall be validly issued and outstanding,
fully paid and non-assessable, and the Investor shall be entitled to all rights accorded to a
holder of shares of Common Stock.
Section 4.05. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Warrant and any other document or instrument
contemplated hereby or thereby, by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not: (i) violate any provision of the Certificate
or Bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, mortgage, deed of trust, indenture, note,
bond, license, lease agreement, instrument or obligation to which the Company is a party where such
default or conflict would constitute a Material Adverse Effect, (iii) create or impose a lien,
charge or encumbrance on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which any of its respective
properties or assets are bound which would constitute a Material Adverse Effect, (iv) result in a
violation of any federal, state, local or foreign statute, rule, regulation, order, writ, judgment
or decree (including federal and state securities laws and regulations) applicable to the Company
or any of its subsidiaries or by which any property or asset of the Company or any of its
subsidiaries are bound or affected where such violation would constitute a Material Adverse Effect,
or (v) require any consent of any third-party that has not been obtained pursuant to any material
contract to which the Company is subject or to which any of its assets, operations or management
may be subject where the failure to obtain any such consent would constitute a Material Adverse
Effect. The Company is not required under federal, state or local law, rule or regulation to
obtain any consent, authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of its obligations under
this Agreement, the Registration Rights Agreement or the Warrant, or issue and sell the Shares, the
Warrant Shares or the Blackout Shares (except to the extent that the number of Blackout Shares
required to be issued exceeds the number of authorized shares of Common Stock under the
Certificate) in accordance with the terms hereof and thereof (other than any filings that may be
required to be made by the Company with the Commission, the NASD/Nasdaq or state securities
commissions subsequent to the Closing, and, any
registration statement (including any amendment or supplement thereto) or any other filing or
consent which may be filed pursuant to this Agreement, the Registration Rights Agreement or the
Warrant); provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant representations and agreements of
the Investor herein.
9
Section 4.06. Commission Documents, Financial Statements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and since April 29, 2003 the
Company has timely filed all reports, schedules, forms, statements and other documents required to
be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing, including filings incorporated by reference therein, being referred to herein as the
“Commission Documents”). Except as previously disclosed to the Investor in writing, since
April 29, 2004 the Company has maintained all requirements for the continued listing or quotation
of its Common Stock, and such Common Stock is currently listed or quoted on the Nasdaq National
Market. The Company has made available to the Investor true and complete copies of the Commission
Documents filed with the Commission since April 29, 2004 and prior to the Closing Date. The
Company has not provided to the Investor any information which, according to applicable law, rule
or regulation, should have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this Agreement. As of its
date, the Company’s Form 10-K for the year ended December 31, 2004 complied in all material
respects with the requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder applicable to such document, and, as of its date, after giving effect to the
information disclosed and incorporated by reference therein, to the Company’s Knowledge such Form
10-K did not contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective dates, to the
Company’s Knowledge the financial statements of the Company included in the Commission Documents
filed with the Commission since April 29, 2004 complied as to form and substance in all material
respects with applicable accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting principles
(“GAAP”) applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial position of the
Company and its subsidiaries as of the dates thereof and the results of operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 4.07. No Material Adverse Change. Except as disclosed in the Commission
Documents, since June 30, 2005 no event or series of events has or have occurred that would,
individually or in the aggregate, have a Material Adverse Effect on the Company.
Section 4.08. No Undisclosed Liabilities. To the Company’s Knowledge, neither the
Company nor any of its subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) that
would be required to be disclosed on a balance sheet of the Company or any subsidiary (including
the notes thereto) in conformity with GAAP and are not disclosed in the Commission Documents, other
than those incurred in the ordinary course of the Company’s or its
subsidiaries respective businesses since June 30, 2005 or which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company.
Section 4.09. No Undisclosed Events or Circumstances. To the Company’s Knowledge, no
event or circumstance has occurred or exists with respect to the Company or its subsidiaries or
their respective businesses, properties, operations or financial condition, which, under applicable
law, rule or regulation, requires public disclosure or announcement by the
10
Company but which has
not been so publicly announced or disclosed and which, individually or in the aggregate, would have
a Material Adverse Effect on the Company.
Section 4.10. Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the Knowledge of the Company, threatened against the Company or any
subsidiary which questions the validity of this Agreement or the transactions contemplated hereby
or any action taken or to be taken pursuant hereto or thereto. Except as set forth in the
Commission Documents or in the Disclosure Schedule, there is no action, suit, claim, investigation
or proceeding pending or, to the Knowledge of the Company, threatened, against or involving the
Company, any subsidiary or any of their respective properties or assets that could be reasonably
expected to have a Material Adverse Effect on the Company. Except as set forth in the Commission
Documents or as previously disclosed to the Investor in writing, no judgment, order, writ,
injunction or decree or award has been issued by or, to the Knowledge of the Company, requested of
any court, arbitrator or governmental agency which could be reasonably expected to result in a
Material Adverse Effect.
Section 4.11. Compliance with Law. The businesses of the Company and its subsidiaries
have been and are presently being conducted in accordance with all applicable federal, state and
local governmental laws, rules, regulations and ordinances, except as set forth in the Commission
Documents or such that would not reasonably be expected to cause a Material Adverse Effect. Except
as set forth in the Commission Documents, the Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory authorizations and
approvals necessary for the conduct of its business as now being conducted by it, except for such
franchises, permits, licenses, consents and other governmental or regulatory authorizations and
approvals, the failure to possess which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
Section 4.12. Certain Fees. Except as expressly set forth in this Agreement, no
brokers, finders or financial advisory fees or commissions will be payable by the Company or any of
its subsidiaries in respect of the transactions contemplated by this Agreement.
Section 4.13. Disclosure. To the Company’s Knowledge, neither this Agreement nor any
other documents, certificates or instruments furnished to the Investor by or on behalf of the
Company or any subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact necessary in order
to make the statements made herein or therein, in the light of the circumstances under which they
were made herein or therein, not misleading.
Section 4.14. Material Non-Public Information. Except for this Agreement and the
transactions contemplated hereby, neither the Company nor its employees have disclosed to the
Investor, any material non-public information that, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the date hereof but which
has not been so disclosed.
Section 4.15. Exemption from Registration; Valid Issuances. Subject to, and in
reliance on, the representations, warranties and covenants made herein by the Investor, the
issuance and sale of the Shares, the Warrant, the Warrant Shares and any Blackout Shares in
accordance with the terms and on the bases of the representations and warranties set forth in this
Agreement, may and shall be properly issued pursuant to Section 4(2), Regulation D and/or any other
applicable federal and state securities laws. Neither the sales of the Shares, the Warrant, the
Warrant Shares or any Blackout Shares pursuant to, nor the Company’s performance of its
11
obligations
under, this Agreement, the Registration Rights Agreement, or the Warrant shall (i) result in the
creation or imposition of any liens, charges, claims or other encumbrances upon the Shares, the
Warrant Shares, any Blackout Shares or any of the assets of the Company, or (ii) except as
previously disclosed to the Investor in writing, entitle the holders of any outstanding shares of
capital stock of the Company to preemptive or other rights to subscribe to or acquire the shares of
Common Stock or other securities of the Company.
Section 4.16. No General Solicitation or Advertising in Regard to this Transaction.
Neither the Company nor any of its affiliates or any person acting on its or their behalf (i) has
conducted any general solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to any of the Shares, the Warrant, the Warrant Shares or any Blackout
Shares or (ii) has made any offers or sales of any security or solicited any offers to buy any
security under any circumstances that would require registration of the Shares under the Securities
Act.
Section 4.17. No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security, other than pursuant to this Agreement
and employee benefit plans, under circumstances that would require registration under the
Securities Act of shares of the Common Stock issuable hereunder with any other offers or sales of
securities of the Company.
Section 4.18. Acknowledgment Regarding Investor’s Purchase of Shares. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length
investor with respect to this Agreement and the transactions contemplated hereunder. The Company
further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Investor or any of its representatives or agents
in connection with this Agreement and the transactions contemplated hereunder is merely incidental
to the Investor’s purchase of the Shares.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR
The Investor hereby makes the following representations, warranties and covenants to the
Company:
Section 5.01. Organization and Standing of the Investor. The Investor is a company
duly organized, validly existing and in good standing under the laws of the British Virgin Islands.
Section 5.02. Authorization and Power. The Investor has the requisite power and
authority to enter into and perform its obligations under this Agreement, the Warrant and the
Registration Rights Agreement and to purchase the Shares, the Warrant and the Warrant Shares
in accordance with the terms hereof and thereof. The execution, delivery and performance of this
Agreement, the Warrant and the Registration Rights Agreement by Investor and the consummation by it
of the transactions contemplated hereby or thereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Investor, its Board of Directors
or stockholders is required. Each of this Agreement and the Registration Rights Agreement has been
duly executed and delivered by the Investor and constitutes a valid and binding obligation of the
Investor enforceable against the Investor in accordance with its
12
terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership, or similar laws relating to, or affecting generally the
enforcement of creditor’s rights and remedies or by other equitable principles of general
application.
Section 5.03. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Warrant and any other document or instrument
contemplated hereby, by the Investor and the consummation of the transactions contemplated thereby
do not (i) violate any provision of the Investor’s charter documents or bylaws, (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Investor is a party, (iii) create or impose
a lien, charge or encumbrance on any property of the Investor under any agreement or any commitment
to which the Investor is a party or by which the Investor is bound or by which any of its
respective properties or assets are bound, (iv) result in a violation of any federal, state, local
or foreign statute, rule, regulation, order, writ, judgment or decree (including federal and state
securities laws and regulations) applicable to the Investor or by which any property or asset of
the Investor are bound or affected, or (v) require the consent of any third-party that has not been
obtained pursuant to any material contract to which Investor is subject or to which any of its
assets, operations or management may be subject. The Investor is not required under federal, state
or local law, rule or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to execute, deliver
or perform any of its obligations under this Agreement or to purchase the Shares or the Warrant in
accordance with the terms hereof, provided that, for purposes of the representation made in
this sentence, the Investor is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
Section 5.04. Financial Capability. The Investor has the financial capability to
perform all of its obligations under this Agreement, including the capability to purchase the
Shares, the Warrant and the Warrant Shares in accordance with the terms hereof. The Investor has
such knowledge and experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor is an “accredited investor” as
defined in Regulation D. The Investor is a “sophisticated investor” as described in Rule
506(b)(2)(ii) of Regulation D. The Investor acknowledges that an investment in the Common Stock
and the Warrant is speculative and involves a high degree of risk.
Section 5.05. Information. The Investor and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Shares, the Warrant and the Warrant Shares which have been
requested by the Investor. The Investor has reviewed or received copies of the Commission
Documents. The Investor and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. The Investor has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with respect to its
acquisition of the Shares, the Warrant and the Warrant Shares. The Investor understands that it
(and not the Company) shall be responsible for its own tax liabilities that may arise as a result
of this investment or the transactions contemplated by this Agreement.
Section 5.06. Trading Restrictions. The Investor covenants that neither the Investor
nor any of its affiliates nor any entity managed or controlled by the Investor will, or cause or
assist any Person to, enter into or execute any “short sale” (as such term is defined in Rule 200
of
13
Regulation SHO, or any successor regulation, promulgated by the Commission under the Exchange
Act) of any securities of the Company.
Section 5.07. Statutory Underwriter Status. The Investor acknowledges that, pursuant
to the Commission’s current interpretations of the Securities Act, the Investor will be disclosed
as an “underwriter” within the meaning of the Securities Act in the Registration Statement (and
amendments thereto) and in any Prospectus contained therein to the extent required by applicable
law.
Section 5.08. Not an Affiliate. The Investor is not an officer, director or
“affiliate” (as defined in Rule 405 of the Securities Act) of the Company.
Section 5.09. Manner of Sale. At no time was Investor presented with or solicited by
or through any leaflet, public promotional meeting, television advertisement or any other form of
general solicitation or advertising.
Section 5.10. Prospectus Delivery. The Investor agrees that unless the Shares and
Warrant Shares are eligible for resale pursuant to all the conditions of Rule 144, it will resell
the Shares and Warrant Shares only pursuant to the Registration Statement, in a manner described
under the caption “Plan of Distribution” in the Registration Statement, and in a manner in
compliance with all applicable securities laws, including, without limitation, the prospectus
delivery requirements of the Securities Act and the insider trading restrictions of the Exchange
Act.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company covenants with the Investor as follows, which covenants are for the benefit of the
Investor and its permitted assignees (as defined herein):
Section 6.01. Securities. The Company shall notify the Commission and the Principal
Market, if and as applicable, in accordance with their rules and regulations, of the transactions
contemplated by this Agreement, and shall use commercially reasonable efforts to take all other
necessary action and proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Shares, the Warrant Shares and the Blackout
Shares, if any, to the Investor.
Section 6.02. Reservation of Common Stock. As of the date hereof, the Company has
available and the Company shall reserve and keep available at all times, free of preemptive rights
and other similar contractual rights of stockholders, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Shares in connection with all Draw
Downs contemplated hereunder and the Warrant Shares. The number
of shares so reserved from time to time, as theretofore increased or reduced as hereinafter
provided, may be reduced by the number of shares actually delivered hereunder.
Section 6.03. Registration and Listing. During the Commitment Period, the Company
shall use commercially reasonable efforts: (i) to take all action necessary to cause its Common
Stock to continue to be registered under Section 12(b) or 12(g) of the Exchange Act, (ii) to comply
in all respects with its reporting and filing obligations under the Exchange Act, (iii) to prevent
the termination or suspension of such registration, or the termination or suspension of its
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reporting and filing obligations under the Exchange Act or Securities Act (except as expressly
permitted herein). The Company shall use commercially reasonable efforts to maintain the listing
and trading of its Common Stock and the listing of the Shares purchased by Investor hereunder on
the Principal Market (including, without limitation, maintaining sufficient net tangible assets)
and will comply in all material respects with the Company’s reporting, filing and other obligations
under the bylaws or rules of the NASD and the Principal Market. The Company will not be required to
carry out any action pursuant to this Agreement, the Registration Rights Agreement or the Warrant
that would adversely impact the listing of the Company’s securities on the Principal Market as now
in effect, and as may be changed by the Company in the future in the Company’s discretion.
Section 6.04. Registration Statement. Without the prior written consent of the
Investor, the Registration Statement shall be used solely in connection with the transactions
between the Company and the Investor contemplated hereby.
Section 6.05. Compliance with Laws.
(a) The Company shall comply, and cause each subsidiary to comply, with all applicable laws,
rules, regulations and orders, noncompliance with which could reasonably be expected to have a
Material Adverse Effect.
(b) Without the consent of its stockholders in accordance with NASD rules, the Company will
not be obligated to issue, and the Investor will not be obligated to purchase, any Shares or
Blackout Shares which would result in the issuance under this Agreement, the Warrant and the
Registration Rights Agreement of Shares and Blackout Shares (collectively) representing more than
the applicable percentage under the rules of the NASD, including, without limitation, NASD Rule
4350(i), that would require stockholder approval of the issuance thereof.
Section 6.06. Other Financing. Nothing in this Agreement shall be construed to
restrict the right of the Company to offer, sell and/or issue securities of any kind whatsoever,
provided such transaction is not a Prohibited Transaction (as defined below) (any such transaction
that is not a Prohibited Transaction is referred to in this Agreement as a “Permitted
Transaction”). Without limiting the generality of the preceding sentence, the Company may, without
the prior written consent of the Investor, (i) establish stock option or award plans or agreements
(for directors, employees, consultants and/or advisors), and issue securities thereunder, and amend
such plans or agreements, including increasing the number of shares available thereunder, (ii)
issue equity securities to finance, or otherwise in connection with, the acquisition of one or more
other companies, equipment, technologies or lines of business, (iii) issue shares of Common Stock
and/or Preferred Stock in connection with the Company’s option or award plans, stock purchase
plans, rights plans, warrants or options, (iv) issue shares of Common Stock and/or Preferred Stock
in connection with the acquisition of products, licenses, equipment or other assets and strategic
partnerships or joint ventures; (v) issue shares of Common and/or Preferred Stock to consultants
and/or advisors as consideration for services rendered or to be rendered, (vi) issue and
sell equity or debt securities in a public offering, (vii) issue and sell and equity or debt
securities in a private placement (other than in connection with any Prohibited Transaction),
(viii) issue equity securities to equipment lessors, equipment vendors, banks or similar lending
institutions in connection with leases or loans, or in connection with strategic commercial or
licensing transactions, (ix) issue securities in connection with any stock split, stock dividend,
recapitalization, reclassification or similar event by the Company, and (x) issue shares of Common
Stock to the Investor under any other agreement entered into between the Investor and the Company.
15
Section 6.07. Prohibited Transactions. During the term of this Agreement, the Company
shall not enter into any Prohibited Transaction without the prior written consent of the Investor,
which consent may be withheld at the sole discretion of the Investor. For the purposes of this
Agreement, the term “Prohibited Transaction” shall refer to the issuance by the Company of
any “future priced securities,” which shall mean the issuance of shares of Common Stock or
securities of any type whatsoever that are, or may become, convertible or exchangeable into shares
of Common Stock where the purchase, conversion or exchange price for such Common Stock is
determined using any floating discount or other post-issuance adjustable discount to the market
price of Common Stock, including, without limitation, pursuant to any equity line or other
financing that is substantially similar to the financing provided for under this Agreement,
provided that any future issuance by the Company of a convertible security (“Convertible
Security”) that contains provisions that adjust the conversion price of such Convertible Security
(“Conversion Price”) solely in the event of stock splits, dividends, distributions or similar
events shall not be a Prohibited Transaction for purposes of this Section 6.07 so long as such
Convertible Security does not contain a provision that adjusts the Conversion Price as a result of
any issuances of new securities after the issue date of the Convertible Security at a price below
the then effective Conversion Price of the Convertible Security, or as a result of any decline in
the market price of the Common Stock after the issue date of the Convertible Security, other than a
decline resulting directly from stock splits, dividends, distributions or similar events including,
without limitation, the type of conversion price adjustments customarily found in a firm commitment
Rule 144A offering to qualified institutional buyers.
Section 6.08. Corporate Existence. The Company shall take all steps necessary to
preserve and continue the corporate existence of the Company; provided, however,
that nothing in this Agreement shall be deemed to prohibit the Company from engaging in any
Excluded Merger or Sale with another Person provided that in the event of an Excluded Merger or
Sale, if the surviving, successor or purchasing Person does not agree to assume the obligations
under the Warrant, then the Company shall deliver a notice to the Investor at least ten (10) days
before the consummation of such Excluded Merger or Sale, the Investor may exercise the Warrant at
any time before the consummation of such Excluded Merger or Sale (and such exercise may be made
contingent upon the consummation of such Excluded Merger or Sale), and any portion of the Warrant
that has not been exercised before consummation of such Excluded Merger or Sale shall terminate and
expire, and shall no longer be outstanding.
Section 6.09. Non-Disclosure of Non-Public Information. Except as otherwise expressly
provided in this Agreement, the Registration Rights Agreement or the Warrant, none of the Company,
its officers, directors, employees nor agents shall disclose material non-public information to the
Investor, its advisors or representatives.
Section 6.10. Notice of Certain Events Affecting Registration; Suspension of Right to
Request a Draw Down. The Company shall promptly notify the Investor upon the occurrence of any
of the following events in respect of the Registration Statement or the
Prospectus related to the offer, issuance and sale of the Shares and the Warrant Shares
hereunder: (i) receipt of any request for additional information by the Commission or any other
federal or state governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or the Prospectus; (ii) the
issuance by the Commission or any other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of any proceedings for
that purpose; and (iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such purpose. The Company
shall not be
16
required to disclose to the Investor the substance or specific reasons of any of the
events set forth in clauses (i) through (ii) of the previous sentence, only that the event has
occurred. The Company shall not request a Draw Down during the continuation of any of the foregoing
events.
Section 6.11. Amendments to the Registration Statement. When the Registration
Statement is declared effective by the Commission, the Company shall (i) not file any amendment to
the Registration Statement or make any amendment or supplement to the Prospectus of which the
Investor shall not previously have been advised and (ii) so long as, in the reasonable opinion of
counsel for the Investor, a Prospectus is required to be delivered in connection with sales of the
Shares by the Investor, if the Company files any information, documents or reports that are
incorporated by reference in the Registration Statement pursuant to the Exchange Act, the Company
shall, if requested in writing by the Investor, deliver a copy of such information, documents or
reports to the Investor promptly following such filing.
Section 6.12. Prospectus Delivery. From time to time for such period as in the
reasonable opinion of counsel for the Investor a prospectus is required by the Securities Act to be
delivered in connection with sales by the Investor, the Company will expeditiously deliver to the
Investor, without charge, as many copies of the Prospectus (and of any amendment or supplement
thereto) as the Investor may reasonably request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the provisions of the Securities
Act and state securities laws in connection with the offering and sale of the Shares and the
Warrant Shares and for such period of time thereafter as the Prospectus is required by the
Securities Act to be delivered in connection with sales of the Shares and the Warrant Shares.
ARTICLE VII
CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN
The obligation of the Investor hereunder to accept a Draw Down Notice and to acquire and pay
for the Shares in accordance therewith is subject to the satisfaction or waiver, at each Condition
Satisfaction Date, of each of the conditions set forth below. Other than those conditions set
forth in Section 7.12 which are for the Company’s sole benefit and may be waived by the Company at
any time in its sole discretion, the conditions are for the Investor’s sole benefit and may be
waived by the Investor at any time in its sole discretion. As used in this Agreement, the term
“Condition Satisfaction Date” shall mean, with respect to each Draw Down, the date on which
the applicable Draw Down Notice is delivered to the Investor and each Settlement Date in respect of
the applicable Draw Down Pricing Period.
Section 7.01. Accuracy of the Company’s Representations and Warranties. Each of the
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made as though made at that time except for
representations and warranties that are expressly made as of a particular date.
Section 7.02. Performance by the Company. The Company shall have, in all material
respects, performed, satisfied and complied with all covenants, agreements and conditions required
by this Agreement, the Registration Rights Agreement and the Warrant to be performed, satisfied or
complied with by the Company.
Section 7.03. Compliance with Law. The Company shall have complied in all respects
with all applicable federal, state and local governmental laws, rules, regulations and ordinances
in
17
connection with the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby except for any failures to so comply which could not
reasonably be expected to have a Material Adverse Effect.
Section 7.04. Effective Registration Statement. Upon the terms and subject to the
conditions set forth in the Registration Rights Agreement, the Registration Statement shall have
previously become effective and shall remain effective and (i) neither the Company nor the Investor
shall have received notice that the Commission has issued or intends to issue a stop order with
respect to the Registration Statement or that the Commission otherwise has suspended or withdrawn
the effectiveness of the Registration Statement, either temporarily or permanently, or intends or
has threatened to do so (unless the Commission’s concerns have been addressed and the Investor is
reasonably satisfied that the Commission no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the effectiveness of the Registration
Statement or the Prospectus shall exist.
Section 7.05. No Knowledge. The Company shall have no Knowledge of any event that
could reasonably be expected to have the effect of causing the Registration Statement with respect
to the resale of the Registrable Securities by the Investor to be suspended or otherwise
ineffective (which event is reasonably likely to occur within eight Trading Days following the
Trading Day on which a Draw Down Notice is delivered) as of the Settlement Date.
Section 7.06. No Suspension. Trading in the Company’s Common Stock shall not have
been suspended by the Commission, the Principal Market or the NASD and trading in securities
generally as reported on the Principal Market shall not have been suspended or limited.
Section 7.07. No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
Section 7.08. No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and, to the Knowledge of the
Company no investigation by any governmental authority shall have been threatened, against the
Company or any subsidiary, or any of the officers, directors or affiliates of the Company or any
subsidiary seeking to enjoin, prevent or change the transactions contemplated by this Agreement.
Section 7.09. Sufficient Shares Registered for Resale. The Company shall have
sufficient Shares, calculated using the closing trade price of the Common Stock as of the Trading
Day immediately preceding such Draw Down Notice, registered under the Registration Statement to
issue and sell such Shares in accordance with such Draw Down Notice.
Section 7.10. Warrant. The Warrant shall have been duly executed, delivered and
issued to the Investor, and the Company shall not be in default in any material respect under any
of the provisions thereof, provided that any refusal by or failure of the Company to issue and
deliver Warrant Shares in respect of any exercise (in whole or in part) thereof shall be deemed to
be material for the purposes of this Section 7.10.
Section 7.11. Opinion of Counsel. The Investor shall have received the form of
opinion agreed to between the parties on the date of this Agreement.
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Section 7.12. Accuracy of Investor’s Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in all material respects
as of the date when made as though made at that time except for representations and warranties that
are made as of a particular date.
ARTICLE VIII
TERMINATION
Section 8.01. Term. Unless otherwise terminated in accordance with Section 8.02
below, this Agreement shall terminate upon the earlier to occur of (i) the expiration of the
Commitment Period or (ii) the issuance of Shares pursuant to this Agreement in an amount equal to
the Maximum Commitment Amount.
Section 8.02. Other Termination.
(a) The Investor may terminate this Agreement upon (x) one (1) business day’s notice if the
Company enters into any Prohibited Transaction as set forth in Section 6.07 without the Investor’s
prior written consent, or (y) one (1) business day’s notice if the Investor provides written notice
of a Material Adverse Effect to the Company, and such Material Adverse Effect continues for a
period of ten (10) Trading Days after the receipt by the Company of such notice.
(b) The Investor may terminate this Agreement upon one (1) business day’s notice to the
Company at any time in the event that the Registration Statement is not initially declared
effective in accordance with the Registration Rights Agreement, provided, however, that in the
event the Registration Statement is declared effective prior to the delivery of such notice, the
Investor shall thereafter have no right to terminate this Agreement pursuant to this Section
8.02(b).
(c) The Company may terminate this Agreement upon one (1) business day’s notice;
provided, however, that the Company shall not terminate this Agreement pursuant to
this Section 8.02(c) during any Draw Down Pricing Period; provided further;
that, in the event of any termination of this Agreement by the Company hereunder, so long as the
Investor owns Shares purchased hereunder and/or Warrant Shares, unless all of such shares of Common
Stock may be resold by the Investor without registration and without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities
Act, the Company shall not suspend or withdraw the Registration Statement or otherwise cause the
Registration Statement to become ineffective, or voluntarily delist the Common Stock from, the
Principal Market without listing the Common Stock on another Principal Market.
(d) Each of the parties hereto may terminate this Agreement upon one (1) day’s notice if the
other party has breached a material representation, warranty or covenant to this Agreement
and such breach is not remedied within ten (10) Trading Days after notice of such breach is
delivered to the breaching party.
Section 8.03. Effect of Termination. In the event of termination by the Company or
the Investor, written notice thereof shall forthwith be given to the other party and the
transactions contemplated by this Agreement shall be terminated without further action by either
party. If this Agreement is terminated as provided in Section 8.01 or 8.02 herein, this Agreement
shall become void and of no further force and effect, except as provided in Section 10.13. Nothing
in this Section 8.03 shall be deemed to release the Company or the Investor from any liability for
any
19
breach under this Agreement occurring prior to such termination, or to impair the rights of the
Company and the Investor to compel specific performance by the other party of its obligations under
this Agreement arising prior to such termination.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification.
(a) Except as otherwise provided in this Article IX, unless disputed as set forth in Section
9.02, the Company agrees to indemnify, defend and hold harmless the Investor and its affiliates and
their respective officers, directors, agents, employees, subsidiaries, partners, members and
controlling persons (each, an “Investor Indemnified Party”), to the fullest extent
permitted by law from and against any and all Damages directly resulting from or directly arising
out of any breach of any representation or warranty, covenant or agreement by the Company in this
Agreement, the Registration Rights Agreement or the Warrant; provided, however,
that the Company shall not be liable under this Article IX to an Investor Indemnified Party to the
extent that such Damages resulted or arose from the breach by an Investor Indemnified Party of any
representation, warranty, covenant or agreement of an Investor Indemnified Party contained in this
Agreement, the Registration Rights Agreement or the Warrant or the negligence, recklessness,
willful misconduct or bad faith of an Investor Indemnified Party. The parties intend that any
Damages subject to indemnification pursuant to this Article IX will be net of insurance proceeds
(which the Investor Indemnified Party agrees to use commercially reasonable efforts to recover).
Accordingly, the amount which the Company is required to pay to any Investor Indemnified Party
hereunder (a “Company Indemnity Payment”) will be reduced by any insurance proceeds
actually recovered by or on behalf of any Investor Indemnified Party in reduction of the related
Damages. In addition, if an Investor Indemnified Party receives a Company Indemnity Payment
required by this Article IX in respect of any Damages and subsequently receives any such insurance
proceeds, then the Investor Indemnified Party will pay to the Company an amount equal to the
Company Indemnity Payment received less the amount of the Company Indemnity Payment that would have
been due if the insurance proceeds had been received, realized or recovered before the Company
Indemnity Payment was made.
(b) Except as otherwise provided in this Article IX, unless disputed as set forth in Section
9.02, the Investor agrees to indemnify, defend and hold harmless the Company and its affiliates and
their respective officers, directors, agents, employees, subsidiaries, partners, members and
controlling persons (each, a “Company Indemnified Party”), to the fullest extent permitted
by law from and against any and all Damages directly resulting from or directly arising out of any
breach of any representation or warranty, covenant or agreement by the Investor in this Agreement,
the Registration Rights Agreement or the Warrant; provided, however, that the
Investor shall not be liable under this Article IX to a Company Indemnified Party to the extent
that such Damages resulted or arose from the breach by a Company Indemnified Party of any
representation, warranty, covenant or agreement of a Company Indemnified Party contained in this
Agreement, the Registration Rights Agreement or the Warrant or negligence, recklessness, willful
misconduct or bad faith of a Company Indemnified Party. The parties intend that any Damages
subject to indemnification pursuant to this Article IX will be net of insurance proceeds (which the
Company agrees to use commercially reasonable efforts to recover). Accordingly, the amount which
the Investor is required to pay to any Company Indemnified Party hereunder (an “Investor
Indemnity Payment”) will be reduced by any insurance proceeds theretofore actually recovered by
or on behalf of any Company Indemnified Party in reduction of the related
20
Damages. In addition, if
a Company Indemnified Party receives an Investor Indemnity Payment required by this Article IX in
respect of any Damages and subsequently receives any such insurance proceeds, then the Company
Indemnified Party will pay to the Investor an amount equal to the Investor Indemnity Payment
received less the amount of the Investor Indemnity Payment that would have been due if the
insurance proceeds had been received, realized or recovered before the Investor Indemnity Payment
was made.
Section 9.02. Notification of Claims for Indemnification. Each party entitled to
indemnification under this Article IX (an “Indemnified Party”) shall, promptly after the
receipt of notice of the commencement of any claim against such Indemnified Party in respect of
which indemnity may be sought from the party obligated to indemnify such Indemnified Party under
this Article IX (the “Indemnifying Party”), notify the Indemnifying Party in writing of the
commencement thereof. Any such notice shall describe the claim in reasonable detail. The failure
of any Indemnified Party to so notify the Indemnifying Party of any such action shall not relieve
the Indemnifying Party from any liability which it may have to such Indemnified Party (a) other
than pursuant to this Article IX or (b) under this Article IX unless, and only to the extent that,
such failure results in the Indemnifying Party’s forfeiture of substantive rights or defenses or
the Indemnifying Party is prejudiced by such delay. The procedures listed below shall govern the
procedures for the handling of indemnification claims.
(a) Any claim for indemnification for Damages that do not result from a Third Party Claim as
defined in the following paragraph, shall be asserted by written notice given by the Indemnified
Party to the Indemnifying Party. Such Indemnifying Party shall have a period of thirty (30) days
after the receipt of such notice within which to respond thereto. If such Indemnifying Party does
not respond within such thirty (30) day period, such Indemnifying Party shall be deemed to have
refused to accept responsibility to make payment as set forth in Section 9.01. If such
Indemnifying Party does not respond within such thirty (30) day period or rejects such claim in
whole or in part, the Indemnified Party shall be free to pursue such remedies as specified in this
Agreement.
(b) If an Indemnified Party shall receive notice or otherwise learn of the assertion by a
person or entity not a party to this Agreement of any threatened legal action or claim
(collectively a “Third Party Claim”), with respect to which an Indemnifying Party may be
obligated to provide indemnification, the Indemnified Party shall give such Indemnifying Party
written notice thereof within twenty (20) days after becoming aware of such Third Party Claim.
(c) An Indemnifying Party may elect to defend (and, unless the Indemnifying Party has
specified any reservations or exceptions, to seek to settle or compromise) at such Indemnifying
Party’s own expense and by such Indemnifying Party’s own counsel, any Third Party Claim. Within
thirty (30) days after the receipt of notice from an Indemnified Party (or sooner if the nature of
such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnified Party
whether the Indemnifying Party will assume responsibility for defending such
Third Party Claim, which election shall specify any reservations or exceptions. If such
Indemnifying Party does not respond within such thirty (30) day period or rejects such claim in
whole or in part, the Indemnified Party shall be free to pursue such remedies as specified in this
Agreement. In case any such Third Party Claim shall be brought against any Indemnified Party, and
it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be
entitled to assume the defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that any Indemnified Party may, at
its own expense, retain separate counsel to participate in such defense at its own expense.
Notwithstanding the foregoing, in any Third Party Claim in which both the
21
Indemnifying Party, on
the one hand, and an Indemnified Party, on the other hand, are, or are reasonably likely to become,
a party, such Indemnified Party shall have the right to employ separate counsel and to control its
own defense of such claim if, in the reasonable opinion of counsel to such Indemnified Party,
either (x) one or more significant defenses are available to the Indemnified Party that are not
available to the Indemnifying Party or (y) a conflict or potential conflict exists between the
Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, that would make
such separate representation advisable; provided, however, that in such
circumstances the Indemnifying Party (i) shall not be liable for the fees and expenses of more than
one counsel to all Indemnified Parties and (ii) shall reimburse the Indemnified Parties for such
reasonable fees and expenses of such counsel incurred in any such Third Party Claim, as such
expenses are incurred, provided that the Indemnified Parties agree to repay such amounts if it is
ultimately determined that the Indemnifying Party was not obligated to provide indemnification
under this Article IX. The Indemnifying Party agrees that it will not compromise or consent to the
entry of any judgment in any pending or threatened claim relating to the matters contemplated
hereby (if any Indemnified Party is a party thereto or has been actually threatened to be made a
party thereto) unless such settlement, compromise or consent includes an unconditional release of
such Indemnified Party from all liability arising or that may arise out of such claim. The rights
accorded to an Indemnified Party hereunder shall be in addition to any rights that any Indemnified
Party may have at common law, by separate agreement or otherwise; provided,
however, that notwithstanding the foregoing or anything to the contrary contained in this
Agreement, nothing in this Article IX shall restrict or limit any rights that any Indemnified Party
may have to seek equitable relief.
ARTICLE X
MISCELLANEOUS
Section 10.01. Fees and Expenses.
(a) Each of the Company and the Investor agrees to pay its own expenses incident to the
performance of its obligations hereunder, except that the Company shall be solely responsible for
(i) all reasonable attorneys fees and expenses incurred by the Investor in connection with the
preparation, negotiation, execution and delivery of this Agreement, the Registration Rights
Agreement and the Warrant, and review of the Registration Statement, and in connection with any
amendments, modifications or waivers of this Agreement, including, without limitation, all
reasonable attorneys fees and expenses, and (ii) all reasonable fees and expenses incurred in
connection with the Investor’s enforcement of this Agreement, including, without limitation, all
reasonable attorneys fees and expenses, and (iii) due diligence expenses incurred by the Investor
during the term of this Agreement equal to $12,500 per calendar quarter, provided that such
$12,500 shall not be payable in respect of any calendar quarter following the calendar quarter
during which the Company shall have issued and sold Common Stock hereunder during the term of this
Agreement in aggregate Draw Down Amounts equal to or exceeding $25 million, and
(v) all stamp or other similar taxes and duties, if any, levied in connection with issuance of
the Shares pursuant hereto; provided, however, that in each of the above instances
the Investor shall provide customary supporting invoices or similar documentation in reasonable
detail describing such expenses, and provided further that the maximum aggregate
amount payable by the Company pursuant to clause (i) above shall be $75,000 and the Investor shall
bear all fees and expenses in excess of $75,000 incurred in connection with the events described
under clause (i) above.
22
(b) If any action at law or in equity is necessary to enforce or interpret the terms of this
Agreement, the Registration Rights Agreement or the Warrant, the prevailing party shall be entitled
to reasonable fees, costs and necessary disbursements in addition to any other relief to which such
party may be entitied.
Section 10.02. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common Stock on any given
Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto.
The written mutual consent of the Investor and the Company shall be required to employ any other
reporting entity.
Section 10.03. Brokerage. Each of the parties hereto represents that it has had no
dealings in connection with this transaction with any finder or broker who will demand payment of
any fee or commission from the other party. The Company on the one hand, and the Investor, on the
other hand, agree to indemnify the other against and hold the other harmless from any and all
liabilities to any Persons claiming brokerage commissions or finder’s fees on account of services
purported to have been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby.
Section 10.04. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have specified most
recently by written notice given in accordance herewith, in each case with a copy to the e-mail
address set forth beside the facsimile number for the addressee below. Any notice or other
communication required or permitted to be given hereunder shall be deemed effective (a) upon hand
delivery or delivery by facsimile, with accurate confirmation generated by the transmitting
facsimile machine, at the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Company:
Cytokinetics, Incorporated
280 East Grand Avenue
South San Francisco, CA 94080
Facsimile: (650) 624 3000
Attention: Sharon Surrey-Barbari, Chief Financial Officer -
sbarbari@cytokinetics.com
with a copy (which shall not constitute notice) to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
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Facsimile: (650) 493 6811
Attention: Michael O’Donnell, Esq. – modonnell@wsgr.com
if to the Investor:
Kingsbridge Capital Limited/ c/o Kingsbridge Corporate Services Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Facsimile: 011-353-45-482-003 – adamgurney@eircom.net
Attention: Adam Gurney, Managing Director
with a copy (which shall not constitute notice) to:
Clifford Chance US LLP
31 West 52nd Street
New York, NY 10019
Facsimile: (212) 878-8375
Attention: Keith M. Andruschak, Esq. – keith.andruschak@cliffordchance.com
Either party hereto may from time to time change its address or facsimile number for notices under
this Section by giving at least ten (10) days’ prior written notice of such changed address or
facsimile number to the other party hereto.
Section 10.05. Assignment. Neither this Agreement nor any rights of the Investor or
the Company hereunder may be assigned by either party to any other Person.
Section 10.06. Amendment; No Waiver. No party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as specifically set
forth in this Agreement, the Warrant and the Registration Rights Agreement. Except as expressly
provided in this Agreement, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by both parties hereto. The
failure of the either party to insist on strict compliance with this Agreement, or to exercise any
right or remedy under this Agreement, shall not constitute a waiver of any rights provided under
this Agreement, nor estop the parties from thereafter demanding full and complete compliance nor
prevent the parties from exercising such a right or remedy in the future.
Section 10.07. Entire Agreement. This Agreement, the Registration Rights Agreement
and the Warrant set forth the entire agreement and understanding of the parties relating to the
subject matter hereof and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written, relating to the subject matter hereof.
Section 10.08. Severability. If any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided that, if the
severance of such provision materially changes the economic benefits of this Agreement to either
party as such benefits are anticipated as of the date hereof, then such party may terminate this
Agreement on five (5) business days prior written notice to the other party. In such event, the
Registration Rights Agreement will terminate simultaneously with the termination of this Agreement;
provided that in the event that this Agreement is terminated by the Company in accordance with this
Section 10.08 and the Warrant Shares either have not been registered for resale by the Investor in
accordance with the Registration Rights Agreement or are otherwise not freely tradable (if and when
issued) in accordance with applicable law, then the Registration Rights
24
Agreement in respect of the
registration of the Warrant Shares shall remain in full force and effect.
Section 10.09. Title and Subtitles. The titles and subtitles used in this Agreement
are used for the convenience of reference and are not to be considered in construing or
interpreting this Agreement.
Section 10.10. Counterparts. This Agreement may be executed in multiple counterparts,
each of which may be executed by less than all of the parties and shall be deemed to be an original
instrument which shall be enforceable against the parties actually executing such counterparts and
all of which together shall constitute one and the same instrument.
Section 10.11. Choice of Law. This Agreement shall be construed under the laws of the
State of New York.
Section 10.12. Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Investor acknowledge and agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or equity.
(b) Each of the Company and the Investor (i) hereby irrevocably submits to the jurisdiction of
the United States District Court and other courts of the United States sitting in the State of New
York for the purposes of any suit, action or proceeding arising out of or relating to this
Agreement and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Investor consents to process being served in
any such suit, action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted by law.
Section 10.13. Survival. The representations and warranties of the Company and the
Investor contained in Articles IV and V and the covenants contained in Article V and Article VI
shall survive the execution and delivery hereof and the Closing until the termination of this
Agreement, and the agreements and covenants set forth in Article VIII and Article IX of this
Agreement shall survive the execution and delivery hereof and the Closing hereunder.
Section 10.14. Publicity. Except as otherwise required by applicable law or
regulation, or Nasdaq rule or judicial process, prior to the Closing, neither the Company nor the
Investor shall issue any press release or otherwise make any public statement or announcement with
respect to this Agreement or the transactions contemplated hereby or the existence of this
Agreement. In the event the Company is required by law, regulation, Nasdaq rule or judicial
process, based upon reasonable advice of the Company’s counsel, to issue a press release or
otherwise make a public statement or announcement with respect to this Agreement prior to the
Closing, the Company shall consult with the Investor on the form and substance of such press
25
release, statement or announcement. Promptly after the Closing, each party may issue a press
release or otherwise make a public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement; provided that, prior
to issuing any such press release, making any such public statement or announcement, the party
wishing to make such release, statement or announcement consults and cooperates in good faith with
the other party in order to formulate such press release, public statement or announcement in form
and substance reasonably acceptable to both parties.
Section 10.15. Further Assurances. From and after the date of this Agreement, upon
the request of the Investor or the Company, each of the Company and the Investor shall execute and
deliver such instruments, documents and other writings as may be reasonably necessary or desirable
to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.
[Remainder of this page intentionally left blank]
26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first written.
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KINGSBRIDGE CAPITAL LIMITED |
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By: |
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/s/ Maria O’Donoghue |
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Maria O’Donoghue
Director
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CYTOKINETICS, INCORPORATED |
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By: |
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/s/ James Sabry |
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James Sabry |
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President and Chief Executive Officer |
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Exhibit A
Form of Registration Rights Agreement
Exhibit B
Form of Warrant
Exhibit C
Officer’s Certificate
I, [NAME OF OFFICER], do hereby certify to Kingsbridge Capital Limited (the “Investor”), with
respect to the common stock of Cytokinetics, Incorporated (the “Company”) issuable in connection
with the Draw Down Notice, dated (the “Notice”) attached hereto and delivered
pursuant to Article III of the Common Stock Purchase Agreement, dated October 28, 2005 (the
“Agreement”), by and between the Company and the Investor, as follows (capitalized terms used but
undefined herein have the meanings given to such terms in the Agreement):
1. I am the duly elected [OFFICER] of the Company.
2. The representations and warranties of the Company set forth in Article IV of the Agreement
are true and correct in all material respects as though made on and as of the date hereof (except
for such representations and warranties that are made as of a particular date).
3. The Company has performed in all material respects all covenants and agreements to be
performed by the Company on or prior to the date hereof related to the Notice and has satisfied
each of the conditions to the obligation of the Investor set forth in Article VII of the Agreement.
4. The Shares issuable in respect of the Notice will be delivered without restrictive legend
via book entry through the Depositary Trust Company to an account designated by the Investor.
The undersigned has executed this Certificate this day of , 200[_].
exv10w61
Exhibit 10.61
GE
Healthcare Financial Services
Life Science Finance
1901 Main Street,
7th
Floor
Irvine, CA 92614
949-477-1518 / FAX: 866-288-7998
November 18, 2005
CONFIDENTIAL LOAN PROPOSAL FOR
Cytokinetics, Inc.
Submitted
By: Todd Cortell
Term Sheet
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| Transaction:
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Loan |
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| Borrower:
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Cytokinetics, Inc. |
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| Guarantor:
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None |
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| Lender:
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General Electric Capital Corporation its affiliates or its
assignee (“GE Capital”) |
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| Loan Amount:
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$2,772,262 |
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| Equipment (Collateral):
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All “collateral” described in the Master Security Agreement between the parties dated February 2,
2001, as amended January 1, 2005 (the “MSA”), in accordance with the concentration requirements
set forth in the Equipment Concentration Rider dated September 13, 2005. All such Equipment must
be acceptable to GE Capital and located at Company owned or leased facilities within the
continental United States. |
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| Additional Consideration:
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Borrower shall provide Lender with a security deposit in the amount of fifty percent (50.0%) of
the Loan Amount (required at the time of funding a Schedule). The security deposit will bear no
interest. Lender shall reduce the security deposit to fifty percent (50.0%) of the outstanding
principal balance semi-annually on January 1st and July 1st until the loan
expires. |
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| Loan Payments:
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60 payments of Principal and Interest @ $51,683.33 per month. Payment Factor of 1.864302% based
upon an Interest Rate of 4.50%. |
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| Loan Term & Interval:
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60 Months, Arrears |
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| Anticipated Funding Period:
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Through December 31, 2006. |
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| Financial Covenants:
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None |
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| Negative Covenants:
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None |
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| Stock Warrants:
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None |
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| Funding Frequency:
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Equipment that is financed within 90 days of the invoice date is considered new. Equipment
that is older than 90 days will be financed based on the standard LSTF Depreciation Guidelines
per the table below: |
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Days from Invoice Date to Funding Date |
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0-120 days |
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120-150 |
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Increment per 30 day period |
Lab & Scientific
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0 |
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10 |
% |
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2.50 |
% |
Computers, Furniture & Fixtures
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0 |
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12 |
% |
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3 |
% |
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CONFIDENTIAL
GE Capital Corporation
Life Science Finance
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2
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11/18/05 |
GENERAL TERMS AND CONDITIONS
Our proposal contains the following provisions and the Loan Payments we propose are specifically
based upon these provisions and our assumptions.
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MAINTENANCE AND INSURANCE: All maintenance and insurance (fire and theft, extended coverage and liability)
are the responsibility of the Company. Company will be responsible for
maintaining in force, all risk damage, and liability insurance in amounts and coverages
satisfactory to GE Capital. |
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| 2. |
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DOCUMENTATION: GE Capital’s current standard loan documentation for this type of
collateralized loan will be used. |
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| 3. |
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INDEXING: The following rates are based upon various economic assumptions, including
the
maintenance of the five (5) year Treasury Constant Maturities rate, currently 3.32% (as
published in the Federal Reserve Statistical Release Report H.15). Should the rate increase
or decrease prior to any schedule commencement, the lease rates for those schedules shall
increase or decrease by an equal amount. |
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TRANSACTION COSTS: By execution and return of this proposal letter, the Company will
be responsible for (i) all of its closing costs, (ii) all out of pocket fees and expenses incurred by
GE Capital in connection with the Financing under consideration including, without limitation,
actual out-of-pocket expenses associated with engagement of outside counsel, UCC
searches and filings costs, inspection and appraisal fees and similar costs, and (iii) the
Company waives any right to a jury trial in any action or proceeding brought against GE
Capital. The Company will indemnify and hold harmless GE Capital and its affiliates, officers,
directors, employees and agents (each, an “Indemnified Person”) against all claims, costs,
damages, liabilities and expenses (each, a “Claim”) that may be incurred by or asserted
against any of them in connection with this Term Sheet and proposal or the matters
contemplated herein, except to the extent arising from the negligence, gross negligence,
willful misconduct or failure to comply with applicable law by any Indemnified Person. The
foregoing indemnification obligation is subject to the following: GE Capital will promptly notify
the Company in writing of any Claim in respect of which any Indemnified Person intends to
claim such indemnification. GE Capital will permit, and will cause each Indemnified Person
seeking indemnification hereunder to permit, the Company at its discretion to settle any such
Claim, and GE Capital agrees, on its own behalf and on behalf of each Indemnified Person,
to the complete control of such defense or settlement by the Company. Notwithstanding the
foregoing, the Company will not enter into any settlement that would adversely affect such
Indemnified Person’s rights hereunder or impose any obligations on such Indemnified Person
in addition to those set forth herein in order for it to exercise such rights without such
Indemnified Person’s prior written consent, which will not be unreasonably withheld or
delayed. No such action, claim or other matter will be settled without the prior written
consent of the Company, which will not be unreasonably withheld or delayed. Such
Indemnified Person will cooperate fully with the Company and its legal representatives in the
investigation and defense of any action, claim or other matter covered by the indemnification
obligations of this Section. The Indemnified Person will have the right, but not the obligation,
to be represented in such defense by counsel of its own selection and at its own expense.
The Company will not be responsible for any attorneys’ fees or other costs incurred other
than as provided herein. |
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CONFIDENTIAL
GE Capital Corporation
Life Science Finance
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3
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11/18/05 |
| 5. |
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ELECTRONIC PAYMENT SYSTEM: GE Capital’s standard payment collection method is
through an electronic payment system. An enrollment form will be provided with Loan
documentation. |
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CONFIDENTIALITY: This proposal letter is being provided to the Company on a
confidential
basis. Except as required by law, this proposal nor its contents, nor any communications
or
information shared between the parties, may be disclosed, except to individuals who are the
each party’s respective officers, employees or advisors who have a need to know of such
matters and then only on the condition that such matters remain confidential. In addition,
none
of such persons shall, except as required by law, use the name of, or refer to the other
party, in
any correspondence, discussions, advertisement, press release or disclosure made in
connection with the transaction contemplated herein without the prior written consent of
such
other party. |
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EXPIRATION: This proposal shall expire on January 31, 2006, if GE Capital has not
received
your acceptance hereof by such date. |
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CONFIDENTIAL
GE Capital Corporation
Life Science Finance
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4
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11/18/05 |
This proposal expresses GE Capital’s willingness to seek internal approval for the
transaction contemplated herein. By signing and returning this letter both parties acknowledge
that: The above proposed terms and conditions do not constitute a commitment by GE Capital, (ii) GE
Capital’s senior management may seek changes to the above terms and conditions, and (iii) GE
Capital may decline further consideration of this transaction at any point in the approval process.
GE Capital’s agreement to fund the proposed transaction remains subject to and would be preceded by
completion of a legal and business due diligence, as well as collateral and credit review and
analysis, all with results satisfactory to GE Capital and the closing of and initial funding under
such transaction would be conditioned upon the prior execution and delivery of final legal
documentation and all conditions precedent acceptable to GE Capital and its counsel and no Material
Adverse Change as defined in Amendment NO.1 to the MSA dated January 1, 2005. For transactions that
contemplate more that one funding, GE Capital’s obligation to make each such subsequent funding
would be subject to confirmation that no Material Adverse Change has occurred.
PROPOSAL ACCEPTED BY:
Cytokinetics, Inc.
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Name:
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/s/ Sharon Surrey-Barbari
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Federal Tax ID#:
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94-3291317
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Email:
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sbarbari@cytokinetics.com
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Approved
Legal
MW
1/18/06
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CONFIDENTIAL
GE Capital Corporation
Life Science Finance
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5
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11/18/05 |
exv99w1
Exhibit 99.1
RISK FACTORS
Our business is subject to various risks, including those
described below. You should carefully consider the following
risks, together with all of the other information included in
this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference before investing in our
common stock. Any of these risks could materially adversely
affect our business, operating results and financial
condition.
Risks Related To Our Business
Our drug candidates are in the early stages of clinical
testing and we have a history of significant losses and may not
achieve or sustain profitability and, as a result, you may lose
all or part of your investment.
Our drug candidates are in the early stages of clinical testing
and we must conduct significant additional clinical trials
before we can seek the regulatory approvals necessary to begin
commercial sales of our drugs. We have incurred operating losses
in each year since our inception in 1997 due to costs incurred
in connection with our research and development activities and
general and administrative costs associated with our operations.
We expect to incur increasing losses for at least several years,
as we continue our research activities and conduct development
of, and seek regulatory approvals for, our drug candidates, and
commercialize any approved drugs. If our drug candidates fail in
clinical trials or do not gain regulatory approval, or if our
drugs do not achieve market acceptance, we will not be
profitable. If we fail to become and remain profitable, or if we
are unable to fund our continuing losses, you could lose all or
part of your investment.
We have never generated, and may never generate, revenues
from commercial sales of our drugs and we may not have drugs to
market for at least several years, if ever.
We currently have no drugs for sale and we cannot guarantee that
we will ever have marketable drugs. We must demonstrate that our
drug candidates satisfy rigorous standards of safety and
efficacy to the U.S. Food and Drug Administration, or FDA,
and other regulatory authorities in the United States and
abroad. We and our partners will need to conduct significant
additional research and preclinical and clinical testing before
we or our partners can file applications with the FDA or other
regulatory authorities for approval of our drug candidates. In
addition, to compete effectively, our drugs must be easy to use,
cost-effective and economical to manufacture on a commercial
scale, compared to other therapies available for the treatment
of the same conditions. We may not achieve any of these
objectives. Ispinesib, our most advanced drug candidate for the
treatment of cancer,
SB-743921, our second
drug candidate for the treatment of cancer, and
CK-1827452 in an
intravenous form, our drug candidate for the treatment of heart
failure, are currently our only drug candidates in clinical
trials and we cannot be certain that the clinical development of
these or any other drug candidate in preclinical testing or
clinical development will be successful, that they will receive
the regulatory approvals required to commercialize them, or that
any of our other research programs will yield a drug candidate
suitable for entry into clinical trials. Our commercial
revenues, if any, will be derived from sales of drugs that we do
not expect to be commercially available for several years, if at
all. The development of any one or all of these drug candidates
may be discontinued at any stage of our clinical trials programs
and we may not generate revenue from any of these drug
candidates.
We have funded all of our operations and capital expenditures
with proceeds from both private and public sales of our equity
securities, strategic alliances with GlaxoSmithKline, or GSK,
AstraZeneca and others, equipment financings, interest on
investments and government grants. We believe that our existing
cash and cash equivalents, future payments from GSK and
AstraZeneca, interest earned on investments, proceeds from
equipment financings and potential proceeds from our committed
equity financing facility with Kingsbridge Capital Limited, or
Kingsbridge, will be sufficient
1
to meet our projected operating requirements for at least the
next 12 months. To meet our future cash requirements, we
may raise funds through public or private equity offerings, debt
financings or strategic alliances. To the extent that we raise
additional funds by issuing equity securities, our stockholders
may experience additional dilution. To the extent that we raise
additional funds through debt financing, if available, such
financing may involve covenants that restrict our business
activities. To the extent that we raise additional funds through
strategic alliance and licensing arrangements, we will likely
have to relinquish valuable rights to our technologies, research
programs or drug candidates, or grant licenses on terms that may
not be favorable to us. In addition, we cannot assure you that
any such funding, if needed, will be available on attractive
terms, or at all.
Clinical trials may fail to demonstrate the desired safety
and efficacy of our drug candidates, which could prevent or
significantly delay completion of clinical development and
regulatory approval.
Prior to receiving approval to commercialize any of our drug
candidates, we must demonstrate with substantial evidence from
well-controlled clinical trials, and to the satisfaction of the
FDA and other regulatory authorities in the United States and
abroad, that such drug candidate is both sufficiently safe and
effective. Before we can commence clinical trials, we must
demonstrate through preclinical studies satisfactory product
chemistry, formulation, stability and toxicity levels in order
to file an investigational new drug application, or IND, (or the
foreign equivalent of an IND) to commence clinical trials. In
clinical trials we will need to demonstrate efficacy for the
treatment of specific indications and monitor safety throughout
the clinical development process. Long-term safety and efficacy
have not yet been demonstrated in clinical trials for any of our
drug candidates, and satisfactory chemistry, formulation,
stability and toxicity levels have not yet been demonstrated for
any of our potential drug candidates or compounds that are
currently the subject of preclinical studies. If our preclinical
studies, current clinical trials or future clinical trials are
unsuccessful, our business and reputation will be harmed and our
stock price will be negatively affected.
All of our drug candidates are prone to the risks of failure
inherent in drug development. Preclinical studies may not yield
results that would satisfactorily support the filing of an IND
(or the foreign equivalent of an IND) with respect to our
potential drug candidates, and, even if these applications would
be or have been filed with respect to our drug candidates, the
results of preclinical studies do not necessarily predict the
results of clinical trials. Similarly, early-stage clinical
trials do not predict the results of later-stage clinical
trials, including the safety and efficacy profiles of any
particular drug candidate. In addition, there can be no
assurance that the design of our clinical trials is focused on
appropriate tumor types, patient populations, dosing regimens or
other variables which will result in obtaining the desired
efficacy data to support regulatory approval to commercialize
the drug. Even if we believe the data collected from clinical
trials of our drug candidates are promising, such data may not
be sufficient to support approval by the FDA or any other U.S.
or foreign regulatory authority. Preclinical and clinical data
can be interpreted in different ways. Accordingly, FDA officials
or officials from foreign regulatory authorities could interpret
the data in different ways than we or our partners do, which
could delay, limit or prevent regulatory approval.
Administering any of our drug candidates or potential drug
candidates that are the subject of preclinical studies to
animals may produce undesirable side effects, also known as
adverse effects. Toxicities and adverse effects that we have
observed in preclinical studies for some compounds in a
particular research and development program may occur in
preclinical studies or clinical trials of other compounds from
the same program. Such toxicities or adverse effects could delay
or prevent the filing of an IND (or the foreign equivalent of an
IND) with respect to such drug candidates or potential drug
candidates or cause us to cease clinical trials with respect to
any drug candidate. In Phase I clinical trials of
ispinesib, the dose limiting toxicity was neutropenia, a
decrease in the number of a certain type of white blood cell
that results in an increase in susceptibility to infection. In a
Phase I clinical trial of
SB-743921, the
dose-limiting toxicities observed to date were: prolonged
neutropenia, with or without fever and with or without
infection; elevated transaminases and
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hyperbilirubenemia, both of which are abnormalities of liver
function; and hyponatremia, which is a low concentration of
sodium in the blood. In clinical trials, administering any of
our drug candidates to humans may produce adverse effects. These
adverse effects could interrupt, delay or halt clinical trials
of our drug candidates and could result in the FDA or other
regulatory authorities denying approval of our drug candidates
for any or all targeted indications. The FDA, other regulatory
authorities, our partners or we may suspend or terminate
clinical trials at any time. Even if one or more of our drug
candidates were approved for sale, the occurrence of even a
limited number of toxicities or adverse effects when used in
large populations may cause the FDA to impose restrictions on,
or stop, the further marketing of such drugs. Indications of
potential adverse effects or toxicities which may occur in
clinical trials and which we believe are not significant during
the course of such clinical trials may later turn out to
actually constitute serious adverse effects or toxicities when a
drug has been used in large populations or for extended periods
of time. Any failure or significant delay in completing
preclinical studies or clinical trials for our drug candidates,
or in receiving and maintaining regulatory approval for the sale
of any drugs resulting from our drug candidates, may severely
harm our reputation and business.
Clinical trials are expensive, time consuming and subject to
delay.
Clinical trials are very expensive and difficult to design and
implement, especially in the cancer and heart failure
indications that we are pursuing, in part because they are
subject to rigorous requirements. The clinical trial process is
also time consuming. According to industry studies, the entire
drug development and testing process takes on average 12 to
15 years, and the fully capitalized resource cost of new
drug development averages approximately $800 million.
However, individual clinical trials and individual drug
candidates may incur a range of costs or time demands above or
below this average. We estimate that clinical trials of our most
advanced drug candidates will continue for several years, but
they may take significantly longer to complete. The commence-
ment and completion of our clinical trials could be delayed or
prevented by several factors, including, but not limited to:
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delays in obtaining regulatory approvals to commence a clinical
trial; |
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delays in identifying and reaching agreement on acceptable terms
with prospective clinical trial sites; |
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slower than expected rates of patient recruitment and
enrollment, including as a result of the introduction of
alternative therapies or drugs by others; |
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lack of effectiveness during clinical trials; |
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unforeseen safety issues; |
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adequate supply of clinical trial material; |
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uncertain dosing issues; |
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introduction of new therapies or changes in standards of
practice or regulatory guidance that render our clinical trial
endpoints or the targeting of our proposed indications obsolete; |
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inability to monitor patients adequately during or after
treatment; and |
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inability or unwillingness of medical investigators to follow
our clinical protocols. |
We do not know whether planned clinical trials will begin on
time, will need to be restructured or will be completed on
schedule, if at all. Significant delays in clinical trials will
impede our ability to commercialize our drug candidates and
generate revenue and could significantly increase our
development costs.
3
We depend on GSK for the conduct, completion and funding of
the clinical development and commercialization of our current
drug candidates for the treatment of cancer.
Under our strategic alliance with GSK, as amended, GSK is
currently responsible for the clinical development and
regulatory approval of our drug candidate ispinesib and our
potential drug candidate
GSK-923295 for all
cancer indications, and our drug candidate
SB-743921 for all
cancer indications except non-Hodgkin’s lymphoma,
Hodgkin’s lymphoma and multiple myeloma. Other than our
right to file INDs (or the foreign equivalent of INDs) for
SB-743921 for these
three hematologic cancer indications, GSK is responsible for
filing applications with the FDA or other regulatory authorities
for approval of these drug candidates and our potential drug
candidate and will be the owner of any marketing approvals
issued by the FDA or other regulatory authorities. If the FDA or
other regulatory authorities approve these drug candidates, GSK
will also be responsible for the marketing and sale of these
drugs. Because GSK is responsible for these functions, we cannot
control whether GSK will devote sufficient attention and
resources to the clinical trials program or will proceed in an
expeditious manner. GSK generally has discretion to elect
whether to pursue the development of our drug candidates or to
abandon the clinical trial programs, and, after June 20,
2006, GSK may terminate our strategic alliance for any reason
upon six months prior notice. These decisions are outside our
control. Two of our cancer drug candidates being developed by
GSK act through inhibition of kinesin spindle protein, or KSP, a
protein that is a member of a class of cytoskeletal proteins
called mitotic kinesins that regulate cell division, or mitosis,
during cell division. Because these drug candidates have similar
mechanisms of action, GSK may elect to proceed with the
development of only one such drug candidate. If GSK were to
elect to proceed with the development of
SB-743921 in lieu of
ispinesib, because SB-743921 is at an earlier stage of clinical
development than ispinesib, the approval, if any, of a new drug
application, or NDA, with respect to a drug candidate from our
cancer program would be delayed. In particular, if the initial
clinical results of some of our early clinical trials do not
meet GSK’s expectations, GSK may elect to terminate further
development of one or both drug candidates or certain of the
ongoing clinical trials for drug candidates, even though the
actual number of patients that have been treated is relatively
small. The platinum refractory arm of our non-small cell lung
cancer Phase II clinical trial evaluating ispinesib as
monotherapy did not meet the clinical trial’s pre-defined
criteria for advancement and it is possible that the platinum
sensitive arm of such clinical trial, for which data are
expected in the first quarter of 2006, may also not meet such
clinical trial’s pre-defined criteria for advancement.
Furthermore, GSK may elect to terminate one or more clinical
trials for ispinesib at any time for some or all indications,
including indications which GSK previously determined to advance
to the next stage of patient enrollment, such as the ongoing
breast cancer clinical trial, even though such clinical trial
may not yet have been completed and regardless of clinical
activity that may have been demonstrated.
Abandonment of one or more of ispinesib,
SB-743921 and
GSK-923295 by GSK would
result in a delay in or prevent us from commercializing such
current or potential drug candidates, and would delay or prevent
our ability to generate revenues. Disputes may arise between us
and GSK, which may delay or cause termination of any clinical
trials program, result in significant litigation or arbitration,
or cause GSK to act in a manner that is not in our best
interest. If development of our current and potential drug
candidates does not progress for these or any other reasons, we
would not receive further milestone payments from GSK. GSK has
the right to reduce its funding of our full time equivalents, or
FTEs, for these programs at its discretion, subject to certain
agreed minimum levels, in the beginning of each contract year
based on the activities of the agreed upon research plan. In
addition, the five year research term of the strategic alliance
expires on June 20, 2006, unless GSK agrees to extend the
research term. Even if the FDA or other regulatory agencies
approve one or more of our drug candidates, GSK may elect not to
proceed with the commercialization of such drugs, or may elect to pursue commercialization
of one drug but not others, and these decisions are outside our
control. In such event, or if GSK abandons development of any
drug candidate prior to regulatory approval, we would have to
undertake and fund the clinical development of our drug
candidates or commercialization of our drugs, seek a new partner
for clinical development or commercialization, or curtail or
abandon the clinical development or
4
commercialization programs. If we were unable to do so on
acceptable terms, or at all, our business would be harmed, and
the price of our common stock would be negatively affected.
If we fail to enter into and maintain successful strategic
alliances for certain of our drug candidates, we may have to
reduce or delay our drug candidate development or increase our
expenditures.
Our strategy for developing, manufacturing and commercializing
certain of our drug candidates currently requires us to enter
into and successfully maintain strategic alliances with
pharmaceutical companies or other industry participants to
advance our programs and reduce our expenditures on each
program. We have formed a strategic alliance with GSK with
respect to ispinesib,
SB-743921,
GSK-923295 and certain
other research activities. However, we may not be able to
negotiate additional strategic alliances on acceptable terms, if
at all. If we are not able to maintain our existing strategic
alliances or establish and maintain additional strategic
alliances, we may have to limit the size or scope of, or delay,
one or more of our drug development programs or research
programs or undertake and fund these programs ourselves. If we
elect to increase our expenditures to fund drug development
programs or research programs on our own, we will need to obtain
additional capital, which may not be available on acceptable
terms, or at all.
The success of our development efforts depends in part on the
performance of our partners and the National Cancer Institute,
or NCI, over which we have little or no control.
Our ability to commercialize drugs that we develop with our
partners and that generate royalties from product sales depends
on our partners’ abilities to assist us in establishing the
safety and efficacy of our drug candidates, obtaining and
maintaining regulatory approvals and achieving market acceptance
of the drugs once commercialized. Our partners may elect to
delay or terminate development of one or more drug candidates,
independently develop drugs that could compete with ours or fail
to commit sufficient resources to the marketing and distribution
of drugs developed through their strategic alliances with us.
Our partners may not proceed with the development and
commercialization of our drug candidates with the same degree of
urgency as we would because of other priorities they face. In
particular, we are relying on the NCI to conduct several
important clinical trials of ispinesib. The NCI is a government
agency and there can be no assurance that the NCI will not
modify its plans to conduct such clinical trials or will proceed
with such clinical trials diligently. We have no control over
the conduct of clinical trials, the timing of initiation or
completion or the announcement of results of clinical trials
being conducted by the NCI. If our partners fail to perform as
we expect, our potential for revenue from drugs developed
through our strategic alliances, if any, could be dramatically
reduced.
Our focus on the discovery of drug candidates directed
against specific proteins and pathways within the cytoskeleton
is unproven, and we do not know whether we will be able to
develop any drug candidates of commercial value.
We believe that our focus on drug discovery and development
directed at the cytoskeleton is novel and unique. While a number
of commonly used drugs and a growing body of research validate
the importance of the cytoskeleton in the origin and progression
of a number of diseases, no existing drugs specifically and
directly interact with the cytoskeletal proteins and pathways
that our drug candidates seek to modulate. As a result, we
cannot be certain that our drug candidates will appropriately
modulate the targeted cytoskeletal proteins and pathways or
produce commercially viable drugs that safely and effectively
treat cancer, heart failure or other diseases, or that the
results we have seen in preclinical models will translate into
similar results in humans. In addition, even if we are
successful in developing and receiving regulatory approval for a
commercially viable drug for the treatment of one disease
focused on the cytoskeleton, we cannot be certain that we will
also be able to develop and receive regulatory approval for drug
candidates for the treatment of other forms
5
of that disease or other diseases. If we or our partners fail to
develop and commercialize viable drugs, we will not achieve
commercial success.
Our proprietary rights may not adequately protect our
technologies and drug candidates.
Our commercial success will depend in part on our obtaining and
maintaining patent protection and trade secret protection of our
technologies and drug candidates as well as successfully
defending these patents against third-party challenges. We will
only be able to protect our technologies and drug candidates
from unauthorized use by third parties to the extent that valid
and enforceable patents or trade secrets cover them. In the
event that our issued patents and our applications, if they are
granted, do not adequately describe, enable or otherwise provide
coverage of our technologies and drug candidates, including for
example ispinesib,
SB-743921,
GSK-923295 and
CK-1827452, we would
not be able to exclude others from developing or commercializing
these drug candidates and potential drug candidates.
Furthermore, the degree of future protection of our proprietary
rights is uncertain because legal means afford only limited
protection and may not adequately protect our rights or permit
us to gain or keep our competitive advantage.
The patent positions of life sciences companies can be highly
uncertain and involve complex legal and factual questions for
which important legal principles remain unresolved. No
consistent policy regarding the breadth of claims allowed in
such companies’ patents has emerged to date in the United
States The patent situation outside the United States is even
more uncertain. Changes in either the patent laws or in
interpretations of patent laws in the United States or other
countries may diminish the value of our intellectual property.
Accordingly, we cannot predict the breadth of claims that may be
allowed or enforced in our patents or in third-party patents.
For example:
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we or our licensors might not have been the first to make the
inventions covered by each of our pending patent applications
and issued patents; |
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• |
we or our licensors might not have been the first to file patent
applications for these inventions; |
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• |
others may independently develop similar or alternative
technologies or duplicate any of our technologies without
infringing our intellectual property rights; |
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• |
one or more of our pending patent applications or the pending
patent applications of our licensors may not result in issued
patents; |
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• |
our issued patents and issued patents of our licensors may not
provide a basis for commercially viable drugs, or may not
provide us with any competitive advantages, or may be challenged
and invalidated by third parties; |
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• |
we may not develop additional proprietary technologies or drug
candidates that are patentable; and |
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the patents of others may prevent us or our partners from
developing or commercializing our drug candidates. |
We also rely on trade secrets to protect our technology,
especially where we believe patent protection is not appropriate
or obtainable. However, trade secrets are difficult to protect.
While we use reasonable efforts to protect our trade secrets,
our or our strategic partners’ employees, consultants,
contractors or scientific and other advisors may unintentionally
or willfully disclose our information to competitors. In
addition, confidentiality agreements, if any, executed by the
forgoing persons may not be enforceable or provide meaningful
protection for our trade secrets or other proprietary
information in the event of unauthorized use or disclosure. If
we were to enforce a claim that a third party had illegally
obtained and was using our trade secrets, our enforcement
efforts would be expensive and time consuming, and the outcome
would be unpredictable. In addition, courts outside the United
States are sometimes less willing to protect trade secrets.
Moreover, if our
6
competitors independently develop information that is equivalent
to our trade secrets, it will be more difficult for us to
enforce our rights and our business could be harmed.
If we are not able to defend the patent or trade secret
protection position of our technologies and drug candidates,
then we will not be able to exclude competitors from developing
or marketing competing drugs, and we may not generate enough
revenue from product sales to justify the cost of development of
our drugs and to achieve or maintain profitability.
If we are sued for infringing intellectual property rights of
third parties, such litigation will be costly and time
consuming, and an unfavorable outcome would have a significant
adverse effect on our business.
Our ability to commercialize drugs depends on our ability to
sell such drugs without infringing the patents or other
proprietary rights of third parties. Numerous U.S. and foreign
issued patents and pending patent applications, owned by third
parties exist in the areas that we are exploring. In addition,
because patent applications can take several years to issue,
there may be currently pending applications, unknown to us,
which may later result in issued patents that our drug
candidates may infringe. There could also be existing patents of
which we are not aware that our drug candidates may
inadvertently infringe.
In particular, we are aware of an issued U.S. patent and at
least one pending U.S. patent application assigned to
Curis, Inc., or Curis, relating to certain compounds in the
quinazolinone class. Ispinesib falls into this class of
compounds. The Curis patent claims a method of use for
inhibiting signaling by what is called the hedgehog pathway
using certain such compounds. Curis has pending applications in
Europe, Japan, Australia and Canada with claims covering certain
quinazolinone compounds, compositions thereof and/or methods of
their use. We are also aware that two of the Australian
applications have been allowed and two of the European
applications have been granted. In Europe, Australia and
elsewhere, the grant of a patent may be opposed by one or more
parties. We and GSK have each opposed the granting of certain
such patents to Curis in Europe and in Australia. Curis or a
third party may assert that the sale of ispinesib may infringe
one or more of these or other patents. We believe that we have
valid defenses against the Curis patents if asserted against us.
However, we cannot guarantee that a court would find such
defenses valid or that such oppositions would be successful. We
have not attempted to obtain a license to this patent. If we
decide to obtain a license to this patent, we cannot guarantee
that we would be able to obtain such a license on commercially
reasonable terms, or at all.
In addition, we are aware of various issued U.S. and foreign
patents and pending U.S. and foreign patent applications
assigned to Fisher Scientific International, Inc., or Fisher
(formerly Cellomics, Inc.), relating to an automated method for
analyzing cells. Fisher or a third party may assert that our
Cytometrix technologies for cell analysis fall within the scope
of, and thus infringe, one or more of these patents. We have
received a letter from Fisher notifying us that Fisher believes
we may be practicing one or more of their patents and that
Fisher offers a use license for such patents through its
licensing program. We believe that we have persuasive defenses
to such an assertion. Moreover, the grant of Fisher’s
European patent has been opposed by another company. However, we
cannot guarantee that a court would find such defenses
persuasive or that such opposition would be successful. If we
decide to obtain a license to these patents, we cannot guarantee
that we would be able to obtain such a license on commercially
reasonable terms, or at all.
Other future products of ours may be impacted by patents of
companies engaged in competitive programs with significantly
greater resources (such as Merck & Co., Inc., or Merck,
and Bristol-Myers Squibb, or BMS). Further development of these
products could be impacted by these patents and result in the
expenditure of significant legal fees.
7
If a third party claims that our actions infringe on their
patents or other proprietary rights, we could face a number of
issues that could seriously harm our competitive position,
including, but not limited to:
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infringement and other intellectual property claims that, with
or without merit, can be costly and time consuming to litigate
and can delay the regulatory approval process and divert
management’s attention from our core business strategy; |
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substantial damages for past infringement which we may have to
pay if a court determines that our drugs or technologies
infringe a competitor’s patent or other proprietary rights; |
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a court prohibiting us from selling or licensing our drugs or
technologies unless the holder licenses the patent or other
proprietary rights to us, which it is not required to
do; and |
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if a license is available from a holder, we may have to pay
substantial royalties or grant cross licenses to our patents or
other proprietary rights. |
We may become involved in disputes with our strategic
partners over intellectual property ownership, and publications
by our research collaborators and scientific advisors could
impair our ability to obtain patent protection or protect our
proprietary information, which, in either case, would have a
significant impact on our business.
Inventions discovered under our strategic alliance agreements
become jointly owned by our strategic partners and us in some
cases, and the exclusive property of one of us in other cases.
Under some circumstances, it may be difficult to determine who
owns a particular invention, or whether it is jointly owned, and
disputes could arise regarding ownership of those inventions.
These disputes could be costly and time consuming, and an
unfavorable outcome would have a significant adverse effect on
our business if we were not able to protect or license rights to
these inventions. In addition, our research collaborators and
scientific advisors have contractual rights to publish our data
and other proprietary information, subject to our prior review.
Publications by our research collaborators and scientific
advisors containing such information, either with our permission
or in contravention of the terms of their agreements with us,
may impair our ability to obtain patent protection or protect
our proprietary information, which could significantly harm our
business.
To the extent we elect to fund the development of a drug
candidate or the commercialization of a drug at our expense, we
will need substantial additional funding.
The discovery, development and commercialization of novel small
molecule drugs focused on the cytoskeleton for the treatment of
a wide array of diseases is costly. As a result, to the extent
we elect to fund the development of a drug candidate or the
commercialization of a drug at our expense, we will need to
raise additional capital to:
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expand our research and development and technologies; |
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fund clinical trials and seek regulatory approvals; |
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build or access manufacturing and commercialization capabilities; |
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implement additional internal systems and infrastructure; |
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maintain, defend and expand the scope of our intellectual
property; and |
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hire and support additional management and scientific personnel. |
Our future funding requirements will depend on many factors,
including, but not limited to:
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the rate of progress and cost of our clinical trials and other
research and development activities; |
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the costs and timing of seeking and obtaining regulatory
approvals; |
8
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the costs associated with establishing manufacturing and
commercialization capabilities; |
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the costs of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights; |
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• |
the costs of acquiring or investing in businesses, products and
technologies; |
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the effect of competing technological and market
developments; and |
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the payment and other terms and timing of any strategic
alliance, licensing or other arrangements that we may establish. |
Until we can generate a sufficient amount of product revenue to
finance our cash requirements, which we may never do, we expect
to finance future cash needs primarily through public or private
equity offerings, debt financings and strategic alliances. We
cannot be certain that additional funding will be available on
acceptable terms, or at all. If we are not able to secure
additional funding when needed, we may have to delay, reduce the
scope of or eliminate one or more of our clinical trials or
research and development programs or future commercialization
initiatives.
We have limited capacity to carry out our own clinical trials
in connection with the development of our drug candidates and
potential drug candidates, and to the extent we elect to develop
a drug candidate without a strategic partner we will need to
expand our development capacity, and we will require additional
funding.
The development of drug candidates is complicated, and requires
resources and experience for which we currently have limited
resources. Currently, we generally rely on our strategic
partners to carry out these activities for certain of our drug
candidates that are in clinical trials. We do not have a partner
for our cardiac myosin activator drug candidate,
CK-1827452, and, in the
event GSK elects to terminate its development efforts, we do not
have an alternative partner for our current and potential cancer
drug candidates. Pursuant to the amendment of our Collaboration
and License Agreement with GSK, we may initiate and conduct
clinical trials for our drug candidate
SB-743921 for the
treatment of non-Hodgkin’s lymphoma, Hodgkin’s
lymphoma, and multiple myeloma. For the clinical trials we
conduct with SB-743921
for these hematologic cancer indications, under the terms of our
amended agreement with GSK, we plan to rely on contractors for
the manufacture and distribution of clinical supplies. To the
extent we conduct clinical trials for a drug candidate without
support from a strategic partner, as we are doing with
CK-1827452, and as we
currently plan to do for
SB-743921, we will need
to develop additional skills, technical expertise and resources
necessary to carry out such development efforts on our own or
through the use of other third parties, such as contract
research organizations, or CROs.
If we utilize CROs, we will not have control over many aspects
of their activities, and will not be able to fully control the
amount or timing of resources that they devote to our programs.
These third parties also may not assign as high a priority to
our programs or pursue them as diligently as we would if we were
undertaking such programs ourselves, and therefore may not
complete their respective activities on schedule. CROs may also
have relationships with our competitors and potential
competitors, and may prioritize those relationships ahead of
their relationships with us. Typically, we would prefer to
qualify more than one vendor for each function performed outside
of our control, which could be time consuming and costly. The
failure of CROs to carry out development efforts on our behalf
according to our requirements and FDA or other regulatory
agencies’ standards, or our failure to properly coordinate
and manage such efforts, could increase the cost of our
operations and delay or prevent the development, approval and
commercialization of our drug candidates.
If we fail to develop the additional skills, technical expertise
and resources necessary to carry out the development of our drug
candidates, or if we fail to effectively manage our CROs
carrying out such development, the commercialization of our drug
candidates will be delayed or prevented.
9
We currently have no marketing or sales staff, and if we are
unable to enter into or maintain strategic alliances with
marketing partners or if we are unable to develop our own sales
and marketing capabilities, we may not be successful in
commercializing our potential drugs.
We currently have no sales, marketing or distribution
capabilities. To commercialize our drugs that we determine not
to market on our own, we will depend on strategic alliances with
third parties, such as GSK, which have established distribution
systems and direct sales forces. If we are unable to enter into
such arrangements on acceptable terms, we may not be able to
successfully commercialize such drugs.
We plan to commercialize drugs on our own, with or without a
partner, that can be effectively marketed and sold in
concentrated markets that do not require a large sales force to
be competitive. To achieve this goal, we will need to establish
our own specialized sales force and marketing organization with
technical expertise and with supporting distribution
capabilities. Developing such an organization is expensive and
time consuming and could delay a product launch. In addition, we
may not be able to develop this capacity efficiently, or at all,
which could make us unable to commercialize our drugs.
To the extent that we are not successful in commercializing any
drugs ourselves or through a strategic alliance, our product
revenues will suffer, we will incur significant additional
losses and the price of our common stock will be negatively
affected.
We have no manufacturing capacity and depend on our partners
or contract manufacturers to produce our clinical trial drug
supplies for each of our drug candidates and potential drug
candidates, and anticipate continued reliance on contract
manufacturers for the development and commercialization of our
potential drugs.
We do not currently operate manufacturing facilities for
clinical or commercial production of our drug candidates or
potential drug candidates that are under development. We have
limited experience in drug formulation and manufacturing, and we
lack the resources and the capabilities to manufacture any of
our drug candidates on a clinical or commercial scale. As a
result, we currently rely on our partner, GSK, to manufacture
supply, store and distribute drug supplies for the ispinesib and
SB-743921 clinical
trials (and the planned
GSK-923295 clinical
trial). For our drug candidate
CK-1827452, and our
drug candidate
SB-743921 for
non-Hodgkin’s lymphoma, Hodgkin’s lymphoma, and
multiple myeloma, we currently rely on a limited number of
contract manufacturers, and, in particular, we expect to rely on
single-source contract manufacturers for the active
pharmaceutical ingredient and the drug product supply for our
clinical trials. In addition, we anticipate continued reliance
on a limited number of contract manufacturers. Any performance
failure on the part of our existing or future contract
manufacturers could delay clinical development or regulatory
approval of our drug candidates or commercialization of our
drugs, producing additional losses and depriving us of potential
product revenues.
Our drug candidates require precise, high quality manufacturing.
Our failure or our contract manufacturer’s failure to
achieve and maintain high manufacturing standards, including the
incidence of manufacturing errors, could result in patient
injury or death, product recalls or withdrawals, delays or
failures in product testing or delivery, cost overruns or other
problems that could seriously hurt our business. Contract drug
manufacturers often encounter difficulties involving production
yields, quality control and quality assurance, as well as
shortages of qualified personnel. These manufacturers are
subject to stringent regulatory requirements, including the
FDA’s current good manufacturing practices regulations and
similar foreign laws, as well as ongoing periodic unannounced
inspections by the FDA, the U.S. Drug Enforcement Agency
and other regulatory agencies to ensure strict compliance with
current good manufacturing practices and other applicable
government regulations and corresponding foreign standards.
However, we do not have control over contract
manufacturers’ compliance with these regulations and
standards. If one of our contract manufacturers fails to
maintain compliance, the production of our drug candidates could
be interrupted, resulting in delays,
10
additional costs and potentially lost revenues. Additionally,
our contract manufacturer must pass a preapproval inspection
before we can obtain marketing approval for any of our drug
candidates in development.
If the FDA or other regulatory agencies approve any of our drug
candidates for commercial sale, we will need to manufacture them
in larger quantities. To date, our drug candidates have been
manufactured only in small quantities for preclinical testing
and clinical trials. We may not be able to successfully increase
the manufacturing capacity, whether in collaboration with
contract manufacturers or on our own, for any of our drug
candidates in a timely or economic manner, or at all.
Significant scale-up of
manufacturing may require additional validation studies, which
the FDA must review and approve. If we are unable to
successfully increase the manufacturing capacity for a drug
candidate, the regulatory approval or commercial launch of any
related drugs may be delayed or there may be a shortage in
supply. Even if any contract manufacturer makes improvements in
the manufacturing process for our drug candidates, we may not
own, or may have to share, the intellectual property rights to
such improvements.
In addition, our existing and future contract manufacturers may
not perform as agreed or may not remain in the contract
manufacturing business for the time required to successfully
produce, store and distribute our drug candidates. In the event
of a natural disaster, business failure, strike or other
difficulty, we may be unable to replace such contract
manufacturer in a timely manner and the production of our drug
candidates would be interrupted, resulting in delays and
additional costs.
Switching manufacturers may be difficult and time consuming
because the number of potential manufacturers is limited and the
FDA must approve any replacement manufacturer or manufacturing
site prior to the manufacturing of our drug candidates. Such
approval would require new testing and compliance inspections.
In addition, a new manufacturer or manufacturing site would have
to be educated in, or develop substantially equivalent processes
for, production of our drugs after receipt of FDA approval. It
may be difficult or impossible for us to find a replacement
manufacturer on acceptable terms quickly, or at all.
We expect to expand our development, clinical research, sales
and marketing capabilities, and as a result, we may encounter
difficulties in managing our growth, which could disrupt our
operations.
We expect to have significant growth in expenditures, the number
of our employees and the scope of our operations, in particular
with respect to those drug candidates that we elect to develop
or commercialize independently or together with a partner. To
manage our anticipated future growth, we must continue to
implement and improve our managerial, operational and financial
systems, expand our facilities and continue to recruit and train
additional qualified personnel. Due to our limited resources, we
may not be able to effectively manage the expansion of our
operations or recruit and train additional qualified personnel.
The physical expansion of our operations may lead to significant
costs and may divert our management and business development
resources. Any inability to manage growth could delay the
execution of our business plans or disrupt our operations.
The failure to attract and retain skilled personnel could
impair our drug development and commercialization efforts.
Our performance is substantially dependent on the performance of
our senior management and key scientific and technical
personnel, particularly James H. Sabry, M.D., Ph.D.,
our President and Chief Executive Officer, Robert I. Blum, our
Executive Vice President, Corporate Development and Commercial
Operations and Chief Business Officer, Andrew A.
Wolff, M.D., F.A.C.C., our Senior Vice President, Clinical
Research and Chief Medical Officer, Sharon A. Surrey-Barbari,
our Senior Vice President, Finance and Chief Financial Officer,
David J. Morgans, Ph.D., our Senior Vice President of Drug
Discovery and Development, and Jay K. Trautman, Ph.D., our
Vice President of Discovery Biology and Technology. The
employment of these individuals and our other personnel is
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terminable at will with short or no notice. We carry key person
life insurance on James H. Sabry. The loss of the services of
any member of our senior management, scientific or technical
staff may significantly delay or prevent the achievement of drug
development and other business objectives by diverting
management’s attention to transition matters and
identification of suitable replacements, and could have a
material adverse effect on our business, operating results and
financial condition. We also rely on consultants and advisors to
assist us in formulating our research and development strategy.
All of our consultants and advisors are either self-employed or
employed by other organizations, and they may have conflicts of
interest or other commitments, such as consulting or advisory
contracts with other organizations, that may affect their
ability to contribute to us.
In addition, we believe that we will need to recruit additional
executive management and scientific and technical personnel.
There is currently intense competition for skilled executives
and employees with relevant scientific and technical expertise,
and this competition is likely to continue. Our inability to
attract and retain sufficient scientific, technical and
managerial personnel could limit or delay our product
development efforts, which would adversely affect the
development of our drug candidates and commercialization of our
potential drugs and growth of our business.
Risks Related to Our Industry
Our competitors may develop drugs that are less expensive,
safer, or more effective, which may diminish or eliminate the
commercial success of any drugs that we may commercialize.
We compete with companies that are also developing drug
candidates that focus on the cytoskeleton, as well as companies
that have developed drugs or are developing alternative drug
candidates for cancer and cardiovascular, infectious and other
diseases. For example, with respect to cancer, BMS’ Taxol,
Sanofi Aventis Pharmaceuticals Inc.’s Taxotere and generic
equivalents of Taxol are currently available on the market and
commonly used in cancer treatment. Furthermore, we are aware
that Merck, Chiron Corp., BMS and others are conducting research
focused on KSP and other mitotic kinesins. In addition, BMS,
Merck, Novartis and other pharmaceutical and biopharmaceutical
companies are developing other approaches to inhibiting mitosis.
With respect to heart failure, we are aware of a potentially
competitive approach being developed by Orion Pharma in
collaboration with Abbott Laboratories.
Our competitors may:
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develop drug candidates and market drugs that are less expensive
or more effective than our future drugs; |
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commercialize competing drugs before we or our partners can
launch any drugs developed from our drug candidates; |
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hold or obtain proprietary rights that could prevent us from
commercializing our products; |
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initiate or withstand substantial price competition more
successfully than we can; |
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have greater success in recruiting skilled scientific workers
from the limited pool of available talent; |
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more effectively negotiate third-party licenses and strategic
alliances; |
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take advantage of acquisition or other opportunities more
readily than we can; |
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develop drug candidates and market drugs that increase the
levels of safety or efficacy or alter other drug candidate
profile aspects that our drug candidates need to show in order
to obtain regulatory approval; and |
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introduce therapies or market drugs that render the market
opportunity for our potential drugs obsolete. |
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We will compete for market share against large pharmaceutical
and biotechnology companies and smaller companies that are
collaborating with larger pharmaceutical companies, new
companies, academic institutions, government agencies and other
public and private research organizations. Many of these
competitors, either alone or together with their partners, may
develop new drug candidates that will compete with ours. These
competitors may, and in certain cases do, operate larger
research and development programs or have substantially greater
financial resources than we do. Our competitors may also have
significantly greater experience in:
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developing drug candidates; |
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undertaking preclinical testing and clinical trials; |
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building relationships with key customers and opinion-leading
physicians; |
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obtaining and maintaining FDA and other regulatory approvals of
drug candidates; |
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formulating and manufacturing drugs; and |
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launching, marketing and selling drugs. |
If our competitors market drugs that are less expensive, safer
or more efficacious than our potential drugs, or that reach the
market sooner than our potential drugs, we may not achieve
commercial success. In addition, the life sciences industry is
characterized by rapid technological change. Because our
research approach integrates many technologies, it may be
difficult for us to stay abreast of the rapid changes in each
technology. If we fail to stay at the forefront of technological
change we may be unable to compete effectively. Our competitors
may render our technologies obsolete by advances in existing
technological approaches or the development of new or different
approaches, potentially eliminating the advantages in our drug
discovery process that we believe we derive from our research
approach and proprietary technologies.
The regulatory approval process is expensive, time consuming
and uncertain and may prevent our partners or us from obtaining
approvals to commercialize some or all of our
drug candidates.
The research, testing, manufacturing, selling and marketing of
drug candidates are subject to extensive regulation by the FDA
and other regulatory authorities in the United States and other
countries, which regulations differ from country to country.
Neither we nor our partners are permitted to market our
potential drugs in the United States until we receive approval
of an NDA from the FDA. Neither we nor our partners have
received marketing approval for any of Cytokinetics’ drug
candidates. Obtaining an NDA can be a lengthy, expensive and
uncertain process. In addition, failure to comply with the FDA
and other applicable foreign and U.S. regulatory
requirements may subject us to administrative or judicially
imposed sanctions. These include warning letters, civil and
criminal penalties, injunctions, product seizure or detention,
product recalls, total or partial suspension of production, and
refusal to approve pending NDAs, or supplements to
approved NDAs.
Regulatory approval of an NDA or NDA supplement is never
guaranteed, and the approval process typically takes several
years and is extremely expensive. The FDA also has substantial
discretion in the drug approval process. Despite the time and
expense exerted, failure can occur at any stage, and we could
encounter problems that cause us to abandon clinical trials or
to repeat or perform additional preclinical testing and clinical
trials. The number and focus of preclinical studies and clinical
trials that will be required for FDA approval varies depending
on the drug candidate, the disease or condition that the drug
candidate is designed to address, and the regulations applicable
to any particular drug candidate. The FDA can delay, limit or
deny approval of a drug candidate for many reasons, including:
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a drug candidate may not be safe or effective; |
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FDA officials may not find the data from preclinical testing and
clinical trials sufficient; |
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the FDA might not approve our or our contract
manufacturer’s processes or facilities; or |
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the FDA may change its approval policies or adopt new
regulations. |
If we or our partners receive regulatory approval for our
drug candidates, we will also be subject to ongoing FDA
obligations and continued regulatory review, such as continued
safety reporting requirements, and we may also be subject to
additional FDA post-marketing obligations, all of which may
result in significant expense and limit our ability to
commercialize our potential drugs.
Any regulatory approvals that we or our partners receive for our
drug candidates may be subject to limitations on the indicated
uses for which the drug may be marketed or contain requirements
for potentially costly post-marketing
follow-up studies. In
addition, if the FDA approves any of our drug candidates, the
labeling, packaging, adverse event reporting, storage,
advertising, promotion and record-keeping for the drug will be
subject to extensive regulatory requirements. The subsequent
discovery of previously unknown problems with the drug,
including adverse events of unanticipated severity or frequency,
or the discovery that adverse effects or toxicities previously
observed in preclinical research or clinical trials that were
believed to be minor actually constitute much more serious
problems, may result in restrictions on the marketing of the
drug, and could include withdrawal of the drug from the market.
The FDA’s policies may change and additional government
regulations may be enacted that could prevent or delay
regulatory approval of our drug candidates. We cannot predict
the likelihood, nature or extent of adverse government
regulation that may arise from future legislation or
administrative action, either in the United States or abroad. If
we are not able to maintain regulatory compliance, we might not
be permitted to market our drugs and our business could suffer.
If physicians and patients do not accept our drugs, we may be
unable to generate significant revenue, if any.
Even if our drug candidates obtain regulatory approval,
resulting drugs, if any, may not gain market acceptance among
physicians, healthcare payors, patients and the medical
community. Even if the clinical safety and efficacy of drugs
developed from our drug candidates are established for purposes
of approval, physicians may elect not to recommend these drugs
for a variety of reasons including, but not limited to:
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timing of market introduction of competitive drugs; |
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clinical safety and efficacy of alternative drugs or treatments; |
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cost-effectiveness; |
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availability of coverage and reimbursement from health
maintenance organizations and other third-party payors; |
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convenience and ease of administration; |
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prevalence and severity of adverse side effects; |
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other potential disadvantages relative to alternative treatment
methods; and |
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insufficient marketing and distribution support. |
If our drugs fail to achieve market acceptance, we may not be
able to generate significant revenue and our business would
suffer.
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The coverage and reimbursement status of newly approved drugs
is uncertain and failure to obtain adequate coverage and
reimbursement could limit our ability to market any drugs we may
develop and decrease our ability to generate revenue.
There is significant uncertainty related to the coverage and
reimbursement of newly approved drugs. The commercial success of
our potential drugs in both domestic and international markets
is substantially dependent on whether third-party coverage and
reimbursement is available for the ordering of our potential
drugs by the medical profession for use by their patients.
Medicare, Medicaid, health maintenance organizations and other
third-party payors are increasingly attempting to contain
healthcare costs by limiting both coverage and the level of
reimbursement of new drugs, and, as a result, they may not cover
or provide adequate payment for our potential drugs. They may
not view our potential drugs as cost-effective and reimbursement
may not be available to consumers or may not be sufficient to
allow our potential drugs to be marketed on a competitive basis.
If we are unable to obtain adequate coverage and reimbursement
for our potential drugs, our ability to generate revenue may be
adversely affected. Likewise, legislative or regulatory efforts
to control or reduce healthcare costs or reform government
healthcare programs could result in lower prices or rejection of
coverage and reimbursement for our potential drugs. Changes in
coverage and reimbursement policies or healthcare cost
containment initiatives that limit or restrict reimbursement for
our drugs may cause our revenue to decline.
We may be subject to costly product liability claims and may
not be able to obtain adequate insurance.
If we conduct clinical trials in humans, we face the risk that
the use of our drug candidates will result in adverse effects.
We currently maintain product liability insurance in the amount
of $10.0 million with a $5,000 deductible per occurrence.
We cannot predict the possible harms or side effects that may
result from our clinical trials. We may not have sufficient
resources to pay for any liabilities resulting from a claim
excluded from, or beyond the limit of, our insurance coverage.
In addition, once we have commercially launched drugs based on
our drug candidates, we will face exposure to product liability
claims. This risk exists even with respect to those drugs that
are approved for commercial sale by the FDA and manufactured in
facilities licensed and regulated by the FDA. We intend to
secure limited product liability insurance coverage, but may not
be able to obtain such insurance on acceptable terms with
adequate coverage, or at reasonable costs. There is also a risk
that third parties that we have agreed to indemnify could incur
liability, or that third parties that have agreed to indemnify
us do not fulfill their obligations. Even if we were ultimately
successful in product liability litigation, the litigation would
consume substantial amounts of our financial and managerial
resources and may create adverse publicity, all of which would
impair our ability to generate sales of the affected product as
well as our other potential drugs. Moreover, product recalls may
be issued at our discretion or at the direction of the FDA,
other governmental agencies or other companies having regulatory
control for drug sales. If product recalls occur, they are
generally expensive and often have an adverse effect on the
image of the drugs being recalled as well as the reputation of
the drug’s developer or manufacturer.
We may be subject to damages resulting from claims that we or
our employees have wrongfully used or disclosed alleged trade
secrets of their former employers.
Many of our employees were previously employed at universities
or other biotechnology or pharmaceutical companies, including
our competitors or potential competitors. Although no claims
against us are currently pending, we may be subject to claims
that these employees or we have inadvertently or otherwise used
or disclosed trade secrets or other proprietary information of
their former employers. Litigation may be necessary to defend
against these claims. If we fail in defending such claims, in
addition to paying monetary damages, we may lose valuable
intellectual property rights or personnel. A loss of key
research personnel or their work product could hamper or prevent
our ability to commercialize certain potential drugs, which
could severely harm our business. Even if
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we are successful in defending against these claims, litigation
could result in substantial costs and be a distraction to
management.
We use hazardous chemicals and radioactive and biological
materials in our business. Any claims relating to improper
handling, storage or disposal of these materials could be time
consuming and costly.
Our research and development processes involve the controlled
use of hazardous materials, including chemicals and radioactive
and biological materials. Our operations produce hazardous waste
products. We cannot eliminate the risk of accidental
contamination or discharge and any resultant injury from those
materials. Federal, state and local laws and regulations govern
the use, manufacture, storage, handling and disposal of
hazardous materials. We may be sued for any injury or
contamination that results from our use or the use by third
parties of these materials. Compliance with environmental laws
and regulations is expensive, and current or future
environmental regulations may impair our research, development
and production efforts.
In addition, our partners may use hazardous materials in
connection with our strategic alliances. To our knowledge, their
work is performed in accordance with applicable biosafety
regulations. In the event of a lawsuit or investigation,
however, we could be held responsible for any injury caused to
persons or property by exposure to, or release of, these
hazardous materials used by these parties. Further, we may be
required to indemnify our partners against all damages and other
liabilities arising out of our development activities or drugs
produced in connection with these strategic alliances.
Our facilities in California are located near an earthquake
fault, and an earthquake or other types of natural disasters or
resource shortages could disrupt our operations and adversely
affect results.
Important documents and records, such as hard copies of our
laboratory books and records for our drug candidates and
compounds, are located in our corporate headquarters at a single
location in South San Francisco, California near active
earthquake zones. In the event of a natural disaster, such as an
earthquake, drought or flood, or localized extended outages of
critical utilities or transportation systems, we do not have a
formal business continuity or disaster recovery plan, and could
therefore experience a significant business interruption. In
addition, California from time to time has experienced shortages
of water, electric power and natural gas. Future shortages and
conservation measures could disrupt our operations and cause
expense, thus adversely affecting our business and financial
results.
Risks Related To Our Common Stock
We expect that our stock price will fluctuate significantly,
and you may not be able to resell your shares at or above your
investment price.
The stock market, particularly in recent years, has experienced
significant volatility, particularly with respect to
pharmaceutical, biotechnology and other life sciences company
stocks. The volatility of pharmaceutical, biotechnology and
other life sciences company stocks often does not relate to the
operating performance of the companies represented by the stock.
Factors that could cause volatility in the market price of our
common stock include, but are not limited to:
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results from, and any delays in, the clinical trials programs
for our drug candidates for the treatment of cancer and heart
failure, including the current clinical trials and proposed
clinical trials for ispinesib,
SB-743921 and
GSK-923295 for cancer,
and CK-1827452 for
heart failure, and including delays resulting from slower than
expected patient enrollment in such clinical trials; |
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delays in or discontinuation of the development of any of our
drug candidates by GSK; |
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failure or delays in entering additional drug candidates into
clinical trials; |
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failure or discontinuation of any of our research programs; |
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delays or other developments in establishing new strategic
alliances; |
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announcements concerning our strategic alliances with GSK or
AstraZeneca or future strategic alliances; |
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announcements concerning clinical trials being initiated or
conducted by the NCI; |
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issuance of new or changed securities analysts’ reports or
recommendations; |
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market conditions in the pharmaceutical, biotechnology and other
healthcare related sectors; |
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actual or anticipated fluctuations in our quarterly financial
and operating results; |
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developments or disputes concerning our intellectual property or
other proprietary rights; |
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introduction of technological innovations or new commercial
products by us or our competitors; |
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issues in manufacturing our drug candidates or drugs; |
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market acceptance of our drugs; |
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third-party healthcare coverage and reimbursement policies; |
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FDA or other U.S. or foreign regulatory actions affecting
us or our industry; |
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litigation or public concern about the safety of our drug
candidates or drugs; |
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additions or departures of key personnel; and |
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volatility in the stock prices of other companies in our
industry. |
These and other external factors may cause the market price and
demand for our common stock to fluctuate substantially, which
may limit or prevent investors from readily selling their shares
of common stock and may otherwise negatively affect the
liquidity of our common stock. In addition, when the market
price of a stock has been volatile, holders of that stock have
instituted securities class action litigation against the
company that issued the stock. If any of our stockholders
brought a lawsuit against us, we could incur substantial costs
defending the lawsuit. Such a lawsuit could also divert our
management’s time and attention.
If the ownership of our common stock continues to be highly
concentrated, it may prevent you and other stockholders from
influencing significant corporate decisions and may result in
conflicts of interest that could cause our stock price to
decline.
As of December 31, 2005, our executive officers, directors
and their affiliates beneficially owned or controlled
approximately 37% percent of the outstanding shares of our
common stock (after giving effect to the exercise of all
outstanding vested and unvested options and warrants).
Accordingly, these executive officers, directors and their
affiliates, acting as a group, will have substantial influence
over the outcome of corporate actions requiring stockholder
approval, including the election of directors, any merger,
consolidation or sale of all or substantially all of our assets
or any other significant corporate transactions. These
stockholders may also delay or prevent a change of control of
us, even if such a change of control would benefit our other
stockholders. The significant concentration of stock ownership
may adversely affect the trading price of our common stock due
to investors’ perception that conflicts of interest may
exist or arise.
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Future sales of common stock by our existing stockholders may
cause our stock price to fall.
The market price of our common stock could decline as a result
of sales of common stock by stockholders who held shares of our
capital stock prior to this offering, or the perception that
these sales could occur. These sales might also make it more
difficult for us to sell equity securities at a time and price
that we deem appropriate.
Evolving regulation of corporate governance and public
disclosure may result in additional expenses and continuing
uncertainty.
Changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley
Act of 2002, new Securities and Exchange Commission regulations
and Nasdaq National Market rules are creating uncertainty for
public companies. We are presently evaluating and monitoring
developments with respect to new and proposed rules and cannot
predict or estimate the amount of the additional costs we may
incur or the timing of such costs. For example, compliance with
the internal control requirements of Sarbanes-Oxley
Section 404 for the year ended December 31, 2005
requires the commitment of significant resources to document and
test the adequacy of our internal control over financial
reporting. While we are expending significant resources on the
required documentation and testing procedures required by
Section 404, we can provide no assurance as to conclusions
of management or by our independent registered public accounting
firm with respect to the effectiveness of our internal control
over financial reporting. These new or changed laws, regulations
and standards are subject to varying interpretations, in many
cases due to their lack of specificity, and, as a result, their
application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and
higher costs necessitated by ongoing revisions to disclosure and
governance practices. We are committed to maintaining high
standards of corporate governance and public disclosure. As a
result, we intend to invest the resources necessary to comply
with evolving laws, regulations and standards, and this
investment may result in increased general and administrative
expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities. If our
efforts to comply with new or changed laws, regulations and
standards differ from the activities intended by regulatory or
governing bodies, due to ambiguities related to practice or
otherwise, regulatory authorities may initiate legal proceedings
against us and our reputation and business may be harmed.
Volatility in the stock prices of other companies may
contribute to volatility in our stock price.
The stock market in general, and Nasdaq and the market for
technology companies in particular, have experienced significant
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those
companies. Further, there has been particular volatility in the
market prices of securities of early stage and development stage
life sciences companies. These broad market and industry factors
may seriously harm the market price of our common stock,
regardless of our operating performance. In the past, following
periods of volatility in the market price of a company’s
securities, securities class action litigation has often been
instituted. A securities class action suit against us could
result in substantial costs, potential liabilities and the
diversion of management’s attention and resources.
We have never paid dividends on our capital stock, and we do
not anticipate paying any cash dividends in the foreseeable
future.
We have paid no cash dividends on any of our classes of capital
stock to date and we currently intend to retain our future
earnings, if any, to fund the development and growth of our
businesses. In addition, the terms of existing or any future
debts may preclude us from paying these dividends.
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Our common stock is thinly traded and there may not be an
active, liquid trading market for our common stock.
There is no guarantee that an active trading market for our
common stock will be maintained on Nasdaq, or that the volume of
trading will be sufficient to allow for timely trades. Investors
may not be able to sell their shares quickly or at the latest
market price if trading in our stock is not active or if trading
volume is limited. In addition, if trading volume in our common
stock is limited, trades of relatively small numbers of shares
may have a disproportionate effect on the market price of our
common stock.
Risks Related To The Committed Equity Financing Facility With
Kingsbridge
Our committed equity financing facility with Kingsbridge may
not be available to us if we elect to make a draw down, may
require us to make additional “blackout” or other
payments to Kingsbridge, and may result in dilution to our
stockholders.
In October 2005, we entered into a committed equity financing
facility, or CEFF, with Kingsbridge. The CEFF entitles us to
sell and obligates Kingsbridge to purchase, from time to time
over a period of three years, shares of our common stock for
cash consideration up to an aggregate of $75 million,
subject to certain conditions and restrictions. Kingsbridge will
not be obligated to purchase shares under the CEFF unless
certain conditions are met, which include a minimum price for
our common stock; the accuracy of representations and warranties
made to Kingsbridge; compliance with laws; effectiveness of a
registration statement registering for resale the shares of
common stock to be issued in connection with the CEFF and the
continued listing of our stock on the Nasdaq National Stock
market. In addition, Kingsbridge is permitted to terminate the
CEFF if it determines that a material and adverse event has
occurred affecting our business, operations, properties or
financial condition and if such condition continues for a period
of 10 days from the date Kingsbridge provides us notice of
such material and adverse event. If we are unable to access
funds through the CEFF, or if the CEFF is terminated by
Kingsbridge, we may be unable to access capital on favorable
terms or at all.
We are entitled, in certain circumstances, to deliver a blackout
notice to Kingsbridge to suspend the use of the resale
registration statement and prohibit Kingsbridge from selling
shares under the resale registration statement. If we deliver a
blackout notice in the 15 trading days following the settlement
of a draw down, or if the resale registration statement is not
effective in circumstances not permitted by the agreement, then
we must make a payment to Kingsbridge, or issue Kingsbridge
additional shares in lieu of this payment, calculated on the
basis of the number of shares held by Kingsbridge (exclusive of
shares that Kingsbridge may hold pursuant to exercise of the
Kingsbridge warrant) and the change in the market price of our
common stock during the period in which the use of the
registration statement is suspended. If the trading price of our
common stock declines during a suspension of the resale
registration statement, the blackout or other payment could be
significant.
Should we sell shares to Kingsbridge under the CEFF, or issue
shares in lieu of a blackout payment, it will have a dilutive
effective on the holdings of our current stockholders, and may
result in downward pressure on the price of our common stock. If
we draw down under the CEFF, we will issue shares to Kingsbridge
at a discount of up to 10 percent from the volume weighted
average price of our common stock. If we draw down amounts under
the CEFF when our share price is decreasing, we will need to
issue more shares to raise the same amount than if our stock
price was higher. Issuances in the face of a declining share
price will have an even greater dilutive effect than if our
share price were stable or increasing, and may further decrease
our share price.
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