-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MMfid5Toncr20hk2Yw8CIoCQxuxVF5TMz7aSaBHXuFHCq3mVEiV22VuVZxUDwNCE ZTjEvYb638wxzJNK7raidQ== 0001012870-99-001566.txt : 19990517 0001012870-99-001566.hdr.sgml : 19990517 ACCESSION NUMBER: 0001012870-99-001566 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEMDEX CORP CENTRAL INDEX KEY: 0001047499 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 770465469 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-78505 FILM NUMBER: 99623745 BUSINESS ADDRESS: STREET 1: 3950 FABIAN WAY CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6508130300 MAIL ADDRESS: STREET 1: 3950 FABIAN WAY CITY: PALO ALTO STATE: CA ZIP: 94303 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on May 14, 1999 Registration No. 333-xxxxx - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 --------------- CHEMDEX CORPORATION (Exact Name of Registrant as Specified in its Charter) --------------- Delaware 5169 77-0465469 (State or Other (Primary Standard Industrial (I.R.S. Employer Jurisdiction of Incorporation or Classification Code Number) Identification Number) Organization)
3950 Fabian Way Palo Alto, CA 94303 (650) 813-0300 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------- David P. Perry President and Chief Executive Officer Chemdex Corporation 3950 Fabian Way Palo Alto, CA 94303 (650) 813-0300 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- Copies to: Jeffrey Y. Suto David J. Segre Sonya F. Erickson Michael S. Ringler Kenneth D. Cramer David R. Bowman Alissa L. Lee Wilson Sonsini Goodrich & Rosati Venture Law Group Professional Corporation Professional Corporation 650 Page Mill Road 2800 Sand Hill Road Palo Alto, California 94304 Menlo Park, California 94025 (650) 493-9300 (650) 854-4488
--------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
Title of Each Class of Maximum Aggregate Amount of Securities to be Registered Proposed Offering Price(1) Registration Fee - ------------------------------------------------------------------------------ Common Stock, par value $.0001......... $86,250,000 $23,978 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o). The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and we are not soliciting offers to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS (Subject to Completion) Issued , 1999 Shares [LOGO FOR CHEMDEX CORPORATION] COMMON STOCK ----------- Chemdex Corporation is offering shares of its common stock. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $ and $ per share. ----------- We have filed an application for the common stock to be quoted on the Nasdaq National Market under the symbol "CMDX." ----------- Investing in the common stock involves risks. See "Risk Factors" beginning on page 5. ----------- PRICE $ A SHARE -----------
Underwriting Price to Discounts and Proceeds to Public Commissions Chemdex -------- ------------- ----------- Per Share........................ $ $ $ Total............................ $ $ $
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Chemdex has granted the underwriters the right to purchase up to an additional shares of common stock to cover over-allotments. Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock to purchasers on , 1999. ----------- MORGAN STANLEY DEAN WITTER BANCBOSTON ROBERTSON STEPHENS VOLPE BROWN WHELAN & COMPANY , 1999 TABLE OF CONTENTS
Page ---- Prospectus Summary................... 3 Risk Factors......................... 5 Special Note Regarding Forward- Looking Statements.................. 19 Use of Proceeds...................... 20 Dividend Policy...................... 20 Capitalization....................... 21 Dilution............................. 22 Selected Financial Data.............. 23 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 24
Page ---- Business........................... 32 Management......................... 45 Related Party Transactions......... 55 Principal Stockholders............. 58 Description of Capital Stock....... 61 Shares Eligible for Future Sale.... 64 Underwriters....................... 66 Legal Matters...................... 68 Experts............................ 68 Change in Independent Accountants.. 68 Additional Information............. 69 Index to Financial Statements...... F-1
We were incorporated in Delaware in September 1997. Our principal executive offices are located at 3950 Fabian Way, Palo Alto, California 94303, and our telephone number is (650) 813-0300. We maintain a worldwide web site at www.chemdex.com. The information in our web site is not incorporated by reference into this prospectus. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in those jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock. In this prospectus, unless the context otherwise requires, the "company," "Chemdex," "we," "us," and "our" refer to Chemdex Corporation, and "common stock" refers to the common stock, par value $.0001 per share, of Chemdex. Unless otherwise specifically stated, the information in this prospectus has been adjusted to reflect the conversion of all outstanding shares of our preferred stock into common stock upon the completion of this offering, but does not take into account the possible issuance of additional shares of common stock to the underwriters pursuant to their right to purchase additional shares to cover over-allotments. Until , 1999, 25 days after the date of this prospectus, all dealers that buy, sell or trade in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ---------------- Chemdex, Chemdex's logo, Chemdex Marketplace and chemdex.com are some of our trademarks. Each other trademark, trade name or service mark of any other company appearing in this prospectus is the property of its holder. 2 [Inside Front Cover--a foldout of graphics and text] [Left Page] [Artwork of screen shots illustrating the graphical user interface for ordering products through the Chemdex Marketplace] Chemdex: Search less . . . Discover more Chemdex enables life sciences enterprises, researchers and suppliers to efficiently buy and sell research products through the Chemdex Marketplace, a secure, Internet-based procurement solution. [Right Page] [Artwork illustrating the benefits of the Chemdex Marketplace to enterprise customers, researchers and suppliers of life sciences research products] Enterprise . Automated Procurement . Volume Discounts . Standardized Approvals Researchers . Expanded Product Search . Online Product Comparison . Streamlined Ordering Suppliers . New Customers . Timely Product Updates . Supplier-Neutral Marketplace PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding Chemdex and the common stock being sold in this offering and our financial statements and notes thereto appearing elsewhere in this prospectus. Chemdex is a leading provider of e-commerce solutions to the life sciences industry. We enable life sciences enterprises, researchers and suppliers to efficiently buy and sell research products through the Chemdex Marketplace, a secure, Internet-based procurement solution. The Chemdex Marketplace utilizes an advanced search engine and transaction software to allow users to easily identify, locate and purchase life sciences research products from a database of approximately 240,000 products from approximately 100 suppliers. We have agreements in place with additional suppliers and distributors to add approximately 550,000 products to the Chemdex Marketplace during 1999. We attract suppliers by providing them with a neutral marketplace and allowing them to reach incremental customers. We believe that a growing number of suppliers and products in the Chemdex Marketplace will potentially draw more enterprise customers to adopt our procurement solution and accelerate its usage by researchers. To encourage adoption of our solution by enterprises, we minimize the upfront commitment of time and capital required to install, maintain and use our procurement solution, thereby encouraging enterprise adoption. We also educate users within our enterprise customers about the benefits of our solution and provide training on its use, thereby accelerating system usage. Recently, the widespread adoption of intranets and the acceptance of the Internet as a business communications platform has created a foundation for business-to-business e-commerce that offers the potential for organizations to streamline complex processes, lower costs and improve productivity. According to Forrester Research, business-to-business e-commerce is expected to grow from $43 billion in 1998 to $1.3 trillion in 2003, accounting for more than 90% of the dollar value of e-commerce in the United States by 2003. The life sciences research products industry is particularly well suited for business-to-business e-commerce because of its high degree of fragmentation and because of the inefficiencies inherent in its traditional paper-based procurement process. According to the Laboratory Products Association, the North American life sciences research products market was approximately $9.4 billion in 1998. We believe the Chemdex Marketplace and procurement solution provide significant benefits to enterprises, researchers and suppliers. Chemdex's procurement solution enables enterprises to reduce procurement costs and obtain volume discounts and other economies of scale by integrating their customized workflow, business rules and processes, and negotiated supplier pricing with the Chemdex Marketplace. Our solution automates, consolidates and monitors the approval and invoicing process as well as order placement and delivery information for the enterprise. Researchers, research assistants and other users within the enterprises benefit from the Chemdex Marketplace because it offers them convenient one-stop-shopping. A researcher can use our automated ordering and approval process to purchase and track orders, resulting in significant time savings. We offer suppliers a cost-effective opportunity to reach more customers and sell more products by establishing or enhancing their Internet presence and providing links to existing online or electronic catalogs. The Chemdex Marketplace also offers suppliers the capability to implement customer-specific pricing, update product information and introduce new products without being limited by catalog publication cycles. Our strategic objective is to expand our position as a leading e-commerce solution for the life science research products market. In order to implement this objective, we intend to capitalize on our first-mover advantage and build brand awareness. To accomplish this, we have entered into strategic relationships with VWR Scientific Products, Inc., one of the laboratory supply industry's largest distributors, and the Biotechnology Industry Organization, a leading industry organization. Further, we intend to increase usage of the Chemdex Marketplace and drive operating efficiencies, maintain technological leadership and expand internationally. 3 THE OFFERING Common stock offered.............. shares Common stock to be outstanding after the offering............... shares Use of proceeds................... For working capital and general corporate purposes. See "Use of Proceeds." Dividend policy................... We do not anticipate paying cash dividends. Proposed Nasdaq National Market symbol........................... CMDX
The number of shares of our common stock to be outstanding immediately after the offering is based on the number of shares outstanding at May 12, 1999. This number does not take into account 8,061,161 shares of our common stock subject to options and warrants outstanding or reserved for issuance under our stock plans at May 12, 1999. SUMMARY FINANCIAL DATA
September 4, 1997 Three Months (Inception) Ended through Year Ended March 31, December 31, December 31, ------------- 1997 1998 1998 1999 ------------ ------------ ----- ------ (in thousands, except per share data) Statements of Operations Data: Net revenues......................... $ -- $ 29 $ -- $ 165 Operating loss....................... (403) (8,796) (795) (6,839) Net loss............................. (403) (8,488) (793) (6,809) Basic and diluted net loss per share............................... $(.12) $(2.40) $(.23) $(1.69) Weighted average common shares--basic and diluted......................... 3,409 3,543 3,409 4,032 Pro forma basic and diluted net loss per share........................... $ (.43) $ (.24) Pro forma weighted average common shares--basic and diluted........... 19,905 28,557
The following table presents actual summary balance sheet data as of March 31, 1999, which have been adjusted to reflect the subsequent conversion of all outstanding shares of our preferred stock into 32,691,416 shares of common stock upon completion of this offering, our sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share and the application of our estimated net proceeds. See "Use of Proceeds" and "Capitalization."
As of March 31, 1999 ------------------------- Actual As Adjusted ------------ ------------ (in thousands) Balance Sheet Data: Cash and cash equivalents........................... $ 27,784 $ Working capital..................................... 24,360 Total assets........................................ 32,636 Long-term debt and capital lease obligations, net of current portion.................................... 803 Total liabilities................................... 4,770 Total stockholders' equity.......................... 27,866
4 RISK FACTORS This offering and an investment in our common stock involve a high degree of risk. You should carefully consider the following risks before making an investment decision. The trading price of our common stock could decline due to any of these risks, and you could lose all or part of your investment. You also should refer to the other information appearing elsewhere in this prospectus, including our combined financial statements and the related notes thereto. This prospectus contains forward-looking statements. These statements relate to future events or future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of such terms and other comparable terminology. These statements are only predictions. In evaluating these statements, you should specifically consider various factors, including the risks outlined below. These factors may cause our actual results to differ materially from any forward-looking statement. See "Special Note Regarding Forward-Looking Statements." Our limited operating history makes it difficult for you to evaluate our business and our prospects We were founded in September 1997 and have a limited operating history. Prior to investing in our common stock, you should consider the risks and difficulties that we face as an early stage company in a new and rapidly evolving market. Some of these specific risks and difficulties include: . we may be unable to significantly increase and maintain customer adoption and use of our Internet-based procurement solution; . we depend substantially on a procurement solution that has been present in the market for a limited time and may not be successful; . we may be unable to develop and enhance the Chemdex brand; . we may be unable to maintain existing or establish new relationships with suppliers of life sciences research products; . we depend substantially on revenues from product sales and we may be unable to significantly increase revenues from product sales or generate revenues from other sources; . we may be unable to adapt to rapidly changing technologies and developing markets; . we may be unable to effectively manage our rapidly expanding operations and the increasing use of our services; . we may be unable to attract, retain and motivate qualified personnel, particularly people who understand specialized life sciences research products or the life sciences industry in general; . we may be unable to compete in a highly competitive market dominated by larger, more established companies with substantial financial resources and significant customer relationships; and . we may be unable to comply with applicable laws and regulations to economically compete in a highly competitive market. We have generated only immaterial revenues to date. In 1998, we generated revenues of $29,000 and in the three months ended March 31, 1999 we generated revenues of $165,000. Due to our limited operating history, we believe that period-to-period comparisons of our revenues and results of operation are not meaningful. As a result, you should not rely on our revenues or results of operations for any prior period as an indication of future performance or prospects. 5 We have a history of losses and anticipate continued losses for the foreseeable future We have had substantial losses since our inception. We currently expect our losses to increase in the future and we cannot assure you that we will ever achieve or sustain profitability. As of March 31, 1999, we had an accumulated deficit of approximately $15.7 million. The extent of these losses will be contingent, in part, on the amount of growth in our revenue, and we have only recognized immaterial revenues to date. The extent of these losses will also be contingent, in part, on the amount of growth in our operating expenses, which we plan to increase. If our revenues fail to grow at anticipated rates or our operating expenses increase without a commensurate increase in our revenues, or we fail to adjust operating expense levels accordingly, our business, revenues, results of operations and financial condition will be negatively affected. To date we have derived our revenues primarily from product sales. In order to increase our revenues, we must, among other things: . attract new enterprise customers and retain existing enterprise customers; . encourage researchers employed by our enterprise customers to adopt our Internet-based procurement solution and to use it frequently; . increase our product offering by adding and maintaining supplier relationships; and . develop new sources of revenues beyond our existing revenue sources. If we are unable to accomplish one or more of these objectives, our revenues may not grow as we anticipate, if at all, and our business, revenues, financial condition and results of operations will be negatively affected. We may not be able to build on our current sources of revenues by adding additional products or services. Even if we do add additional products or services, there are economic, legal, regulatory and other risks associated with adding these new revenue sources. For example, we may post advertisements on our web site to generate advertising revenue. However, our supplier relationships may be harmed if our suppliers associate advertisements posted on our web site with a bias in our offering of life sciences research products. Our business model is not proven and may not be successful Our business-to-business e-commerce model is based on the development of the Chemdex Marketplace for the purchase and sale of life sciences research products. This business model is new and not proven and depends upon our ability to, among other things: . sell our procurement solution to pharmaceutical and biotechnology companies and academic and research institutions; . achieve high rates of adoption by researchers within enterprise customers; . maintain our current suppliers and enter into agreements with additional suppliers; . generate significant revenues from the use of our Internet-based procurement solution; and . obtain higher transaction volumes and leverage operating efficiencies. We cannot be certain that our business model will be successful or that we can achieve or sustain revenue growth or generate any profits. The success of this business model will require, among other things, that we develop and market solutions with broad market acceptance by our customers, suppliers, users and strategic partners. We cannot be certain that business-to-business commerce on the Internet generally, or our procurement solution, services and brand in particular, will achieve broad market acceptance. For example, purchasers may continue purchasing products through their existing methods and may not adopt an Internet-based procurement solution because of their comfort with existing purchasing habits and direct supplier relationships, the costs and 6 resources required to switch purchasing methods, the need for products not offered through the Chemdex Marketplace, security and privacy concerns, or general reticence about technology or the Internet. Our gross margins are low and we will have to achieve substantial scale and operating efficiencies in our business to be profitable Our gross margin for the three months ended March 31, 1999 was approximately 5.8% and was trending downward. We are dependent on the price discounts we receive from our suppliers, and thus we are vulnerable to any decrease in these discount rates. Any such decrease would have a significant negative impact on our financial results. If we do not increase these discounts, substantially increase our revenues, and scale our business in a manner that generates significant operating efficiencies, including further automation of our procurement solution, we may never achieve profitability. Distributors, in general, operate with low margins. This is especially true in the life sciences research products market. In addition, due to our low gross margins, unexpected costs or expenses we incur would substantially affect our ability to achieve or maintain operating profits. For example, we generally bear the risks of product loss upon shipment of product by the supplier to the customer, of product returns and refunds to the customer, and of non-collection of accounts receivable generated by our customer purchases. Although we maintain insurance related to product loss, we cannot assure you that the insurance amounts would be sufficient to cover losses we may incur, and we do not have insurance or established reserves with respect to these other risks. Most of our revenues have come from one customer and our margins associated with this customer have been small Chemdex's initial enterprise customer, Genentech, Inc., accounted for approximately 82% of our revenues in the three months ended March 31, 1999, and we currently expect to continue to derive a significant portion of our revenues from Genentech for the foreseeable future. Our agreement with Genentech, in connection with its role as our initial beta site, provides that Chemdex will not receive discounts on products of certain suppliers purchased by Genentech if Genentech purchases specified minimum quantities of product through the Chemdex Marketplace. As a result, we receive little or no gross margins on sales of these supplier products to Genentech. The loss of revenues from Genentech, or the negotiation by other large enterprise customers of similar programs, would have a significant negative effect on our business, revenues and results of operations. We rely on a limited number of enterprise customers, and any loss of an enterprise customer could have a negative effect on us We expect that for the foreseeable future we will generate a significant portion of our revenues from a limited number of enterprise customers. Further, our enterprise customers are not obligated to use our procurement solution exclusively or for any minimum number of transactions or dollar amounts. We currently do not offer all of the life science research products required by our customers, and we expect that our customers will continue to use multiple sources to meet their needs. In addition, our contracts with our customers are for limited terms and our customers may discontinue use of our Chemdex Marketplace at any time upon short notice and without penalty. If we lose any of our enterprise customers, or if we are unable to add new enterprise customers, our revenues will not increase as expected, we will lose access to the researchers employed by these enterprises, we could lose a number of our product suppliers, and our brand name and customer and supplier perceptions of our procurement solution would be harmed. We will be very dependent on our strategic relationship with VWR for the foreseeable future We recently entered into a strategic relationship agreement with VWR Scientific Products Corporation to jointly market VWR laboratory products using the Chemdex Marketplace. VWR is one of the laboratory supply industry's largest distributors. The agreement gives us the right to offer approximately 350,000 VWR-distributed products to our customers through the Chemdex Marketplace. We currently expect to make these products available through the Chemdex Marketplace in the third quarter of 1999. VWR and Chemdex are also jointly 7 developing a hosted, co-branded Internet procurement solution for VWR's existing and future customers that will provide access to three categories of products: . products distributed by VWR (VWR core products), . products distributed by Chemdex (Chemdex core products), and . products that are not distributed by either VWR or Chemdex but are purchased from third parties (spot buying service). With respect to sales of VWR core products, we will act as an intermediary and will forward orders received through the Chemdex Marketplace to VWR for fulfillment and customer service. We will receive no fee for orders for VWR core products from VWR's 40 largest customers and we will receive a minimal fee for all other orders for VWR core products forwarded to VWR. We will be responsible for fulfillment and customer service for all Chemdex core product and spot buying orders received from VWR customers through the Chemdex Marketplace. Under the terms of the agreement, VWR will provide certain support services for spot buying in exchange for a fee which approximates VWR's costs incurred. VWR and Chemdex will jointly market the co-branded version of the Chemdex Marketplace to VWR's existing and new customers, and will jointly solicit several key existing VWR suppliers to distribute, market and sell their products through the co-branded procurement solution. We may experience technical or logistical difficulties in integrating VWR's suppliers, products and services with the Chemdex Marketplace. If we are unable to do so in a timely manner, our business, revenues, financial condition and results of operations could be negatively affected. In addition, our agreement with VWR is nonexclusive except as to the spot buying service and some other provisions and has a limited term. We cannot be certain that VWR will not enter into a similar relationship with one of our competitors, or that VWR will renew our agreement at the end of its term. We will not recognize any revenues on sales of VWR core products to VWR's 40 largest customers. Further, since we will receive minimal gross margins for sales of products through the spot buying service, our gross profit margins on these sales will be lower than our margins on sales of Chemdex core products. To the extent sales of VWR core products or products sold through the spot buying service increase relative to, or displace our sales of Chemdex core products, our revenues and gross margins will likely decline, which would make it more difficult for us to achieve profitability. Our business model depends on building a critical mass of suppliers and customers Our business model depends in large part on our ability to build a critical mass of products and suppliers. To attract and maintain suppliers, we must build a critical mass of customers. However, customers must perceive value in our procurement solution and this, in part, depends upon the breadth of our product offerings from our suppliers. If we are unable to increase the number of suppliers and draw more customers to the Chemdex Marketplace, we will not be able to benefit from any network effect, where the value to each participant in the Chemdex Marketplace increases with the addition of each new participant. As a result, the overall value of the Chemdex Marketplace and our procurement solution would be harmed. Our failure to create and maintain this network effect would negatively affect our business, revenues, financial condition and results of operations. The sales and implementation cycle for our solution is long, which could negatively affect our revenue growth, if any, and make it difficult to predict our revenues and results of operations A key element of our strategy is to market our solution directly to life sciences organizations, and to succeed we must satisfy the enterprise purchasing departments, the information technology groups and the individual researchers who are the users of our Internet-based procurement solution. The sales and implementation cycle for our solution is long and we devote significant sales, marketing and management resources to the sales process without any assurance that the customer will use the Chemdex Marketplace. We are generally required to provide a significant level of education to our customers and potential customers regarding the use and benefits of our 8 Internet-based procurement solution. Furthermore, potential enterprise customers and a number of their departments typically engage in extensive internal reviews and analyses before making purchase decisions. The sale and implementation of our solution are subject to delays due to our customers' internal budgeting and procedures for approving capital expenditures and deploying new technologies within their networks. These delays also could impair our ability to generate revenue and could negatively affect our business, results of operations and financial condition. Even if enterprise customers adopt our procurement solution, we may not increase our revenues if researchers within these enterprises do not use the Chemdex Marketplace Our revenues are primarily derived from purchases of life sciences research products by researchers, research assistants and other users within our enterprise customers. These persons may or may not use our Chemdex Marketplace to purchase their research products. Even if we successfully maintain existing enterprise customers and add new enterprise customers, we may not be able to increase revenues if researchers within our enterprise customers do not adopt and use the Chemdex Marketplace. Once an enterprise customer adopts our Internet-based procurement solution, it takes time for researchers and other users within the enterprise to become aware of, learn to use and begin using our Chemdex Marketplace. The long sales cycle and the time it takes for researchers to begin using our Internet-based procurement solution, could negatively affect our revenue growth, if any, and makes it difficult to predict our results of operations. Also, our efforts to attract researchers to adopt and to increase their use of our solution may not be successful, which would limit our ability to generate revenues from these customers. Our revenues depend on the research and development budgets and government research funding of our customers Our procurement solution is used by researchers and their assistants and staff at pharmaceutical and biotechnology companies, and academic and research institutions. Changes in the research and development budgets of these companies and institutions and the timing of spending under these budgets can have a significant effect on the demand for life sciences research products. These budgets are based on a wide variety of factors including the resources available to make such expenditures, the spending priorities among various types of research, and the policies regarding these expenditures during recessionary periods. Any decrease in life sciences research and development expenditures by these companies and institutions could have a negative effect on our business, revenues, results of operations and financial condition. A significant portion of our sales are expected to be to research scientists and entities whose funding is dependent on grants from government agencies such as the U.S. National Institutes of Health (NIH) and similar domestic and international agencies. The funding associated with approved NIH grants generally becomes available at particular times of the year, as determined by the federal government, and may result in fluctuations in our revenues and results of operations. Although NIH research funding has increased during the past several years, grants have, in the past, been frozen for extended periods or have otherwise become unavailable to various institutions, sometimes without advance notice. Furthermore, recent government proposals designed to reduce or eliminate budgetary deficits have included reduced allocations to the NIH and other government agencies that fund research and development activities. If government funding, especially NIH grants, were to become unavailable to researchers for any extended period of time, or if overall research funding were to decrease, there could be a negative effect on our business, revenues, results of operations and financial condition. The success of our business depends on maintaining and expanding our supplier base Our future success depends in large part upon our ability to offer and deliver a broad and deep life sciences research product offering to our customers. We rely on independent suppliers and manufacturers for products offered through our Chemdex Marketplace. To increase the breadth of our product offering, including related products that we do not currently offer such as laboratory equipment and supplies, we must establish relationships with additional suppliers. Some potential suppliers may view us as detrimental to their business, 9 since suppliers compete with one another and with us for sales and customers. Our agreements with suppliers are typically for one-year terms and we cannot assure you that these agreements will be renewed beyond the initial term. In addition, these suppliers are not required to accept purchase orders from us. If we fail to secure products from our suppliers or if a significant number of suppliers do not renew their agreements with us, the breadth and depth of products that we can offer users would be decreased. In addition, there are significant costs, difficulties and risks associated with adding new products in related markets, such as the difficulty of signing up new suppliers, obtaining necessary permits, complying with governmental regulation, pressures on margins, new competition and integration of these new products into the Chemdex Marketplace. These events could result in decreased adoption and use of our procurement solution and decreased revenues, which could have a negative effect on our business, results of operations and financial condition. Our cost of revenues includes cost of goods payable to suppliers. We cannot assure you that our suppliers will enter into or renew agreements with us on the same or similar terms as those currently in effect or that the cost of goods payable to our suppliers will remain the same. Less favorable terms will make it difficult for us to achieve profitable operations. Any decreases in our already low gross margins will have a significant negative effect on our business, results of operations and financial condition. Our supplier agreements are nonexclusive and many of our suppliers sell their products directly to our customers. In addition, the growing reach and use of the Internet has further intensified competition in this industry. Some suppliers provide customers with direct access to products, and if suppliers, including our current suppliers, provide products to enterprise customers and their researchers at a cost lower than ours, our business, revenues, results of operations and financial condition could be negatively affected. If we cannot timely and accurately add supplier product data to our procurement solution database our business will be harmed Currently, we are responsible for loading supplier product information into our database and categorizing the information for search purposes. This process entails a number of risks, including dependence on our suppliers to provide us in a timely manner with accurate, complete and current information about their products, and to promptly update this information when it changes. We currently have a backlog of approximately 550,000 products to be loaded in our Chemdex Marketplace. We anticipate that a majority of these products, which are related to VWR, will be loaded in the Chemdex Marketplace by the third quarter of 1999 and that the remaining products will be loaded by the end of the fourth quarter of 1999. We will not derive revenue from these products until these data are loaded in our system. The time period in which we estimate loading these supplier product data is a forward-looking statement that is subject to risks and uncertainties and actual results may differ materially from those described in these forward-looking statements. Timely loading of these products in our database depends upon a number of factors, including the file formats of the data provided to us by suppliers and our ability to further automate and expand our operations to accurately load these data in our product database, any of which could delay the actual loading of these products beyond the dates estimated by us. In addition, we are generally obligated under our supplier agreements to load updated product data onto our database for access through the Chemdex Marketplace within a specified period of time following their delivery from the supplier. Our current supplier data backlog could make it difficult for us to meet these data update obligations to our suppliers. While we intend to further automate the loading and updating of supplier data on our system, we cannot assure you that we will be able to do so in a timely manner, in part because achieving the highest level of such automation is dependent upon our suppliers' automating their delivery of product data to us. If our suppliers do not provide us in a timely manner with accurate, complete and current information about the products we offer, our database may be less useful to our customers and users and may expose us to liability. Although we screen our suppliers' information before we make it available to our customers and users, we cannot guarantee that the product information available in our Chemdex Marketplace will always be accurate, complete and current, or comply with governmental regulations. This could expose us to liability or result in decreased adoption and use of our Internet-based procurement solution, which could have a negative effect on our business, results of operations and financial condition. 10 If our suppliers do not provide timely and professional delivery of products to our customers our business will be harmed We also rely on our suppliers and manufacturers to deliver life sciences research products to our customers in a professional, safe and timely manner. If our suppliers do not deliver the products to our customers in a professional, safe and timely manner, then our service will not meet customer expectations and our reputation and brand will be damaged. In addition, deliveries that are nonconforming, late or are not accompanied by information required by applicable law or regulations, could expose us to liability or result in decreased adoption and use of our Internet-based procurement solution, which could have a negative effect on our business, results of operations and financial condition. Further we, and not our suppliers, typically bear the responsibility for product refunds and returns and the risk of non-collectibility of accounts receivable from our customers. We must maintain marketplace neutrality to attract customers and suppliers to our Chemdex Marketplace The life sciences research products market consists of a complex set of relationships among manufacturers, suppliers, distributors and customers. Adoption of our solution by suppliers and customers is dependent on their perception that we provide a neutral, unbiased marketplace to purchase and sell life sciences research products. To the extent that we are perceived by our customers or suppliers as favoring one supplier over another, customers and suppliers may lose confidence in the Chemdex Marketplace as a fair and neutral marketplace and choose alternative solutions. Our relationship with VWR, including the fact that VWR is a stockholder and is represented on our Board of Directors, may compromise the perception that we provide a neutral and unbiased marketplace for life sciences research products. Any bias, whether perceived or actual, could have a negative impact on our ability to maintain or increase our supplier base, which in turn may limit our ability to maintain or increase our customer base and have a negative impact on our business, results of operations and financial condition. We face intense competition that could negatively affect our business The market for business-to-business e-commerce and Internet ordering and purchasing is new and rapidly evolving, and competition is intense and is expected to increase significantly in the future. We face competition from four main areas: other companies with e-commerce offerings, traditional suppliers and distributors of life sciences research products, life sciences companies that have developed their own procurement solutions and enterprise software companies that offer, or may develop, alternative procurement solutions. We may not be able to compete successfully against our current or future competitors and competition could have a material adverse effect on our business, results of operations and financial condition. Our competitors and potential competitors may develop superior Internet procurement solutions that achieve greater market acceptance than our solution. In addition, substantially all of our prospective customers have established long-standing relationships with certain of our competitors or potential competitors, including most of our suppliers. Accordingly, we cannot be certain that we will be able to expand our customer list and user base, or retain our current customers or suppliers. See "Business--Competition." Our solution and services are new and face rapid technological changes and if we do not respond appropriately, our business would be harmed The market for our solution is characterized by rapid technological advances, evolving standards in the Internet and software markets, changes in customer requirements and frequent new product and service introductions and enhancements. As a result, our future success depends upon our ability to enhance our current Internet-based procurement solution and services, to develop and introduce new solutions and services that will achieve market acceptance, and where necessary to integrate our Internet-based procurement solution with our customers' enterprise resource planning systems. If we do not adequately respond to the need to develop and introduce new solutions or services, or to integrate with our customers' enterprise resource planning systems, then our business, revenues, results of operations and financial condition will be negatively affected. For example, we may lose market share and ultimately revenue as our customers switch to our competitors' offerings if: . we are unable to develop technology that is a success in the marketplace; 11 . our technology does not integrate with our customers' systems; and . our technology is surpassed by the superior technology of a competitor. Further, we may incur significant expense to integrate our procurement solution with our customers' enterprise resource planning systems and business rules, and to maintain this integration as our customers' enterprise resource planning systems evolve. Failure to provide this integration may delay or altogether dissuade the market or a particular customer from adopting our Internet-based procurement solution, which could have a material adverse effect on our business, results of operations and financial condition. If we do not successfully develop and timely introduce new versions of our procurement solution in the next several months our business will be harmed We are currently in the process of developing and integrating new technology into our Internet-based procurement solution as part of our planned release of several enhanced versions of the Chemdex Marketplace over the next few months. These new releases are planned to include significant enhancements to the user interfaces, database management and search technology, and security controls, and will allow us to offer VWR's products to our customers. The planned timing of introduction of new releases of our procurement solution is a forward-looking statement that is subject to risks and uncertainties, and actual timing may differ materially from that set forth in these forward- looking statements as a result of a number of factors. Enhancing and introducing new technology into our purchasing solution involves numerous technical challenges and substantial personnel resources, and often takes many months to complete. We cannot be certain that we will be successful at enhancing or integrating this technology into our Internet-based procurement solution on a timely basis, or in accordance with our milestones or our product release objectives. In addition, we cannot be certain that, once integrated, this technology or our Internet-based procurement solution will function as expected. If we are unable to enhance and integrate this new technology into our purchasing solution on a timely basis, we may lose customers or experience difficulty obtaining new customers, which could adversely affect our business, revenues, financial condition and results of operations. Major enhancements and new solutions and services often require long development and testing periods. In addition, our Internet-based procurement solution is complex and, despite vigorous testing and quality control procedures, may contain undetected errors or "bugs" when first introduced or updated. Any inability to timely deliver a quality solution and services could have a negative effect on our business, revenues, financial condition and results of operations. We may not be able to determine or design the features and functionality that our enterprise customers and researchers require or prefer Our success depends upon our ability to accurately determine the features and functionality that our enterprise and research customers require or prefer in an e-commerce solution, and our ability to successfully design and implement procurement solutions that include these features and functionality. If we are unable to determine or design in the features and functionality that enterprise and research customers require or prefer in an e-commerce solution, our business will be negatively affected. We have designed the Chemdex Marketplace based upon internal development efforts and feedback from a relatively limited number of enterprise and research customers. We cannot be certain, however, that the features and functionality that we currently offer in the Chemdex Marketplace, or those that we may offer in future releases of our solution, will satisfy the requirements or preferences of our current or potential enterprise and research customers. We will need to manage our expanding business effectively in order to meet customer and investor expectations We have rapidly and significantly expanded our operations and expect to continue to do so. This growth has placed, and is expected to continue to place, a significant demand on our sales, marketing, managerial, operational, financial and other resources. If we cannot manage our growth effectively, it is likely that our revenues and results of operations will not meet customer and investor expectations. As of March 31, 1999, we had grown to 87 employees. We expect to hire a significant number of new employees to support our business. 12 Our current information systems, procedures and controls may not continue to support our operations and may hinder our ability to exploit the market for selling products to the life sciences industry. We are in the process of implementing a new enterprise resource planning system that will replace our existing accounting and management information systems and allow for future scalability and enhancements. In addition, we anticipate requiring additional space to accommodate our growth in the next six months. We could experience interruptions to our business when we transition to the new enterprise resource planning system and when we relocate to new facilities. Even after we implement our new system and relocate to new facilities, our personnel, systems, procedures, controls and facilities may be inadequate to support our future operations. We depend on our key personnel to manage our business effectively in a rapidly changing market Our performance is substantially dependent on the performance of our executive officers and other key employees. Our failure to successfully manage our personnel requirements would have a negative effect on our business, revenues, financial condition and results of operations. We have experienced difficulty from time to time in hiring the personnel necessary to support the growth of our business, and we may experience similar difficulty in hiring and retaining personnel in the future. Four of our eight executive officers have only been employed by us since January 1999. Competition for senior management, experienced sales and marketing personnel, software developers, qualified engineers and other employees is intense, and we cannot be certain that we will be successful in attracting and retaining such personnel. The loss of the services of any of our executive officers or other key employees could have a negative effect on our business, revenues, financial condition and results of operations. The unpredictability of our quarterly results may negatively affect the trading price of our common stock Our revenues and results of operations may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. As a result, you should not rely on period-to-period comparisons of revenues and results of operations as an indication of our future performance. Some of the factors that may affect our revenues and results of operations include: . demand for and market acceptance of our Internet-based procurement solution and services; . introduction of new and enhanced procurement solutions and services by us or our competitors; . budgeting cycles of customers and users; . loss of one or more of our key suppliers, customers or strategic relationships; . changes in our pricing policy or those of our competitors or suppliers; . amount and timing of capital expenditures and other costs relating to the expansion of our operations; . timing and number of new hires; . ability to comply with applicable laws and regulations or obtain necessary permits and licenses to sell or ship products to customers; . technical difficulties with our web site or Internet-based procurement solution; . level of activity and funding in the life sciences industry; and . general economic conditions. We may from time to time make certain pricing, service or marketing decisions or enter into strategic business combinations that could have a negative effect on our business, revenues, financial condition or results of operations for any number of quarterly periods. For example, we intend to significantly expand our development and engineering expenses to improve our Internet-based procurement solution. In addition, in order to accelerate the promotion of the Chemdex brand, we intend to increase our marketing budget significantly. 13 These increases in expenses may negatively affect our results of operations for a number of quarterly periods and we cannot assure that these measures will increase our revenues. Due to our relatively short operating history we have limited meaningful historical financial data upon which to base our planned operating expenses. Accordingly, our expense levels are based in part on our expectations as to future revenues from new customers and are relatively fixed in the short term. We cannot be certain that we will be able to accurately predict our revenues, particularly in light of our limited operating history, the intense competition in the life sciences industry, and the resulting uncertainty as to the success of our business model. If we fail to accurately predict revenues in relation to fixed expense levels and we are unable to adjust our operating expenses in a timely manner in response to lower-than-expected revenues, our business, revenues, results of operations and financial condition could be negatively affected. There has been no prior market for our common stock and we expect the price of our common stock to be volatile Prior to this offering, you could not buy or sell our common stock publicly. An active public market for our common stock may not develop or be sustained after the offering. Although the initial public offering price will be determined based on several factors, the market price after the offering may vary from the initial offering price. The market price of the common stock may fluctuate significantly in response to a number of factors, some which are beyond our control, including: . quarterly variations in our operating results; . changes in estimates of our financial performance by securities analysts; . changes in market valuation of Internet commerce companies generally; . announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; . loss of a major customer, supplier or strategic partner, or failure to complete a sale of our procurement solution to a significant customer; . additions or departures of any of our key personnel; . future sales of our common stock; and . stock market price and volume fluctuations, which are particularly common among highly volatile securities of Internet companies. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources, which could have a negative effect on our business, operating results and financial condition. Our business will suffer if the life sciences industry does not accept Internet solutions Business-to-business e-commerce is a new and emerging business practice that remains largely untested in the marketplace. Growth in the demand for our Internet-based procurement solution and services depends on the adoption of e- commerce and Internet solutions by life sciences industry participants, which requires the acceptance of a new way of conducting business and purchasing supplies. Our business could suffer dramatically if e-commerce and Internet solutions are not accepted or not perceived to be effective. The Internet may not prove to be a viable commercial marketplace for the life sciences industry for a number of reasons, including: . inadequate development of the necessary infrastructure for Internet- based communications within life sciences organizations; . security and confidentiality concerns of customers and suppliers; 14 . lack of development of complementary products, such as high-speed modems and high-speed communication lines; . implementation of competing procurement solutions; . lack of human contact that current, traditional suppliers provide; and . governmental regulation. The accelerated growth and increasing volume of Internet traffic may cause performance problems which may slow adoption of our Internet-based procurement solution and the Chemdex Marketplace The growth of Internet traffic to very high volumes of use over a relatively short period of time has caused frequent periods of decreased Internet performance, delays, and in certain cases, system outages. This decreased performance is caused by limitations inherent in the technology infrastructure supporting the Internet and the internal networks of Internet users. If Internet usage continues to grow rapidly, the infrastructure of the Internet and its users may be unable to support the demands of growing e- commerce usage, and the Internet's performance and reliability may decline. If our existing or potential enterprise and research customers experience frequent outages or delays on the Internet, the adoption or use of our Internet-based, e-commerce procurement solution may grow more slowly than we expect or even decline. Our ability to increase the speed and reliability of our Internet-based procurement solution is limited by and depends upon the reliability of both the Internet and the internal networks of our existing and potential customers. As a result, if improvements in the infrastructure supporting both the Internet and the internal networks of our enterprise customers and their researchers are not made in a timely fashion, we may have difficulty obtaining new customers, or maintaining our existing customers, either of which could have a negative impact on our business, revenues, results of operations and financial condition. Security and disruption problems with the Internet or transacting business over the Internet may inhibit the growth of our Internet-based procurement solution The secure transmission of confidential information over the Internet is essential to maintaining customer and supplier confidence in our Chemdex Marketplace. Customers generally are concerned with security and privacy on the Internet and any publicized security problems could inhibit the growth of the Internet, and therefore our procurement solution, as a means of conducting transactions. Substantial security breaches on our system could significantly harm our business. A party that is able to circumvent our security systems could misappropriate proprietary information or cause interruptions in our operations. We incur substantial expense to protect against and remedy security breaches and their consequences. Despite the implementation of security measures, our networks may be vulnerable to unauthorized and illegal access, computer viruses and other disruptive problems. Eliminating computer viruses and alleviating other security problems may require interruptions, delays or cessation of service to users accessing our solution, which could have a negative effect on our business, results of operation and financial condition. Internet service providers and on-line service providers have in the past experienced, and may in the future experience, interruptions in service as a result of the accidental or intentional actions of Internet users, current and former employees or others. We may be required to expend significant capital or other resources to protect against the threat of security breaches or to alleviate problems caused by such breaches. Although we intend to continue to implement industry-standard security measures, we cannot be certain that measures implemented by us will not be circumvented in the future. If we experience a security breach that results in the misappropriation of proprietary information maintained in our systems or if we experience interruptions in our service, our reputation and brand may be damaged and we may be exposed to a risk of loss or litigation and possible liability. Damage to our reputation and brand could cause us to lose suppliers and customers and negatively affect our business, results of operations and financial condition. Our insurance policies may not be adequate to reimburse us for losses caused by security breaches or service disruption. 15 System failure may cause interruption of our services The performance of our server and networking hardware and software infrastructure is critical to our business and reputation and our ability to process transactions, provide high quality customer service, and attract and retain customers, suppliers, users and strategic partners. Currently our infrastructure and systems are located at one site at Exodus Communications in Sunnyvale, California. We anticipate adding a mirror site at a different, distant location. Until then, we depend on our single-site infrastructure and any disruption to this infrastructure resulting from a natural disaster or other event could result in an interruption in our service, fewer transactions and, if sustained or repeated, could impair our reputation and the attractiveness of our services, which would have an adverse effect on our business, revenues, financial condition and results of operations. Our systems and operations are vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunications failures, break-ins, sabotage, computer viruses, intentional acts of vandalism and similar events. We do not have a formal disaster recovery plan or alternative provider of hosting services. In addition, we do not carry sufficient business interruption insurance to compensate us for losses that could occur. Any failure on our part to expand our system or Internet infrastructure to keep up with the demands of our customers and users, or any system failure that causes an interruption in service or a decrease in responsiveness of our Internet- based procurement solution or web site, could result in fewer transactions and, if sustained or repeated, could impair our reputation and the attractiveness of our brand name, which would adversely affect our business, revenues, financial condition and results of operations. We face year 2000 risks associated with our own systems and those of our customers, suppliers and the Internet Significant uncertainty exists concerning the potential costs and effects associated with any year 2000 compliance problems. Any year 2000 compliance problems faced by us, our customers, suppliers and strategic partners could have a negative effect on our business, revenues, results of operations and financial condition. In addition, our ability to operate is dependent upon delivery of accurate, electronic information via the Internet. To the extent year 2000 issues result in the long-term inoperability of the Internet, the Chemdex Marketplace or the systems of VWR, our business, revenues, financial condition and results of operations could be seriously harmed. Although we believe that our internally developed applications and systems are designed to be year 2000 compliant, we use third party equipment and software that may not be year 2000 compliant. In addition, until some of the billing and cash collection functions for spot buying services are transitioned to Chemdex, we are dependent upon VWR's systems for receiving payment for products purchased using the spot buying services. Failure of our applications and services, VWR's billing and collection system, or third party equipment and software that we use, to be year 2000 compliant could result in the Chemdex Marketplace not being used for purchasing life sciences research products, the termination of our customer agreements or in liability for damages, any of which could have a material adverse effect on our business, results of operations and financial condition. Many of our customers' systems with which the Chemdex Marketplace integrates may not yet be year 2000 compliant. In addition, our suppliers' systems may not be year 2000 compliant. Any negative effects on our customers' or suppliers' systems as a result of the year 2000 problem, or unknown, non-compliance of our own systems, could have a negative effect on our business, results of operations and financial condition and we do not have a formal contingency plan to address year 2000 issues. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Compliance." We may require additional capital for our operations that could have a negative effect on your investment We currently anticipate that the net proceeds of the offering, together with our existing borrowing arrangements and available funds will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the next 12 months. This is a forward-looking statement that is subject to risks and uncertainties and actual results may differ materially from those described in this forward-looking statement. We 16 may need to raise additional funds in the future in order to fund rapid expansion, to pursue customer sales and implementation, to develop new or enhanced solutions and services, to respond to competitive pressures or to acquire complementary businesses, technologies or services. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution and such securities may have powers, preferences and rights that are senior to those of the rights of our common stock. We cannot be certain that additional financing will be available on terms favorable to us, if at all. If adequate funds are not available or not available on acceptable terms, we may be unable to fund our expansion, promote our brand identity, take advantage of unanticipated acquisition opportunities, develop or enhance services or respond to competitive pressures. Any such inability could have a negative effect on our business, revenues, financial condition and results of operations. Our planned international expansion may make it more difficult to manage our business We expect to enter the international market. To do so, we plan to establish international operations, hire additional personnel and establish relationships with additional suppliers and partners. This expansion will require significant management attention and financial resources and could have a negative effect on our business, revenues, financial condition and results of operations. We cannot assure you that we will be able to create or sustain international demand for our Internet-based procurement solution and services. In addition, our international business may be subject to a variety of risks, including applicable government regulation, difficulties in collecting international accounts receivable, longer payment cycles, increased costs associated with maintaining international marketing efforts, the introduction of non-tariff barriers and higher duty rates and difficulties in enforcement of contractual obligations and intellectual property rights. We cannot assure you that these factors will not have a negative effect on any future international sales and, consequently, on our business, results of operations and financial condition. We are subject to government regulation We currently seek to rely upon our suppliers to meet the various regulatory and other legal requirements applicable to our business. However, we are unable to verify that they have, in the past, or will, in the future, always do so, or that their actions are adequate or sufficient to satisfy all governmental or other legal requirements that may be applicable to our sales, particularly in light of the fact that we generally hold title to the products during their delivery to and return from customers. We could be fined or exposed to civil or criminal liability, and we could receive potential negative publicity, if these requirements have not been fully met by our suppliers or by us directly. These fines, liabilities, and negative publicity could also occur if an unqualified person (or even a qualified customer, if we or the customer lack the appropriate permits to sell, use, or ship) improperly receives a dangerous or licensed product through the Chemdex Marketplace. We are currently reviewing applicable requirements with regard to past, present and continuing compliance with respect to sales and distribution of our products, particularly concerning various licensing and sales issues. The risk that any noncompliance may be discovered in the future is currently unknown. Although any potential impact on us for noncompliance cannot currently be established, it could result in civil or criminal penalties, including monetary fines and injunctions, and negative publicity, and have a material adverse impact on our business, revenues, results of operations and financial condition. In addition, it is possible that a number of laws and regulations may be adopted or interpreted in the United States and abroad with particular applicability to the Internet. See "Business--Government Regulation." We may be exposed to product liability claims We face potential liability for claims based on the type and adequacy of the information and data that we obtain from suppliers and make available, and the nature of the products that we sell and distribute utilizing the Internet, including claims for breach of warranty, product liability, misrepresentation, violation of governmental 17 regulations and other commercial claims. In particular, we bear the risk of liability for product loss, spill, or release, and resulting damages to persons and property during delivery by the supplier to the customer and return by the customer to the supplier. We do not pass through the manufacturers' warranties on the products we distribute. However, we bear the risk of loss of revenue from the product sale if a purchaser does not pay for a defective product. Although we maintain general liability insurance, our insurance may not cover some claims, penalties, or spills, is subject to policy limits and exclusions, and may not be adequate to fully indemnify us or our employees for any civil, governmental or criminal liability that may be imposed. Furthermore, this insurance may not be available at commercially reasonable rates in the future. Any liability not covered by our insurance or in excess of our insurance coverage could have a negative effect on our business, results of operations and financial condition. Our liability is potentially greater with respect to sales to researchers and others who are not affiliated with an enterprise customer. We also seek to obtain indemnification from our suppliers against some of these claims. However, the scope of the indemnification is limited, a few of our suppliers have not agreed to indemnify us and some suppliers may be unable or unwilling to indemnify us in the future. In addition, we are not in a position to monitor our suppliers' activities. Therefore, we are exposed to liability and risk for these claims. We depend on our intellectual property rights and are subject to the risk of infringement Our intellectual property is important to our business, and we seek to protect our intellectual property through copyrights, trademarks, trade secrets, confidentiality provisions in our customer, supplier and strategic relationship agreements, nondisclosure agreements with third parties, and invention assignment agreements with our employees and contractors. We cannot assure that measures we take to protect our intellectual property will be successful or that third parties will not develop alternative procurement solutions that do not infringe upon our intellectual property. In addition, we could be subject to intellectual property infringement claims by others. Our failure to protect against misappropriation of our intellectual property, or claims that we are infringing the intellectual property of third parties could have a negative effect on our business, revenues, financial condition and results of operations. See "Business--Proprietary Rights and Licensing." Officers and directors and their affiliates will continue to have substantial control over Chemdex after the offering Upon completion of this offering, our executive officers and directors and their affiliates will beneficially own approximately % of the shares of common stock ( % if the underwriters exercise the over-allotment option in full). As a result, our officers, directors and their affiliates will have the ability to influence the election of our Board of Directors and the outcome of corporate actions requiring stockholder approval. This concentration of ownership may have the effect of delaying or preventing a change in control of Chemdex. See "Principal Stockholders." Regulation or taxation of the Internet or transacting business over the Internet may inhibit the growth of our Internet-based procurement solution Due to the increasing popularity and use of the Internet and of e-commerce, it is possible that a number of taxes, laws and regulations may be adopted in the U.S. and abroad with particular applicability to the Internet and e- commerce transactions. It is possible that governments will adopt taxes and enact legislation that may be applicable to us in areas such as content, product distribution, network security, encryption and the use of key escrow, data and privacy protection, electronic authentication or "digital" signatures, illegal and harmful content, access charges and re-transmission activities. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, content, taxation, defamation and personal privacy is uncertain. Taxes, laws or regulations may limit the growth of the Internet, dampen e-commerce and reduce the number of transactions, increase our cost of doing business or increase our legal exposure. Any of these factors could have a negative effect on our business, revenues, results of operations and financial condition. 18 The trading market price of our stock may decline as a result of substantial sales of our common stock after the offering Sales of a substantial number of shares of our common stock after the offering could negatively affect the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. Upon completion of this offering, we will have shares of common stock outstanding or subject to currently exercisable options ( shares if the underwriters' over-allotment option is exercised in full). The shares sold in this offering ( shares if the underwriters' over- allotment option is exercised in full) will be freely tradable without restriction or further registration under the federal securities laws unless purchased by our "affiliates" as that term is defined in Rule 144. The remaining shares of common stock outstanding upon completion of the offering will be "restricted securities" as that term is defined in Rule 144. Stockholders holding more than 76% of the outstanding common stock and options to purchase common stock exercisable within 180 days after the date of this prospectus have executed lock-up agreements that limit their ability to sell common stock. These stockholders and option holders have agreed not to sell or otherwise dispose of any shares of common stock for a period of at least 180 days after the date of this prospectus without the prior written approval of Morgan Stanley & Co. Incorporated. When the lock-up agreements expire, these shares and the shares underlying the options will become eligible for sale, in some cases only pursuant to the volume, manner of sale and notice requirements of Rule 144. See "Management--Employee Stock Plans." SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," and elsewhere in this prospectus are forward-looking statements. Some of these forward-looking statements are attributed to third parties and relate to their statements relating to the growth of Internet users, e-commerce, and the life sciences research products market. These statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform such statements to actual results. 19 USE OF PROCEEDS The primary purposes of this offering are to obtain additional capital, create a public market for the common stock and facilitate future access to public markets. The net proceeds to Chemdex from the sale of the shares of common stock offered hereby are estimated to be approximately $ million after deducting estimated offering expenses of $1.0 million and the underwriting discounts and commissions payable by Chemdex. Chemdex intends to use the net proceeds for general corporate purposes, including working capital to fund anticipated operating losses, expenses associated with its advertising campaigns, brand-name promotions and other marketing efforts and capital expenditures. Chemdex also could use a portion of the net proceeds to acquire or invest in complementary businesses, technologies, products or services, although no specific acquisitions are currently planned. Chemdex's management will have broad discretion in the application of the net proceeds. Pending such uses, Chemdex intends to invest the net proceeds from this offering in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY Chemdex has not declared or paid any cash dividends on its capital stock since its inception and does not expect to pay any cash dividends in the foreseeable future. Chemdex currently intends to retain future earnings, if any, to finance the expansion of its business. The terms of one of Chemdex's current credit agreements prohibit the payment of cash dividends on its capital stock without the prior written consent of the creditor. 20 CAPITALIZATION The Actual column in the following table sets forth Chemdex's actual capitalization as of March 31, 1999. The Pro Forma column in the following table gives effect to: . the filing of an amendment to Chemdex's Amended and Restated Certificate of Incorporation to provide for authorized capital stock of 350,000,000 shares of common stock and 5,000,000 shares of undesignated preferred stock; . the issuance of 5,076,810 shares of common stock to VWR pursuant to the Strategic Relationship Agreement; . the issuance of 799,882 shares of Series C Preferred Stock in April 1999; . the issuance of 375,000 shares of common stock to BIO pursuant to the Joint Marketing Agreement; and . the conversion of all outstanding shares of preferred stock into shares of common stock upon the closing of this offering. The As Adjusted column in the following table gives effect to the receipt of the net proceeds from the sale by Chemdex of the shares of common stock offered at an assumed initial public offering price of $ per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses. See "Use of Proceeds." The following table does not include: . 879,705 shares of common stock issuable on exercise of options outstanding as of March 31, 1999, with a weighted average exercise price of $.51; . 310,000 shares of common stock issuable upon the exercise of warrants outstanding as of March 31, 1999 with a weighted average exercise price of $1.35 per share; . 1,189,560 shares of common stock issuable upon exercise of options granted after March 31, 1999; and . 1,349,456 additional shares of common stock reserved for issuance under the 1998 Stock Plan. See "Management--Employee Stock Plans" and Note 6 of Notes to Financial Statements.
March 31, 1999 ------------------------------ Actual Pro Forma As Adjusted ------- --------- ----------- (in thousands, except share data) Long-term debt, net of current portion.......... $ 803 $ $ Stockholders' equity: Preferred stock, $.0001 par value; 68,149,266 shares authorized, 32,691,416 shares issued and outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding, pro forma and as adjusted.................... 3 -- -- Common stock, Chemdex, $.0001 par value; 100,000,000 shares authorized, 9,660,839 shares issued and outstanding, actual; 350,000,000 shares authorized, 48,603,947 shares issued and outstanding, pro forma; 350,000,000 shares authorized, shares issued and outstanding, as adjusted.......... -- Additional paid-in capital...................... 48,665 Deferred compensation........................... (4,016) Notes receivable from stockholders.............. (1,085) Accumulated deficit............................. (15,701) ------- --- --- Total stockholders' equity.................... 27,866 ------- --- --- Total capitalization........................ $28,669 $ $ ======= === ===
21 DILUTION The pro forma net tangible book value of Chemdex as of March 31, 1999 was $27.9 million, or $.66 per share. Pro forma net tangible book value per share is determined by dividing the pro forma number of shares of common stock, after giving effect to the conversion of all outstanding shares of our convertible preferred stock into 32,691,416 shares of common stock, into the net tangible book value of Chemdex (total tangible assets less total liabilities). Dilution per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of common stock immediately after completion of this offering. Assuming the sale by Chemdex of the shares of common stock offered hereby, after deducting estimated underwriting discounts and commissions and estimated offering expenses, the pro forma net tangible book value of Chemdex as of March 31, 1999 would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing shares at the initial public offering price. The following table illustrates the per share dilution: Initial public offering price per share.......................... $ Pro forma net tangible book value per share as of March 31, 1999.......................................................... $ Increase in pro forma net tangible book value per share attributable to new investors................................. --- Pro forma net tangible book value per share after the offering... --- Dilution per share to new investors.............................. $ ===
The following table summarizes as of March 31, 1999 on the pro forma basis described above, the number of shares of common stock purchased from Chemdex, the total consideration paid to Chemdex and the average price per share paid by existing stockholders and by investors purchasing shares of common stock in this offering (before deducting the underwriting discount and estimated offering expenses):
Average Shares Purchased Total Consideration Price ------------------ ------------------- Per Number Percent Amount Percent Share ---------- ------- ----------- ------- ------- Existing stockholders............ 42,352,255 % $44,070,182 % $1.04 New investors.................... ---------- ----- ----------- ----- Totals......................... 100.0% $ 100.0% ========== ===== =========== =====
The foregoing discussion and tables exclude: . 879,705 shares of common stock issuable on exercise of options outstanding as of March 31, 1999, with a weighted average exercise price of $.51; . 1,349,456 additional shares of common stock reserved for issuance under the 1998 Stock Plan; . 310,000 shares of common stock issuable upon the exercise of warrants outstanding as of March 31, 1999 with a weighted average exercise price of $1.35 per share; and . 1,189,560 shares of common stock issuable upon exercise of options granted after March 31, 1999. See "Management--Employee Stock Plans" and Note 6 of Notes to Financial Statements. 22 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the financial statements of Chemdex and related notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The statement of operations data for the period from September 4, 1997 (inception) through December 31, 1997 and for the year ended December 31, 1998, and the balance sheet data at December 31, 1997 and 1998, have been derived from financial statements that have been audited by Ernst & Young LLP, independent auditors, included elsewhere in this prospectus. The statements of operations data for the three- month period ended March 31, 1998 and 1999 and the balance sheet data as of March 31, 1999 are derived from unaudited financial statements included elsewhere in this prospectus and, in the opinion of Chemdex's management, include all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations for this period. See Note 1 of Notes to Financial Statements for an explanation of the determination of the shares used in computing basic and diluted net loss per common share.
September 4, 1997 (Inception) Fiscal Year Through Ended Three Months Ended December 31, December 31, March 31, ------------ ------------ -------------------- 1997 1998 1998 1999 ------------ ------------ --------- ---------- (in thousands, except per share data) Statement of Operations Data: Net revenues.................. $ -- $ 29 $ -- $ 165 Cost of revenues.............. -- 22 -- 156 ------ ------- -------- ---------- Gross profit.................. -- 7 -- 9 Operating expenses: Research and development.... 196 3,439 364 2,293 Sales and marketing......... 86 3,247 219 3,188 General and administrative.. 121 1,745 190 1,015 Amortization of deferred compensation............... -- 372 22 352 ------ ------- -------- ---------- Total operating expenses.... 403 8,803 795 6,848 ------ ------- -------- ---------- Operating loss................ (403) (8,796) (795) (6,839) Interest and other income, net.......................... -- 308 2 30 ------ ------- -------- ---------- Net loss...................... $ (403) $(8,488) $ (793) $ (6,809) ====== ======= ======== ========== Basic and diluted net loss per share........................ $ (.12) $ (2.40) $ (.23) $ (1.69) ====== ======= ======== ========== Weighted average common shares outstanding--basic and diluted...................... 3,409 3,543 3,409 4,032 ====== ======= ======== ========== Pro forma basic and diluted net loss per share........... $ (.43) $ (.24) ======= ========== Pro forma weighted average common shares--basic and diluted...................... 19,905 28,557 ======= ========== Balance Sheet Data: Cash and cash equivalents..... $1,346 $ 5,990 $27,784 Working capital............... 1,116 4,490 24,360 Total assets.................. 1,728 8,168 32,636 Long-term debt and capital lease obligations, net of current portion.............. 6 -- 803 Total liabilities............. 280 1,820 4,770 Total stockholders' equity.... 1,448 6,348 27,866
23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This prospectus contains forward-looking statements that involve risks, uncertainties and assumptions. Actual events or results may differ materially from those indicated in these forward-looking statements. See "Special Note Regarding Forward-Looking Statements." The following discussion of the financial condition and results of operations of Chemdex should be read in conjunction with "Selected Financial Data" and the Financial Statements and related Notes included elsewhere in this prospectus. Overview Chemdex is a leading provider of e-commerce solutions to the life sciences research products market. The Chemdex Marketplace is a secure, Internet-based procurement solution that enables enterprises, researchers and suppliers to efficiently buy and sell life sciences research products. The Chemdex Marketplace utilizes a robust database of approximately 240,000 life sciences research products, an advanced search engine and transaction software that enable users to identify, locate and purchase the products they need. We were formed in September 1997 and began offering products for sale on the Chemdex Marketplace in November 1998. During the period from September 1997 through November 1998, we were a development stage enterprise and did not have significant sales. Our operating activities during this period were related primarily to the design and development of the Chemdex Marketplace, building our corporate infrastructure, establishing relationships with suppliers and customers and raising capital. To date, revenues have been derived from sales of life sciences research products through the Chemdex Marketplace. In 1997 and 1998 we grew our organization by hiring personnel in key areas, particularly sales, research and development and marketing. We have generated only immaterial revenues to date and our ability to generate significant revenues is uncertain. We have incurred significant losses since inception and, as of March 31, 1999, we had an accumulated deficit of approximately $15.7 million. We currently expect our losses to increase in the future and we cannot assure you that we will ever achieve or sustain profitability. We believe our success depends on establishing additional key strategic supplier and customer relationships, enhancing the features and functionality of the Chemdex Marketplace and enterprise procurement solution, and accelerating market awareness and demand for the Chemdex Marketplace. Accordingly, we intend to continue to invest heavily in sales, marketing and research and development activities. We have limited operating history upon which to base an evaluation of our business and we cannot assure you that our revenues will increase in future periods. Our business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in early stages of development, particularly companies in new and rapidly evolving markets such as electronic commerce. From inception, we have increased our level of spending to build our infrastructure and to develop our Chemdex Marketplace. We intend to continue to increase our marketing, sales, research and development and administrative activities and to increase other operating expenses as required to integrate the operations and technologies of any future acquisitions. We anticipate that these expenses could significantly precede any revenues generated by such increased spending. Our gross margin for the three months ended March 31, 1999 was 5.8% and was trending downward. Distributors in general operate on very low margins. This is especially true in the life sciences research products market. Our gross margins on sales of life sciences research products are small relative to the margins earned by traditional distributors of life sciences research products. If we are unable to increase our revenues at a greater rate than our related costs, our margins may be reduced further, or possibly eliminated, which would have a significant negative impact on our financial results. We are dependent on the discounts we receive from our suppliers, and thus we are vulnerable to any potential decrease in these discount rates. Any such decrease would have a significant negative impact on our financial results. If we do not increase these discounts, and substantially increase our revenues and scale our business in a manner that generates significant operating efficiencies, including further automation of our procurement solution, we may not be able to achieve profitability. 24 Our gross profit margins on sales of VWR-distributed products will be lower than our margins on the other supplier products that we offer. We will generate no gross margin on sales of VWR-distributed products purchased through our Chemdex Marketplace by VWR's current top forty customers. In addition, we will receive minimal margins on the spot buying service. To the extent sales of VWR-distributed products, or products sold through the spot buying service, increase relative to, or displace, our sales of other supplier products, our average gross margins will likely decline, which would make it more difficult to achieve profitability. Genentech, Inc. accounted for approximately 82% of our revenues in the period ended March 31, 1999, and we currently expect to continue to derive a significant portion of our revenues from Genentech for the forseeable future. Our agreement with Genentech, in connection with its role as our initial beta site, provides that Chemdex will not receive price discounts on products of certain suppliers purchased by Genentech if Genentech purchases specified minimum quantities of product through the Chemdex Marketplace. As a result, we receive little or no gross margins on sales of these supplier products to Genentech. The loss of revenues from Genentech, or the negotiation by other large enterprise customers for similar programs, would have a significant negative effect on our business, revenues, results of operations and financial condition. A key element of our strategy is to market our solution directly to life sciences organizations, and to succeed we must satisfy the purchasing departments, information technology groups and the individual researchers who are the users of our Internet-based procurement solution. The sales and implementation cycle for our solution is long and we devote significant sales, marketing and management resources to the sales process without any assurance that the customer will use the Chemdex Marketplace. We are generally required to provide a significant level of education regarding the use and benefits of our Internet-based procurement solution, due in part to the significant departure from traditional means of commerce and communications entailed by its adoption and use. Further, potential enterprise customers and a number of their departments typically engage in extensive internal reviews and analyses before making purchase decisions. The sale and implementation of our solution are subject to delays due to our customers' internal budgets and procedures for approving capital expenditures and deploying new technologies within their networks. These delays also impair our ability to generate revenue and could negatively affect our results of operations. Once an enterprise customer adopts our Internet-based procurement solution, it takes time for researchers and other users within the enterprise to become aware of, learn to use and begin using our Chemdex Marketplace. The long sales cycle and the time it takes for researchers to begin using our Internet-based procurement solution, could negatively affect our revenue growth, and makes it difficult to predict our results of operations. We recently entered into an agreement with VWR Scientific Products Corporation to jointly market VWR laboratory products using the Chemdex e- commerce platform. The agreement gives us the right to offer approximately 350,000 VWR-distributed products to our customers through the Chemdex Marketplace. We currently expect to make these products available through the Chemdex Marketplace in the third quarter of 1999. VWR and Chemdex are jointly developing a hosted, co-branded Internet procurement solution for VWR's existing and future customers that will provide access to three categories of products: . products distributed by VWR (VWR core products), . products distributed by Chemdex (Chemdex core products), and . products that are not distributed by either VWR or Chemdex but are purchased from third parties (spot buying services). We will act as an intermediary under this agreement and will forward orders for VWR core products received through the Chemdex Marketplace to VWR for fulfillment and customer service. We will receive no fee for orders from VWR's 40 largest customers and we will receive a minimal fee for all other orders forwarded to VWR. We will be responsible for fulfillment and customer service for all Chemdex core product orders and spot buying orders from VWR customers received through the Chemdex Marketplace on similar terms and 25 conditions as our other enterprise customers. VWR will provide spot buying services for the products available from third parties for a processing fee paid by Chemdex. VWR and Chemdex will jointly market the co-branded version of the Chemdex Marketplace to VWR's existing and new customers, and will jointly solicit several key existing VWR suppliers to distribute, market and sell their products through the co-branded procurement solution. We will not recognize any revenues on sales to VWR's 40 largest customers. Further, since we will receive a minimal fee for sales of products through the spot buying service, our gross profit margins on these sales will be lower than our margins on sales of Chemdex core products. To the extent sales of VWR core products or products sold through the spot buying service increase relative to, or displace our sales of Chemdex core products, our revenues and gross margins will likely decline, which would make it more difficult for us to achieve profitability. Quarterly Results of Operations Because we were a development stage company during 1997 and 1998 and have a short operating history, we believe that period-to-period comparisons prior to 1999 are less meaningful than an analysis of recent quarterly operating results. Accordingly, we are providing a discussion and analysis of our results of operations that is focused on the six quarters in the period ended March 31, 1999. The following table presents our unaudited quarterly operating results for the six quarters in the period ended March 31, 1999. You should read the following table together with our Financial Statements and related Notes in this prospectus. We have prepared this unaudited information on the same basis as the audited Financial Statements. This table includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. You should not draw any conclusions about our future results from the operating results of any quarter.
Three Months Ended ---------------------------------------------------- June Sept. Dec. Mar. Dec. 31, Mar. 31, 30, 30, 31, 31, 1997 1998 1998 1998 1998 1999 -------- -------- ------- ------- ------- ------- (in thousands) Statements of Operations Data: Net revenues............. $ -- $ -- $ 3 $ -- $ 26 $ 165 Cost of revenues......... -- -- -- -- 22 156 ----- ----- ------- ------- ------- ------- Gross profit............. -- -- 3 -- 4 9 Operating expenses: Research and development........... 196 364 414 1,026 1,635 2,293 Sales and marketing.... 86 219 297 710 2,021 3,188 General and administrative........ 121 190 422 489 644 1,015 Amortization of deferred compensation.......... -- 22 44 104 202 352 ----- ----- ------- ------- ------- ------- Total operating expenses.............. 403 795 1,177 2,329 4,502 6,848 ----- ----- ------- ------- ------- ------- Operating loss........... (403) (795) (1,174) (2,329) (4,498) (6,839) Interest and other income, net............. -- 2 70 136 100 30 ----- ----- ------- ------- ------- ------- Net loss................. $(403) $(793) $(1,104) $(2,193) $(4,398) $(6,809) ===== ===== ======= ======= ======= =======
Results of Operations Net revenues From inception through November 1998, Chemdex was in the development stage and had only nominal net revenues. Net revenues increased to $165,000 in the quarter ended March 31, 1999 as it was the first full quarter 26 in which the Chemdex Marketplace was operational. Net revenues consist primarily of product sales to customers and charges to customers for outbound freight. Under most of our supplier agreements we are acting as a principal in purchasing products from our suppliers and reselling them to our customers so that we recognize revenues equal to the amount paid by our customers and cost of revenues equal to the amount we pay to our suppliers for such products. Under our principal-based agreements, we are responsible for selling the products, collecting payment from customers, ensuring that the shipment reaches customers and processing returns. In addition, we take title to products upon shipment and bear the risk of loss for collection, delivery and merchandise returns from customers. Some of our agreements with our suppliers treat us as an agent of the supplier, in which case we receive a percentage fee on product sales. We recognize revenue from product sales, net of any discounts, and from fees under our agency-based supplier agreements, when the products are shipped to customers. Products are shipped directly to customers by suppliers based on customer delivery date specifications. Cost of Revenues Cost of revenues consists primarily of the costs of acquiring products from our suppliers for sale to our customers. During the quarter ended March 31, 1999, cost of revenues increased primarily due to the increase in revenues. Cost of revenues is expected to increase in future periods reflecting increases in sales volume. Our gross margin for the three months ended March 31, 1999 was approximately 5.8%. The low gross margin on product sales was due to our short-term strategy to accept low margins in order to increase sales volume, customer adoption, and brand awareness. We expect margins to remain low until we are able to negotiate larger discounts from our suppliers. Operating Expenses Research and Development. Research and development expenses consist of personnel and other expenses associated with developing and enhancing software in support of the Chemdex Marketplace. Our research and development expenses have increased each quarter since inception primarily due to increased staffing and associated costs related to the design and development and maintenance of the Chemdex Marketplace, and content and design expenses. We believe that our success is dependent in large part on continued enhancement of the Chemdex Marketplace. Accordingly, we expect research and development expenses to increase in future periods. Sales and Marketing. Sales and marketing expenses consist primarily of advertising and promotion in support of the development of our marketing strategy and payroll and related expenses for personnel engaged in supplier relations and sales activities. Sales and marketing expenses have increased since inception as we have expanded our sales and marketing efforts. We intend to aggressively expand our supplier and customer relationships and to increase revenues and expand our brand awareness. Consequently, we expect to increase the sales and marketing expenses in future periods. In addition, sales and marketing expenses will increase significantly due to our recently established relationships with BIO and VWR. General and Administrative. General and administrative expenses consist primarily of salaries, fees for professional services and lease expenses. The general and administrative expenses have increased primarily as a result of the addition of finance and administrative personnel and the costs of leasing additional office space to support our growth, as well as expenses related to increased professional service fees. We expect general and administrative expenses to increase in future periods to support our expanded operations and the expenses of being a public company. Amortization of Deferred Compensation. Chemdex recorded aggregate deferred compensation of $4.7 million in connection with certain stock options granted through March 31, 1999. For the year ended December 31, 1998 and the three months ended March 31, 1999, Chemdex amortized $372,000 and $352,000, respectively, related to stock options. In April 1999, we recorded additional deferred compensation of $2.5 million related to stock option grants. The deferred compensation amounts are being amortized over the vesting period of the stock options, generally four years. See Note 6 of Notes to Financial Statements. 27 Interest and Other Income, Net Interest and other income, net has been derived primarily from earnings on cash investments, offset by interest expense associated with our capitalized lease obligations for equipment purchases. Income Taxes Chemdex incurred operating losses and accordingly did not record a provision for income taxes for any of the periods presented. At December 31, 1998, we had net operating loss carryforwards and federal tax credits for federal income tax purposes of $7.5 million and $100,000, respectively. In addition, the Company had state net operating loss and research and development credit carryforwards of approximately $7.4 million and $100,000, respectively. These net operating losses and credits will expire in the years 2002 through 2018 if not utilized. Certain future changes in the share ownership of Chemdex, as defined in the Tax Reform Act of 1986 and similar state provisions, may restrict the utilization of carryforwards. A valuation allowance has been recorded for the entire deferred tax asset as a result of uncertainties regarding the realization of the assets due to the lack of earnings history at Chemdex. See Note 8 of Notes to Financial Statements. VWR Transaction We recently entered into an agreement with VWR to jointly market VWR laboratory products using the Chemdex e-commerce platform. The agreement gives us the right to offer VWR's approximately 350,000 core products to our customers through the Chemdex Marketplace. We are also jointly developing a hosted, co-branded Internet procurement solution for VWR's existing and future customers. In connection with the agreement, VWR transferred to Chemdex information concerning VWR customers who purchased products from third party suppliers outside of VWR's primary product offering, and in exchange Chemdex issued shares of common stock to VWR. We intend to use this information to expand sales of our procurement solution to these customers and adoption of the Chemdex Marketplace by these customers and suppliers. The deemed fair value of the common stock will be amortized as sales and marketing expense over five years, the estimated useful life of this intangible asset. The annual amortization will be approximately $2.6 million. See "Business-- Strategic Relationship with VWR" and Note 9 of Notes to Financial Statements. BIO Transaction The Biotechnology Industry Organization (BIO) recently selected Chemdex as its preferred supplier of electronic commerce purchasing solutions. As a result, we entered into a five-year, exclusive joint marketing agreement. As part of the joint marketing agreement, Chemdex will discount the fees we charge to BIO members for our solution and contribute cash payments to a joint marketing fund, to be used in connection with both parties' obligations under the joint marketing agreement. In addition, we sold 375,000 shares of our common stock to BIO for a nominal amount in consideration for BIO's participation in these joint marketing activities. BIO has the right to use a portion of the cash payments and any proceeds it receives from the sale of the common stock to support activities which may be unrelated to BIO's obligations under the agreement and which benefit its members and the biotechnology industry. The charge for BIO marketing activities will be expensed to sales and marketing as they are incurred. We will also record the difference between the nominal amount per share price paid by BIO for the purchase of our common stock and the fair value as of the date of issuance, which is approximately $1.8 million, ratably over the five-year term of the joint marketing agreement. See "Business--Relationship with BIO" and Note 9 of Notes to Financial Statements. Liquidity and Capital Resources We have funded our operations primarily through the private sale of our equity securities, through which we have raised net proceeds of approximately $42.8 million through the quarter ended March 31, 1999. We have also financed our operations through equipment lease financing. As of March 31, 1999, our principal sources of liquidity included approximately $27.8 million of cash and cash equivalents and $4.1 million in equipment financing arrangements. At March 31, 1999 there was $1.1 million in borrowings outstanding under the equipment financing arrangements. Subsequent to March 31, 1999, in April 1999, we raised an additional approximately $2.3 million in net proceeds from the private sale of our Series C Preferred Stock. 28 Cash used in operating activities totaled $6.8 million in 1998 and $4.6 million for the quarter ended March 31, 1999, primarily due to our net losses, which were partially offset by non-cash charges of depreciation and amortization of deferred compensation and sales and marketing and interest expense related to warrants and increases in accounts payable and accrued expenses. Cash used in investing activities totaled $1.6 million in 1998 and $1.5 million for the quarter ended March 31, 1999. We have made substantial investments in computer equipment, computer software, office furniture and leasehold improvements. Net cash provided by financing activities was $13.0 million in 1998 and $27.9 million for the quarter ended March 31, 1999. Net cash from financing activities during 1998 and for the quarter ended March 31, 1999 resulted primarily from the sale of preferred stock. We expect to fund future operating expenses from revenues received from the sale of our products, public or private financing and the proceeds of this offering. We currently anticipate that the net proceeds from this offering, together with our current cash, cash equivalents, and equipment lease line, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, we may need to raise additional funds in future periods through public or private financings, or other arrangements to fund our operations and potential acquisitions, if any, over a long-term basis until we achieve profitability, if ever. Any such additional financings, if needed, might not be available on reasonable terms or at all. Failure to raise capital when needed could seriously harm our business and results of operations. If additional funds are raised through the issuance of equity securities, the percentage of ownership of our stockholders would be reduced. Furthermore, such equity securities might have rights, preferences or privileges senior to our common stock. Year 2000 Compliance Many currently installed computer systems and software products are unable to distinguish year 2000 dates. This situation could result in system failures or miscalculations causing disruptions in the operations of any business. As a result, many companies' software and computer systems may need to be upgraded or replaced to comply with such Year 2000 requirements. Our ability to operate is dependent upon delivery of accurate, electronic information via the Internet. To the extent Year 2000 issues result in the long-term inoperability of the Internet or the Chemdex Marketplace, our business, results of operations and financial condition could be seriously harmed. Representations and Warranties to Our Customers We generally represent and warrant to our customers that the occurrence of the date January 1, 2000 and any related leap-year issues will not cause the Chemdex Marketplace application software to fail to operate properly. Our warranty generally applies only to our software and excludes failures resulting from the combination of our software with other software or hardware, unauthorized changes to the software or network connectivity problems, including, without limitation, problems connecting to the Internet or problems relating to Internet service providers. Our Testing of Our Online Marketplace Application Software We have internally reviewed the Chemdex Marketplace application software. We have performed industry-standard procedures to test our internally developed applications for year 2000 compliance. In addition, we have hired a consultant to perform additional testing. Based on our testing, we believe that our internally developed applications and systems are designed to be year 2000 compliant. However, we utilize third-party equipment and software that may not be year 2000 compliant. Failure of third party equipment or software, or the interface of our applications with this equipment or software could result in a material adverse effect on our business, results of operations and financial condition. We are currently assessing the year 2000 risks of our third-party desktop systems that are unrelated to the Chemdex Marketplace. 29 Interaction of Our Online Marketplace with Third-Party Software Furthermore, the success of our efforts may depend on the success of our suppliers, customers and strategic partners in dealing with their year 2000 issues. Many of these organizations' systems may not yet be year 2000 compliant, and the impact of failure of these systems on the Chemdex Marketplace is difficult to determine. The availability of products from our suppliers and the procurement patterns of our customers or potential customers may be affected by year 2000 issues. In addition, until some of the billing and cash collection functions for spot buying services are transitioned to Chemdex, we are dependent upon VWR's systems, which may not be year 2000 compliant, for receiving payment for products purchased using the spot buying services. If the systems of any of our suppliers or customers, and particularly, if VWR's billing and cash collection systems, are not year 2000 compliant, our business, revenues, results of operations and financial condition could be severely harmed. Our Contingency Plan We are engaged in an ongoing year 2000 assessment and the development of contingency plans. The results of our year 2000 testing and the responses received from suppliers, customers and strategic partners will be taken into account in determining the nature and extent of any contingency plans. We have not yet identified our worst-case scenario resulting from a year 2000 failure and have not yet completed our worst-case scenario contingency plan. Without a worst-case scenario contingency plan we may not have enough time to complete remedial measures and implement contingency planning for the worst-case scenario. We plan to complete our contingency plan in the fourth quarter of 1999. Costs of Addressing Year 2000 Compliance To date, our costs to address year 2000 compliance have been approximately $500,000 and are included in operating expenses funded from working capital. We anticipate the additional costs to address year 2000 compliance will be approximately $800,000. We currently have not deferred other information technology projects due to our year 2000 efforts. Significant uncertainty exists concerning the potential costs and effects associated with year 2000 compliance. Any year 2000 compliance problem experienced by us, our customers, suppliers or strategic partners could decrease the demand for or availability of products, which could seriously harm our business, operating results and financial condition. Recent Accounting Pronouncements In June 1998, the FASB issued FAS 133, Accounting for Derivative Instruments and Hedging Activities, which Chemdex will be required to adopt for the year ending December 31, 2000. This statement establishes a new model for accounting for derivatives and hedging activities. FAS 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. Because Chemdex currently holds no derivative financial instruments and does not currently engage in hedging activities, adoption of FAS 133 is expected to have no material impact on Chemdex's financial condition or results of operations. In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires entities to capitalize certain costs related to internal-use software once certain criteria have been met. We expect that the adoption of SOP No. 98-1 will not have a material impact on our financial position or results of operations. We will be required to implement SOP No. 98-1 for the year ending December 31, 1999. In April 1998, the AICPA issued SOP 98-5, Reporting for the Costs of Start- Up Activities. SOP No. 98-5 requires that all start-up costs related to new operations to be expensed as incurred. In addition, all start-up costs 30 that were capitalized in the past must be written off when SOP No. 98-5 is adopted. We expect that the adoption of SOP No. 98-5 will not have a material impact on our financial position or results of operations. We will be required to implement SOP No. 98-5 for the year ending December 31, 1999. Qualitative and Quantitative Disclosures about Market Risk Our sales from inception to date have been made to U.S. customers and, as a result, we have not had any exposure to factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. However, in future periods, we expect to sell in foreign markets, including Europe and Asia. As our sales are made in U.S. dollars, a strengthening of the U.S. dollar could make our products less competitive in foreign markets. At March 31, 1999, we did not hold any short or long-term investments and, therefore, did not have any market risk exposure related to changes in interest rates. Therefore, no quantitative tabular disclosures are required. At March 31, 1999, our cash and cash equivalents consisted primarily of money market funds and commercial paper held by large institutions in the U.S. 31 BUSINESS Overview Chemdex is a leading provider of e-commerce solutions to the highly fragmented life sciences industry. We enable life sciences enterprises, researchers and suppliers to efficiently buy and sell research products through the Chemdex Marketplace, a secure, Internet-based procurement solution. The Chemdex Marketplace utilizes an advanced search engine and transaction software to allow users to easily identify, locate and purchase life sciences research products. We believe the Chemdex Marketplace and procurement solution provide significant benefits to enterprises, researchers and suppliers. Industry Background Growth of Business-to-Business Commerce on the Internet The Internet has emerged as the fastest growing communications medium in history and is dramatically changing how businesses and individuals communicate and share information. International Data Corporation estimates that the number of Internet users will grow from 97 million at the end of 1998 to 320 million by 2002. The Internet has created new opportunities for conducting commerce, such as business-to-consumer and person-to-person e- commerce. Recently, the widespread adoption of intranets and the acceptance of the Internet as a business communications platform has created a foundation for business-to-business e-commerce that offers the potential for organizations to streamline complex processes, lower costs and improve productivity. Internet-based business-to-business e-commerce is poised for rapid growth and is expected to represent a significantly larger opportunity than business-to-consumer or person-to-person e-commerce. According to Forrester Research, business-to-business e-commerce is expected to grow from $43 billion in 1998 to $1.3 trillion in 2003, accounting for more than 90% of the dollar value of e-commerce in the United States by 2003. The dynamics of business-to-business e-commerce relationships differ significantly from those of other e-commerce relationships. Business-to- business e-commerce solutions frequently automate or otherwise impact workflows or processes that are fundamental to a business's operations. In addition, business-to-business e-commerce solutions must often be integrated with an enterprise's existing information systems, a process that can be complex, time-consuming and expensive. Finally, personnel throughout the enterprise must be trained to use the solution. Consequently, selection and implementation of a business-to-business e-commerce solution represents a significant commitment by the enterprise, and the costs of switching solutions are high. In addition, because business transactions are typically recurring and non-discretionary, the average order size and lifetime value of a business-to-business e-commerce customer is generally greater than that of a business-to-consumer e-commerce customer. Business-to-business e-commerce solutions that offer improved efficiency through the automation of business processes and workflows are being targeted toward a variety of industries. These solutions are likely to be most readily accepted by industries characterized by a large number of buyers and sellers, a high degree of fragmentation among buyers, sellers or both, significant dependence on information exchange, large transaction volume and user acceptance of the Internet. The Life Sciences Research Products Market The life sciences research products market is large and growing, with a myriad of customers and suppliers. According to the Laboratory Products Association, the North American life sciences research products market was approximately $9.4 billion in 1998. Outside of North America, the life sciences research products market is concentrated in Europe and Japan. The growth in the life sciences research products market is driven by increasing research and development expenditures by pharmaceutical and biotechnology companies, as well as an increase in the level of research funding available for grant by the National Institutes of Health, similar international government agencies and private foundations. Research and development budgets have been 32 increasing as new discovery tools, such as genomics, combinatorial chemistry and high-throughput screening, are developed and utilized. These new technologies allow researchers to experiment with thousands of chemical compounds simultaneously, which requires extensive use of reagents and other life sciences research products. The life sciences research products market is highly fragmented. There are over 5,000 suppliers offering more than one million products, many of which are highly specialized. Life sciences research products include reagents, chemical compounds, specialty chemicals, consumables, research instruments and other equipment. The primary purchasers and users of life sciences research products are research scientists working in pharmaceutical and biotechnology companies, and academic and research institutions. Limitations of Traditional Purchasing Methods for Life Sciences Research Products Traditional purchasing methods in the life sciences industry are inefficient, costly and time consuming for both the researcher and the enterprise. Product orders are traditionally handled through an internal, paper-based procurement process that requires manual preparation of a purchase order, written approval by the researcher's purchasing manager and manual order tracking, billing and reporting across multiple departments within the enterprise. Researchers, or their purchasing agents, place orders by telephone, fax or e-mail and typically must place orders with multiple suppliers to obtain all products related to a single research experiment. Additionally, the paper-based orders are costly for purchasers and suppliers to track and bill, and the decentralized order process does not facilitate data collection, which is required to take full advantage of volume discounts or other economies of scale. In addition, given the specialized and complex nature of life sciences research products, the researchers have specific and unique knowledge regarding product selection. Therefore it is difficult to integrate these purchases with the enterprise's procurement policies and business rules. The fragmentation of the life sciences supplier base also creates inefficiencies for researchers. Since the researcher is often searching for a specific product to meet the parameters of a research experiment, the current paper-based procurement process is complex, cumbersome and time-consuming. For example, a life sciences researcher studying intracellular communications related to cancer cells may need to purchase select antibodies for use in a research experiment. There are numerous suppliers of antibodies, and product specificity, reactivity, purity and other characteristics vary among suppliers. Researchers may spend several hours examining multiple paper product catalogs and other information from different suppliers to identify the most appropriate product. Traditional purchasing methods also present a number of challenges to suppliers trying to reach life sciences researchers with product information. Due to the high cost of printing and distributing paper catalogs, suppliers cannot cost-effectively manage frequent updates and distribution of time- sensitive information. In addition, individual researchers frequently move from enterprise to enterprise, making it difficult for suppliers to maintain contact with them. While some suppliers have developed Internet websites to communicate with individual researchers, few have invested the significant time and money required to establish an effective e-commerce channel with their customer base. Most suppliers, often very small in size, have limited resources available to support the growing challenge of marketing and selling to the fragmented, worldwide life sciences research products market. Opportunity for Business-to-Business E-commerce Solution Recognizing the limitations of traditional procurement methods, several large pharmaceutical and biotechnology companies have developed automated procurement systems. These systems attempt to streamline the purchasing process and leverage purchasing volumes, but often have limitations. These solutions may only offer access to the products of a limited number of suppliers and may not be scalable. In addition, enterprises incur significant costs developing such internal solutions, integrating them with other enterprise systems and maintaining their compliance with the enterprise's business rules and purchasing policies. Despite such efforts by certain enterprises, the fragmentation and complexities of the life sciences industry and the current paper-based procurement process create the need for a business-to-business e-commerce solution 33 that seamlessly links suppliers and purchasers of research products. To effectively address the needs of the life sciences enterprise, a solution must be cost-effective, easily implemented and maintained, enable the enterprise to enforce its particular purchasing policies and business rules, enable the collection of data to maximize volume purchase discounts and interface to multiple suppliers. To effectively address the needs of the researcher, a solution must be easy to use and provide comprehensive product selection, in- depth product information, specialized search capabilities and an efficient order and order-tracking mechanism. To effectively address the needs of customers and suppliers, it is important that the solution offer a neutral and fair marketplace with full catalog descriptions of products and retail product pricing information. Such information must also be fairly and accurately presented to researchers. In addition, the solution should offer suppliers an opportunity for incremental sales, the ability to offer customer-specific pricing and an opportunity to leverage any existing electronic catalogs that may have been implemented by the supplier. The Chemdex Solution Chemdex is a leading provider of e-commerce solutions to the life sciences research products market. The Chemdex Marketplace is a secure, Internet-based procurement system that enables life sciences enterprises, researchers and suppliers to efficiently buy and sell life sciences research products. The Chemdex Marketplace utilizes a database of approximately 240,000 life sciences research products, advanced search engines and transaction software that enable users to easily identify, locate and purchase the products they need. We also provide applications that enable our customers and suppliers to interface with the Chemdex Marketplace to automate their transactions. In addition to the Chemdex Marketplace, we provide professional and implementation services to enable our customers to take full advantage of the capabilities of the Chemdex Marketplace. Benefits to the Enterprise Chemdex's procurement solution enables enterprises to integrate their customized workflow, business rules and processes, and negotiated supplier pricing with the Chemdex Marketplace. We also provide the enterprise the option of a customized user interface. Our procurement solution requires minimal investment of time and capital by our enterprise customers to install, maintain and use. Our solution automates, consolidates and monitors the approval and invoicing process as well as the order placement and delivery information for the enterprise. In addition to reducing the cost of procurement, our solution allows our enterprise customers to enforce their particular business rules and aggregate purchases to obtain volume discounts and other economies of scale. The Chemdex Marketplace resides entirely on our servers, is accessible by standard browsers and requires minimal software installation or integration at the customer site. Benefits to the Researcher Researchers, research assistants and other users within enterprises benefit from the Chemdex Marketplace because it offers them convenient and easy one- stop shopping. A researcher can use our advanced search engine to identify and locate products from a broad product database and can use our automated ordering and approval process to purchase products. For example, our solution allows a researcher to personalize a list of product favorites to facilitate product selection and recurring orders. The Chemdex Marketplace offers other advantages over the traditional paper catalog alternative, including the online ability to compare various products from a single or multiple suppliers and track the progress of an order. These features result in significant time savings for the researcher. Benefits to the Supplier We offer suppliers a cost-effective opportunity to reach more customers and sell more products by establishing or enhancing their Internet presence and providing links to existing online or electronic catalogs. The Chemdex Marketplace also offers suppliers the capability to implement customer- specific pricing, update product information and introduce new products without being limited by specific catalog publication cycles. In 34 many cases, the Chemdex Marketplace will appeal to suppliers as being lower cost compared to traditional distribution or representation arrangements because, among other factors, our purchasing discounts may be less than those of traditional distributors. We plan to provide tools to our suppliers that enable the online update and modification of their product databases hosted on our servers, or to integrate the Chemdex Marketplace directly with their systems. The Chemdex Marketplace is neutral in that its search capability identifies products that meet the researchers' search criteria, and provides an unbiased comparison of product characteristics and pricing to allow the researcher to make a reasoned choice based upon the information provided by suppliers. The Chemdex Strategy Our objective is to expand upon our position as a leading e-commerce solution for the life sciences industry. Our strategy to achieve this objective includes the following key elements: Capitalize on First-Mover Advantage and Build Brand Awareness. We intend to capitalize on our "first-mover" advantage by offering the most comprehensive e-commerce solution to the life sciences research products market. We also intend to pursue strategic relationships with industry leaders, such as those we have established with VWR Scientific Products Corporation (VWR) and the Biotechnology Industry Organization (BIO), to accelerate market awareness and demand for our e-commerce solution. We intend to leverage our strategic relationship with VWR to gain entry into and establish relationships with their enterprise customers and life sciences research product suppliers. We also intend to pursue an aggressive brand development strategy through targeted advertising and promotions, press coverage and participation in trade associations and industry events. Expand Product Offering and Increase Adoption of Our Chemdex Marketplace. We believe our breadth of products and procurement solution provide us with an essential foundation for a comprehensive e-commerce solution for the life sciences industry. We currently offer approximately 240,000 products from approximately 100 suppliers. We have agreements with suppliers that provide us access to approximately 550,000 additional products that we plan to add to our Chemdex Marketplace, including approximately 350,000 VWR-distributed products. We intend to advance our market leadership by continuing to expand the selection of life sciences research products offered through the Chemdex Marketplace. A growing number of suppliers and products in the Chemdex Marketplace will potentially draw more enterprise customers and accelerate adoption by researchers. As the Chemdex Marketplace attracts a critical mass of enterprise customers and researchers, we believe the buying power of these customers will attract additional suppliers to our marketplace. We also believe this growth cycle will help create a network effect, where the value to each in the network increases with the addition of each new participant, increasing the overall value of the Chemdex Marketplace. Increase Usage of Chemdex Marketplace and Drive Operating Efficiencies. We intend to aggressively increase the base of enterprise customers using the Chemdex Marketplace, and drive rapid adoption within current and future enterprise customers. Our hosted, Internet-based procurement solution can be quickly and easily installed at the enterprise, reducing the initial commitment of time and capital for new enterprises adopting our solution. To encourage implementation throughout the enterprise, we charge minimal initial fees, and in certain cases waive initial fees if customers achieve minimum purchase volumes. Additionally, we will continue to educate users within our existing and future enterprise customers about the benefits of our solution and provide training on its use, thereby accelerating adoption. The cost of processing individual transactions will drop as the volume of transactions processed by the Chemdex Marketplace continues to grow, and through such increased volumes and further automation of our solution, we will strive to achieve economies of scale across our business. Maintain Technological Leadership. We intend to continue to improve our technology to meet the evolving needs of our customers. We will continue to expend substantial efforts to develop, purchase or license technological advancements to our procurement solution to enhance its reliability, functionality and ease of integration with existing or newly developed enterprise resource planning applications and other procurement systems. We intend to further automate interfaces with key suppliers, which will enable timely updates of product 35 information, as well as inventory availability. We also intend to improve our customer- and supplier-specific pricing flexibility and to enable purchasing in multiple foreign currencies. Expand Internationally. We believe the international scope of the Internet, the global reach of many of our customers and the worldwide demand for life sciences research products present opportunities to expand our Chemdex Marketplace internationally. The non-U.S. life sciences research products market is highly concentrated in Europe and Japan, and U.S. suppliers have a substantial presence in these markets. We plan to leverage our technology, expertise and existing supplier relationships to expand our Chemdex Marketplace to Europe and Asia. The Chemdex Marketplace Our Chemdex Marketplace consists of a broad database of approximately 240,000 life sciences research products and advanced search engine and transaction software that enable users to easily identify, locate and purchase the products they need. We also provide applications that enable our customers and suppliers to interface and automate the information exchange with the Chemdex Marketplace. In addition to our Chemdex Marketplace and Internet-based applications, we provide professional and implementation services to enable our customers to take full advantage of the capabilities of the Chemdex Marketplace. We believe that our business model, which is based on negotiated price discounts from our suppliers rather than transaction fees payable by the customer, will further drive usage of the Chemdex Marketplace. In addition, our customer support and sales group helps customers understand both the business and technical benefits of the Chemdex Marketplace and provides one-on-one education and training to increase user adoption. The following chart summarizes the key services supported by the Chemdex Marketplace and the features of such services.
Services Supported Chemdex Features - ------------------------------------------------------------------------------------- Enterprise . Procurement system management . Interface to existing enterprise . Approval and purchase of life network and ERP software sciences research products . Automated order approval process . Summary invoicing and reporting . Enforcement of business rules . Customized supplier pricing . Comparative price/product shopping - ------------------------------------------------------------------------------------- Researcher . Identification, comparison and . One-stop shopping purchase of life sciences . Search engine to identify, research products locate and compare products . Current, detailed product information . Automated order submission and status . Recurring order form - ------------------------------------------------------------------------------------- Supplier . Sale of life sciences research . Support integration with products supplier sales order flow . Automated order submission and tracking . Automated process for updating and adding product/price information . Customer support services
How it works for the enterprise. The enterprise customer interface with the Chemdex Marketplace varies based upon the customer's existing procurement system. Our applications and services can be implemented as a stand-alone solution, or can be integrated with existing systems or other commercially available procurement solutions. Our applications are designed to be easily customized to match the workflow requirements and business rules of the enterprise. We also provide access to the Chemdex Marketplace through our web site. In most cases, the most important impact of our solution is paperless automation of the procurement approval process. Purchasing limits are most often applied on an individual researcher or project basis, and the Chemdex Marketplace interfaces with the enterprise's system to ensure compliance with defined limits. Our solution can 36 be integrated with enterprise financial accounting systems to further automate specific product purchase information. The enterprise's information technology group has few support requirements beyond the initial installation, since the Chemdex Marketplace is entirely hosted on our client servers with all recurring product upgrades managed and installed by us. How it works for the researcher. The researcher most often interfaces with the Chemdex Marketplace to order specific products for research experiments. In many cases, the researcher needs the same items on a regular basis and our solution allows a researcher to personalize a list of "favorites" to facilitate product selection and recurring orders. The Chemdex Marketplace also provides robust product search capabilities that help researchers identify new products needed to meet the specific characteristics required for an experiment. Researchers have password access to the system, and can easily process their recurring orders, as well as orders for new products. The system allows the researcher to identify the incremental shipping costs for expedited processing, and provides for automated paperless processing of an order once the product selection is complete. The researcher is also able to track the status of individual orders within the system, reducing the time required to communicate with procurement personnel or suppliers. How it works for the supplier. Electronic versions of product catalogs are provided to us in a variety of file formats. These files are converted to searchable data which is loaded into the Chemdex Marketplace using a number of sophisticated product loading algorithms. Our content engineering staff then reviews the data as loaded in the Chemdex Marketplace to ensure proper classification for purposes of product searches. The ability to process large volumes of complex catalog information is an important core competency which allows us to afford maximum flexibility to our suppliers in loading data and updating information. We also provide suppliers the ability to readily update their product information to include revised pricing, new product introductions or additional product details of interest to the customers. We send product order information to suppliers in a number of electronic media forms, including electronic data interchange, e-mail, HTML or flat file, to maximize automation and integration with existing supplier software systems. Future Services. Chemdex anticipates that aggregated product purchasing and sales information will ultimately be valuable to both suppliers and customers. After accumulating significant historical data regarding buying patterns, we intend to make non-confidential, aggregated information available to both suppliers and customers as an additional service. Customers Our target customers are pharmaceutical and biotechnology companies and academic and research institutions. As of March 31, 1999, we have entered into agreements to provide our procurement solution to 17 enterprise customers and sold life sciences research products to over 250 users. Sales to Genentech researchers accounted for approximately 82% of our total revenue for the quarter ended March 31, 1999. The following is a list of our enterprise customers that have used the Chemdex Marketplace to purchase life sciences research products as of March 31, 1999: CV Therapeutics Phyton, Inc. Elan Pharmaceuticals Raven Biotechnologies Eos Roche Bioscience Genentech, Inc. Telik, Inc. Harvard University University of California, San Francisco HemaSure, Inc. University of Illinois Immune Complex Corporation VaxGen, Inc. Maxygen, Inc.
We also sell life sciences research products to registered users who are not affiliated with our enterprise customers through our web site at www.chemdex.com. Because of the nature of some of the products we sell, 37 we are taking steps to register unaffiliated users to our web site to ensure that they are associated with pharmaceutical or biotechnology companies, or academic or research institutions. Although we intend to increase our sales and marketing efforts, we expect that we will continue to generate a significant portion of our revenue from a limited number of customers for the foreseeable future. If we do not increase the number of our customers, or if we lose any of our current customers or do not generate as much revenue from them as we expect, our business would be significantly harmed. Suppliers We believe the value and benefit to our customers of our procurement solution is directly related to the breadth and depth of life sciences research products offered through our Chemdex Marketplace. We currently offer approximately 240,000 products from approximately 100 suppliers. We have agreements for approximately 550,000 additional products which we plan to add to our Chemdex Marketplace, including approximately 350,000 of VWR-distributed products. We anticipate that a majority of these products, which are related to VWR, will be loaded in the Chemdex Marketplace by the third quarter of 1999 and that the remaining products will be loaded by the end of the fourth quarter of 1999. The following is a list of our twenty largest product suppliers based on our revenues for the quarter ended March 31, 1999; Accurate Surgical and Scientific Life Technologies, Inc. Amersham Life Science Inc. Molecular Probes, Inc. Biosource International, Inc. New England BioLabs Inc. CN Biosciences, Inc. PeproTech, Inc. CHEMICON International, Inc. PharMingen Clontech Laboratories, Inc. Pierce Chemical Company Dako Corporation Research Organics, Inc. Endogen, Inc. Spectrum Quality Products, Inc. Kirkegaard & Perry Laboratories, Inc. Stratagene Lancaster Synthesis Ltd. United States Biological
We currently have seven employees who are responsible for maintaining existing relationships and establishing new relationships with suppliers. Strategic Relationship with VWR We recently entered into a strategic relationship agreement with VWR Scientific Products Corporation to jointly market VWR laboratory products using the Chemdex Marketplace. VWR is one of the laboratory supply industry's largest distributors. The agreement gives us the right to offer approximately 350,000 VWR-distributed products to our customers through the Chemdex Marketplace. We currently expect to make the majority of these products available through the Chemdex Marketplace in the third quarter of 1999. VWR and Chemdex are jointly developing a hosted, co-branded Internet procurement solution for VWR's existing and future customers that will provide access to three categories of products: . products distributed by VWR (VWR core products), . products distributed by Chemdex (Chemdex core products) and . products that are not distributed by either VWR or Chemdex but are purchased from third parties (spot buying service). With respect to sales of VWR core products, we will act as an intermediary and will forward orders received through the Chemdex Marketplace to VWR for fulfillment and customer service. We will receive no fee for orders for VWR core products from VWR's 40 largest customers and we will receive a minimal fee for all other orders for VWR core products forwarded to VWR. We will be responsible for fulfillment and customer service 38 for all Chemdex core product and spot buying orders received from VWR customers through the Chemdex Marketplace. Under the terms of the agreement, VWR will provide support for the spot buying services in return for a fee which approximates VWR's costs incurred. VWR and Chemdex will jointly market the co-branded version of the Chemdex Marketplace to VWR's existing and new customers and will jointly solicit several key existing VWR suppliers to distribute, market and sell their products through the co-branded procurement solution. We believe the VWR strategic relationship will enhance and broaden the Chemdex Marketplace, and the spot buying services will enable Chemdex to offer complete fulfillment capability to current and future VWR customers through the co-branded Chemdex Marketplace. We believe the VWR strategic relationship will accelerate adoption of the Chemdex Marketplace by VWR customers, which include major U.S. pharmaceutical and biotechnology companies, and will enable us to establish relationships with additional key suppliers and customers. As part of the strategic relationship, Jerrold Harris, the President and Chief Executive Officer of VWR, joined our board. In addition, VWR received 5,076,810 shares of our common stock. VWR is subject to contractual limits on their percentage ownership of our stock, except in connection with the acquisition of our stock by specified companies. See "Related Party Transactions." Relationship with BIO The Biotechnology Industry Organization (BIO) recently selected Chemdex as its preferred supplier of electronic commerce solutions. As a result, we entered into a five-year, exclusive joint marketing agreement with BIO. We believe this agreement will significantly facilitate the selection and adoption of the Chemdex solution by BIO's members and provide Chemdex with a significant competitive advantage. Under the agreement, BIO will endorse Chemdex as the preferred provider of electronic commerce purchasing solutions to the biotechnology industry and engage with Chemdex in joint marketing activities, including endorsement of Chemdex through BIO-sponsored speaking engagements, in BIO publications and direct marketing materials, at BIO shows and conferences, and on the BIO web site. As part of the joint marketing agreement, Chemdex will discount the fees we charge to BIO members and contribute cash payments to a joint marketing fund, to be used in connection with both parties' obligations under the joint marketing agreement. In addition, we sold 375,000 shares of our common stock to BIO for a nominal amount in consideration for BIO's participation in these joint marketing activities. BIO is an industry organization that serves and represents the biotechnology industry, including more than 850 biotechnology companies, academic institutions, and state biotechnology centers, with 25 state affiliates and related organizations in 47 states and more than 26 countries. In addition to other industry supporting activities, BIO provides strategic purchasing services for its members through BIOPurchasing, BIO's national group purchasing division. Technology The Chemdex Marketplace is a hosted procurement solution that resides entirely on our fault-tolerant servers and is accessible by standard browsers, requiring minimal software installation at the customer site, and enabling rapid deployment of applications, enhancements and updates. Our production data center is hosted at Exodus Communication in Sunnyvale, California. This data center provides us with conditioned space and high bandwidth Internet connectivity. System Architecture. The Chemdex Marketplace includes three layers of technology: . Process and Communication Layer. This layer integrates our system with our customers' client applications using protocols that traverse corporate firewalls, such as http, ftp and EDI, to provide a seamless operation of the Chemdex Marketplace and procurement solution. This layer is implemented using standard web servers, and supports standard Internet protocols such as http, ftp and XML. 39 . Electronic Services Layer. This layer delivers all of our system's functionality. The Chemdex Marketplace and procurement solution uses existing and proprietary software to deliver proprietary services including Internet catalog development and maintenance tools, search functionality, workflow integration, product pricing and estimated shipping, handling and freight charges. . Enterprise Services Layer. This layer delivers certain services required to run Chemdex's system, including financial services, development and maintenance of the product master database, customer service systems and the data warehouse. To meet our unique scale requirements for product information management, we developed a proprietary data warehouse system. Customer Integration. The Chemdex Marketplace can be configured and integrated to meet an enterprise customer's needs, including: . Customer View. The procurement solution graphical user interface may be tailored for each enterprise customer, allowing an enterprise customer to select specific suppliers from our supplier list, and to customize the user's view in accordance with business rules and policies implemented by the purchasing department. . Login and Authentication. For enterprises that do not have a single authoritative directory services system enabling single login functionality across the enterprise, the Chemdex procurement solution provides an authoritative enterprise authentication and authorization list along with the user roles, credit limits, and approval workflow. For enterprises that have a single authoritative directory services system, the Chemdex procurement solution directly integrates with the enterprise's authoritative data source to maintain the current permitted user list, and provides seamless access by the user and simple management for the enterprise. . Purchasing Application Integration. The Chemdex procurement solution integrates with commercial purchasing applications, such as Ariba or Commerce One, as well as internally developed purchasing applications, through Open Buying on the Internet (OBI), an industry standard protocol for Internet purchasing, or by integrating directly with a proprietary format such as Ariba's cXML protocol. . Custom Pricing. We have developed algorithms to support existing contract pricing agreements between customers and suppliers. This custom pricing can be implemented either by (a) pricing contract tables that list discount rates for a specific product, buyer or supplier relationship; or (b) direct integration with the supplier systems to extract real time pricing and availability information. Search Services. Our search software leverages a combination of full text search and relational technology to deliver a unique search tool customized to the life sciences industry. Our search engine is customized to 11 levels of specific search categories associated with life sciences research products such as antibodies, enzymes, or other compounds. Each of the product specific search levels also includes parametric searching capabilities to search for products with specific attributes, or ranges of attributes. Product Pricing Estimation. We have developed algorithms to estimate shipping, handling and freight charges associated with any customer order. These algorithms integrate customer requirements for shipping delivery time, product weight, and product type (including requirements for hazardous materials and product packaging such as blue ice). These algorithms provide our users with estimated shipping, handling and freight cost, and make appropriate decisions given their delivery timing requirements. Workflow. We have developed simple workflow technology to implement each enterprise customer's business rules and processes. These workflow rules include credit limit checks, multilevel approval and e-mail based notification of any order changes. This system streamlines the purchasing process by automating approval routing, and enables real time customer service through direct customer notification. Technical Support. We offer technical support to respond to any customer service disruption. In addition to off-the-shelf site instrumentation and monitoring software, we have developed custom monitoring agents that 40 measure key Chemdex application parameters. This proprietary software enables us to provide high quality technical support. Sales, Marketing and Support We market and sell the Chemdex Marketplace and procurement solution through a combination of our direct sales force, internal telemarketing sales and strategic relationships with partners such as VWR and BIO. Since our potential customers and users fall within a defined market segment, we are able to identify and target the purchasing decision makers and potential users who will influence the decision to adopt a procurement solution. Our sales and marketing approach is designed to help customers and suppliers understand both the business and technical benefits of the Chemdex Marketplace and procurement solution, and to promote user adoption through one-on-one education and training. Our field sales force focuses on large pharmaceutical and biotechnology companies and large academic and research institutions. Our telephone sales group focuses on small biotechnology companies and smaller research institutions. We are building an experienced professional services organization to facilitate the successful deployment of our procurement solution, including integration with any enterprise resource planning software and customization with the enterprise's business rules. We intend to expand our direct sales force and professional services organization and to establish additional sales offices domestically and internationally. Competition for sales personnel is intense, and we may not be able to attract, assimilate or retain additional qualified personnel in the future. We conduct a variety of marketing programs to educate our target market, create awareness and attract customers to our Chemdex Marketplace. To achieve these goals, we leverage our existing customer base and engage in marketing activities such as seminars, direct mailings, trade shows, speaking engagements and web site marketing. We also conduct comprehensive public relations programs that include establishing and maintaining relationships with key trade press, business press and industry analysts. In addition, we engage in marketing programs within our enterprise customers to educate, convert and train researchers and purchasing agents to use the Chemdex Marketplace for their life sciences research product orders. We believe that we can establish and maintain long-term relationships with our customers and suppliers, and encourage repeat visits and purchases by our customers if, among other things, we have good account management, customer support and service. Our customer support and service personnel handle general customer inquiries and basic technical questions, answer customer questions about the ordering process and investigate the status of orders, shipments and payments. We have automated certain of the tools used by our customer support and service staff, such as tracking screens that let our support staff track a transaction by any of a variety of information sources. At any time in the purchasing process, a customer can access our support staff by fax or e-mail by following prompts located throughout our web site or by calling our call center through our toll free telephone line. Our support staff is knowledgeable in life sciences research products and the life sciences industry. Our worldwide sales and marketing group consisted of 39 individuals as of March 31, 1999, 29 of whom were located at our Palo Alto, California headquarters and 10 of whom were located in regional offices in Ann Arbor, Michigan; Cambridge, Massachusetts; Princeton, New Jersey; and Columbia, Maryland. Research and Development Our development organization is focused on developing and enhancing our enterprise procurement solution, developing applications for and supporting the Chemdex Marketplace, and maintaining and improving our technology, infrastructure and database. The development group is supported by our quality assurance group, which implements a process designed to identify defects through the entire development cycle. We are currently in the process of developing and integrating new technology into our Internet-based procurement solution as part of our planned release of several enhanced versions of the Chemdex Marketplace over the next few months. These new releases are planned to include significant enhancements to the user interfaces, database management and search technology, and security controls, and will allow us to offer VWR's products to our customers. As of 41 March 31, 1999, our research and development group was comprised of 34 employees responsible for development and quality assurance. Research and development expenses were $196,000 in 1997 and $3.4 million in 1998. To date, substantially all software development costs related to the Chemdex Marketplace have been expensed as incurred by our employees. We believe that significant investments in research and development are required to remain competitive. Proprietary Rights and Licensing Our success and ability to compete are dependent on our ability to develop and maintain the proprietary aspects of our technology. We rely on a combination of copyright, trademark and trade secret laws and contractual restrictions to establish and protect the proprietary aspects of our technology. We seek to protect our source code for our software, documentation and other written materials under trade secret and copyright laws. Finally, we seek to avoid disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements with us and by restricting access to our source code. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, and to determine the validity and scope of the proprietary rights of others. Any such resulting litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our business operating results. Our success and ability to compete are also dependent on our ability to operate without infringing upon the proprietary rights of others. In the event of a successful claim of infringement against us and our failure or inability to license the infringed technology, our business and operating results would be significantly harmed. Competition The market for business-to-business e-commerce and Internet ordering and purchasing is new and rapidly evolving, and competition is intense and is expected to increase significantly in the future. Barriers to entry are relatively insubstantial. We believe that the critical success factors for companies seeking to create Internet business-to-business e-commerce solutions include the following: . quality and reliability of the Internet procurement solution; . breadth and depth of product offerings; . brand recognition; . installed base of customers; and . ease of use and convenience. We face competition from four main areas: other companies with e-commerce offerings, traditional suppliers and distributors of life sciences research products, life sciences companies that have developed their own procurement solutions and enterprise software companies that offer, or may develop, alternative procurement solutions. Companies primarily focused on creating Internet procurement solutions for the life sciences industry include SciQuest.com and Anderson Unicom Group, Inc. Traditional suppliers and distributors including Sigma Aldrich Corp., Fisher Scientific International, Inc., Merck KGaA Darmstaadt and VWR currently sell life sciences research products through paper catalogs and web sites. We could face further competition in the future from traditional suppliers and distributors that enter into business-to-business e-commerce over the Internet either on their own or by partnering with other companies. In addition, life sciences companies may already have, or may develop, their own procurement solutions. Traditional enterprise software 42 companies, such as SAP, IBM and Oracle, could in the future develop and offer a competitive procurement solution that our customers could customize to link to their suppliers. Additionally, emerging enterprise software companies, such as Ariba, Inc. and Commerce One, Inc. offer procurement solutions that could be customized to link to suppliers of life sciences research products. Our current and potential competitors may develop superior Internet procurement solutions that achieve greater market acceptance than our solution. Many of our existing and potential competitors, including large traditional distributors, have longer operating histories in the life sciences research products market, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. Such competitors can undertake more extensive marketing campaigns for their brands, products and services, adopt more aggressive pricing policies and make more attractive offers to customers, potential employees, distribution partners, commerce companies and third-party suppliers. In addition, substantially all of our prospective customers have established long-standing relationships with certain of our competitors or potential competitors. Accordingly, we cannot be certain that we will be able to expand our customer list and user base, or retain our current customers. We may not be able to compete successfully against our current or future competitors and competition could have a material adverse effect on our business, results of operations and financial condition. Government Regulation In addition to regulations applicable to businesses generally, we are subject to direct regulation by governmental agencies, which includes numerous laws and regulations generally applicable to the chemical, pharmaceutical, controlled substances, human and animal biological reagents, and nuclear chemical businesses, and environmental spills, as well as U.S. export controls and import controls of other countries, including controls on the use and distribution of chemical reagents. Regulatory agencies potentially involved include the: . Food and Drug Administration under, for example, the Federal Food, Drug and Cosmetics Act; . Environmental Protection Agency under, for example, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, the Clean Water Act and the Clean Air Act; . Drug Enforcement Agency under, for example, the Controlled Substances Act; . Centers for Disease Control under, for example, the Clinical Laboratories Improvement Act; . Department of Agriculture under, for example, the Virus and Serum Act; . Occupational Safety and Health Administration under, for example, the Occupational Safety and Health Act; . Department of Commerce under, for example, the Export Administration Act; . Nuclear Regulatory Commission under, for example, the Atomic Energy Act; . U.S. Department of Interior under, for example, the Comprehensive Environmental Response, Compensation, and Liability Act; and . various state and local counterparts and laws, for example California Proposition 65, the California Safe Drinking Water and the Toxic Enforcement Act. Researchers and others who are not affiliated with an enterprise customer may register with our Chemdex Marketplace and purchase life sciences research products through our website, www.chemdex.com. Although we require unaffiliated users to register information about themselves and their research experiments, we do not independently verify this information or screen or qualify these unaffiliated users. 43 We currently seek to rely upon our suppliers to meet the various regulatory and other legal requirements applicable to our business. However, we are unable to verify that they have in the past, or will, in the future, always do so, or that their actions are adequate or sufficient to satisfy all governmental requirements that may applicable to these sales, particularly in light of the fact that we generally hold title to the products during their delivery to and return from customers. We could be fined or exposed to civil or criminal liability, and we could receive potential negative publicity, if these requirements have not been fully met by our suppliers or by us directly. These fines, liabilities, and negative publicity could also occur if an unqualified person (or even a qualified customer, if we or the customer lack the appropriate permits to sell, use, or ship) improperly receives a dangerous or licensed product through the Chemdex Marketplace. There are, to our knowledge, currently no investigations, inquiries, citations, fines, or allegations of violations or noncompliance pending by government agencies or by third parties against us. It is possible that there may be investigations or allegations in the future. We are currently reviewing applicable requirements with regard to past, present and continuing compliance, particularly concerning various licensing and sales issues. The risk that any noncompliance may be discovered in the future is currently unknown. Although any potential impact on us for noncompliance cannot currently be established, it could result in civil or criminal penalties, including monetary fines and injunctions, for noncompliance and negative publicity, and have a material adverse impact on our business, revenues, results of operations and financial condition. Due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted or interpreted in the United States and abroad with particular applicability to the Internet. For example, the above-listed examples of existing laws and regulations, as well as new tax laws and regulations, may be adopted or interpreted by the United States and foreign governments, to address the sale and distribution of life sciences research products utilizing the Internet. In addition, it is possible that governments will enact legislation that may be applicable to us in areas such as content, product distribution, network security, encryption and the use of key escrow, data and privacy protection, electronic authentication or "digital" signatures, illegal and harmful content, access charges and re- transmission activities. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, content, taxation, defamation, personal privacy, product liability and environmental protection, as well as the necessity for governmental permits, labeling, certifications and the need to supply information to relevant parties, is uncertain. Most of these laws were adopted before the widespread use and commercialization of the Internet and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. Any export or import restrictions, new legislation or regulation or governmental enforcement of existing regulations may limit the growth of the Internet, increase our cost of doing business or increase our legal exposure. Any of these factors could have a negative effect on our business, revenues, results of operations and financial condition. Employees As of March 31, 1999, we had 87 full-time employees, including 34 in engineering, 39 in sales and marketing and 14 in general and administrative functions. We also employ independent contractors to support our engineering, marketing, sales and support, and administrative organizations. Facilities Our executive, administrative and operating offices are located in approximately 33,000 square feet of leased office space located in Palo Alto, California under a lease expiring in December, 2003. We also maintain sales offices in Ann Arbor, Michigan; Cambridge, Massachusetts; Princeton, New Jersey; and Columbia, Maryland. We are in the process of identifying new facilities to accommodate our growth and currently plan to relocate our executive, administration and operating offices to new facilities within the next six months. 44 MANAGEMENT Directors and Executive Officers Set forth below is certain information regarding the directors and executive officers of Chemdex as of May 12, 1999.
Name Age Position ---- --- -------- David P. Perry................... 31 President, Chief Executive Officer and Director Pierre V. Samec.................. 36 Chief Information Officer James G. Stewart................. 46 Chief Financial Officer and Assistant Secretary Martha D. Greer.................. 45 Vice President, Marketing Thomas P. Kudrycki............... 40 Vice President, Engineering Robert W. Perreault.............. 41 Vice President, Professional Services James S. Wambach................. 45 Vice President, Worldwide Sales David A. Weber................... 45 Vice President, Supplier Relations Charles R. Burke(1).............. 56 Director Brook H. Byers(1)................ 53 Director Jonathan D. Callaghan(1)......... 30 Director Jerrold B. Harris................ 56 Director S. Joshua Lewis(2)............... 35 Director John A. Pritzker................. 45 Director Robert A. Swanson................ 51 Director L. John Wilkerson(2)............. 55 Director
- -------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. David P. Perry co-founded Chemdex in September 1997 and has served as its President, Chief Executive Officer and a director since September 1997. From December 1995 to April 1997, he co-founded and served in various positions, including Chief Executive Officer, of Virogen, Inc., a biotechnology company. Mr. Perry has also held various positions at Exxon Corporation, including as a Refinery Operations Supervisor from January 1994 to May 1995, a financial analyst from March 1993 to January 1994, a project manager from September 1992 to March 1993 and an engineer from September 1990 to March 1992. Mr. Perry holds an M.B.A. from Harvard University and a B.S. in chemical engineering from the University of Tulsa. Pierre V. Samec joined Chemdex as its Chief Information Officer in July 1998. He previously held various positions at Charles Schwab and Co., Inc., a financial services company, including as its Senior Vice President, Retail Technology from January 1998 to July 1998, its Vice President, Software Engineering from July 1996 to February 1998 and its Vice President and Architect from January 1996 to June 1996. Mr. Samec also served as the Vice President, Software Engineering of Quintus Corporation, a software company, from August 1993 to December 1995. Mr. Samec holds an engineering degree from Ecole des Mines de Paris and a Ph.D. from Stanford University. James G. Stewart joined Chemdex as its Chief Financial Officer in February 1999. Previously, Mr. Stewart served as the Chief Financial Officer of CN Biosciences, Inc., a chemical manufacturing and distribution company, from June 1995 to March 1999, and the President of CN Corporation, the principal operating division of CN Biosciences, Inc., from March 1998 to March 1999. From April 1994 to April 1995, Mr. Stewart served as the Chief Financial Officer of Fightertown Entertainment, Inc., a virtual reality entertainment company. From November 1988 to April 1994, Mr. Stewart held various positions at Verteq, Inc., a semiconductor equipment company, including most recently as its Chief Financial Officer. Mr. Stewart was formerly an Audit Partner of Arthur Young & Co. and holds a B.S. from the University of Southern California. 45 Martha D. Greer joined Chemdex as its Vice President, Marketing in January 1999. Previously, she served as the Vice President, Merchandise Management of Onsale, Inc., an electronic commerce company, from December 1996 to November 1998. Ms. Greer was employed as an independent consultant from January to December 1996. From 1992 to 1996, Ms. Greer served in various positions at PC Connection, a computer direct marketing company, including as its Vice President, Product Management from September 1994 to February 1996, as its Vice President, Marketing from September 1993 to September 1994, as its Director, Marketing from May 1993 to September 1993 and as its Director, Business Development from November 1992 to May 1993. Ms. Greer holds a B.A. in linguistics from Macalester College and a Ph.D. in experimental psychology from Harvard University. Thomas P. Kudrycki joined Chemdex as its Vice President, Engineering in September 1998. Previously, from January 1996 to July 1998, Mr. Kudrycki served as the Vice President, Content Technology of CNET, an online publishing company. From September 1988 to December 1995, he served as a technical manager at AT&T Corporation, a voice and data communications company. Mr. Kudrycki holds a B.Eng. in Physics from Warsaw Polytechnic, a B.S. in computer science from Central State University and a M.S. in electrical and computer engineering from University of Cincinnati. Robert W. Perreault joined Chemdex as its Vice President, Professional Services in April 1999. From February 1998 to April 1999, he served as Vice President of Worldwide Professional Services at Inprise Corporation, an enterprise software and services company. From August 1995 to February 1998, Mr. Perreault was Vice President of Professional Services and Vice President of Engineering at Visigenic Software, Inc., which was acquired by Inprise in March 1998. Prior to 1990, Mr. Perreault held various senior management positions at Compuware Corporation, Uniface Corporation and Hewlett-Packard Company, most recently serving as Vice President of Client Server Technology. Mr. Perreault holds a B.A. from Stanford and an M.B.A. from the University of Michigan. James S. Wambach has served as the Vice President, Worldwide Sales of Chemdex since September 1998. From January 1997 to June 1998, Mr. Wambach served as the Senior Vice President of North American Sales Operations of Forte Software, Inc., a software company. From January 1990 to December 1996, Mr. Wambach served in various positions at Sybase, Inc., a software products and services company, including most recently as its Vice President and General Manager from October 1995 to December 1996. Mr. Wambach has also served in various positions at Oracle Corporation, a database management and business applications company. Mr. Wambach holds a B.S. degree in business administration from Ohio State University. David A. Weber joined Chemdex in February 1999 as its Vice President, Supplier Relations. Previously, Mr. Weber served as the Vice President, Marketing at Amersham Pharmacia Biotech, a scientific services and tools company, from October 1997 to February 1999. He also served as the Vice President, Direct Marketing from 1995 to 1997 and as Area Director from 1990 to 1995, of Pharmacia Biotech, a division of Pharmacia & Upjohn, Inc. He holds a B.S. in biochemistry from Rutgers University. Charles R. Burke has served as a director of Chemdex since January 1998. Mr. Burke has served as the President of Monument Partners, Inc., a consulting firm, since January 1998. From January 1994 to December 1997, he served as the Chief Executive Officer of Research Biochemicals Incorporated, a research reagent supply company. Mr. Burke is also a director of Endogen, Inc. Mr. Burke holds an A.B. in Chemistry from Cornell University, a M.A. with honors in Biology from Colgate University and a Ph.D. in Biochemistry from the University of Illinois. Brook H. Byers has served as a director of Chemdex since May 1998. Mr. Byers is a general partner of Kleiner Perkins Caufield & Byers, a venture capital firm which he joined in 1977. He was the founding president and chairman of four lifesciences companies: Hybritech Inc., IDEC Pharmaceuticals Corporation, InSite Vision Inc. and Ligand Pharmaceuticals Inc. Mr. Byers currently serves as a director of Nanogen, Inc. and a number of privately-held technology companies. Mr. Byers serves on the Board of Directors of the University of California, San Francisco Foundation and the California Healthcare Institute. Mr. Byers holds a B.S. in electrical engineering from Georgia Institute of Technology and an M.B.A. from the Stanford Graduate School of Business. 46 Jonathan D. Callaghan has served as a director of Chemdex since September 1997. Mr. Callaghan has been a general partner of CMG@Ventures, a venture capital firm, since September 1997. Previously, from June 1991 to June 1995, Mr. Callaghan was an associate of Summit Partners, a venture capital firm. He holds a B.A. from Dartmouth College and an M.B.A. with Distinction from Harvard University. Jerrold B. Harris has served as a director of Chemdex since April 1999. Mr. Harris has been the President and Chief Executive Officer of VWR Scientific Products Corporation, a scientific supplies and products company, since March 1990. Mr. Harris is a director of VWR and of the Provident Institutional Funds. S. Joshua Lewis has served as a director of Chemdex since May 1998. Mr. Lewis is a Managing Director of E.M. Warburg, Pincus & Co., LLC and a director of a number of privately held companies. Mr. Lewis holds a D.Phil. from Oxford University and an A.B. from Princeton University. John A. Pritzker has served as a director of Chemdex since March 1998. Mr. Pritzker has served as the President of Hyatt Ventures, Inc., a venture capital firm, the President of Red Sail Companies, a sports, retail and entertainment company, and the President of Mandara Spa, LLC, a spa company, since 1988. Previously, he held various positions at Hyatt Hotels. He holds an A.A. from Menlo College. Robert A. Swanson has served as a director of Chemdex since May 1998. Mr. Swanson has served as the Chairman and Chief Executive Officer of K&E Management, a private investment company since October 1996. Previously, Mr. Swanson co-founded and served as the Chief Executive Officer of Genentech, Inc., a biotechnology company, from April 1976 to February 1990 and served as its Chairman from February 1990 to December 1996. Prior to forming Genentech, Mr. Swanson was a partner of Kleiner & Perkins, a venture capital firm. Mr. Swanson holds a S.B. in chemistry from Massachusetts Institute of Technology and a S.M. in management from the Alfred P. Sloan School of Management at Massachusetts Institute of Technology. L. John Wilkerson has served as a director of Chemdex since March 1999. Dr. Wilkerson is a co-founder and has been a general partner of Galen Associates, a venture capital firm, since May 1990, and has been a consultant to The Wilkerson Group, a health care products consulting firm, since May 1996. Previously, Dr. Wilkerson served as a Vice President of Smith Barney. He is currently a director of British Biotech Plc, Stericycle, Inc. and TheraTX, Incorporated. Dr. Wilkerson holds a Ph.D. in economics from Cornell University and a B.S. in plant science from Utah State University. Board of Directors Directors are elected annually at the annual meeting of Chemdex stockholders, and serve for the term for which they are elected and until their successors are duly elected and qualified. Chemdex's Bylaws currently provide for a Board of Directors comprised of nine directors. Board Committees Chemdex's Board of Directors has an Audit Committee and a Compensation Committee. The Audit Committee of the Board of Directors consists of Mr. Lewis and Mr. Wilkerson. The Audit Committee reviews Chemdex's financial statements and accounting practices and makes recommendations to the Board of Directors regarding the selection of independent auditors. Mr. Lewis is the Chairman of the Audit Committee. The Compensation Committee of the Board of Directors consists of Messrs. Burke, Byers and Callaghan. The Compensation Committee makes recommendations to the Board of Directors concerning salaries and incentive compensation for Chemdex's officers and employees and administers Chemdex's employee benefit plans. Mr. Byers is Chairman of the Compensation Committee. Director Compensation None of the directors is paid any fee or other compensation for acting as such, although certain directors are reimbursed for reasonable expenses incurred in attending Board or committee meetings. Officers of Chemdex 47 are appointed by the Board of Directors and serve at its discretion. Directors who are employees of Chemdex are eligible to participate in Chemdex's 1998 Stock Plan and, as of the offering, they will also be eligible to participate in Chemdex's 1999 Employee Stock Purchase Plan. Mr. Burke was granted an option to purchase 15,000 shares of common stock under the 1998 Stock Plan at an exercise price of $.05 per share in February 1998 and an additional option to purchase 35,000 shares of common stock under the 1998 Stock Plan at an exercise price of $.075 per share in July 1998. These options vest over a four-year period. Mr. Swanson was granted an option to purchase 150,000 shares of common stock under the 1998 Stock Plan at an exercise price of $.05 per share in May 1998. Fifty percent of these option shares were vested as of the date of grant and the remaining 50% of these option shares vest over a four- year period. Beginning in 1999, directors who are not employees of Chemdex will be eligible to participate in Chemdex's 1999 Directors' Stock Plan. See "Stock Plans." Chemdex has entered into indemnification agreements with each member of the Board of Directors and certain of its officers providing for the indemnification of such persons to the fullest extent authorized, permitted or allowed by law. Compensation Committee Interlocks and Insider Participation None of the members of the Compensation Committee of the Board of Directors is an officer or employee of Chemdex. No executive officer of Chemdex serves as a member of the Board of Directors or compensation committee of any entity that has one or more executive officers serving on Chemdex's Compensation Committee. Executive Compensation The following table sets forth information concerning compensation earned in the fiscal year ended December 31, 1998 paid to Chemdex's Chief Executive Officer and Chemdex's next most highly compensated executive officers who earned more than $100,000 during the fiscal year ended December 31, 1998 ("Named Officers"). All options granted by the Board of Directors prior to February 16, 1999 allowed for early exercise. The number of securities underlying options in the "Long-Term Compensation" column includes securities issued upon the exercise of options subject to repurchase at cost by Chemdex.
Long-Term Annual Compensation Compensation --------------------------------- ------------ Other Number of Annual Securities All Other Name and Principal Salary Bonus Compensation Underlying Compensation Position(1) Year ($) ($) ($) Options (#) ($) ------------------ ---- ------- ------- ------------ ------------ ------------ David P. Perry(2)...... 1998 $98,375 $20,000 $-- -- $-- President, Chief Executive Officer and Director Pierre V. Samec(3)..... 1998 83,333 150,000 -- 450,000 -- Chief Information Officer Scott Waterhouse(4).... 1998 150,070 27,237 -- 265,780 -- Vice President, Supplier Relations
- -------- (1) Mr. Stewart, Chemdex's Chief Financial Officer, commenced employment with Chemdex in February 1999. Mr. Stewart's salary on an annualized basis for 1999 is $200,000, which does not include a bonus of $50,000 payable upon the achievement of performance goals, housing expenses or an annual life insurance premium of approximately $9,000 per year paid for by Chemdex on behalf of Mr. Stewart. Ms. Greer, Chemdex's Vice President, Marketing, commenced employment with Chemdex in January 1999. Ms. Greer's salary on an annualized basis for 1999 is $200,000, which does not include a signing bonus of $75,000 paid upon commencement of employment with Chemdex or a bonus of $50,000 payable upon the achievement of performance goals. 48 (2) Mr. Perry founded Chemdex in September 1997. His salary on an annualized basis is currently $180,000. His salary was increased from $55,000 to $125,000 on May 11, 1998 to $180,000 on March 1, 1999. As of December 31, 1998, Mr. Perry held 3,451,708 shares of common stock valued at $2,588,781 based on a per share price of $.75. (3) Mr. Samec commenced his employment with Chemdex in July 1998. His salary on an annualized basis is $200,000. Mr. Samec earned a total bonus of $150,000 in 1998, $25,000 of which was paid in 1999. (4) Mr. Waterhouse terminated his employment with Chemdex in January 1999. Stock Options The following table sets forth information concerning the grant of stock options to the Named Officers during the fiscal year ended December 31, 1998. The individual grants consist of options granted pursuant to Chemdex's 1998 Stock Plan. For the purposes of calculating the percent of total options granted to employees during the last fiscal year, Chemdex granted options to purchase 3,957,670 shares of common stock to employees and consultants. The exercise price per share of each option was equal to the fair market value of common stock on the date of grant as determined by the Board of Directors. In determining the fair market value of the common stock on each grant date, the Board of Directors considered, among other things, Chemdex's absolute and relative levels of revenues and operating results, the state of Chemdex's technology development, increases in operating expenses, the absence of a public trading market for Chemdex's securities, the intensely competitive nature of Chemdex's market and the appreciation of stock values of generally comparable companies. The potential realizable value is based on the assumption that the common stock of Chemdex appreciates at the annual rate shown, compounded annually, from the date of grant until the expiration of the ten-year term. These numbers are calculated based on Securities and Exchange Commission requirements and do not reflect Chemdex's projections or estimates of future stock price growth. Potential realizable values are computed by: . Multiplying the number of shares of common stock subject to a given option by the exercise price; . Assuming that the total stock value derived from that calculation compounds at the annual 5% or 10% rate shown in the table for the entire ten-year term of the option; and . Subtracting from that result the total option exercise price. 49 Option Grants in Fiscal Year ended December 31, 1998
Individual Grants(1) --------------------------------- Potential Realizable Number of Value At Assumed Securities % of Annual Rates of Stock Underlying Total Options Price Appreciation Options Granted to Exercise for Option Term Granted Employees in Price Expiration ---------------------- Name (#) Fiscal Year ($/Sh) Date 5% 10% - ---- ---------- ------------- -------- ---------- ---------- ----------- David P. Perry.......... -- -- % $ -- -- $ -- $ -- Pierre V. Samec(2)...... 450,000 11.37 .075 9/1/08 21,225 53,789 Scott Waterhouse........ 265,780 6.72 .050 1/21/08 8,357 21,179
- -------- (1) Mr. Stewart was granted an option to purchase 450,000 shares of common stock on February 16, 1999 pursuant to Chemdex's 1998 Stock Plan. The exercise price per share of the option is $.75; the expiration date of the option is February 15, 2009 and the potential realizable values at assumed rates of stock appreciation for the option term are $212,252 at 5% and $537,888 at 10%. Ms. Greer was granted an option to purchase 450,000 shares of common stock on January 27, 1999 pursuant to Chemdex's 1998 Stock Plan. The exercise price per share of the option is $.75; the expiration date of the option is January 26, 2009 and the potential realizable values at assumed rates of stock appreciation for the option term are $212,252 at 5% and $537,888 at 10%. Ms. Greer was granted an additional option to purchase 20,000 shares of common stock on April 27, 1999 pursuant to Chemdex's 1998 Stock Plan. The exercise price per share of the option is $2.50; the expiration date of the option is April 26, 2009 and the potential realizable values at assumed rates of stock appreciation for the option term are $31,445 at 5% and $79,687 at 10%. (2) Mr. Samec was granted an additional option to purchase 150,000 shares of common stock on April 27, 1999 pursuant to Chemdex's 1998 Stock Plan. The exercise price per share of the option is $2.50; the expiration date of the option is April 26, 2009 and the potential realizable values at assumed rates of stock appreciation for the option term are $235,835 at 5% and $597,653 at 10%. Exercise of Options and Year-End Values The following table sets forth information concerning the exercise of stock options during the fiscal year ended December 31, 1998 by the Named Officers and the fiscal year-end value of unexercised options. Since there was no public trading market for Chemdex's common stock as of December 31, 1998, the values of unexercised options at December 31, 1998 are based on a fair market value of common stock of $.75 per share as determined by the Board of Directors on January 27, 1999. Therefore, these values are calculated based on the $.75 per share value for value at fiscal year-end or the fair market value as determined by the Board of Directors on the date of exercise for value realized, less the applicable exercise price per share, multiplied by the number of shares underlying these options. All options granted by the Board of Directors prior to February 16, 1999 allowed for early exercise. The number of securities underlying unexercised options in the "Unexercisable" column and the related value of such securities at year end reflects such information as it relates to options that although are exercisable, would if exercised result in the ownership of common stock subject to repurchase at cost by Chemdex. 50 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Securities Underlying Unexercised Value of Unexercised Shares Options at In-the-Money Options Acquired on December 31, 1998 (#) at December 31, 1998 ($) Exercise Value ------------------------- ------------------------- Name(1) (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable - ------- ----------- ------------ ----------- ------------- ----------- ------------- David P. Perry.......... -- $-- -- -- $-- $-- Pierre V. Samec(2)...... 450,000 -- -- -- -- -- Scott Waterhouse(3)..... 265,780 -- -- -- -- --
- -------- (1) Mr. Stewart has not exercised any of his options. Ms. Greer exercised an option to purchase 450,000 shares of common stock in February 1999 at an exercise price per share of $.75. (2) Does not include an option to purchase 150,000 shares of common stock granted to Mr. Samec in April 1999 at an exercise price per share of $2.50. (3) Mr. Waterhouse exercised an option to purchase 265,780 shares of common stock in May 1998 at an exercise price per share of $.05. Employee Stock Plans 1998 Stock Plan General. Our 1998 Stock Plan provides for the granting of stock options and stock purchase rights to eligible employees, officers, directors, including non-employee directors, and consultants of Chemdex. Stock options granted under the 1998 Stock Plan may be either "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or nonstatutory stock options, which are options not intended to qualify as incentive stock options. Stock purchase rights granted under the 1998 Stock Plan allow a recipient to purchase shares of common stock directly from Chemdex. Incentive stock options may be granted to employees, officers and employee directors of Chemdex and nonstatutory stock options and stock purchase rights may be granted to employees, officers, directors and consultants. As of May 12, 1999, an aggregate of 12,250,000 shares of common stock had been reserved for issuance under the 1998 Stock Plan. As of May 12, 1999, 2,069,265 shares of common stock were issuable upon the exercise of outstanding options granted under the 1998 Stock Plan at a weighted average exercise price of $.67, 4,498,839 shares of common stock have been issued upon exercise of options or pursuant to stock purchase rights at exercise or purchase prices ranging between $.05 and $.75, net of repurchases, and 5,681,896 shares of common stock remained available for future issuance under the 1998 Stock Plan. The 1998 Stock Plan was originally adopted by the Board of Directors in January 1998 and approved by the stockholders in March 1998. The 1998 Stock Plan was amended by our Board of Directors in April 1999 to increase the total number of shares reserved for issuance by 3,000,000 shares. In May 1999 the Board of Directors amended the 1998 Stock Plan to increase the total number of shares reserved for issuance by 2,500,000 shares plus an automatic annual increase on the first day of each of our fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser of 2,500,000 shares, 3% of our outstanding common stock on the last day of the preceding fiscal year or a lesser number determined by our Board of Directors. The amendment to the 1998 Stock Plan will be submitted for approval by our stockholders prior to the completion of this offering. Unless terminated earlier by our Board of Directors, the 1998 Stock Plan will terminate in January 2008. Stock options granted under the 1998 Stock Plan may not have a term of more than ten years and generally remain exercisable for a period of three months following termination of the optionee's employment or consulting relationship with Chemdex, with longer periods applying in the event such termination occurs as a result of death or disability. The exercise price of all incentive stock options must be at least equal to the fair market value of the common stock at the time of grant, except in the case of incentive stock options granted to persons owning stock that represents more than 10% of the total combined voting power of all classes of the outstanding capital stock of Chemdex, in which case the exercise price must equal at least 110% of the fair 51 market value of the common stock at the time of grant. The exercise price of nonstatutory stock options will be determined by the Administrator, except that for grants to certain executive officers of Chemdex, the exercise price must be at least 100% of the fair market value if the option is intended to qualify as performance-based compensation under certain tax rules. Options granted under the 1998 Stock Plan are generally subject to vesting at a rate of twenty-five percent at the end of the first year and 1/48th of the original number of shares subject to the option per month thereafter. The Administrator has the authority to grant options which are exercisable prior to vesting, in which case the unvested portion of the exercised shares are subject to a right of repurchase in favor of Chemdex at the optionee's original cost. Options granted under the 1998 Stock Plan are generally not transferable, although the Administrator has the discretion to allow limited transferability of nonstatutory stock options. In the event of a merger or consolidation of Chemdex with or into another corporation where the successor corporation issues its securities to Chemdex stockholders or the sale of all or substantially all of Chemdex's assets, each outstanding option or stock purchase right shall be assumed or an equivalent option or stock purchase right shall be substituted by the successor corporation. If the successor corporation refuses to do an assumption or substitution, each outstanding option and stock purchase right shall terminate upon completion of the transaction. In the event of a proposed dissolution or liquidation of Chemdex, each outstanding option or stock purchase right granted under the 1998 Stock Plan shall terminate. The Administrator has the authority to amend or terminate the 1998 Stock Plan provided that no action that impairs the rights of any holder of an outstanding option may be taken without the holders' consent. In addition, stockholder approval will be obtained for any amendment to the extent required by applicable law. In addition to stock options, the Administrator may issue stock purchase rights under the 1998 Stock Plan to employees, directors and consultants. The Administrator determines the number of shares, price, term and condition and restrictions related to a grant of stock purchase rights. The purchase price of common stock purchased pursuant to stock purchase rights granted under the 1998 Stock Plan shall be the price determined by the Administrator. These shares of common stock are generally subject to a right of repurchase in favor of Chemdex at the holder's original purchase price, which repurchase right generally lapses at a rate of 25% percent at the end of the first year and 1/48th of the original number of shares per month thereafter. Administration. The 1998 Stock Plan may be administered by the Board of Directors or a committee appointed by the Board of Directors to administer the 1998 Stock Plan. The Administrator has the authority to grant options and stock purchase rights and to determine the terms of such awards, provided such grants are not inconsistent with the terms of the 1998 Stock Plan. In no event, however, may an individual receive option and stock purchase right grants for more than 10,000,000 shares under the 1998 Stock Plan in any fiscal year. Decisions of the Administrator are final and binding on all 1998 Stock Plan participants. 1999 Directors' Stock Plan Our 1999 Directors' Stock Plan was adopted by the Board of Directors in May 1999 and is expected to be approved by the stockholders prior to the closing of this offering. A total of 500,000 shares of common stock has been reserved for issuance under the Directors' Plan. The Directors' Plan provides for the grant of nonstatutory stock options to nonemployee directors of Chemdex. The Directors' Plan is designed to work automatically without administration; however, to the extent administration is necessary, it will be performed by the Board of Directors. To the extent they arise, it is expected that conflicts of interest will be addressed by abstention of any interested director from both deliberations and voting regarding matters in which this director has a personal interest. The Directors' Plan provides that each person who is or becomes a nonemployee director of Chemdex will be granted a nonstatutory stock option to purchase 25,000 shares of common stock on the later of the date on which the optionee first becomes a nonemployee director of Chemdex or the effective date of the registration statement for this offering. Thereafter, on the date of Chemdex's Annual Stockholders Meeting each year, each 52 nonemployee director of Chemdex will be granted an additional option to purchase 10,000 shares of common stock if, on that date, he or she has served on Chemdex's Board of Directors for at least six months. The Directors' Plan sets neither a maximum nor a minimum number of shares for which options may be granted to any one non-employee director, but does specify the number of shares that may be included in any grant and the method of making a grant. No option granted under the Directors' Plan is transferable by the optionee other than by will or the laws of descent or distribution or pursuant to a qualified domestic relations order, and each option is exercisable, during the lifetime of the optionee, only by the optionee. The Directors' Plan provides that each option granted under the Directors' Plan shall vest and become exercisable in full immediately upon grant of the option. If a nonemployee director ceases to serve as a director for any reason other than death or disability, he or she may, but only within 90 days after the date he or she ceases to be a director of Chemdex, exercise options granted under the Directors' Plan. If he or she does not exercise the option within this 90 day period, such option shall terminate. The exercise price of all stock options granted under the Directors' Plan shall be equal to the fair market value of a share of Chemdex's common stock on the date of grant of the option. Options granted under the Directors' Plan have a term of ten years. In the event of a sale of all or substantially all of the assets of Chemdex, the merger of Chemdex with or into another corporation or any other reorganization of Chemdex in which more than 50% of the shares of Chemdex entitled to vote are exchanged, each nonemployee director shall have the right to exercise each option immediately prior to completion of the transaction. The Board of Directors may amend or terminate the Directors' Plan; provided, however, that no such action may adversely affect any outstanding option. We will obtain stockholder approval for any amendment to the extent required by applicable law. If not terminated earlier, the Directors' Plan will have a term of ten years. 1999 Employee Stock Purchase Plan Chemdex's 1999 Employee Stock Purchase Plan was adopted by the Board of Directors in May 1999 and is expected to be approved by the stockholders prior to the closing of this offering. A total of 1,500,000 shares of common stock has been reserved for issuance under the Purchase Plan, as well as an automatic annual increase on the first day of each of Chemdex's fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser of 400,000 shares, 1/2% of Chemdex's outstanding common stock on the last day of the immediately preceding fiscal year or a lesser number of shares determined by the Board of Directors. The Purchase Plan becomes effective upon the effective date of the registration statement for this offering. The Purchase Plan, which is intended to qualify under Section 423 of the Code, will be implemented by a series of overlapping offering periods of approximately 24 months' duration, with new offering periods (other than the first offering period) commencing on February 1st and August 1st of each year. Each offering period will generally consist of four consecutive purchase periods of six months' duration, at the end of which an automatic purchase will be made by the participant. The initial offering period is expected to begin on the date of this offering and end on July 31, 2001; the initial purchase period is expected to end on January 31, 2000. The Purchase Plan will be administered by the Board of Directors or by a committee appointed by the Board of Directors. The Purchase Plan will be administered by the Compensation Committee (comprised of Messrs. Burke, Byers and Callaghan, outside directors of Chemdex who are not eligible to participate in the Purchase Plan). Employees (including officers and employee directors) of Chemdex, or of any majority-owned subsidiary designated by the Board of Directors, are eligible to participate in the Purchase Plan if they are employed by Chemdex or any such subsidiary for at least 20 hours per week and more than five months per year. The Purchase Plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed 20% of an employee's compensation, at a price equal to the lower of 85% of the fair market value of Chemdex's common stock at the beginning of each offering period or at the end of each purchase period. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment. If not terminated earlier, the Purchase Plan will have a term of 20 years. 53 An employee cannot be granted an option under the Purchase Plan if immediately after the grant such employee would own stock and/or hold outstanding options to purchase stock equaling 5% or more of the total voting power or value of all classes of our stock or stock of our subsidiaries, or if such option would permit an employee to purchase stock under the Purchase Plan at a rate that exceeds $25,000 of fair market value of such stock for each calendar year in which the option is outstanding. In addition, no employee may purchase more than 2,500 shares of Common Stock under the Purchase Plan in any one purchase period. If the fair market value of the Common Stock on a purchase date is less than the fair market value at the beginning of the offering period, each participant in that offering period shall automatically be withdrawn from the offering period as of the end of the purchase date and re-enrolled in the new twenty-four month offering period beginning on the first business day following the purchase date. In the event of a merger of Chemdex with or into another corporation or a sale of all or substantially all of Chemdex's assets, each right to purchase stock under the Purchase Plan will be assumed or an equivalent right substituted by the successor corporation. However, the Board of Directors will shorten any ongoing offering period so that participants' rights to purchase stock under the Purchase Plan are exercised prior to the transaction in the event the successor corporation refuses to assume each purchase right or to substitute an equivalent right of such corporation. The Board of Directors has the power to amend or terminate the Purchase Plan as long as the action does not adversely affect any outstanding rights to purchase stock thereunder. However, the Board of Directors may amend or terminate the Purchase Plan or an offering period even if it would adversely affect outstanding options in order to avoid our incurring adverse accounting charges. Limitation of Liability and Indemnification Matters As permitted by the Delaware General Corporation Law, Chemdex has included in its Amended and Restated Certificate of Incorporation a provision to eliminate the personal liability of its officers and directors for monetary damages for breach or alleged breach of their fiduciary duties as officers or directors, respectively, subject to certain exceptions. In addition, Chemdex's Bylaws provide that Chemdex is required to indemnify its officers and directors, including under circumstances in which indemnification would otherwise be discretionary, and Chemdex is required to advance expenses to its officers and directors as incurred in connection with proceedings against them for which they may be indemnified. Chemdex has entered into indemnification agreements with its officers and directors containing provisions that are in some respects broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements require Chemdex, among other things, to indemnify its officers and directors against certain liabilities that may arise by reason of their status or service as officers and directors (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors' and officers' insurance if available on reasonable terms. Chemdex has also obtained directors' and officers' liability insurance. At present, Chemdex is not aware of any pending or threatened litigation or proceeding involving a director, officer, employee or agent of Chemdex in which indemnification would be required or permitted. Chemdex is not aware of any threatened litigation or proceeding that might result in a claim for indemnification. Chemdex believes that its charter provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. 54 RELATED PARTY TRANSACTIONS Equity Transactions In September 1997, Chemdex issued and sold 5,140,000 shares of common stock to the founders of Chemdex, including, among others, 3,811,708 shares of common stock to Mr. Perry and 51,400 shares of common stock to Mr. Callaghan, a director of Chemdex. In September 1997, Chemdex issued and sold 1,601,600 shares of its Series A Preferred Stock at a price of $.347 per share to CMG@Ventures, L.P., an entity with which Mr. Callaghan, a director of Chemdex, is affiliated, a partnership affiliated with Mr. Swanson, a director of Chemdex, and two other private investors. In December 1997 and March 1998, Chemdex issued and sold 3,989,700 shares of its Series A Preferred Stock at a price of $.347 per share to Bay City Capital Fund I, L.P., an entity with which Mr. Pritzker, a director of Chemdex, is affiliated, Mr. Burke, a director of Chemdex, CMG@Ventures, and other private investors. In October 1997, Chemdex loaned $10,000 to Mr. Perry pursuant to a promissory note bearing interest at a rate of 8% per annum which matures on October 15, 1999. This note has been forgiven by the Board of Directors of Chemdex. In May 1998, Chemdex issued and sold 17,299,998 shares of its Series B Preferred Stock at a price of $.75 per share to entities affiliated with Kleiner Perkins Caufield & Byers, an entity with which Mr. Byers, a director of Chemdex, is affiliated; Warburg, Pincus Ventures L.P., an entity with which Mr. Lewis, a director of Chemdex, is affiliated; CMG@Ventures II, LLC, an entity with which Mr Callaghan, a director of Chemdex, is affiliated; Bay City Capital Fund I, L.P., an entity with which Mr. Pritzker is affiliated, Mr. Burke, a partnership affiliated with Mr. Swanson, and certain other private investors. In January 1999, Chemdex issued a warrant to purchase 210,000 shares of Series B Preferred Stock at an exercise price of $.75 per share to Comdisco, Inc. in connection with a Master Lease Agreement dated as of January 20, 1999. In March 1999 and April 1999, Chemdex issued and sold 10,600,000 shares of its Series C Preferred Stock at a price of $2.858 per share to entities affiliated with Galen Partners, an entity with which Dr. Wilkerson, a director of Chemdex, is affiliated; Genentech, Inc., an entity with which Mr. Swanson, a director of Chemdex, is affiliated; Kleiner Perkins Caufield & Byers, an entity with which Mr. Byers, a director of Chemdex, is affiliated; Warburg, Pincus Ventures L.P., an entity with which Mr. Lewis, a director of Chemdex, is affiliated; CMG@Ventures II, LLC, an entity with which Mr. Callaghan, a director of Chemdex, is affiliated; Bay City Capital Fund I, L.P., an entity with which Mr. Pritzker, a director of Chemdex, is affiliated; Mr. Burke, and certain other private investors. In addition, in March 1999, Chemdex issued warrants to purchase a total of 100,000 shares of common stock at an exercise price of $2.60 per share to entities affiliated with Galen Partners, an entity with which Dr. Wilkerson, a director of Chemdex, is affiliated. Chemdex recently entered into a strategic relationship agreement with VWR Scientific Products Corporation to jointly market VWR laboratory products using the Chemdex Marketplace. Mr. Harris, a director of Chemdex, is President and Chief Executive Officer of VWR. The agreement gives us the right to offer approximately 350,000 VWR core products to our customers through the Chemdex Marketplace. VWR and Chemdex are jointly developing a hosted, co-branded Internet procurement solution for VWR's existing and future customers that will provide access to VWR core products, Chemdex core products and products that are not distributed by either VWR or Chemdex, but are purchased from third parties. In connection with the strategic relationship agreement, VWR transferred to Chemdex information concerning VWR customers who purchased products from third party suppliers outside VWR's primary product offering and in exchange Chemdex issued shares of common stock valued at $13.0 million to VWR. VWR also entered into a standstill agreement limiting its ownership in Chemdex to 10% of Chemdex's outstanding securities, including outstanding options and warrants. This percentage can be exceeded if any one company from a specified list of companies acquires more than 10% of Chemdex's outstanding securities, including outstanding options and warrants. 55 The following members of the Board of Directors are affiliated with certain private investors that participated in the foregoing transactions: Charles Burke, Brooke Byers, Jonathan D. Callaghan, Jerrold B. Harris, S. Joshua Lewis, John A. Pritzker, Robert A. Swanson and L. John Wilkerson. Other Transactions In January 1998, Chemdex entered into an Electronic Commerce Agreement with Genentech, Inc., a company of which Mr. Swanson, a director of Chemdex, is a founder and the former Chief Executive Officer and Chairman. In May 1998, Chemdex entered into a Stock Restriction Agreement with Mr. Perry, pursuant to which shares held by Mr. Perry are subject to a repurchase option in favor of Chemdex in accordance with the terms therein. In January 1999, Chemdex entered into a Separation Agreement with Scott Waterhouse, pursuant to which Mr. Waterhouse received severance benefits upon the termination of his employment with Chemdex. Some of the officers of Chemdex, including Ms. Greer, Mr. Samec, Mr. Wambach and Mr. Weber, will receive 6 months of accelerated vesting of stock then held in the event of their termination without cause. In addition, in the event of a termination with or without cause, Ms. Greer will receive the greater of six months of then-current salary or $100,000, Mr. Samec will receive six months of then-current salary, Mr. Stewart and Mr. Weber will receive the greater of six months of then-current salary or an amount equal to salary for 15 months less the time they have been employed by Chemdex and Mr. Wambach will receive the greater of six months of then-current salary or $87,500. If Mr. Stewart is terminated without cause or resigns due to pressing family concerns during the first six months of his employment, he will receive an additional six months of vesting for his stock, and if after the first six months, but during the first twelve months of employment, his stock will vest in an amount equal to what he would have vested had he been employed for the full twelve months. If Mr. Stewart is terminated without cause or resigns due to pressing family concerns after the first twelve months but during the first 24 months of his employment, his stock will vest in an amount equal to what he would have vested had he been employed for the full 24 months. In addition, Chemdex has entered into Change of Control Agreements with Ms. Greer, Mr. Kudrycki, Mr. Perreault, Mr. Perry, Mr. Samec, Mr. Stewart, Mr. Wambach, Mr. Weber and other employees of Chemdex, where the shares held by these employees shall become fully vested if (a) Chemdex is merged into another entity or sold and (b) this employee is terminated by the surviving entity without cause or within twelve months of the closing of the transaction. Chemdex has also entered into a Change of Control Agreement with each of Mr. Burke and Mr. Swanson, under which any options subject to vesting or shares subject to a right of repurchase of Chemdex then held by Mr. Burke or Mr. Swanson will become fully vested upon the closing of a merger in which more than 50% of the total voting power of Chemdex is transferred or a sale of all or substantially all of Chemdex's assets in a complete liquidation or dissolution of Chemdex. Since inception, Chemdex from time to time has issued and sold shares of its common stock and granted options to purchase common stock to its employees, directors and consultants. The following executive officers have executed full-recourse promissory notes in the amounts set forth after their names in connection with their purchases of shares of Chemdex's common stock:
Principal Name Amount ---- --------- Martha D. Greer.................................................. $337,455 Thomas P. Kudrycki............................................... 22,470 Pierre V. Samec.................................................. 33,705 James S. Wambach................................................. 33,705 David A. Weber................................................... 299,970
56 These notes become due the earlier of five years after the date of issuance or nine months after the date of this offering. They bear interest at the lowest rate allowed under federal tax law to avoid the imputation of interest, compounded annually. Chemdex has entered into compensation arrangements with certain of its directors and officers. See "Management--Executive Compensation" and "--Stock Plans." 57 PRINCIPAL STOCKHOLDERS The following table sets forth certain information known to Chemdex with respect to the beneficial ownership of Chemdex's common stock as of May 12, 1999 by the following individuals or groups: . each stockholder known by Chemdex to be the beneficial owner of more than 5% of Chemdex's common stock; . each director of Chemdex; . the "Named Officers"; and . all executive officers and directors as a group. Except as otherwise noted, the address of each person listed in the table is c/o Chemdex Corporation, 3950 Fabian Way, Palo Alto, CA 94303. The table includes all shares of common stock issuable within 60 days of May 12, 1999 upon the exercise of options and other rights beneficially owned by the indicated stockholders on that date. These shares, however, are not deemed outstanding for the purposes of computing the percentage of ownership of each other person. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to these shares. To the knowledge of Chemdex, except under applicable community property laws or as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The applicable percentage of ownership for each stockholder is based on 48,603,947 shares of common stock outstanding as of May 12, 1999, together with applicable options for that stockholder. The table assumes that the underwriters' over-allotment to purchase shares of common stock is not exercised. Percentage ownership figures after the offering do not include shares that may be purchased by each person in the offering.
Percentage of Shares Beneficially Owned Number of Shares ------------------------- Beneficially Before After Name of Beneficial Owner Owned Offering Offering - ------------------------ ---------------- ---------- ---------- Entities affiliated with Kleiner Perkins Caufield & Byers(1) ... 6,120,596 12.6% % 2750 Sand Hill Road Menlo Park, CA 94025 Entities affiliated with Warburg, Pincus Ventures(2) ... 6,120,596 12.6 466 Lexington Avenue New York, New York 10017-3147 Bay City Capital Fund I, L.P.(3)........................ 5,590,037 11.5 750 Battery Street San Francisco, CA 94104 Entities affiliated with CMG@Ventures(4)................ 5,456,715 11.2 3000 Alpine Road Menlo Park, CA 94028 Entities affiliated with Galen Associates(5).................. 3,598,980 7.4 610 Fifth Avenue, 5th Floor Rockefeller Center New York, NY 10020 VWR Scientific Products Corporation.................... 5,076,810 10.5 1310 Goshen Parkway West Chester, PA 19380 David P. Perry.................. 3,451,708 7.1 Pierre V. Samec(6).............. 450,000 * Scott P. Waterhouse............. 136,240 * Charles R. Burke(7)............. 125,569 * Brook H. Byers(8)............... 6,120,596 12.6 S. Joshua Lewis(9).............. 6,120,596 12.6 John A. Pritzker(10)............ 5,590,037 11.5 Jonathan D. Callaghan(11)....... 5,456,715 11.2 Jerrold B. Harris(12)........... 5,094,305 10.5 L. John Wilkerson(13)........... 3,598,980 7.4 Robert A. Swanson(14)........... 1,398,333 2.9 All executive officers and directors as a group (15 persons)....................... 39,143,079 80.5% %
- -------- * Less than 1%. 58 (1) Includes: . 5,496,296 shares held by Kleiner Perkins Caufield & Byers VIII, L.P. . 306,029 shares held by KPCB Life Sciences Zaibatsu Fund II, L.P. and . 318,271 shares held by KPCB VIII Founders Fund, L.P. The general partner of Kleiner Perkins Caufield & Byers VIII, L.P. and KPCB VIII Founders Fund is KPCB VIII Associates. The general partner of KPCB Life Sciences Zaibatsu Fund II, L.P. is KPCB VII Associates. Brook H. Byers, a director of Chemdex, is a general partner of the Kleiner Perkins Caufield & Byers funds. Mr. Byers disclaims beneficial ownership of the shares held by Kleiner Perkins Caufield & Byers VIII, L.P., KPCB Life Sciences Zaibatsu Fund II, L.P. and KPCB VIII Founders Fund, L.P., except to the extent of his pecuniary interest therein arising from his general partnership interest in these funds. (2) Warburg, Pincus & Co. is the sole general partner of Warburg, Pincus Ventures, L.P., which is managed by E.M. Warburg, Pincus & Co., LLC. Lionel I. Pincus is the managing partner of Warburg, Pincus & Co. and the managing member of E. M. Warburg, Pincus & Co., LLC, and may be deemed to control both entities. (3) Trusts for the benefit of members of the Pritzker Family (including Mr. Pritzker) are indirect investors in Bay City Capital Fund I, L.P. Mr. Pritzker a director of Chemdex, disclaims any beneficial ownership in shares held by Bay City Capital Fund I, L.P. (4) Includes: . 3,260,315 shares held by CMG@Ventures II, LLC . 2,145,000 shares held by CMG@Ventures, L.P. and . 51,400 shares held by Johnathan D. Callaghan, a general partner of CMG@Ventures and a director of Chemdex. Mr. Callaghan disclaims beneficial ownership of the shares held by CMG@Ventures II, LLC and CMG@Ventures, L.P., except to the extent of his pecuniary interest therein arising from his general partnership interest in these funds. (5) Includes: . 3,196,521 shares and a warrant to purchase 91,357 shares of common stock exercisable within 60 days of May 1, 1999 held by Galen Partners III, L.P. . 289,370 shares and a warrant to purchase 8,269 shares of common stock exercisable within 60 days of May 1, 1999 held by Galen Partners International III, L.P. and . 13,089 shares and a warrant to purchase 374 shares of common stock exercisable within 60 days of May 1, 1999 held by Galen Employee Fund III, L.P. Mr. Wilkerson, a co-founder of Galen Associates and a director of Chemdex, disclaims beneficial ownership of the shares held by Galen Partners III, L.P., Galen Partners International III, L.P., and Galen Employee Fund III, L.P., except to the extent of his pecuniary interest therein arising from his general partnership interest in these funds. (6) All shares held by Mr. Samec are subject to repurchase by Chemdex within 60 days of May 12, 1999 in the event of a termination of his employment with Chemdex. (7) Includes 44,688 shares held by Mr. Burke subject to repurchase by Chemdex within 60 days of May 12, 1999. (8) Includes: . 5,496,296 shares held by Kleiner Perkins Caufield & Byers VIII, L.P. 59 . 306,029 shares held by KPCB Life Sciences Zaibatsu Fund II, L.P. and . 318,271 shares held by KPCB VIII Founders Fund, L.P. Mr. Byers, a Senior Partner of Kleiner Perkins Caufield & Byers, disclaims beneficial ownership of the shares held by Kleiner Perkins Caufield & Byers VIII, L.P., KPCB Life Sciences Zaibatsu Fund II, L.P. and KPCB VIII Founders Fund, L.P., except to the extent of his pecuniary interest therein arising from his general partnership interest in these funds. (9) Mr. Lewis, a director of Chemdex, is a managing director and member of E.M. Warburg, Pincus & Co., LLC, the manager of Warburg, Pincus Ventures L.P. Mr. Lewis may be deemed to have an indirect pecuniary interest (within the meaning of Rule 16a-1 of the Securities Exchange Act of 1934, as amended) in an indeterminate portion of the shares beneficially owned by Warburg, Pincus Ventures, L.P. Mr. Lewis disclaims beneficial ownership of all shares held by Warburg, Pincus entities. (10) Includes 5,590,037 shares held by Bay City Capital Fund I, L.P. Trusts for the benefit of members of the Pritzker Family (including Mr. Pritzker) are indirect investors in Bay City Capital Fund I, L.P. Mr. Pritzker disclaims any beneficial ownership in shares held by Bay City Capital Fund I, L.P. (11) Includes: . 3,260,315 shares held by CMG@Ventures II, LLC . 2,145,000 shares held by CMG@Ventures, L.P. and . 51,400 shares held by Mr. Callaghan, a General Partner of CMG@Ventures and a director of Chemdex. Mr. Callaghan disclaims beneficial ownership of the shares held by CMG@Ventures II, LLC and CMG@Ventures, L.P., except to the extent of his pecuniary interest therein arising from his general partnership interest in these funds. (12) Includes 5,076,810 shares held by VWR Scientific Products Corporation, a company of which Mr. Harris is the President and Chief Executive Officer and 17,495 shares held by Mr. Harris. Mr. Harris disclaims beneficial ownership of the shares held by VWR Scientific Products Corporation, except to the extent of his pecuniary interest therein. (13) Includes 3,598,980 shares held by entities affiliated with Galen Associates, an entity with which Dr. Wilkerson is affiliated. Dr. Wilkerson disclaims beneficial ownership of the shares held by entities affiliated with Galen Associates, except to the extent of his pecuniary interest therein arising from his general partnership interest in these funds. (14) Includes 54,689 shares held by Mr. Swanson as trustee of an irrevocable trust and subject to repurchase by Chemdex within 60 days of May 12, 1999 in the event of termination of his relationship with Chemdex. Also includes 1,248,333 shares held by a partnership affiliated with Mr. Swanson. 60 DESCRIPTION OF CAPITAL STOCK Immediately following the consummation of this offering, the authorized capital stock of Chemdex will consist of 350,000,000 shares of common stock, $.0001 par value, and 5,000,000 shares of undesignated preferred stock, $.0001 par value. Upon completion of this offering, there will be outstanding shares of common stock, outstanding, no outstanding shares of preferred stock, options to purchase shares of common stock and outstanding warrants to purchase 310,000 shares of common stock. Common Stock As of May 12, 1999, there were 48,603,947 shares of common stock outstanding that were held of record by approximately 267 stockholders. There will be shares of common stock outstanding (assuming no exercise of the underwriters' over-allotment option and assuming no exercise after May 12, 1999 of outstanding options) after giving effect to the sale of the shares of common stock to the public offered hereby and the conversion of our preferred stock into common stock at a one-to-one ratio. Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the board of directors may determine. See "Dividend Policy." Each stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of the stockholders. Cumulative voting is not provided for in the Chemdex's Amended and Restated Certificate of Incorporation, which means that the majority of the shares voted can elect all of the directors then standing for election. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. Upon the occurrence of a liquidation, dissolution or winding-up, the holders of shares of common stock are entitled to share ratably in all assets remaining after payment of liabilities and satisfaction of preferential rights of any outstanding preferred stock. There are no sinking fund provisions applicable to the common stock. The outstanding shares of common stock are, and the shares of common stock to be issued upon completion of this offering will be, fully paid and non-assessable. Preferred Stock Upon filing our Amended and Restated Certificate of Incorporation after the closing of this offering, we will authorize 5,000,000 shares of preferred stock. The Board of Directors has the authority, within the limitations and restrictions in the Amended and Restated Certificate of Incorporation, to provide by resolution for the issuance of shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of Chemdex without further action by the stockholders. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including voting rights, of the holders of common stock. In some circumstances, this issuance could have the effect of decreasing the market price of the common stock. As of the closing of the offering, no shares of preferred stock will be outstanding and Chemdex currently has no plans to issue any shares of preferred stock. Options As of May 12, 1999, options to purchase a total of 2,069,265 shares of common stock were outstanding, and up to 5,681,896 additional shares of common stock may be subject to options granted in the future under the 1998 Stock Plan. See "Management--Employee Stock Plans--1998 Stock Plan." Warrants As of May 12, 1999, Chemdex had the following outstanding warrants: warrants to purchase a total of 100,000 shares of common stock at an exercise price of $2.60 that are held by entities affiliated with Galen 61 Partners; and a warrant to purchase 210,000 shares of Series B Preferred Stock at an exercise price of $.75 that is held by Comdisco, Inc. All of the warrants contain standard anti-dilution provisions. Anti-takeover Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware Law Certificate of Incorporation and Bylaws. Our Amended and Restated Certificate of Incorporation provides that, effective on the closing of this offering, all stockholder actions must be effected at a duly called meeting and not by a consent in writing. Further, provisions of the Bylaws and the Amended and Restated Certificate of Incorporation provide that the stockholders may amend the Bylaws or certain provisions of the Amended and Restated Certificate of Incorporation only with the affirmative vote of more than 50% of our capital stock. These provisions of the Amended and Restated Certificate of Incorporation and Bylaws could discourage potential acquisition proposals and could delay or prevent a change in control of Chemdex. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and in the policies formulated by the Board of Directors and to discourage certain types of transactions that may involve an actual or threatened change of control of Chemdex. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management. Delaware Takeover Statute. We are subject to Section 203 of the Delaware General Corporation Law, or DGCL Section 203, which regulates corporate acquisitions. DGCL Section 203 prevents certain Delaware corporations, including those whose securities are listed for trading on the Nasdaq National Market, from engaging, under certain circumstances in a "business combination" with any "interested stockholder" for three years following the date that such stockholder became an interested stockholder. For purposes of DGCL Section 203, a "business combination" includes, among other things, a merger or consolidation involving Chemdex and the interested stockholder and the sale of more than ten percent (10%) of Chemdex's assets. In general, DGCL Section 203 defines an "interested stockholder" as any entity or person beneficially owning 15% or more the outstanding voting stock of Chemdex and any entity or person affiliated with or controlling or controlled by such entity or person. A Delaware corporation may "opt out" of DGCL Section 203 with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws resulting from amendments approved by the holders of at least a majority of the corporation's outstanding voting shares. We have not "opted out" of the provisions of DGCL Section 203. Registration Rights As of the completion of this offering, the holders of 39,253,108 shares of common stock and common stock issuable upon exercise of warrants held by Comdisco, Inc. and entities affiliated with Galen Associates or their transferees are entitled to rights with respect to the registration of such shares under the Securities Act. These rights are provided under the terms of an agreement between Chemdex and the holders of the registrable securities. Pursuant to such Agreement, on the written demand of holders of more than 20% of the then outstanding registrable securities, Chemdex shall use its best efforts to register such shares and those of any other stockholders who, by prompt notice, request registration, subject to cutbacks in participation made by the managing underwriter. Chemdex is not required to effect more than two demand registrations on Form S-1 at any time and more than one demand registration on Form S-3 in any twelve-month period. Such holders are also entitled to unlimited piggyback registration rights, subject to cutbacks in participation made by the managing underwriter. All offering expenses in connection with such registration will be borne by Chemdex, excluding underwriting discounts and commissions. Effect of Amended and Restated Certificate of Incorporation and Bylaw Provisions Our Amended and Restated Certificate of Incorporation to be effective upon the closing of this offering provides, among other things, that directors of Chemdex will be elected without the application of cumulative 62 voting. This Amended and Restated Certificate of Incorporation also provides that after the closing of the offering contemplated hereby, any action required or permitted to be taken by the stockholders of Chemdex may be taken only at a duly called annual or special meeting of the stockholders. Our Bylaws to be effective upon the closing of this offering also establish procedures, including advance notice procedures with regard to the nomination, other than by or at the direction of the Board of Directors, of candidates for election as directors. See "Description of Capital Stock -- Common Stock." The foregoing provisions could have the effect of making it more difficult for a third party to effect a change in the control of the Board of Directors. In addition, these provisions could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of the outstanding voting stock of Chemdex. Transfer Agent and Registrar The Transfer Agent and Registrar for the common stock is HSBC Bank USA. The Transfer Agent's address and telephone number is 140 Broadway, New York, NY 10005-1180, (212) 658-6553. 63 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for the common stock of Chemdex. Future sales of substantial amounts of common stock in the public market could adversely affect prevailing market prices. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of contractual and legal restrictions on resale (as described below), sales of substantial amounts of common stock of Chemdex in the public market after the restrictions lapse could adversely affect the prevailing market price and the ability of Chemdex to raise equity capital in the future. Upon completion of the offering, Chemdex will have outstanding shares of common stock. Of these shares, the shares sold in the offering (plus any shares issued upon exercise of the Underwriters' over-allotment option) will be freely tradeable without restriction under the Securities Act, unless purchased by "affiliates" of Chemdex as that term is defined in Rule 144 under the Securities Act. The remaining shares of common stock outstanding are "restricted securities" within the meaning of Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are summarized below. Sales of the restricted securities in the public market, or the availability of such shares for sale, could adversely affect the market price of the common stock. The stockholders of Chemdex have entered into lock-up agreements generally providing that they will not offer, sell, contract to sell or grant any option to purchase or otherwise dispose of the shares of common stock of Chemdex or any securities exercisable for or convertible into Chemdex's common stock owned by them for a period of 180 days after the effective date of the registration statement filed pursuant to this offering without the prior written consent of Morgan Stanley & Co. Incorporated. As a result of these contractual restrictions, notwithstanding possible earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements will not be saleable until these agreements expire or are waived by Morgan Stanley & Co. Incorporated. Taking into account the lock-up agreements, and assuming Morgan Stanley & Co. Incorporated does not release stockholders from these agreements, the following shares will be eligible for sale in the public market at the following times: beginning on the effective date, only the shares sold in the offering will be immediately available for sale in the public market; beginning 180 days after the effective date, approximately shares will be eligible for sale pursuant to Rule 701 and approximately additional shares will be eligible for sale pursuant to Rule 144, of which all but shares are held by affiliates of Chemdex. An additional shares will be eligible for sale pursuant to Rule 144 by 1999. Shares eligible to be sold by affiliates pursuant to Rule 144 are subject to volume restrictions as described below. In general, under Rule 144 as currently in effect, and beginning after the expiration of the lock-up agreements (180 days after the effective date of the offering), a person (or persons whose shares are aggregated) who has beneficially owned restricted securities for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: (i) one percent of the number of shares of common stock then outstanding (which will equal approximately shares immediately after the offering); or (ii) the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about Chemdex. Under Rule 144(k), a person who is not deemed to have been an affiliate of Chemdex at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell these shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Pursuant to the lock-up agreements, all Chemdex employees holding common stock or stock options may not sell shares acquired upon exercise until after 180 days following the effective date. Beginning after 180 days following the effective date of the registration statement for this offering, any employee, officer or director of or consultant to Chemdex who purchased his or her shares pursuant to a written compensatory plan or contract may 64 be entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. In addition, Chemdex intends to file registration statements under the Securities Act as promptly as possible after the effective date to register shares to be issued pursuant to Chemdex's employee benefit plans. As a result, any options exercised under the Stock Plan or any other benefit plan after the effectiveness of such registration statement will also be freely tradeable in the public market, except that shares held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144 unless otherwise resaleable under Rule 701. As of May 12, 1999, there were outstanding options for the purchase of 2,069,265 shares, of which options to purchase 269,206 shares were exercisable. No shares have been issued to date under Chemdex's Purchase Plan or Directors Plan. See "Management--Stock Plans" and "Description of Capital Stock--Registration Rights." Morgan Stanley & Co. Incorporated may choose to release some or all of the shares subject to the lockup restrictions described above prior to the expiration of the 180-day period with or without prior public notice, although it has no current intention to do so. 65 UNDERWRITERS Under the terms and subject to the conditions contained in an underwriting agreement dated , 1999, the underwriters named below, for whom Morgan Stanley & Co. Incorporated, BancBoston Robertson Stephens Inc. and Volpe Brown Whelan & Company, LLC are acting as representatives, have severally agreed to purchase, and Chemdex has agreed to sell to them, the respective number of shares of common stock set forth opposite the names of such underwriters below:
Number of Name Shares ---- ------ Morgan Stanley & Co. Incorporated..................................... BancBoston Robertson Stephens Inc..................................... Volpe Brown Whelan & Company, LLC..................................... ---- Total............................................................... ====
The underwriters are offering the shares of common stock subject to their acceptance of the shares from Chemdex and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered hereby are subject to the approval of legal matters by their counsel and to other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered hereby, other than those covered by the overallotment option described below, if any shares are taken. The underwriters initially propose to offer part of the shares of the common stock directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $ a share to other underwriters or to certain other dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives. The underwriters have informed Chemdex that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them. At the request of Chemdex, the underwriters have reserved up to shares of common stock offered hereby for sale at the initial public offering price to employees, friends and families of employees of Chemdex, service providers, employees of customers and others. The number of shares available for sale to the general public will be reduced to the extent that these persons purchase reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as other shares of common stock offered hereby. Chemdex has submitted an application to have its common stock approved for quotation on the Nasdaq National Market under the symbol "CMDX." Each of Chemdex and the directors, officers and substantially all other stockholders of Chemdex has agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not, during the period ending 180 days after the effective date of the registration statement filed for this offering: . offer, pledge, sell, contract to sell, engage in any short sale, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; . enter into any swap or similar agreement that transfers, in whole or in part, the economic consequences of ownership of the common stock; 66 whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. The restrictions described in the previous paragraph do not apply to certain circumstances, including: . the sale of the shares to the underwriters; . the issuance by Chemdex of shares of restricted stock awards under Chemdex's existing employee benefit plans or of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus subject to a lock up period at least 180 days after the effective date of the registration statement for this offering; or . the grant of options by Chemdex to officers, directors, employees or consultants provided such options are subject to a lock up period at least 180 days after the effective date of the registration statement for this offering; or . transactions by any person other than Chemdex relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares. In addition, the stockholders of Chemdex have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, neither it nor any of its affiliates will, during the period ending 180 days after the date of this prospectus, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock. Morgan Stanley & Co. Incorporated may choose to release some or all of the shares subject to the lock up restrictions described above prior to the expiration of the 180 day period with or without prior public notice, although it has no current intention to do so. Chemdex has granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of common stock at the public offering price set forth on the cover page hereof, less underwriting discounts and commissions. The underwriters may exercise such option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered hereby. To the extent such option is exercised, each underwriter will become obligated, subject to conditions, to purchase approximately the same percentage of such additional shares of common stock as the number set forth next to such underwriter's name in the preceding table bears to the total number of shares of common stock set forth next to the names of all underwriters in the preceding table. In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot in connection with the offering, creating a short position in the common stock for their own account. In addition, to cover over-allotments or to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering if the syndicate repurchases previously distributed common stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time. Chemdex and the underwriters have agreed to indemnify each other against liabilities, including liabilities under the Securities Act. Certain of the underwriters from time to time perform various investment banking services for Chemdex, for which such underwriters receive customary compensation. 67 Pricing of the Offering Prior to this offering, there has been no public market for the common stock. The initial public offering price will be determined by negotiations between Chemdex and the underwriters. Among the factors considered in determining the initial public offering price will be the future prospects of Chemdex and its industry in general, sales, earnings and other financial and operating information of Chemdex in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and financial and operating information of companies engaged in activities similar to those of Chemdex. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for Chemdex by Venture Law Group, a Professional Corporation, Menlo Park, California. Jeffrey Y. Suto, a director of Venture Law Group, is the Secretary of Chemdex. Legal matters in connection with this offering will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation. As of the date of this prospectus, employees of Venture Law Group and an investment partnership affiliated with Venture Law Group own a total of 145,547 shares of Chemdex's common stock. EXPERTS Ernst & Young LLP, independent auditors, have audited our financial statements and schedule at December 31, 1997 and 1998, and for the period from September 4, 1997 (inception) through December 31, 1997 and for the year ended December 31, 1998, as set forth in their report. We have included our financial statements and schedule in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. CHANGE IN INDEPENDENT ACCOUNTANTS Effective September 1998, Ernst & Young LLP was engaged as our independent auditors and replaced other auditors who were dismissed as our independent accountants on the same date. The decision to change auditors was approved by our Board of Directors on September 2, 1998. Prior to September 2, 1998, our former auditors issued a report on the period from September 4, 1997 (inception) to December 31, 1997. The report did not contain an adverse opinion or disclaimer of opinion qualified or modified as to any uncertainty, audit scope or accounting principle. In connection with the audit for the period from September 4, 1997, there were no disagreements with our former auditors on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to the satisfaction of our former auditors, would have caused them to make reference thereto in their report. Our former auditors have not audited or reported on any of the financial statements or information included in this prospectus. Prior to September 2, 1998, we had not consulted with Ernst & Young LLP on items that involved our accounting principles or the form of audit opinion to be issued on our financial statements. 68 ADDITIONAL INFORMATION Chemdex has filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the common stock offered under this prospectus. This prospectus does not contain all of the information set forth in the registration statement and the exhibits. For further information with respect to Chemdex and the common stock offered under this prospectus, reference is made to the registration statement and the exhibits. Statements contained in this prospectus regarding the contents of any contract or any other document to which reference is made are not necessarily complete. In each instance where a copy of such contract or other document has been filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matter involved. A copy of the registration statement and the exhibits may be inspected without charge at the Public Reference Room of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the Public Reference Section of the Commission upon the payment of the fees prescribed by the Commission. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission also maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as Chemdex, that file electronically with the Commission. Chemdex intends to provide its stockholders with annual reports containing combined financial statements audited by an independent accounting firm and quarterly reports containing unaudited combined financial data for the first three quarters of each fiscal year. 69 CHEMDEX CORPORATION INDEX TO FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors........................... F-2 Balance Sheets.............................................................. F-3 Statements of Operations.................................................... F-4 Statements of Stockholders' Equity.......................................... F-5 Statements of Cash Flows.................................................... F-6 Notes to Financial Statements............................................... F-7
F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Chemdex Corporation We have audited the accompanying balance sheets of Chemdex Corporation as of December 31, 1997 and 1998, and the related statements of operations, stockholders' equity, and cash flows for the period from September 4, 1997 (inception) through December 31, 1997 and for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chemdex Corporation at December 31, 1997 and 1998, and the results of its operations and its cash flows for the period from September 4, 1997 (inception) through December 31, 1997 and for the year ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP San Jose, California May 7, 1999, except for Note 9, as to which the date is May 11, 1999 F-2 CHEMDEX CORPORATION BALANCE SHEETS
Pro Forma Stockholders' December 31, Equity as of ----------------------- March 31, March 31, 1997 1998 1999 1999 ---------- ----------- ------------ ------------- (Unaudited) (Unaudited) Assets Current assets: Cash and cash equivalents............. $1,346,478 $ 5,990,188 $ 27,783,684 Accounts receivable, net of allowances for bad debt of $0, $2,000 and $4,000 at December 31, 1997 and 1998 and March 31, 1999................ -- 32,259 126,354 Other current assets..... 43,137 286,991 416,973 ---------- ----------- ------------ Total current assets... 1,389,615 6,309,438 28,327,011 Property and equipment: Furniture and fixtures... 9,719 298,591 551,843 Computer hardware and software................ 245,826 1,498,220 3,805,930 Leasehold improvements... 12,911 46,470 139,105 ---------- ----------- ------------ 268,456 1,843,281 4,496,878 Less accumulated depreciation and amortization............ 7,337 285,036 495,090 ---------- ----------- ------------ 261,119 1,558,245 4,001,788 Other assets.............. 77,278 300,472 307,087 ---------- ----------- ------------ Total assets.............. $1,728,012 $ 8,168,155 $ 32,635,886 ========== =========== ============ Liabilities and stockholders' equity Current liabilities: Accounts payable......... $ 181,671 $ 543,141 $ 1,042,656 Accrued compensation..... 31,621 511,578 692,545 Accrued expenses......... 54,120 759,654 1,902,725 Current obligations under capital leases.... 6,483 5,425 -- Current portion of note payable................. -- -- 328,833 ---------- ----------- ------------ Total current liabilities........... 273,895 1,819,798 3,966,759 Obligations under capital leases.......... 5,982 -- -- Note payable, less current portion......... -- -- 803,028 ---------- ----------- ------------ Total liabilities...... 279,877 1,819,798 4,769,787 Commitments and contingencies Stockholders' equity: Convertible preferred stock, $.0001 par value: Authorized shares -- 68,149,266 in 1999 and none pro forma Issued and outstanding shares -- 5,391,100 in 1997, 22,891,298 in 1998, 32,691,416 in 1999 and none pro forma (liquidation preference of $42,939,012 at March 31,1999)............... 539 2,289 3,269 $ -- Common stock, $.0001 par value: Authorized shares -- 19,000,000 in 1997, 35,000,000 in 1998 and 100,000,000 in 1999 ... Issued and outstanding shares--5,140,000 in 1997, 7,843,670 in 1998, 9,660,839 in 1999, and 42,352,255 pro forma.............. -- 270 452 3,721 Additional paid-in capital................. 1,850,989 18,379,421 48,664,894 48,664,894 Deferred compensation.... -- (2,992,099) (4,016,489) (4,016,489) Notes receivable from stockholders............ -- (149,717) (1,085,374) (1,085,374) Accumulated deficit...... (403,393) (8,891,807) (15,700,653) (15,700,653) ---------- ----------- ------------ ------------ Total stockholders' equity................ 1,448,135 6,348,357 27,866,099 $ 27,866,099 ---------- ----------- ------------ ============ Total liabilities and stockholders' equity..... $1,728,012 $ 8,168,155 $ 32,635,886 ========== =========== ============
See accompanying notes. F-3 CHEMDEX CORPORATION STATEMENTS OF OPERATIONS
Period from Inception (September 4, 1997) Year Ended Three Months Ended through December March 31, December 31, 31, ---------------------- 1997 1998 1998 1999 ------------------- ----------- --------- ----------- (Unaudited) Net revenues............ $ -- $ 29,355 $ -- $ 165,552 Cost of revenues........ -- 22,105 -- 155,960 ---------- ----------- --------- ----------- Gross profit............ -- 7,250 -- 9,592 Operating expenses: Research and development.......... 196,388 3,439,135 363,745 2,293,311 Sales and marketing... 86,346 3,247,136 219,086 3,188,058 General and administrative....... 120,659 1,744,898 189,896 1,014,748 Amortization of deferred compensation......... -- 372,285 22,434 352,291 ---------- ----------- --------- ----------- Total operating expenses............. 403,393 8,803,454 795,161 6,848,408 ---------- ----------- --------- ----------- Operating loss.......... (403,393) (8,796,204) (795,161) (6,838,816) Interest expense........ -- (2,620) (754) (24,928) Interest income and other, net............. -- 310,410 3,319 54,898 ---------- ----------- --------- ----------- Net loss................ $ (403,393) $(8,488,414) $(792,596) $(6,808,846) ========== =========== ========= =========== Basic and diluted net loss per share......... $ (.12) $ (2.40) $ (.23) $ (1.69) ========== =========== ========= =========== Weighted average shares of common stock outstanding used in computing basic and diluted net loss per share.................. 3,408,824 3,543,017 3,408,824 4,032,353 ========== =========== ========= =========== Pro forma basic and diluted net loss per share.................. $ (.43) $ (.24) =========== =========== Weighted average shares used in computing pro forma basic and diluted net loss per share..... 19,905,108 28,557,081 =========== ===========
See accompanying notes. F-4 CHEMDEX CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY
Convertible Preferred Stock Common Stock Additional Total ----------------- ----------------- Paid-in Deferred Notes Accumulated Stockholders' Shares Amount Shares Amount Capital Compensation Receivable Deficit Equity ---------- ------ --------- ------ ----------- ------------ ----------- ------------ ------------- Issuance of Series A preferred stock at $0.3497 per share, net of issuance costs... 5,391,100 $ 539 -- $ -- $ 1,850,989 $ -- $ -- $ -- $ 1,851,528 Issuance of common stock to founders on incorporation.... -- -- 5,140,000 -- -- -- -- -- -- Net loss.......... (403,393) (403,393) ---------- ------ --------- ---- ----------- ----------- ----------- ------------ ----------- Balance at December 31, 1997............. 5,391,100 539 5,140,000 -- 1,850,989 -- -- (403,393) 1,448,135 Issuance of Series A preferred stock at $0.3497 per share, net of issuance costs... 200,200 20 -- -- 44,847 -- -- -- 44,867 Issuance of Series B preferred stock at $0.75 per share, net of issuance costs... 17,299,998 1,730 -- -- 12,928,827 -- -- -- 12,930,557 Exercise of stock options.......... -- -- 2,838,670 284 197,486 -- (156,843) -- 40,927 Repurchase of unvested shares.. -- -- (135,000) (14) (7,112) -- 7,126 -- -- Deferred compensation relating to stock options.......... -- -- -- -- 3,364,384 (3,364,384) -- -- -- Amortization of deferred compensation relating to stock options.......... -- -- -- -- -- 372,285 -- -- 372,285 Net loss.......... -- -- -- -- -- -- -- (8,488,414) (8,488,414) ---------- ------ --------- ---- ----------- ----------- ----------- ------------ ----------- Balance at December 31, 1998............. 22,891,298 2,289 7,843,670 270 18,379,421 (2,992,099) (149,717) (8,891,807) 6,348,357 Issuance of Series C preferred stock at $2.858 per share, net of issuance costs (unaudited)...... 9,800,118 980 -- -- 27,934,075 -- -- -- 27,935,055 Exercise of stock options (unaudited)...... -- -- 2,142,000 214 958,303 -- (956,964) -- 1,553 Repurchase of unvested shares (unaudited)...... -- -- (324,831) (32) (17,959) -- 17,991 -- -- Payments of stockholders' notes receivable (unaudited)...... -- -- -- -- -- -- 3,316 -- 3,316 Issuance of warrants (unaudited)...... -- -- -- -- 34,373 -- -- -- 34,373 Deferred compensation relating to stock options (unaudited)...... -- -- -- -- 1,376,681 (1,376,681) -- -- -- Amortization of deferred compensation relating to stock options (unaudited)...... -- -- -- -- -- 352,291 -- -- 352,291 Net loss (unaudited)...... -- -- -- -- -- -- -- (6,808,846) (6,808,846) ---------- ------ --------- ---- ----------- ----------- ----------- ------------ ----------- Balance at March 31, 1999 (unaudited)...... 32,691,416 $3,269 9,660,839 $452 $48,664,894 $(4,016,489) $(1,085,374) $(15,700,653) $27,866,099 ========== ====== ========= ==== =========== =========== =========== ============ ===========
See accompanying notes. F-5 CHEMDEX CORPORATION STATEMENTS OF CASH FLOWS
Period from Inception (September 4, Three Months Ended 1997) through Year Ended March 31, December 31, December 31, ---------------------- 1997 1998 1998 1999 ------------- ------------ --------- ----------- (Unaudited) Operating activities Net loss.................... $ (403,393) $(8,488,414) $(792,596) $(6,808,846) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.............. 7,337 301,201 31,093 210,054 Amortization of deferred compensation and sales and marketing and interest expense related to warrants.................. -- 372,285 22,434 386,664 Loss on disposal of property and equipment.... -- 7,925 -- -- Changes in operating assets and liabilities: Accounts receivable........ -- (32,259) (15,454) (94,095) Other current assets....... (43,137) (243,854) (5,101) (129,982) Other assets............... (67,064) (239,812) (14,521) (6,615) Accounts payable........... 181,671 361,470 (11,534) 499,515 Accrued compensation....... 31,621 479,957 28,891 180,967 Accrued expenses........... 54,120 705,534 94,757 1,143,071 ---------- ----------- --------- ----------- Net cash used in operating activities................. (238,845) (6,775,967) (662,031) (4,619,267) ---------- ----------- --------- ----------- Investing activities Sales of short-term investments................ -- 6,593,495 -- -- Purchases of short-term investments................ -- (6,593,495) -- -- Purchases of property and equipment.................. (255,545) (1,614,129) (181,130) (1,521,736) Proceeds from sales of property and equipment..... -- 24,495 -- -- Purchase of other assets.... (10,214) -- -- -- ---------- ----------- --------- ----------- Net cash used in investing activities................. (265,759) (1,589,634) (181,130) (1,521,736) ---------- ----------- --------- ----------- Financing activities Principal payments on capital lease obligations.. (446) (7,040) (1,854) (5,425) Net proceeds from issuance of preferred stock......... 1,851,528 12,975,424 -- 27,935,055 Issuance of common stock.... -- 40,927 9,867 1,553 Payments of stockholders' notes receivable........... -- -- -- 3,316 ---------- ----------- --------- ----------- Net cash provided by financing activities....... 1,851,082 13,009,311 8,013 27,934,499 ---------- ----------- --------- ----------- Net increase (decrease) in cash and cash equivalents.. 1,346,478 4,643,710 (835,148) 21,793,496 Cash and cash equivalents at beginning of period........ -- 1,346,478 1,346,478 5,990,188 ---------- ----------- --------- ----------- Cash and cash equivalents at end of period.............. $1,346,478 $ 5,990,188 $ 511,330 $27,783,684 ========== =========== ========= =========== Supplemental disclosures of noncash activities: Issuance of shares in exchange for stockholders' notes receivable........... $ -- $ 156,843 $ -- $ 956,964 ========== =========== ========= =========== Repurchase of common stock issued in exchange for stockholders' notes receivable................. $ -- $ 7,126 $ -- $ 17,991 ========== =========== ========= =========== Equipment purchased under capital lease and note payable.................... $ 12,911 $ -- $ -- $ 1,131,861 ========== =========== ========= =========== Supplemental disclosure of cash flow information: Cash paid for interest...... $ 207 $ 2,620 $ 754 $ 165 ========== =========== ========= =========== Cash paid for taxes......... $ -- $ 1,991 $ 1,973 $ 1,700 ========== =========== ========= ===========
See accompanying notes. F-6 CHEMDEX CORPORATION NOTES TO FINANCIAL STATEMENTS (Information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited) 1. Description of Business Chemdex is a provider of e-commerce solutions to the life sciences industry. Chemdex enables life sciences enterprises, researchers and suppliers to efficiently buy and sell life sciences research products through the Chemdex Marketplace a secure, Internet-based procurement solution. Chemdex was incorporated in Delaware on September 4, 1997. During the period from inception through November 1998, Chemdex was a development stage company and did not have significant sales. During this period, operating activities related primarily to the design and development of Chemdex's online marketplace and corporate infrastructure and the establishment of relationships with suppliers and customers. Chemdex has incurred operating losses to date and had an accumulated deficit of approximately $15.7 million at March 31, 1999. Chemdex's activities have been primarily financed through private placements of equity securities. Chemdex is no longer in the development stage. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Interim Financial Information The financial information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited and includes all adjustments, consisting only of normal recurring adjustments, that Chemdex's management considers necessary for a fair presentation of Chemdex's operating results and cash flows for such period. Results for the three month period ended March 31, 1999 are not necessarily indicative of results to be expected for the full fiscal year of 1999 or for any future period. Revenue Recognition Net revenues consist primarily of product sales to customers and charges to customers for outbound freight. Under most supplier agreements, Chemdex acts as a principal when purchasing products from suppliers and reselling them to customers. Products are shipped directly to customers by suppliers based on customer delivery date specifications. Under principal-based agreements, Chemdex is responsible for selling products, collecting payment from customers, ensuring that the shipment reaches customers and processing returns. In addition, Chemdex takes title to products upon shipment and bears the risk of loss for collection, delivery and product returns from customers. Chemdex provides an allowance for sales returns, which has been insignificant to date, at the time of sale. Chemdex recognizes revenues from product sales when products are shipped to customers. To date, an insignificant amount of revenue is from agreements with suppliers for which Chemdex is acting as an agent. Under agency-based supplier agreements, Chemdex recognizes a percentage share of revenues generated by suppliers when products are shipped to customers. For the year ended December 31, 1998 and the three months ended March 31, 1999, one customer accounted for 79% and 82% of net revenues, respectively. For the year ended December 31, 1998, another F-7 CHEMDEX CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited) customer accounted for 14% of net revenues. There were no sales to customers outside the United States since inception through March 31, 1999. Cash and Cash Equivalents Cash equivalents consist of financial instruments which are readily convertible to cash and have original maturities of three months or less at the time of acquisition. Chemdex's cash and cash equivalents as of December 31, 1997 and 1998 and March 31, 1999 consisted primarily of commercial paper and money market funds held by large financial institutions in the United States, and their carrying value approximated fair value. Property and Leasehold Improvements Chemdex records property and equipment at cost and calculates depreciation using the straight-line method over estimated useful lives of three to five years. Property under capital leases is depreciated over the lesser of the useful lives of the assets or lease term. Stock-Based Compensation Chemdex has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, ("APB Opinion No. 25"), and related interpretations in accounting for its employee stock options because, as discussed in Note 6, the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, Accounting for Stock- Based Compensation, ("FAS 123"), requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB Opinion No. 25, when the exercise price of Chemdex's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. See pro forma disclosures of applying FAS 123 included in Note 6. Advertising Costs Advertising costs are charged to expense when incurred. No advertising expense was incurred for the period from September 4, 1997 (inception) through December 31, 1997. Advertising expense was $786,520 and $1,160,202 for the year ended December 31, 1998 and the three months ended March 31, 1999, respectively. Comprehensive Income In June 1997, the Financial Accounting Standards Board issued FAS 130, Reporting Comprehensive Income. FAS 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements and is effective for fiscal years beginning after December 15, 1997. Chemdex adopted FAS 130 in the year ended December 31, 1998. Chemdex had no comprehensive income items to report for the year ended December 31, 1998 and the three months ended March 31, 1999. Segment Information In June 1997, the Financial Accounting Standards Board issued FAS 131, Disclosures about Segments of an Enterprise and Related Information ("FAS 131"). FAS 131 changes the way companies report selected segment information in annual financial statements and requires companies to report selected segment information in interim financial reports to stockholders. Chemdex adopted FAS 131 in the year ended December 31, 1998. Chemdex operates solely in one operating segment, the development and marketing of an online marketplace for the procurement and distribution of products and, therefore there is no impact to Chemdex's financial statements of adopting FAS 131. F-8 CHEMDEX CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited) Net Loss Per Share Basic and diluted net loss per common share is presented in conformity with FAS No. 128, Earnings Per Share ("FAS 128"), for all periods presented. Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No. 98, common stock and convertible preferred stock issued or granted for nominal consideration prior to the anticipated effective date of Chemdex's initial public offering must be included in the calculation of basic and diluted net loss per common share as if they had been outstanding for all periods presented. To date, Chemdex has not had any issuances or grants for nominal consideration. In accordance with FAS 128, basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. Pro forma basic and diluted net loss per share, as presented in the statements of operations, has been computed as described above and also gives effect, under Securities and Exchange Commission guidance, to the conversion of the convertible preferred stock (using the if-converted method) from the original date of issuance. The following table presents the calculation of basic and diluted and pro forma basic and diluted net loss per share:
Period from Inception (September 4, Three Months Ended 1997) through Year Ended March 31, December 31, December 31, ----------------------- 1997 1998 1998 1999 ------------- ------------ ---------- ----------- Net loss................... $ (403,393) $(8,488,414) $ (792,596) $(6,808,846) ========== =========== ========== =========== Basic and diluted: Weighted-average shares of common stock outstanding.............. 5,140,000 6,485,590 5,140,000 9,046,131 Less weighted-average shares subject to repurchase............... (1,731,176) (2,942,573) (1,731,176) (5,013,778) ---------- ----------- ---------- ----------- Weighted-average shares used in computing basic and diluted net loss per common share............. 3,408,824 3,543,017 3,408,824 4,032,353 ---------- ----------- ---------- ----------- Basic and diluted net loss per common share......... $ (.12) $ (2.40) $ (.23) $ (1.69) ========== =========== ========== =========== Pro forma: Shares used above.......... 3,543,017 4,032,353 Pro forma adjustment to reflect weighted-average effect of the assumed conversion of convertible preferred stock.......... 16,362,091 24,524,728 ----------- ----------- Shares used in computing pro forma basic and diluted net loss per share.................... 19,905,108 28,557,081 ----------- ----------- Pro forma basic and diluted net loss per share.................... $ (.43) $ (.24) =========== ===========
Chemdex has excluded all outstanding stock options and shares subject to repurchase by Chemdex from the calculation of diluted loss per share because all such securities are antidilutive for all periods presented. Weighted- average options outstanding to purchase -0-, 1,017,500 and 879,705 shares of common stock for the period from inception through December 31, 1997, the year ended December 31, 1998 and the three months ended March 31, 1999, respectively, were not included in the computation of diluted net loss per share because the effect would be antidilutive. Such securities, had they been dilutive, would have been included in the computation of diluted net loss per share using the treasury stock method. F-9 CHEMDEX CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited) Unaudited Pro Forma Stockholders' Equity If the offering contemplated by this prospectus is consummated, each share of convertible preferred stock outstanding will automatically be converted into one share of common stock. Unaudited pro forma stockholders' equity at March 31, 1999, as adjusted for the assumed conversion of convertible preferred stock based on the shares of convertible preferred stock outstanding at March 31, 1999, is disclosed on the balance sheet. Recent Accounting Pronouncements In June 1998, the FASB issued FAS 133, Accounting for Derivative Instruments and Hedging Activities ("FAS 133"), which Chemdex will be required to adopt for the year ending December 31, 2000. This statement establishes a new model for accounting for derivatives and hedging activities. FAS 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. Because Chemdex currently holds no derivative financial instruments and does not currently engage in hedging activities, adoption of FAS 133 is expected to have no material impact on Chemdex's financial condition or results of operations. In March 1998, the American Institute of Certified Public Accountants (AICPA) issued SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, ("SOP 98-1"). SOP 98-1 requires that entities capitalize certain costs related to internal use software once certain criteria have been met. Chemdex is required to implement SOP 98-1 for the year ending December 31, 1999. Adoption of SOP 98-1 is not expected to have a material impact on Chemdex's financial condition or results of operations. In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of Start-Up Activities, ("SOP 98-5"). SOP No. 98-5 requires that all start-up costs related to new operations must be expensed as incurred. In addition, all start-up cost that were capitalized in the past must be written off when SOP No. 98-5 is adopted. Chemdex implemented SOP No. 98-5 on January 1, 1999. The adoption of SOP No. 98-5 did not have a material impact on its financial position or results of operations. 3. Concentrations of Credit Risk and Other Risks Financial instruments that potentially subject Chemdex to credit risk consist primarily of uninsured cash and cash equivalents. Cash and cash equivalents are deposited with a federally insured commercial bank in the United States. Chemdex sells primarily to pharmaceutical and biotechnology companies and academic and research institutions. Chemdex performs ongoing credit evaluations of its customers but does not require collateral. Chemdex analyzes the need for reserves for potential credit losses and records reserves when necessary. These losses have been within management's expectations. To date, Chemdex has not had significant write-offs of bad debt. F-10 CHEMDEX CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited) 4. Commitments Chemdex leases its office facilities under noncancelable operating leases expiring through 2003. Minimum annual operating lease commitments at December 31, 1998 were as follows: 1999.......................................................... $1,080,184 2000.......................................................... 1,094,662 2001.......................................................... 1,127,501 2002.......................................................... 1,161,331 2003.......................................................... 1,196,165 ---------- Total minimum payments........................................ $5,659,843 ==========
Rental expense for the period from Inception through December 31, 1997 and the year ended December 31, 1998 was $13,939 and $342,977, respectively. 5. Financing Arrangements In February 1998, Chemdex entered into a line of credit with a bank, which provides for borrowings of up to $400,000 with interest at the bank's prime rate plus 1.0%. The aggregate credit line has a compensating balance requirement of $210,000. Borrowings under the line are secured by substantially all of the Chemdex's assets. At December 31, 1998, Chemdex had no outstanding borrowings under this line of credit. The line of credit expired on February 17, 1999. In 1997, Chemdex entered into a noncancelable capital lease agreement for equipment. Aggregate future minimum capital lease payments under this lease were $5,425 at December 31, 1998. The lease expires in October 1999. In January 1999, Chemdex entered into a $3.0 million equipment lease line agreement with a financial institution for a term of 48 months, with interest imputed at 13.02% per year. At December 31, 1998 and March 31, 1999, Chemdex had no outstanding borrowings under the equipment lease line. In February 1999, Chemdex entered into a financing arrangement in the amount of $1,131,861 for the purchase of certain computer software and related support. This arrangement provides for 12 equal quarterly payments of the financed amount commencing May 1, 1999, with interest imputed at 13.24% per year. As of March 31, 1999, aggregate future minimum payments under this financing agreement were as follows: 1999........................................................... $ 270,977 2000........................................................... 366,973 2001........................................................... 418,623 2002........................................................... 75,288 --------- Total payments................................................. 1,131,861 Less current portion........................................... (328,833) --------- Long-term portion.............................................. $ 803,028 =========
F-11 CHEMDEX CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited) 6. Stockholders' Equity Convertible Preferred Stock Convertible preferred stock at December 31, 1997 and 1998 and March 31, 1999 is as follows:
Shares Issued and Outstanding ------------------------------- Shares Authorized December 31, March 31, Liquidation March 31, -------------------- ---------- Preference 1999 1997 1998 1999 ----------- ---------- --------- ---------- ---------- Series A................ $.3497 5,591,300 5,391,100 5,591,300 5,591,300 Series A-1.............. $.3497 5,591,300 -- -- -- Series B................ $ .75 17,583,333 -- 17,299,998 17,299,998 Series B-1.............. $ .75 17,583,333 -- -- -- Series C................ $2.858 10,600,000 -- -- 9,800,118 Series C-1.............. $2.858 10,600,000 -- -- -- Undesignated............ 600,000 -- -- -- ---------- --------- ---------- ---------- Total convertible preferred stock........ 68,149,266 5,391,100 22,891,298 32,691,416 ========== ========= ========== ==========
To date, shares have been designated as Series A and A-1, Series B and B-1 and Series C and C-1 (collectively, "the Series A, B and C preferred stock"). Chemdex is authorized to issue additional preferred stock with such designations, rights, and preferences as may be determined from time to time by the Board of Directors provided, however, that any such preferred stock must be subordinate to, or in parity with, the Series A, B and C preferred stock. Series A, B and C preferred stockholders have voting rights equal to the common shares issuable upon conversion of the Series A, B and C preferred stock. Each share of Series A, B and C preferred stock is convertible, at the option of the holder, into one share of common stock, subject to certain adjustments for dilutive issuances. Outstanding shares of Series A, B and C preferred stock automatically convert into common stock upon the closing of an underwritten public offering of Chemdex's common stock with gross proceeds to Chemdex of at least $20,000,000 and a per share price of at least $3.75, or at the election of the holders of more than 50%, at least 66 2/3% and at least 60% of outstanding Series A, B and C preferred stock, respectively. Holders of Series A, B and C preferred stock are entitled to noncumulative dividends of $.0315 and $.0675 and $.2572 per annum per outstanding share. Dividends will be paid only when declared by the Board of Directors out of legally available funds. No dividends have been declared or accrued as of March 31, 1999. Series A, B and C preferred stockholders are entitled to receive, upon a liquidating event, an amount per share equal to the issuance price, plus all declared but unpaid dividends. The remaining assets and funds, if any, shall be distributed among the holders of Series A, B and C preferred stock and common stock pro rata based on the number of shares of common stock held by each (assuming conversion of all such Series A, B and C preferred stock). If any assets remain after the holders of Series A, B and C preferred stock have received an aggregate of $.874, $1.875 and $7.145 per share, the remaining assets will be distributed to the holders of the common stock pro rata based on the number of shares of common stock held by each. F-12 CHEMDEX CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited) Warrants In January 1999, in connection with an equipment lease line, Chemdex issued a fully vested warrant that entitles the holder to purchase 210,000 shares of the Chemdex's Series B preferred stock at an exercise price of $.75 per share. This warrant is exercisable, through the later of the initial public offering of Chemdex's common stock or January 2006. The fair value of this warrant, approximately $195,300, will be expensed as a cost of financing over the four year period of the lease line. The fair value of this warrant was calculated using the Black-Scholes option pricing model. In March 1999, Chemdex issued a fully vested, non-forfeitable warrant in exchange for consulting services. The warrant entitles the holder to purchase 100,000 shares of Chemdex's common stock at an exercise price of $2.60 per share. This warrant is exercisable through the earlier of two years from the date of the initial public offering of Chemdex's common stock or March 2006. The fair value of this warrant, approximately $133,000, will be expensed over the six month period of the consulting agreement. The fair value of this warrant was calculated using the Black-Scholes option pricing model. Common Stock Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends from legally available funds when and if declared by the Board of Directors, subject to the prior rights of holders of Series A, B and C preferred stock. Certain of the shares of common stock issued to founders of Chemdex, totaling 1,731,176 shares, are subject to repurchase by Chemdex. The stock vests over a period of four years. As of December 31, 1998 and March 31, 1999, 1,460,273 and 1,355,042 shares, respectively, were subject to repurchase. At March 31, 1999, common stock was reserved for future issuance as follows: Conversion of Series A preferred stock......................... 5,591,300 Conversion of Series B preferred stock......................... 17,299,998 Conversion of Series C preferred stock......................... 9,800,118 Warrants....................................................... 310,000 Stock Option Plan.............................................. 2,229,161 ---------- 35,230,577 ==========
Stock Option Plans In January 1998, the Board of Directors terminated the 1997 Option Plan, under which no options had been granted, and adopted the 1998 Stock Plan (the "1998 Plan") for issuance of common stock to eligible participants. The Plan provides for the granting of incentive stock options and non-qualified stock options. Incentive stock options and non-qualified stock options may be granted under the 1998 Plan at prices not less than 100% and 85% of the fair value at the date of grant, or at prices not less than 110% for individuals owning more than 10% of the combined voting power of all classes of stock at the date of grant. Options generally expire after ten years. Certain options under the plan are immediately exercisable; however, such shares issued are subject to Chemdex's right to repurchase at the original issuance price, which right lapses in a series of installments measured from the vesting commencement date of the option. As of December 31, 1998 and March 31, 1999, 3,386,659 and 5,124,513 shares, respectively, were subject to repurchase. Options generally vest, and the repurchase rights lapse ratably, over a period of four years from the date of grant. F-13 CHEMDEX CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited) Pro forma information regarding net loss and net loss per share is required by FAS 123, and has been determined as if Chemdex had accounted for its employee stock options under the fair value method provided for in FAS 123. The fair value of options was estimated at the date of grant using a minimum value option pricing model with the following weighted-average assumptions for options granted during the year ended December 31, 1998: risk-free interest rate of 5.42%, an expected life of four years and no dividends. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of the options using a graded vesting method. The effects of applying FAS 123 for pro forma disclosures are not likely to be representative of the effects on reported net loss for future years. The option valuation models were developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because Chemdex's employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
Period from Inception Three Months (September 4, Ended 1997) through Year Ended March 31, December 31, December 31, -------------- 1997 1998 1998 1999 ------------- ------------ ----- ------- (In Thousands, Except Per Share Data) Net loss: As reported...................... $(403) $(8,488) $(793) $(6,809) Pro forma........................ $(403) $(8,495) $(793) $(6,818) Pro forma basic and diluted net loss per share: As reported...................... $ (.43) $ (.24) Pro forma........................ $ (.43) $ (.24)
Activity under the 1998 Stock Plan was as follows:
Options Outstanding Shares -------------------------------------- Available Number of Price per Weighted-Average for Grant Shares Share Exercise Price ---------- ---------- --------- ---------------- Authorized............... 6,750,000 -- -- -- Granted.................. (3,957,670) 3,957,670 $.05-$.50 $.08 Exercised................ -- (2,838,670) $.05-$.08 $.07 Canceled................. 101,500 (101,500) $.05-$.50 $.06 Repurchased.............. 135,000 -- $.05-$.08 -- ---------- ---------- Balance at December 31, 1998...................... 3,028,830 1,017,500 $.05-$.50 $.07 Granted.................. (2,020,205) 2,020,205 $.75 $.75 Exercised................ -- (2,142,000) $.08-$.75 $.45 Canceled................. 16,000 (16,000) $.75 $.75 Repurchased.............. 324,831 -- $.05-$.08 $.05 ---------- ---------- Balance at March 31, 1999.. 1,349,456 879,705 $.05-$.75 $.51 ========== ==========
F-14 CHEMDEX CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited) The following table summarizes information about stock options outstanding and exercisable at December 31, 1998:
Options Outstanding and Exercisable --------------------------------------------------------------- Weighted- Weighted- Average Range of Average Remaining Exercise Number of Exercise Contractual Prices Shares Price Life -------- --------- --------- ----------- (In Years) $.05--$.50 1,017,500 $.07 9.14
Certain grants of options to employees to purchase common stock under Chemdex's 1998 Stock Option Plan were exercised in exchange for full recourse notes receivable. These notes receivable generally bear interest at a rate equal to the minimum rate necessary to avoid the imputation of interest income to the Company and compensation income to the maker under the Internal Revenue Code and are collateralized by the underlying common stock. At December 31, 1998 and March 31, 1999, notes receivable in exchange for exercises of options totaled $149,717 and $1,085,374, respectively. These shares are subject to right of repurchase that generally lapse over four years. The weighted-average fair value of options granted during 1998 with an exercise price equal to the fair value of common stock on the date of grant was $.08. The weighted-average fair value of options granted during 1998 with an exercise price below the deemed fair value of Chemdex's common stock on the date of grant was $.08. In connection with the grant of certain share options to employees through March 31, 1999, Chemdex recorded deferred compensation of $4,741,065 for the aggregate differences between the exercise prices of options at their dates of grant and the deemed fair value for accounting purposes of the common shares subject to such options. Such amount is included as a reduction of stockholders' equity and is being amortized on a graded vesting method over the option vesting periods, which are generally four years. The compensation expense of $724,576 through March 31, 1999 relates to options awarded to employees in all operating expense categories. This amount has not been separately allocated to these categories. 7. Employee Savings and Retirement Plan Chemdex has a 401(k) plan that allows eligible employees to contribute up to 15% of their salary, subject to annual limits. Under the plan, eligible employees may defer a portion of their pretax salaries but not more than statutory limits. Chemdex may make discretionary contributions to the plan based on profitability as determined by the Board of Directors. Chemdex did not make any contributions to the plan during the year ended December 31, 1998, and the three months ended March 31, 1999. 8. Income Taxes The difference between the amount of income tax benefit recorded and the amount of income tax benefit calculated using the federal statutory rate of 34% is due to net operating losses having a valuation allowance, due to past operating results and uncertainties regarding Chemdex's future results of operations. Accordingly, there is no provision for income taxes for the period from September 4, 1997 (inception) through December 31, 1997 and for the year ended December 31, 1998. As of December 31, 1998, Chemdex had federal and state net operating loss carryforwards of approximately $7,500,000 and $7,400,000, respectively. Chemdex also had federal and state research credit carryforwards of F-15 CHEMDEX CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited) approximately $100,000 and $100,000, respectively. The net operating loss and credit carryforwards will expire at various dates beginning in 2002 through 2018, if not utilized. The net operating loss carryforwards differ from the accumulated deficit primarily as a result of certain reserves and accruals not currently deductible for tax purposes. Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Chemdex's deferred tax assets are as follows:
December 31, -------------------- 1997 1998 -------- ---------- Deferred tax assets: Net operating loss carryforwards.................. $157,000 $3,000,000 Research credit carryforwards..................... 13,000 200,000 Reserves and accruals............................. 3,000 300,000 -------- ---------- Total deferred tax assets....................... 173,000 3,500,000 Valuation Allowance................................. (173,000) (3,500,000) -------- ---------- Net deferred tax assets............................. $ -- $ -- ======== ==========
Under FAS 109, Accounting for Income Taxes, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Based upon the weight of available evidence, which includes Chemdex's historical operating performance, the reported net losses for the period from inception through December 31, 1997 and for the year ended December 31, 1998, and the uncertainties regarding Chemdex's future results of operations, a full valuation allowance has been provided against its net deferred tax assets. It is more likely than not that the deferred tax assets will not be realized. The valuation allowance increased by $173,000 for the period from inception through December 31, 1997 and $3,327,000 during 1998. 9. Events Subsequent To Date Of Auditor's Report 1999 Employee Stock Purchase Plan On May 11, 1999, Chemdex's Board of Directors approved, subject to stockholder approval, the adoption of the 1999 Employee Stock Purchase Plan (the "Purchase Plan"). A total of 1,500,000 shares of common stock has been reserved for issuance under the 1999 Purchase Plan, as well as an automatic annual increase on the first day of each of Chemdex's fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser of 400,000 shares, 1/2% of Chemdex's outstanding common stock on the last day of the immediately preceding fiscal year or a lesser number of shares determined by the Board of Directors. Each offering period will consist of four consecutive purchase periods of six months' duration. The initial offering period is expected to begin on the date of this offering and end on July 31, 2001; the initial purchase period is expected to end on January 31, 2000. F-16 CHEMDEX CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited) The Purchase Plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed 20% of an employee's compensation, at a price equal to the lower of 85% of the fair market value of Chemdex's common stock at the beginning of each offering period or at the end of each purchase period. If not terminated earlier, the Purchase Plan has a term of 20 years. Series C Preferred Stock In April 1999, Chemdex issued an additional 799,882 shares of Series C preferred stock to investors, resulting in net proceeds of $2,286,063. Deferred Compensation In April 1999, Chemdex granted to employees options to purchase 1,189,560 shares of common stock at an exercise price of $2.50 per share. We estimate that we will record additional deferred compensation of approximately $2.5 million with regard to these grants. 1998 Stock Plan On April 27, 1999, Chemdex's Board of Directors approved an increase in the number of shares reserved for issuance under the 1998 Plan of 3,000,000 shares and, on May 11, 1999 an additional increase of 2,500,000 shares. The 1998 Plan was also amended to provide for automatic annual increases on the first day of each fiscal year beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser of 2,500,000 shares, 3% of Chemdex's outstanding common stock on the last day of the immediately preceding fiscal year or a lesser number of shares as determined by the Board of Directors. Authorization of Shares On May 11, 1999, Chemdex's Board of Directors authorized 350,000,000 shares of common stock and 5,000,000 shares of preferred stock, each with a par value of $.0001 per share, effective in connection with this offering. The preferred stock may be issued from time to time in one or more series. The Board of Directors has the authority, within the limitations and restrictions in the certificate of incorporation, to provide by resolution for the issuance of shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. 1999 Directors' Plan On May 11, 1999, Chemdex's Board of Directors approved, subject to stockholder approval, the 1999 Directors' Stock Plan (the "Directors' Plan"). A total of 500,000 shares of common stock has been reserved under the Directors' Plan. BIO Agreement In May 1999, the Biotechnology Industry Organization (BIO) selected Chemdex as its preferred supplier of e-commerce procurement solutions. As a result, we entered into a five-year, exclusive joint marketing agreement with BIO. As part of the joint marketing agreement, Chemdex will discount the fees we charge to BIO members F-17 CHEMDEX CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited) for our solution and will contribute cash payments to a joint marketing fund, to be used in connection with both parties' obligations under the joint marketing agreement. In addition, we sold 375,000 shares of our common stock to BIO for a nominal amount in consideration for BIO's participation in these joint marketing activities. BIO has the right to use a portion of the cash payments and any proceeds it receives from the sale of the common stock for the benefit of its members and the biotechnology industry. The charge for BIO marketing activities will be expensed to sales and marketing as they are incurred. We will also record the difference between the nominal amount per share price paid by BIO for the purchase of our common stock and the fair value as of the date of issuance, which is approximately $1.8 million, ratably over the five-year term of the joint marketing agreement. VWR Agreement In March 1999, Chemdex entered into a Strategic Relationship Agreement with VWR, which was consummated in April 1998, pursuant to which Chemdex and VWR agreed to market jointly VWR life sciences products on the Chemdex e-commerce platform. Under the agreement, Chemdex will be able to offer all of VWR's products to Chemdex customers and both parties agreed to jointly develop an online purchasing solution for VWR's existing customers. In connection with the Strategic Relationship Agreement, VWR transferred to Chemdex information concerning VWR customers who purchased products from third party suppliers outside VWR's primary product offering and Chemdex issued 5,076,810 shares of common stock valued at $13.0 million to VWR. We intend to use this information to expand sales of our procurement solution to these customers and adoption of the Chemdex Marketplace by these customers and suppliers. The fair value of $13.0 million will be amortized into sales and marketing expense over five years, the estimated useful life of this intangible asset. F-18 [CHEMDEX LOGO APPEARS HERE] PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by Chemdex in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee and the NASD filing fee and the Nasdaq National Market listing fee.
Amount to be Paid ---------- SEC registration fee............................................. $ 23,978 NASD filing fee.................................................. 9,125 Nasdaq National Market listing fee............................... 25,000 Printing and engraving expenses.................................. 225,000 Legal fees and expenses.......................................... 350,000 Accounting fees and expenses..................................... 250,000 Blue Sky qualification fees and expenses......................... 10,000 Transfer Agent and Registrar fees................................ 25,000 Miscellaneous fees and expenses.................................. 81,897 ---------- Total.......................................................... $1,000,000 ==========
Item 14. Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law (the "Delaware Law") authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). Article Seven of Chemdex's Certificate of Incorporation (Exhibit 3.1 hereto) and Article VI of Chemdex's Bylaws (Exhibit 3.3 hereto) provide for indemnification of Chemdex's directors, officers, employees and other agents to the maximum extent permitted by Delaware Law. In addition, Chemdex has entered into Indemnification Agreements (Exhibit 10.1 hereto) with its officers and directors. The Underwriting Agreement (Exhibit 1.1) also provides for cross-indemnification among Chemdex and the Underwriters with respect to some matters, including matters arising under the Securities Act. Item 15. Recent Sales of Unregistered Securities Since inception (September 1997), Chemdex has sold and issued the following securities: 1. Upon its inception, Chemdex issued and sold 5,140,000 shares of its common stock at a price of $.01 per share to four individuals. 2. In September 1997, Chemdex issued and sold 1,601,600 shares of its Series A Preferred Stock at a price of $.347 per share to a total of 4 purchasers, including CMG@Ventures, L.P., an entity with which Mr. Callaghan, a director of Chemdex, is affiliated, a partnership affiliated with Mr. Swanson, a director of Chemdex, and two other private investors, and in December 1997 and March 1998, Chemdex issued and sold 3,989,700 shares of its Series A Preferred Stock at a price of $.347 per share to Bay City Capital Fund I, L.P., Mr. Burke, a director of Chemdex, CMG@Ventures, and five other private investors. II-1 3. In May 1998, Chemdex issued and sold 17,299,998 shares of its Series B Preferred Stock at a price of $0.75 per share to entities affiliated with Kleiner Perkins Caufield & Byers, an entity with which Mr. Byers is affiliated, Warburg, Pincus Ventures L.P., an entity with which Mr. Lewis is affiliated, CMG@Ventures II, LLC, an entity with which Mr. Callaghan, a director of Chemdex, is affiliated, Bay City Capital Fund I, L.P., an entity with which Mr. Pritzker is affiliated, Mr. Burke, a partnership affiliated with Mr. Swanson, and thirteen other private investors. 4. In January 1999, Chemdex issued a warrant to purchase 210,000 shares of Series B Preferred Stock at an exercise price of $0.75 per share to Comdisco, Inc. in connection with a Master Lease Agreement dated as of January 20, 1999. 5. In March 1999 and April 1999, Chemdex issued and sold 10,600,000 shares of its Series C Preferred Stock at a price of $2.858 per share to Mr. Burke, Bay City Capital Fund I, L.P., CMG@Ventures II, LLC, Galen Employee Fund III, L.P., Galen Partners III, L.P., Galen Partners International III, L.P., Genentech, Inc., Kleiner Perkins Caufield & Byers VIII, L.P., KPCB Life Sciences Zaibatsu Fund II, L.P., KPCB VIII Founders Fund, L.P., Warburg, Pincus Ventures L.P., Mr. Harris, Mr. Waterhouse and 123 other private investors. In addition, in March 1999, Chemdex issued warrants to purchase a total of 100,000 shares of common stock at an exercise price of $2.60 per share to entities affiliated with Galen Partners. 6. In March 1999, Chemdex entered into a Strategic Relationship Agreement and a Common Stock Purchase Agreement with VWR Scientific Products Corporation, pursuant to which Chemdex issued 5,076,810 shares of Common Stock to VWR. 7. In May 1999, Chemdex entered into a BIO Common Stock Purchase Agreement with Biotechnology Industry Organization, pursuant to which Biotechnology Industry Organization purchased 375,000 shares of Common Stock at a price per share of $0.0001. 8. As of May 12, 1999, Chemdex has granted stock options to purchase a total 7,167,435 shares of common stock at exercise prices ranging from $0.05 to $2.50 per share to a total of 123 employees, consultants and directors pursuant to its 1998 Stock Plan. The issuances of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) or Regulation D of the Securities Act as transactions by an issuer not involving any public offering, with the issuances described in Item 5 being made pursuant to Rule 506 promulgated under Regulation D of the Securities Act. The issuances described in Item 9 were deemed exempt from registration under the Securities Act in reliance upon Rule 701 promulgated under the Securities Act. The recipients of securities in each transaction listed above represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with Chemdex, to information about Chemdex. Item 16. Exhibits and Financial Statement Schedules (a) Exhibits
Number Description ------ ----------- 1.1* Form of Underwriting Agreement. 3.1* Amended and Restated Certificate of Incorporation of Chemdex. 3.2 Amended and Restated Certificate of Incorporation of Chemdex (proposed). 3.3 Amended and Restated Bylaws of Chemdex. 3.4* Amended and Restated Bylaws of Chemdex (proposed). 4.1* Specimen Stock Certificate. 4.2 Third Amended and Restated Investors' Rights Agreement dated March 24, 1999.
II-2
Number Description ------ ----------- 4.3 Amendment dated May 12, 1999 to Third Amended and Restated Investors' Rights Agreement. 5.1* Opinion of Venture Law Group, A Professional Corporation. 10.1 Form of Indemnification Agreement between Chemdex and each of its officers and directors. 10.2 Form of Change of Control Agreement between Chemdex, each of its officers and certain employees. 10.3 Change of Control Agreement between Chemdex and Robert A. Swanson. 10.4 Change of Control Agreement between Chemdex and Charles R. Burke. 10.5 1998 Stock Plan, as amended, and form of option agreement. 10.6 1999 Employee Stock Purchase Plan and form of subscription agreement. 10.7 1999 Directors' Stock Plan. 10.8 Standard Office Lease dated June 11, 1998 between Chemdex and Fabian Partners II, a California General Partnership, as amended. 10.9 Master Lease Agreement dated January 20, 1999, as amended, between Chemdex and Comdisco, Inc. 10.10 Starter Kit Loan and Security Agreement dated February 18, 1998 between Chemdex and Imperial Bank. 10.11 Warrant Agreement to Purchase Shares of the Series B Preferred Stock of Chemdex dated January 20, 1999 between Chemdex and Comdisco, Inc. 10.12 Common Stock Purchase Warrant to Purchase Shares of Common Stock of Chemdex dated March 24, 1999 between Chemdex and Galen Partners III, L.P. 10.13 Common Stock Purchase Warrant to Purchase Shares of Common Stock of Chemdex dated March 24, 1999 between Chemdex and Galen Partners International III, L.P. 10.14 Common Stock Purchase Warrant to Purchase Shares of Common Stock of Chemdex dated March 24, 1999 between Chemdex and Galen Employee Fund III, L.P. 10.15+* Electronic Commerce Agreement dated January 5, 1998 between Chemdex and Genentech, Inc. 10.16+* Standstill Agreement dated April 23, 1999 between Chemdex and VWR Scientific Products Corporation. 10.17+* Strategic Relationship Agreement dated April 30, 1999 between Chemdex and VWR Scientific Products Corporation. 10.18+* Joint Marketing Agreement dated May 11, 1999 between Chemdex and Biotechnology Industry Organization. 16.1* Letter re change in certifying accountant 23.1 Independent Auditors' Consent. 23.2* Consent of Counsel (included in Exhibit 5.1). 24.1 Power of Attorney (see page II-5). 27.1 Financial Data Schedule.
- -------- * To be filed by amendment. + Confidential treatment requested as to portions of this Exhibit. II-3 (b) Financial Statement Schedules II - Valuation and Qualifying Accountants Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. Item 17. Undertakings The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto, State of California on May 14, 1999. CHEMDEX CORPORATION /s/ David P. Perry By: _________________________________ David P. Perry President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, David P. Perry, Pierre V. Samec and James G. Stewart, and each of them, as his or her attorney-in-fact, with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and any and all Registration Statements filed pursuant to Rule 462 under the Securities Act of 1933, as amended, in connection with or related to the offering contemplated by this Registration Statement and its amendments, if any, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to any and all amendments to said Registration Statement. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ David P. Perry President, Chief Executive May 14, 1999 ____________________________________ Officer and Director David P. Perry (Principal Executive Officer) /s/ James G. Stewart Chief Financial Officer and May 14, 1999 ____________________________________ Assistant Secretary James Stewart (Principal Financial and Accounting Officer) /s/ Charles R. Burke Director May 14, 1999 ____________________________________ Charles R. Burke /s/ Brook H. Byers Director May 14, 1999 ____________________________________ Brook H. Byers /s/ Jonathan D. Callaghan Director May 14, 1999 ____________________________________ Jonathan D. Callaghan /s/ Jerrold B. Harris Director May 14, 1999 ____________________________________ Jerrold B. Harris
II-5
Signature Title Date --------- ----- ---- /s/ S. Joshua Lewis Director May 14, 1999 ____________________________________ S. Joshua Lewis /s/ John A. Pritzker Director May 14, 1999 ____________________________________ John A. Pritzker /s/ Robert A. Swanson Director May 14, 1999 ____________________________________ Robert A. Swanson /s/ L. John Wilkerson Director May 14, 1999 ____________________________________ L. John Wilkerson
II-6 CHEMDEX CORPORATION SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTANTS December 31, 1997 and December 31, 1998
Amounts Charged to Balance Revenue, Write-offs Balance Beginning Costs or and at End Description of Year Expenses Recoveries of Year ----------- --------- ---------- ---------- ------- 1997 Allowance for Doubtful Accounts....... $-- $ -- $-- $ -- 1998 Allowance for Doubtful Accounts....... $-- $2,000 $-- $2,000
S-1 EXHIBIT INDEX
Number Description ------ ----------- 1.1* Form of Underwriting Agreement. 3.1* Amended and Restated Certificate of Incorporation of Chemdex. 3.2 Amended and Restated Certificate of Incorporation of Chemdex (proposed). 3.3 Amended and Restated Bylaws of Chemdex. 3.4* Amended and Restated Bylaws of Chemdex (proposed). 4.1* Specimen Stock Certificate. 4.2 Third Amended and Restated Investors' Rights Agreement dated March 24, 1999. 4.3 Amendment dated May 12, 1999 to Third Amended and Restated Investors' Rights Agreement. 5.1* Opinion of Venture Law Group, A Professional Corporation. 10.1 Form of Indemnification Agreement between Chemdex and each of its officers and directors. 10.2 Form of Change of Control Agreement between Chemdex, each of its officers and certain employees. 10.3 Change of Control Agreement between Chemdex and Robert A. Swanson. 10.4 Change of Control Agreement between Chemdex and Charles R. Burke. 10.5 1998 Stock Plan, as amended, and form of option agreement. 10.6 1999 Employee Stock Purchase Plan and form of subscription agreement. 10.7 1999 Directors' Stock Plan. 10.8 Standard Office Lease dated June 11, 1998 between Chemdex and Fabian Partners II, a California General Partnership, as amended. 10.9 Master Lease Agreement dated January 20, 1999, as amended, between Chemdex and Comdisco, Inc. 10.10 Starter Kit Loan and Security Agreement dated February 18, 1998 between Chemdex and Imperial Bank. 10.11 Warrant Agreement to Purchase Shares of the Series B Preferred Stock of Chemdex dated January 20, 1999 between Chemdex and Comdisco, Inc. 10.12 Common Stock Purchase Warrant to Purchase Shares of Common Stock of Chemdex dated March 24, 1999 between Chemdex and Galen Partners III, L.P. 10.13 Common Stock Purchase Warrant to Purchase Shares of Common Stock of Chemdex dated March 24, 1999 between Chemdex and Galen Partners International III, L.P. 10.14 Common Stock Purchase Warrant to Purchase Shares of Common Stock of Chemdex dated March 24, 1999 between Chemdex and Galen Employee Fund III, L.P. 10.15+* Electronic Commerce Agreement dated January 5, 1998 between Chemdex and Genentech, Inc. 10.16+* Standstill Agreement dated April 23, 1999 between Chemdex and VWR Scientific Products Corporation. 10.17+* Strategic Relationship Agreement dated April 30, 1999 between Chemdex and VWR Scientific Products Corporation.
Number Description ------ ----------- 10.18+* Joint Marketing Agreement dated May 11, 1999 between Chemdex and Biotechnology Industry Organization. 16.1* Letter re change in certifying accountant 23.1 Independent Auditors' Consent. 23.2 Consent of Counsel (included in Exhibit 5.1). 24.1* Power of Attorney (see page II-5). 27.1 Financial Data Schedule.
- -------- * To be filed by amendment. + Confidential treatment requested as to portions of this Exhibit. EX-3.2 2 CERTIFICATE OF INCORPORATION Exhibit 3.2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CHEMDEX CORPORATION The undersigned, David P. Perry and Jeffrey Y. Suto, hereby certify that: 1. They are the duly elected and acting President and Secretary, respectively, of Chemdex Corporation, a Delaware corporation. 2. The Certificate of Incorporation of this corporation was originally filed with the Secretary of State of Delaware on September 4, 1997. 3. The Certificate of Incorporation of this corporation shall be amended and restated to read in full as follows: ARTICLE I "The name of this corporation is Chemdex Corporation (the "Corporation"). ----------- ARTICLE II The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV (A) The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total ------------ --------------- number of shares which the Corporation is authorized to issue is three hundred fifty-five million (355,000,000) shares, each with a par value of $0.0001 per share. Three hundred fifty million (350,000,000) shares shall be Common Stock and five million (5,000,000) shares shall be Preferred Stock. (B) The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, within the limitations and restrictions stated in this Certificate of Incorporation, to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. ARTICLE V The Corporation is to have perpetual existence. ARTICLE VI The Board of Directors of the Corporation is expressly authorized to make, adopt, alter, amend or repeal the Bylaws of the Corporation. ARTICLE VII The number of directors which shall constitute the whole Board of Directors of the Corporation shall be as specified in the Bylaws of the Corporation. ARTICLE VIII The election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. ARTICLE IX Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statute) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE X If at any time this Corporation shall have a class of stock registered pursuant to the provisions of the Securities Exchange Act of 1934, for so long as such class is so registered, any action by the stockholders of such class must be taken at an annual or special meeting of stockholders and may not be taken by written consent. This provision shall supersede any provision to the contrary in the Bylaws of the Corporation. ARTICLE XI Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation. ARTICLE XII The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE XIII To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any -2- amendment nor repeal of this Article XIII, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article XIII, shall eliminate or reduce the effect of this Article XIII in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article XIII, would accrue or arise, prior to such amendment, repeal or adoption of any inconsistent provision. ARTICLE XIV In the election of directors, each holder of shares of any class or series of capital stock of the Corporation shall be entitled to one vote for each share held. No stockholder will be permitted to cumulate votes at any election of directors. -3- The foregoing Amended and Restated Certificate of Incorporation has been duly adopted by this Corporation's Board of Directors and stockholders in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. Executed at Palo Alto on, California, on _______________, 1999. __________________________________ David P. Perry, President __________________________________ Jeffrey Y. Suto, Secretary -4- EX-3.3 3 AMENDED AND RESTATED BYLAWS OF CHEMDEX EXHIBIT 3.3 BYLAWS OF CHEMDEX CORPORATION ARTICLE I CORPORATE OFFICES ----------------- 1.1 REGISTERED OFFICE. ----------------- The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is The Corporation Service Company. 1.2 OTHER OFFICES. ------------- The Board of Directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ 2.1 PLACE OF MEETINGS. ----------------- Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation. 2.2 ANNUAL MEETING. -------------- The annual meeting of stockholders shall be held on such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors each year. At the meeting, directors shall be elected and any other proper business may be transacted. 2.3 SPECIAL MEETING. --------------- A special meeting of the stockholders may be called at any time by the Board of Directors, the chairman of the board, the president or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent of the votes at that meeting. If a special meeting is called by any person or persons other than the Board of Directors, the president or the chairman of the board, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS. -------------------------------- All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. -------------------------------------------- Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.6 QUORUM. ------ The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairman of the meeting or (b) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 2.7 ADJOURNED MEETING; NOTICE. ------------------------- When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the -2- corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 CONDUCT OF BUSINESS. ------------------- The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business. 2.9 VOTING. ------ The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.10 WAIVER OF NOTICE. ---------------- Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws. 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. ------------------------------------------------------- Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in -3- writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. ----------------------------------------------------------- In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the Board of Directors does not so fix a record date: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) The record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is delivered to the corporation. (c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 2.13 PROXIES. ------- Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's -4- attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. ARTICLE III DIRECTORS --------- 3.1 POWERS. ------ Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. 3.2 NUMBER OF DIRECTORS. ------------------- Upon the adoption of these bylaws, the number of directors constituting the entire Board of Directors shall be nine (9). Thereafter, this number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS. ------------------------------------------------------- Except as provided in Section 3.4 of these Bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES. ------------------------- Any director may resign at any time upon written notice to the attention of the Secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in the certificate of incorporation or these Bylaws: (a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a -5- single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. ---------------------------------------- The Board of Directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS. ---------------- Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board. -6- 3.7 SPECIAL MEETINGS; NOTICE. ------------------------ Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM. ------ At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE. ---------------- Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws. -7- 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. ------------------------------------------------- Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. Written consents representing actions taken by the board or committee may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original. 3.11 FEES AND COMPENSATION OF DIRECTORS. ---------------------------------- Unless otherwise restricted by the certificate of incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 3.12 APPROVAL OF LOANS TO OFFICERS. ----------------------------- The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.13 REMOVAL OF DIRECTORS. -------------------- Unless otherwise restricted by statute, by the certificate of incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that if the stockholders of the corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 3.14 CHAIRMAN OF THE BOARD OF DIRECTORS. ---------------------------------- The corporation may also have, at the discretion of the Board of Directors, a chairman of the Board of Directors who shall not be considered an officer of the corporation. -8- ARTICLE IV COMMITTEES ---------- 4.1 COMMITTEES OF DIRECTORS. ----------------------- The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate 1 or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by this chapter to be submitted to stockholders for approval or (ii) adopting, amending or repealing any Bylaw of the corporation. 4.2 COMMITTEE MINUTES. ----------------- Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES. --------------------------------- Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting) of these Bylaws, with such changes in the context of such provisions as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. -9- ARTICLE V OFFICERS -------- 5.1 OFFICERS. -------- The officers of the corporation shall be a chief executive officer, a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person. 5.2 APPOINTMENT OF OFFICERS. ----------------------- The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS. -------------------- The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS. ----------------------------------- Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the attention of the Secretary of the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES. -------------------- Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. -10- 5.6 CHIEF EXECUTIVE OFFICER. ----------------------- Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, the chief executive officer of the corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these bylaws. 5.7 PRESIDENT. --------- Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.8 VICE PRESIDENTS. --------------- In the absence or disability of the chief executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board. 5.9 SECRETARY. --------- The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. -11- The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. 5.10 CHIEF FINANCIAL OFFICER. ----------------------- The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the bylaws. 5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. ---------------------------------------------- The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority. 5.12 AUTHORITY AND DUTIES OF OFFICERS. -------------------------------- In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board of Directors or the stockholders. -12- ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS -------------------------------------------------------------------- 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. ----------------------------------------- The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (a) who is or was a director or officer of the corporation, (b) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS. ------------------------- The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the corporation, (b) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 PAYMENT OF EXPENSES IN ADVANCE. ------------------------------ Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4 INDEMNITY NOT EXCLUSIVE. ----------------------- The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, -13- agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation 6.5 INSURANCE. --------- The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware. 6.6 CONFLICTS. --------- No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (a) That it would be inconsistent with a provision of the certificate of incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. ARTICLE VII RECORDS AND REPORTS ------------------- 7.1 MAINTENANCE AND INSPECTION OF RECORDS. ------------------------------------- The corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, -14- the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS. ----------------------- Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS. -------------------------------- The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. ARTICLE VIII GENERAL MATTERS --------------- 8.1 CHECKS. ------ From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. ------------------------------------------------ The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. -------------------------------------- The shares of a corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of -15- any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the Board of Directors, or the chief executive officer or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES. ----------------------------------- If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 LOST CERTIFICATES. ----------------- Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or -16- destroyed certificate, or the owner's legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS. ------------------------- Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 DIVIDENDS. --------- The directors of the corporation, subject to any restrictions contained in (a) the General Corporation Law of Delaware or (b) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.8 FISCAL YEAR. ----------- The fiscal year of the corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors. 8.9 SEAL. ---- The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced. 8.10 TRANSFER OF STOCK. ----------------- Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. -17- 8.11 STOCK TRANSFER AGREEMENTS. ------------------------- The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 REGISTERED STOCKHOLDERS. ----------------------- The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS ---------- The Bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws. -18- EX-4.2 4 THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGMT. EXHIBIT 4.2 CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT This THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Agreement") is entered into as of March 24, 1999 by and among Chemdex --------- Corporation, a Delaware corporation with headquarters at 3950 Fabian Way, Palo Alto, CA 94303 (the "Company"), the holders of the Company's Common Stock listed ------- on Exhibit 1 hereto (the "Founders"), and the individuals and entities listed on --------- -------- Exhibit 2 hereto (the "Purchasers"). The Founders and the Purchasers are - --------- ---------- referred to herein as the "Stockholders." All outstanding shares of any class ------------ or series held by any Stockholder, whether presently owned or acquired in the future, are referred to herein as the "Shares." ------ RECITALS -------- A. The Company proposes to sell shares of Series C Preferred Stock to certain of the Purchasers pursuant to that certain Series C Preferred Stock Purchase Agreement (the "Purchase Agreement") by and among the Company and ------------------ certain of the Purchasers of even date herewith. B. By this Agreement, the Company and the Stockholders desire to provide for certain registration, voting and other rights as set forth herein. C. This Agreement amends and restates in its entirety that certain Second Amended and Restated Investors' Rights Agreement dated March 5, 1999 (the "Prior ----- Agreement") by and among the Company, the Founders and certain of the - --------- Purchasers. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and covenants contained herein, the parties agree as follows: 1. Registration Rights. ------------------- 1.1 Certain Definitions. As used in this Section 1, the following ------------------- terms shall have the following respective meanings: (a) "Commission" shall mean the Securities and Exchange ---------- Commission or any other federal agency at the time administering the Securities Act. (b) "Common Stock" shall mean the Common Stock, $.0001 par ------------ value, of the Company. (c) "Holder" shall mean any stockholder of the Company holding ------ Registrable Securities and any person holding Registrable Securities to whom the rights under this Section 1 have been transferred in accordance with Sections 1.11 and 5.3 hereof. -1- (d) "Initiating Holders" shall mean any Holder or Holders of ------------------ at least thirty percent (30%) of the then-outstanding Registrable Securities (adjusted after the original issuance thereof for stock splits, stock dividends, recapitalizations and the like). (e) "Registrable Securities" means (i) the Common Stock issued ---------------------- or issuable upon conversion of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock ("the Conversion Stock") or presently owned by any party hereto; (ii) Common Stock issued to VWR Scientific Products Corporation ("VWR"); (iii) Common Stock issued or issuable upon conversion of --- the Series B Preferred Stock issued or issuable upon exercise of the warrant issued to Comdisco, Inc.; (iv) Common Stock issued or issuable upon exercise of the warrant to purchase Common Stock issued to Galen Partners III, L.P., Galen Partners International III, L.P., and Galen Employee Fund III, L.P. (collectively, "Galen"); (v) Common Stock issued to Biotechnology Industry ----- Organization; and (vi) common stock issued in lieu of the stock referred to in (i), (ii), (iii), (iv) or (v) above in any reorganization or as a result of a stock split, stock dividend, recapitalization or the like. Registrable Securities shall cease to be Registrable Securities when (x) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement or (y) such securities shall have been publicly distributed pursuant to an exemption from the registration requirements of the Securities Act. (f) The terms "register," "registered" and "registration" refer -------- ---------- ------------ to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. (g) "Registration Expenses" shall mean all expenses, except as --------------------- otherwise stated below, incurred by the Company in complying with Sections 1.2, 1.3 and 1.4 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company) and the reasonable fees and disbursements of one counsel for all Holders in the event of each registration provided for in Sections 1.2, 1.3 and 1.4 hereof. (h) "Securities Act" shall mean the Securities Act of 1933, as -------------- amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (i) "Selling Expenses" shall mean all underwriting discounts, ---------------- selling commissions and stock transfer taxes applicable to the securities registered by the Holders and, except as set forth above, all reasonable fees and disbursements of counsel for the selling Holders. 1.2 Requested Registration. ---------------------- (a) Request for Registration. In case the Company shall receive ------------------------ from Initiating Holders a written request that the Company effect any registration with respect to at -2- least twenty percent (20%) of their Registrable Securities, or any lesser percentage if the reasonably anticipated aggregate receipts, net of underwriting discounts and commissions, would exceed $2,000,000, the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (ii) as soon as practicable, use its best efforts to effect such registration, qualification or compliance (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to take -------- ------- any action to effect any such registration, qualification or compliance pursuant to this Section 1.2: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (B) At any time prior to the earlier of six months after the effective date of the Company's initial public offering of its securities pursuant to a registration statement declared effective under the Securities Act; (C) Within ninety (90) days of the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (D) After the Company has effected two such registrations pursuant to this Section 1.2(a); or (E) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be detrimental to the Company or its Holders for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.2 shall be deferred for a period not to exceed ninety (90) days from the date of receipt of written request from the Initiating Holders, provided that the Company may not use this right more than once in any twelve month period. -3- Subject to the foregoing clauses (A) through (E), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders. (b) Underwriting. In the event that a registration pursuant to ------------ Section 1.2 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the notice given pursuant to Section 1.2(a)(i). In such event, the right of any Holder to participate in such registration shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 1.2, and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested and shall be limited to the extent otherwise provided herein. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 1.2, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise all participating Holders and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement; provided, that any securities held by a Founder shall first be excluded before any securities held by any selling Holder are excluded. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities, and/or other securities so withdrawn shall also be withdrawn from registration, and such securities shall not be transferred in a public distribution prior to ninety (90) days after the effective date of such registration, or such other shorter period of time as the underwriters may require. If the underwriter has not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account (or for the account of other purchasers) in such registration if the managing underwriter so agrees and if the number of Registrable Securities that would otherwise have been included in such registration and underwriting will not thereby be limited. 1.3 Company Registration. -------------------- (a) Notice of Registration. If at any time or from time to time ---------------------- the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee -4- benefit plans, (ii) a registration relating solely to a Commission Rule 145 transaction, or (iii) a registration effected pursuant to Section 1.2 hereof, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from the Company, by any Holder. (b) Underwriting. If the registration of which the Company gives ------------ notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.3(a)(i). In such event the right of any Holder to registration pursuant to Section 1.3 shall be conditioned upon such Holder's participation in such underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company, but subject to the reasonable approval of Holders holding more than a majority of the Registrable Securities to be included in such registration. Notwithstanding any other provision of this Section 1.3, if the managing underwriter determines that marketing factors require limitation of the number of shares to be underwritten, the managing underwriter may limit the Registrable Securities to be included in such registration. The Company shall so advise all Holders and other holders distributing their securities through such underwriting and the number of shares of securities that may be included in the registration and underwriting (other than in behalf of the Company) shall be allocated among all Holders and such other holders (provided that such other holders have contractual rights to participate in such registration which are not subordinate to the Holders) in proportion, as nearly as practicable, to the respective amounts of Registrable Securities or other securities requested to be included in such registration by such Holders and such other holders; provided, -------- however, in no event shall the amount of Registrable Securities of the Holders - ------- included in the offering be reduced below thirty percent (30%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities in which case the Holders may be excluded entirely if the underwriters make the determination described above or the Holders holding a majority of the Registrable Securities consent in writing to such a reduction. In no event will shares of any other selling shareholder be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than sixty-six and two-thirds percent (66-2/3%) of the Registrable Securities proposed to be sold in the offering. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder or holder to the nearest 100 shares. If any Holder or holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to -5- ninety (90) days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. 1.4 Registration on Form S-3. ------------------------ (a) If any Holder or Holders request that the Company file a registration statement on Form S-3 (or any successor form to Form S-3) for a public offering of shares of the Registrable Securities the reasonably anticipated aggregate price to the public of which, net of underwriting discounts and commissions, would exceed $5,000,000, and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering, the Company shall use its best efforts to cause such Registrable Securities to be registered for the offering on such form and to cause such Registrable Securities to be qualified in such jurisdictions as the Holder or Holders may reasonably request; provided, however, that the Company -------- ------- shall not be required to effect more than one (1) registration pursuant to this Section 1.4 in any twelve (12) month period. The substantive provisions of Section 1.2(b) shall be applicable to each registration initiated under this Section 1.4. (b) Notwithstanding the foregoing, the Company shall not be obligated to take any action pursuant to this Section 1.4: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) if the Company, within ten (10) days of the receipt of the request of the Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the Commission within sixty (60) days of receipt of such request (other than with respect to a registration statement relating to a Rule 145 transaction, an offering solely to employees or any other registration which is not appropriate for the registration of Registrable Securities); (iii) within one hundred eighty (180) days of the effective date of any registration referred to in Sections 1.2 and 1.3 above for the Company's initial public offering, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iv) if the Company shall furnish to such Holder a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be detrimental to the Company or the Holders for registration statements to be filed in the near future, then the Company's obligation to use its best efforts to file a registration statement shall be deferred for a period not to exceed ninety (90) days from the receipt of the request to file such registration by such Holder, provided that the Company may not use this right more than once in any twelve month period. -6- 1.5 Limitations on Subsequent Registration Rights. From and after --------------------------------------------- the date hereof, without the approval of the holders of a majority of the Registrable Securities, the Company shall not enter into any agreement granting any holder or prospective holder of any securities of the Company registration rights superior to or on par with those of the Holders. 1.6 Expenses of Registration. All Registration Expenses incurred in ------------------------ connection with all registrations pursuant to Sections 1.2, 1.3 and 1.4 shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the Holders of such securities pro rata on the basis of the number of shares so registered. 1.7 Registration Procedures. In the case of each registration, ----------------------- qualification or compliance effected by the Company pursuant to this Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least one hundred eighty (180) days or until the distribution described in the registration statement has been completed; (b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities. (c) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a -7- material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. (h) Use its best efforts to cause the Registrable Securities to be listed on a national securities exchange registered under Section 6 of the Exchange Act or automated trading system operated by the National Association of Securities Dealers, Inc. as of the date of this Agreement. 1.8 Indemnification. --------------- (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such person within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act or any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable to any such person in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission (or alleged untrue statement or omission), made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed -8- by such Holder, controlling person or underwriter and stated to be specifically for use therein or the preparation thereby. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each person who controls the Company within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein or the preparation thereby. Notwithstanding the foregoing, the liability of each Holder under this subsection (b) shall be limited to an amount equal to the net proceeds received for the shares sold by such Holder. (c) Each party entitled to indemnification under this Section 1.8 (the "Indemnified Party") shall give notice to the party required to provide ----------------- indemnification (the "Indemnifying Party") promptly after such Indemnified Party ------------------ has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1 unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party a release from all liability in respect to such claim or litigation. (d) If the indemnification provided for in this Section 1.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable -9- by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations; provided, that in no event shall any contribution by a Holder -------- under this Subsection 1.8(d) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 1.9 Information by Holder. The Holders of securities included in any --------------------- registration shall furnish to the Company such information regarding such Holders, the Registrable Securities held by them and the distribution proposed by such Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 1. 1.10 Rule 144 Reporting. With a view to making available the ------------------ benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Registrable Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date that the Company becomes subject to the reporting requirements of the Securities Act or the Exchange Act. (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); (c) So long as a Purchaser owns any Registrable Securities to furnish to such Purchaser forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as such -10- Purchaser may reasonably request in availing itself of any rule or regulation of the Commission allowing such Purchaser to sell any such securities without registration. 1.11 Transfer of Registration Rights. The rights to cause the ------------------------------- Company to register securities granted to a Purchaser under Sections 1.2, 1.3 and 1.4 may be assigned to a transferee or assignee in connection with any transfer or assignment of Registrable Securities by a Purchaser provided that the transferor provides the Company with written notice of the proposed transfer and: (i) the transferee acquires all of the transferor's Registrable Securities not sold to the public; (ii) the transferee acquires at least 100,000 shares of the transferor's Registrable Securities not sold to the public; or (iii) the transferee is a partner, member, stockholder or affiliate of the Holder. 1.12 Standoff Agreement. Each Holder agrees in connection with the ------------------ Company's initial public offering of the Company's securities that, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time as is agreed upon by holders of a majority of the outstanding capital stock of the Company not to exceed a period commencing upon the effective date of such registration and ending one hundred and eighty (180) days thereafter; provided, that the officers and directors of the Company who own stock of the Company and any stockholder holding more than five percent (5%) of the outstanding voting securities of the Company also agree to such restrictions. 1.13 Termination. Any registration rights granted pursuant to this ----------- Section 1 shall terminate with respect to any Holder at such date, upon the date that is five (5) years after the closing date of the Company's initial public offering. In addition, the registration rights granted hereunder to any Holder shall be suspended during any period after the Company's initial registered public offering, when all remaining Registrable Securities held or entitled to be held by such Holder may be sold under Rule 144(k) during any three (3) month period. 2. Right of First Refusal Upon Issuance of Securities by the Company. ----------------------------------------------------------------- 2.1 Right of First Refusal. The Company hereby grants to each ---------------------- Purchaser or any transferees pursuant to Section 2.1(f) hereof (collectively, hereinafter, the "Rights Holders") the right of first refusal to purchase, pro -------------- rata, all or any part of New Securities (as defined in Section 2.1(b)) which the Company may, from time to time, propose to sell and issue. For purposes of this right of first refusal, a pro rata share for a Rights Holder is the ratio that the sum of the total number of shares of Common Stock and of Conversion Stock (and other shares issuable upon conversion and exercise of all convertible or exercisable securities) then held by such Rights Holder bears to the sum of the total number of shares of Conversion Stock and Common Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities). (a) "Equity Securities" shall mean any securities having voting rights in the election of the Board of Directors not contingent upon default, or any securities evidencing -11- an ownership interest in the Company, or any securities convertible into or exercisable for any shares of the foregoing, or any securities issuable pursuant to any agreement or commitment to issue any of the foregoing. (b) Except as set forth below, "New Securities" shall mean any Equity Securities, whether now authorized or not, and rights, options or warrants to purchase said Equity Securities. Notwithstanding the foregoing, "New Securities" does not include (i) up to an aggregate of 14,890,000 shares of Common Stock issued to employees, officers, consultants or directors of the Company pursuant to sales or options granted at any time after the date of incorporation of the Company or pursuant to a plan or agreement approved by at least two-thirds of the Company's Board of Directors or a committee of the Board of Directors that has been authorized by at least two-thirds of the Board of Directors; (ii) securities offered to the public generally pursuant to a registration statement in a Qualified IPO (as defined below); (iii) securities issued pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all of the assets or other reorganization whereby the Company or the Purchasers own not less than fifty-one (51%) percent of the voting power of the surviving or successor corporation; (iv) the Conversion Stock; (v) stock issued pursuant to any rights or agreements including, without limitation, convertible securities, options and warrants, provided that the right of first refusal established by this Section 2 applies with respect to the initial sale or grant by the Company of such rights or agreements; (vi) stock issued in connection with any stock split, stock dividend or recapitalization by the Company; (vii) shares of Common Stock issued to VWR pursuant to the Common Stock Purchase Agreement between VWR and the Company dated March 5, 1999; (viii) shares issued pursuant to the Purchase Agreement; (ix) that certain warrant to purchase 100,000 shares of Common Stock issued to Galen and the Common Stock issued or issuable upon exercise thereof; and (x) that certain warrant to purchase 210,000 shares of Series B Preferred Stock issued to Comdisco, Inc., the shares of Series B Preferred Stock issued or issuable upon exercise thereof and the Common Stock issuable upon conversion of such Series B Preferred Stock. (c) In the event the Company proposes to undertake an issuance of New Securities, it shall give each Rights Holder written notice of its intention, describing the type of New Securities, and the price and terms upon which the Company proposes to issue the same. Each Rights Holder shall have fifteen (15) days from the date of receipt of any such notice to agree to purchase up to its respective pro rata share of such New Securities for the price and upon the applicable terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. If not all of the Rights Holders elect to purchase their pro rata share of the New Securities, then the Company shall promptly notify in writing the Rights Holders who do so elect and shall offer such Rights Holders the right to acquire such unsubscribed shares on a pro rata basis as measured among such Rights Holders who do so elect. If the Rights Holders indicate a desire to purchase a number of shares that exceeds the number of shares of such New Securities to be offered by the Company, the number of shares purchasable by each Rights Holder shall be reduced on a pro rata basis based on all shares of Common Stock of the Company then owned by all such Rights Holders (determined on a fully-diluted basis), until no such excess exists. Each Rights Holder shall have five (5) days after -12- after receipt of such notice to notify the Company of its election to purchase all or a portion thereof of the unsubscribed shares. (d) In the event the Rights Holders fail to exercise the right of first refusal in full within the periods identified in 2(c) above, the Company shall have one hundred twenty (120) days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within sixty (60) days from the date of said agreement) to sell the New Securities not elected to be purchased by Rights Holders at the price and upon the terms no more favorable to the purchasers of such securities than specified in the Company's notice. In the event the Company has not sold the New Securities within said one hundred twenty (120) day period (or sold and issued New Securities in accordance with the foregoing within sixty (60) days from the date of said agreement), the Company shall not thereafter issue or sell any New Securities, without first offering such securities in the manner provided above. (e) The right of first refusal granted under this Agreement shall expire upon the earlier of (i) the effective date of the Company's initial registered public offering pursuant to a firm commitment under written public offering at an initial price per share to the public of at least $3.75 (as adjusted for subsequent splits, dividends and recapitalizations) with aggregate gross proceeds of not less than $20,000,000 (a "Qualified IPO") and (ii) a ------------- consolidation or merger of this Company with or into any other corporation or corporations (other than a wholly-owned subsidiary), or the sale, transfer or other disposition of all or substantially all of the assets of this Company or the consummation of any transaction or series of related transactions which results in the Company's stockholders immediately prior to such transaction not holding at least 50% of the voting power of the surviving or continuing entity. (f) The right of first refusal hereunder may be assigned to a transferee or assignee in connection with any transfer or assignment of Registrable Securities provided that the transferor provides the Company with written notice of the proposed transfer and (i) the transferee acquires all of the transferor's Registrable Securities not sold to the public; (ii) the transferee acquires at least 100,000 shares of the transferor's Registrable Securities not sold to the public; or (iii) the transferee is a partner, member, stockholder, employee or affiliate of the Holder, provided that all such assignees and transferees shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 2.1. (g) Each Purchaser that is a party to the Prior Agreement hereby waives its rights set forth in Section 2.1 of the Prior Agreement to the extent that such Purchaser is not purchasing its full pro rata portion of shares of the Company's Series C Preferred Stock being issued in connection with the Series C Stock Purchase Agreement of even date herewith. 3. Rights Upon Transfer by Founders. Each Founder hereby agrees as -------------------------------- follows: 3.1 Notice of Proposed Transfer. Before any Founder may effect any --------------------------- Transfer (as defined in this Section 3.1) of any of the Company's capital stock (the "Offered Stock"), such Founder (the "Selling Founder") must give at the ------------- --------------- same time to the Company and to the Purchasers a written notice signed by the Selling Founder (the "Selling Founder's Notice") ------------------------ -13- -13- stating (a) the Selling Founder's bona fide intention to transfer such Offered Stock; (b) the number of shares of the Offered Stock; (c) the name, address and relationship, if any, to the Selling Founder of each proposed purchaser or other transferee; and (d) the bona fide cash price or, in reasonable detail, other consideration, per share for which the Selling Founder proposes to transfer such Offered Stock (the "Offered Price"). Upon the request of the Company or any ------------- Purchaser, the Selling Founder will promptly furnish such information to the Company and to such Purchaser, as may be reasonably requested to establish that the offer and proposed transferee are bona fide. "Transfer" shall mean any sale, -------- assignment, encumbrance, hypothecation, pledge, conveyance in trust, gift, transfer by bequest, devise or descent, or other transfer or disposition of any kind, including but not limited to transfers to receivers, levying creditors, trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors, whether voluntary or by operation of law, directly or indirectly, except: (i) any bona fide pledge if the pledgee executes a counterpart copy of this Agreement and becomes bound thereby as a Founder; (ii) any transfers by a Founder to such Founder's spouse, lineal descendant or antecedent, father, mother, brother or sister of the Founder, the adopted child or adopted grandchild of the Founder, or the spouse of any child, adopted child, grandchild or adopted grandchild of the Founder, or to a trust or trusts for the exclusive benefit of such Founder or such Founder's family members as described in this Section, or transfers by a Founder by devise or descent, or to an "affiliate" of the Founder (as that term is defined by the rules and regulations promulgated under the Securities Act) in all cases if the transferee or other recipient executes a counterpart copy of this Agreement and becomes bound thereby as a Founder; or (iii) any transfer by a Founder made: (A) pursuant to a merger or consolidation of the Company with or into another corporation or corporations; (B) pursuant to the winding up and dissolution of the Company; (C) at, and pursuant to, a Qualified IPO; (D) to a Purchaser pursuant to this Agreement or (E) to the Company. 3.2 Right of First Refusal. ---------------------- (a) Company's Right. Pursuant to this Agreement, the Company --------------- and its assignees shall have the right of first refusal to purchase all or any part of the Selling Founder's Offered Stock, if the Company gives written notice of the exercise of such right to a Selling Founder within thirty (30) days (the "Company's Refusal Period") after the date of the Selling Founder's Notice to - ------------------------- the Company. (b) Purchaser's Right. If the Company does not intend to ----------------- exercise its right of first refusal referred to in subsection 3.2(a) above with respect to any or all of the Offered Stock or if the Company is not lawfully able to repurchase the Offered Stock, the Company will give written notice thereof (the "Company's Expiration Notice") to the Selling Founder and ----------------- Purchasers at least ten (10) business days before the expiration of the Company's Refusal Period. The Company's Expiration Notice will specify the amount of the Offered Stock which the Company does not intend to repurchase. In such event, each Purchaser will have the Right of First Refusal to purchase all or any part of the Offered Stock not purchased by the Company. If a Purchaser desires to purchase Offered Stock, such Purchaser must, within the ten (10) business day period (the "Purchaser Refusal Period") commencing on the date of ------------------------ notice of the Company's Expiration Notice, give written notice to the Selling Founder and to the Company of such -14- Purchaser's election to purchase all or any part of the Offered Stock, indicating the number of shares that such Purchaser desires to purchase. If Purchasers indicate a desire to purchase a number of shares that exceeds the number of shares of Offered Stock, the number of shares purchasable by each Purchaser exercising its Right of First Refusal shall be reduced on a pro rata basis based on all shares of Common Stock of the Company then owned by all such Purchasers (determined on a fully-diluted basis) until no such excess exists. (c) Purchase Price. The purchase price for the Offered Stock to -------------- be purchased by the Company or by a Purchaser exercising its Right of First Refusal under this Agreement will be the Offered Price, but will be payable as set forth in Section 3.2(d) hereof. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration will be determined by the Board of Directors of the Company in good faith, which determination will be binding upon the Company, such Purchaser and the Selling Founder absent fraud or error. (d) Payment. Payment of the purchase price for the Offered ------- Stock purchased by the Company or by a Purchaser exercising its Right of First Refusal will be made within seven (7) days after the date of the Purchaser's Expiration Notice. Payment of the purchase price will be made, at the option of the Company or, as the case may be, by the exercising Purchaser (i) in cash (by cashier's check or wire transfer), (ii) by cancellation of all or a portion of any outstanding indebtedness of the Selling Founder to the Company or the Purchasers, as the case may be or (iii) by any combination of the foregoing. (e) Rights as a Purchaser. If the Company and/or the --------------------- Purchaser(s) exercise their Rights of First Refusal to purchase all of the Offered Stock, then, upon the date the notice of such exercise is given by the Company and/or the Purchaser(s), the Selling Founder will have no further rights as a holder of such Offered Stock with respect to which a Right of First Refusal has been exercised, except the right to receive payment for such Offered Stock from the Company and/or the Purchaser(s), as the case may be, in accordance with the terms of this Agreement, and the Selling Founder will forthwith cause all certificate(s) evidencing such Offered Stock to be surrendered to the Company for cancellation, and, as to purchase by the Purchaser(s), for transfer to the Selling Founder(s). (f) Selling Founder's Right To Transfer. If the Company and/or ----------------------------------- the Purchasers have not elected to purchase all of the Offered Stock, then, subject to the Right of Co-Sale described in Section 3.3 below, the Selling Founder may transfer the Offered Stock permitted to be sold by the Selling Founder to any person named as a purchaser or other transferee in the Selling Founder's Notice, at the Offered Price or at a higher price, provided that such transfer (i) is consummated within ninety (90) days after the date of the Selling Founder's Notice and (ii) is in accordance with all the terms of this Agreement. If the Offered Stock is not so transferred during such 90 day period, then the Selling Founder may not transfer any of such Offered Stock without complying again in full with the provisions of this Agreement. 3.3 Right of Co-Sale. ---------------- -15- (a) The Right. If the Company and the Purchasers have waived or --------- failed to timely exercise their Rights of First Refusal contained in Section 3.2 regarding all of the Offered Stock, before any Selling Founder may effect a Transfer of any Offered Stock, such Selling Founder shall provide written notice to each Purchaser (the "Right of Co-Sale Notice"), specifying the date of the ----------------------- Transfer of any remaining Offered Stock to such transferee which date shall not be sooner than ten (10) business days following the Right of Co-Sale Notice (the "Closing"), and the number of shares of Offered Stock that the Selling Founder ------- desires to Transfer. The other Purchasers shall have the right to include shares in such sale in accordance with Section 3.3(b) herein ("Right of Co- ----------- Sale"). (b) Consummation of Co-Sale. A Purchaser may exercise the Right ----------------------- of Co-Sale by delivering to the Selling Founder at or before the Closing, one or more certificates, properly endorsed for Transfer, representing a number of shares no more than equal to the product obtained by multiplying (i) the number of shares of Offered Stock that the Selling Founder desires to transfer by (ii) a fraction, the numerator of which is the number of shares of Common Stock of the Company (on an as-converted basis) then held by such Purchaser and the denominator of which is the combined number of shares of Common Stock (on an as- converted basis) then held by the Selling Founder and all Purchasers then exercising their Co-Sale rights under this Section 3.3. If the Purchaser does not hold a certificate representing the exact number of securities to be sold by such Purchaser pursuant to this Section 3.3, then the Company shall promptly issue a certificate representing the proper number of shares to be sold pursuant to this Right of Co-Sale. Following the Closing, the Company shall deliver a certificate for the remaining balance of the securities held by the Purchaser, if any, to such Purchaser. At the Closing, such certificates or other instruments will be transferred and delivered to the transferee as set forth in the Right of Co-Sale Notice in consummation of the transfer of the Offered Stock pursuant to the terms and conditions specified in the Right of Co-Sale Notice, and the Selling Founder will remit, or will cause to be remitted, to each Purchaser delivering certificates within five (5) business days after such Closing that portion of the proceeds of the Transfer to which each Purchaser is entitled by reason of each Purchaser's participation in such transfer pursuant to the Right of Co-Sale. (c) Prohibited Transfers. In the event a Founder should sell any -------------------- Offered Stock in contravention of the participation rights of a Purchaser under this Section 3.3 (the "Prohibited Transfer"), such Purchaser shall have the ------------------- option (the "Put Option") to sell to the Founder a number of shares equal to the ---------- number of shares that such Purchaser would have had the right to sell in connection with the Prohibited Transfer, had the Founder complied with Section 3, subject to the following terms and conditions: (i) The price per share at which such shares are to be sold to the Founder shall be equal to the price per share paid by the third-party purchaser or purchasers. (ii) Purchaser shall deliver to the Founder, within ninety (90) days after it has received notice from the Founder or otherwise become aware of the Prohibited Transfer, the certificate or certificates representing the shares to be sold, each certificate to be properly endorsed for transfer. -16- (iii) Founder shall, upon receipt of the certificates for the repurchased shares, pay the aggregate purchase price therefor, by certified check or bank draft made payable to the order of Purchaser and shall reimburse Purchaser for any additional expenses, including legal fees and expenses, incurred in effecting such purchase and resale. 3.4 Stock Legend. All certificates representing shares of Common ------------ Stock of the Company held by the Stockholders and transferees described in this Section 3 above shall bear the following legend: "THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL AND/OR CO-SALE SET FORTH IN A RIGHTS AGREEMENT AMONG THE COMPANY, THE HOLDER(S) HEREOF AND CERTAIN OTHER STOCKHOLDERS OF THE CORPORATION, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF THE CORPORATION." 3.5 Termination. The rights of co-sale and first refusal described ----------- in this Section 3 shall expire upon the earlier of (i) the effective date of a Qualified IPO and (ii) a consolidation or merger of this Company with or into any other corporation or corporations (other than a wholly-owned subsidiary), or the sale, transfer or other disposition of all or substantially all of the assets of this Company or the consummation of any transaction or series of related transactions which results in the Company's stockholders immediately prior to such transaction not holding at least 50% of the voting power of the surviving or continuing entity. Prior to effecting any transfer of stock, the Stockholder shall ensure that the purchaser agrees in writing to be bound by the rights and obligation contained in this Section 3. 3.6 Transfer. The rights of co-sale and first refusal described in -------- this Section 3 may be assigned to a transferee or assignee reasonably acceptable to the Company in connection with any transfer or assignment of Registrable Securities provided that the transferor provides the Company with written notice of the proposed transfer and (i) the transferee acquires all of the transferor's Registrable Securities not sold to the public; (ii) the transferee acquires 100,000 of the transferor's Registrable Securities not sold to the public; or (iii) the transferee is a partner, member, stockholder, employee or affiliate of the Holder, provided that all such assignees and transferees shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 3. 4. Voting Agreement. ---------------- 4.1 Agreement to Vote. Each of the Stockholders agrees to vote all ----------------- shares of the Company's capital stock then owned by such Stockholder (its "Shares") at any regular or special meeting of stockholders of the Company, or, - ------- in lieu of any such meeting, to give their written consent, as provided in paragraph 4.2 below. 4.2 Election of Members of the Board of Directors. With respect to --------------------------------------------- any proposal concerning the election of directors of the Company, the parties hereto agree as follows: (a) Founder's Representative. Each of the Stockholders agrees ------------------------ that it shall vote its Shares to elect David P. Perry to the Board of Directors for so long as he is an -17- employee of the Company; provided, however, that no Stockholder shall be -------- ------- required to vote its Shares to enable the Founders to designate more than one designee on the Board of Directors pursuant to this Section 4.2(a) at any one time. (b) CMG's Representative. Each of the Stockholders agrees that it -------------------- shall vote its Shares to elect one nominee to the Board of Directors as designated by CMG@Ventures, Inc. ("CMG") for so long as CMG owns any Shares; --- provided, however, that no Stockholder shall be required to vote its Shares to - -------- ------- enable CMG to designate more than one designee on the Board of Directors pursuant to this subsection 4.2(b) at any one time. CMG designates Jonathan D. Callaghan as its designee as of the date of this Agreement. (c) Bay City Capital's Representative. Each of the Stockholders --------------------------------- agrees that it shall vote its Shares to elect one nominee to the Board of Directors as designated by Bay City Capital Fund I, L.P. ("Bay City") for so -------- long as Bay City owns any Shares; provided, however, that no Stockholder shall -------- ------- be required to vote its Shares to enable Bay City to designate more than one designee on the Board of Directors pursuant to this subsection 4.2(c) at any one time. Bay City designates John Pritzker as its designee as of the date of this Agreement. (d) KPCB Representative. Each of the Stockholders agrees that it -------------------- shall vote its Shares to elect one nominee to the Board of Directors as designated Kleiner, Perkins, Caufield and Byers or its affiliates ("KPCB") for ---- so long as KPCB owns any Shares; provided, however, that no Stockholder shall be -------- ------- required to vote its shares to enable KPCB to designate more than one designee on the Board of Directors pursuant to this subsection 4.2(d) at any one time. KPCB designates Brook Byers as its designee as of the date of this agreement (e) Warburg Pincus Representative. Each of the Stockholders ----------------------------- agrees that it shall vote its Shares to elect one nominee to the Board of Directors as designated by E.M. Warburg, Pincus & Co., LLC or its affiliates ("Warburg Pincus") for so long as Warburg Pincus owns any Shares; provided, -------- however, that no Stockholder shall be required to vote its shares to enable - ------- Warburg Pincus to designate more than one designee on the Board of Directors pursuant to this subsection 4.2(e) at any one time. Warburg Pincus designates Joshua Lewis as its designee as of the date of this agreement. (f) VWR Representative. Each of the Stockholders agrees that it ------------------ shall vote its Shares to elect one nominee to the Board of Directors as designated by VWR for so long as VWR owns any Shares; provided, however, that -------- ------- (i) such nominee is subject to the approval of the Company, which approval shall not be unreasonably withheld and (ii) no Stockholder shall be required to vote its shares to enable VWR to designate more than one designee on the Board of Directors pursuant to this subsection 4.2(f) at any one time. VWR designates Gerrold B. Harris as its designee as of the date of this Agreement. (g) Series C Representative. Each of the stockholders agrees that ----------------------- it shall vote its Shares to elect one nominee to the Board of Directors as designated by the holders of a majority in interest of the Series C Preferred Stock; provided, however, that no Stockholder shall be required to vote its -------- ------- shares to enable such holders to designate more than one designee on -18- the Board of Directors pursuant to this subsection 4.2(g) at any one time. Such holders designate John Wilkerson as its designee as of the date of this Agreement. (h) Remaining Director(s). Each of the Stockholders agrees that -------------------- it shall vote its Shares to elect one nominee to the Board of Directors as mutually designated by the Founders, CMG, Bay City, VWR and the holders of a majority of the then-outstanding shares of Series B Preferred Stock and Series B-1 Preferred Stock, voting together as a single class, who is not an employee of the Company; provided, however, that no Stockholder shall be -------- ------- required to vote its Shares to elect more than one designee on the Board of Directors pursuant to this Section 4.2(g) at any one time. Such designee shall be Bob Swanson as of the date of this Agreement. 4.3 Additional Directors. Each of the Stockholders agrees not to -------------------- vote its Shares to change the number of authorized members of the Company's Board of Directors from eight (8), unless each of the nominees elected to the Company's Board of Directors pursuant to Section 4.2 above has voted for such a change. 4.4 Successors in Interest of the Stockholders. The provisions of ------------------------------------------ this Agreement shall be binding upon the successors in interest of the Stockholders to any of the Shares. The Company shall not permit the transfer of any Shares on its books or issue a new certificate representing any Shares unless and until the person to whom such security is to be transferred shall have executed a written agreement, satisfactory in form and substance to the nontransferring Stockholders, pursuant to which such person becomes a party to this Agreement and agrees to be bound by all the provisions hereof as if such person were a Stockholder hereunder. 5. Affirmative Covenants of the Company. The Company hereby covenants ------------------------------------ and agrees as follows: 5.1 Financial Information. Until the first to occur of (i) the date --------------------- on which the Company is required to file a report with the SEC pursuant to Section 13(a) of the Exchange Act, by reason of the Company having registered any of its securities pursuant to Section 12(g) of the Exchange Act or (ii) quotations for the Common Stock of the Company are reported by the automated quotations system operated by the National Association of Securities Dealers, Inc. or by an equivalent quotations system or (iii) shares of the Common Stock of the Company are listed on a national securities exchange registered under Section 6 of the Exchange Act, the Company will furnish to each Purchaser (which, for purposes of this Section 5.1, shall mean such Purchaser together with its affiliates owning at least 300,000 shares of Preferred Stock) Common Shares issued upon conversion of the Preferred Stock or Common Stock (as adjusted for stock dividends, stock splits, recapitalizations and the like): (i) as soon as practicable after the end of each fiscal year, and in any event within 120 days thereafter, consolidated balance sheets of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of operations and consolidated statements of changes in financial position (or equivalent cash flow statements if required by the Financial Accounting Standards Board) of the Company and its subsidiaries, if -19- any, for such year, prepared in accordance with generally accepted accounting principles, in such form and detail that is acceptable to the Purchasers, and certified and audited by independent public accountants of recognized national standing selected by the Company's Board of Directors, and (ii) as soon as practicable after the end of each fiscal quarter (except the last quarter of the fiscal year), and in any event within 45 days thereafter, consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of such fiscal quarter; and consolidated statements of income (or equivalent cash flow statements if required by the Financial Accounting Standards Board), for such quarter and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles (except for required footnotes), all in reasonable detail and signed, subject to changes resulting from year-end audit adjustments, by the principal financial officer or chief executive officer of the Company, and (iii) as soon as practicable after the end of each month (except the last month of the fiscal quarter), and in any event within 30 days thereafter, consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of such month; and consolidated statements of income (or equivalent cash flow statements if required by the Financial Accounting Standards Board), for such month and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles (except for required footnotes), all in reasonable detail and signed, subject to changes resulting from year-end audit adjustments, by the principal financial officer or chief executive officer of the Company, and (iv) as soon as practicable, but in no event later than 30 days prior to the commencement of such fiscal year, an annual plan for each fiscal year which shall include monthly capital and operating expense budgets, cash flow statements, projected balance sheets and profit and loss projections for each such month and for the end of the year, in such form and detail that is acceptable to the Purchasers. 5.2 Conflicts of Interests. The Company shall use its best efforts to ---------------------- ensure that the Company's employees, during the term of their employment with the Company, do not engage in activities which would result in a conflict of interest with the Company. The Company's obligations hereunder include, but are not limited to, requiring that the Company's employees devote their primary productive time, ability and attention to the business of the Company (provided, -------- however, the Company's employees may engage in other professional activity if - ------- such activity does not materially interfere with their obligations to the Company), requiring that the Company's employees enter into agreements regarding proprietary information and confidentiality and inventions, and preventing the Company's employees from engaging or participating in any business that is in competition with the business of the Company. 5.3 Qualified Small Business. The Company shall use its best efforts ------------------------ to qualify as a "Qualified Small Business" as defined in Section 1202(d) of the Code, and covenants that so long as the Preferred Shares are held by the Purchasers (or a transferee or assignee of the Purchaser), it will use reasonable commercial efforts to cause the Preferred Shares to qualify as -20- Qualified Small Business Stock. The Company shall use its best efforts to comply with the reporting requirements of the State of California regarding "Qualified Small Business Stock" and similar federal regulations when and if promulgated. 5.4 Proprietary Agreements. The Company shall have each officer, ---------------------- director, employee and consultant of the Company execute the Company's standard form of non-disclosure and proprietary information agreements prior to disclosing any proprietary information to any such officer, director, employee and consultant. The Company will use its best efforts to prevent any employee from violating the confidentiality and proprietary information agreement entered into between the Company and each of its officers, directors, employees and consultants. 5.5 Repurchase of Outstanding Shares. The Company shall not, without -------------------------------- the approval of its Board of Directors repurchase any shares of its Common Stock so long as any of the Preferred Shares are outstanding, except that the Company shall be entitled to repurchase shares of its Common Stock in connection with the termination of an employee, director or consultant of the Company or the proposed transfer by an employee, director or consultant of shares of its Common Stock, or pursuant to the terms of this Agreement. 5.6 Use of Proceeds. The Company shall use the proceeds from the --------------- sale of the Preferred Shares for general corporate purposes. 5.7 Key-Man Life Insurance. The Company will use its best efforts to ---------------------- maintain term life insurance of at least $5.0 million on the life of the Company's Chief Executive Officer, with the Company as the named beneficiary. Such policy shall not be canceled by the Company for at least five (5) years after the effective date of this Agreement without the consent of the holders of a majority of the Series C Preferred Stock of the Company. 5.8 Inspection. The Company shall permit each Purchaser (which, for ---------- purposes of this Section 5.8, shall mean such Purchaser together with its affiliates owning at least 300,000 shares of Preferred Stock), at such Purchaser's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by such Purchaser; provided, however, that the Company shall not be obligated -------- ------- pursuant to this Section 5.8 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. 5.9 Directors and Officers Insurance. The Company will use its best -------------------------------- efforts to maintain directors and officers insurance, upon a determination by the Company's Board of Directors that such insurance is economically feasible. 5.10 Board of Directors Matters. The Company will hold meetings of -------------------------- the Board of Directors on a monthly basis until the Board of Directors determines otherwise. The Company shall pay the customary and reasonable expenses incurred by members of the Board of Directors in attending meetings of the Board. The Board of Directors shall approve each of the following: significant distribution, licensing or other arrangements or contracts (including but not -21- limited to any business relationship, other than the purchase of goods or services, with any Internet or World Wide Web technology or service provider), new indebtedness other than bank borrowing in the ordinary course of business, matters relating to executive compensation, the annual operating plan and capital budget, capital expenditures in excess of amounts indicated in the annual plan or capital budget and searches for new senior executives. 5.11 Insurance. The Company will have in full force, as reasonably --------- necessary, and effect fire and casualty insurance policies, with extended coverage, and insurance against other hazards, risks and liabilities to persons and property to the extent and in the manner customary for companies in similar businesses similarly situated. 5.12 Stock Vesting. Unless otherwise approved by the Board of ------------- Directors, all stock options and other stock equivalents issued after the date of this Agreement to employees, directors, consultants and other service providers shall be subject to vesting as follows: (a) twenty-five percent (25%) of such stock shall vest at the end of the first year following the earlier of the date of issuance or such person's services commencement date with the company, and (b) seventy-five percent (75%) of such stock shall vest monthly over the remaining three (3) years. With respect to any shares of stock purchased by any such person, the Company's repurchase option shall provide that upon such person's termination of employment or service with the Company, with or without cause, the Company or its assignee (to the extent permissible under applicable securities laws and other laws) shall have the option to purchase at cost any unvested shares of stock held by such person. With respect to shares of Common Stock currently held by David Perry and Jeff Leane, such shares shall be subject to vesting as follows: (a) fifty percent (50%) shall vest on May 1, 1998 and (b) fifty percent (50%) shall vest monthly thereafter over four years. 5.13 Directors' Liability and Indemnification. The Company's ---------------------------------------- Certificate of Incorporation and Bylaws shall provide (a) for elimination of the liability of director to the maximum extent permitted by law and (b) for indemnification of directors for acts on behalf of the Company to the maximum extent permitted by law. In addition, the Company shall indemnify such directors to the maximum extent permissible under Delaware law. 5.14 Auditors. The Company will retain independent public accountants -------- of recognized national standing (i.e., a firm acknowledged to be among the Big Five or their successors) who shall certify the Company's financial statements at the end of each fiscal year. 5.15 Extraordinary Remuneration. The Board of Directors may not -------------------------- approve any plan or action to grant extraordinary remuneration to management in connection with the sale of the Company or any subsidiary of the Company, or the termination of employment or otherwise, unless such plan or action has been approved unanimously by the non-employee members of the Board of Directors. 5.16 Termination of Covenants. The covenants set forth in 5.6, 5.7, ------------------------ 5.8, 5.10, 5.12 and 5.15 shall terminate and be of no further force or effect (i) immediately prior to the consummation of the Company's initial public offering of its securities. All of the covenants set forth in this Article 5 shall terminate and be of no further force or effect when the Company shall -22- sell, convey, or otherwise dispose of all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, provided that this shall not apply to a merger effected exclusively for the purpose of changing the domicile of the Company. 6. Miscellaneous. ------------- 6.1 Governing Law. This Agreement shall be governed in all respects ------------- by the laws of the State of California as applied to transactions taking place between California residents and wholly within the State of California. 6.2 Survival. The representations, warranties, covenants and -------- agreements made herein shall survive any investigation made by any Purchaser and the closing of the transactions contemplated hereby. 6.3 Successors and Assigns. Except as otherwise provided herein, the ---------------------- provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 6.4 Entire Agreement; Amendment. This Agreement constitutes the full --------------------------- and entire understanding and agreement between the parties with regard to the subjects hereof and supersedes all prior oral and written agreements and understandings, including but not limited to that certain Stock Transfer Agreement dated as of September 5, 1997 by and among the Company and each of the Founders. With the written consent of the record or beneficial holders of at least sixty-six and two-thirds percent (66-2/3%) of the Registrable Securities held by the Purchasers, and the written consent of Founders holding at least two-thirds (2/3) of the total number of shares of Common Stock held by Founders subject to this Agreement, the obligations of the Company and the rights of the Holders of the Registrable Securities under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely), and with the same consent the Company, when authorized by resolution of its Board of Directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement; provided, however, that no such modification, amendment or -------- ------- waiver shall reduce the aforesaid percentage of Conversion Stock or Common Stock held by Founders without the consent of all of the Purchasers or the Founders, respectively. Upon the effectuation of each such waiver, consent, agreement or amendment or modification, the Company shall promptly give written notice thereof to the record holders of the Registrable Securities who have not previously consented thereto in writing. This Agreement or any provision hereof may be changed, waived, discharged or terminated only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, except to the extent provided in this Section 6.4. -23- 6.5 Notices, etc. All notices and other communications required or ------------ permitted hereunder shall be in writing and shall be delivered personally, via facsimile, mailed by first class mail, postage prepaid, or delivered by courier or overnight delivery, addressed (a) if to a Purchaser to the address or facsimile number indicated below such Purchaser's signature to this Agreement, or at such other address or facsimile number as such Purchaser shall have furnished to the Company in writing or (b) if to the Company, at its address set forth at the beginning of this Agreement, or at such other address as the Company shall have furnished to each Purchaser in writing. Notices that are mailed shall be deemed received five (5) days after deposit in the United States mail. 6.6 Delays or Omissions. Except as expressly provided herein, no ------------------- delay or omission to exercise any right, power or remedy accruing to any holder of any Shares, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 6.7 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 6.8 Severability. If any provision of this Agreement, or the ------------ application thereof, shall for any reason and to any extent be invalid or unenforceable the remainder of this Agreement and application of such provision to persons or circumstances shall be interpreted so as best to reasonably effect the intent of the parties hereto, the parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision which will achieve to the extent possible, the economic, business and other purposes of the void or unenforceable provision. 6.9 Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. -24- The foregoing agreement is hereby executed as of the date first above written. CHEMDEX CORPORATION By:_________________________ Title:______________________ Address: 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT THE SWANSON FAMILY FUND, LTD., L.P. By: K&E Management, Ltd., General Partners By: _______________________________________ Robert A. Swanson, Chairman and CEO Address: 400 South El Camino Real, Suite 1288 San Mateo, CA 94402 Facsimile: (650) 373-1910 VWR SCIENTIFIC PRODUCTS CORPORATION By:________________________________________ Name:______________________________________ Title:_____________________________________ Address: 1310 Goshen Parkway West Chester, PA 19380 Facsimile: (610) 429-1760 ___________________________________________ Josh Olshansky Address: 521 Del Medio Avenue, #122 Mountain View, CA 94040 Facsimile:_________________________________ SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTOR'X RIGHT _____________________________________ Kenneth Olshansky Address: 521 Del Medio Avenue, #122 Mountain View, CA 94040 Facsimile:___________________________ IMPERIAL BANK By:__________________________________ Name:________________________________ (print) Title:_______________________________ Address: 2460 Sand Hill Road Menlo Park, CA 94025 Facsimile: (650) 233-3020 STANFORD UNIVERSITY By:__________________________________ Name:________________________________ (print) Title:_______________________________ Address: 2770 Sand Hill Road Menlo Park, CA 94025 Facsimile: SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTOR'X RIGHT CMG@VENTURES II, LLC By:__________________________________ Jonathan D. Callaghan Address: 3000 Alpine Road Menlo Park, CA 94028 Facsimile: (650) 233-0506 KASCHKE INVESTMENTS, L.L.C. By:__________________________________ Name:________________________________ Title:_______________________________ _____________________________________ Marc Kaschke Address: 11215 Seward Plaza, Suite 2616 Omaha, NE 68154 Facsimile: THE BAY CITY CAPITAL FUND I, L.P., A DELAWARE LIMITED PARTNERSHIP By: Bay City Capital Management LLC Its: General Partner By:__________________________________ Name:________________________________ Title:_______________________________ Address: 750 Battery Street, Suite 600 San Francisco, CA 94111 Facsimile: (415) 837-0996 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTOR'X RIGHT BOVE FAMILY LIVING TRUST, CO-TRUSTEES KEVIN E. BOVE AND NANCY E. BOVE ____________________________________________ Kevin E. Bove, Trustee ____________________________________________ Nancy E. Bove, Trustee Address: 3543 Raymar Drive Cincinnati, OH 45208 Facsimile: (513) 636-3924 JKR HOLDINGS II, LLC By: _______________________________________ Its: _______________________________________ Address: 3037 Pierce Street, #4 San Francisco, CA Facsimile:__________________________________ ____________________________________________ Charles R. Burke Address: Monument Partners, Inc. ("MPI") 1410-1 Monument Street Concord, MA 01742 Facsimile: (918) 371-1475 KLEINER PERKINS CAUFIELD & BYERS VIII, L.P. By: KPCB VIII Associates, L.P., its General Partner By: ________________________________________ General Partner KPCB VIII FOUNDERS FUND, L.P. By: KPCB VIII Associates, L.P., its General Partner By: ________________________________________ General Partner KPCB LIFE SCIENCES ZAIBATSU FUND II, L.P. By: KPCB VII Associates, L.P., its General Partner By: ________________________________________ General Partner Address: 2750 Sand Hill Road Menlo Park, CA 94025 Facsimile: (650) 233-0323 ____________________________________________ Jeffrey Y. Suto Address: c/o Venture Law Group 2800 Sand Hill Road Menlo Park, CA 94025 Facsimile: (650) 233-8386 ____________________________________________ Steven J. Tonsfeldt Address: c/o Venture Law Group 2800 Sand Hill Road Menlo Park, CA 94025 Facsimile: (650) 233-8386 ____________________________________________ Kenneth D. Cramer Address: c/o Venture Law Group 2800 Sand Hill Road Menlo Park, CA 94025 VLG INVESTMENTS 1999 By:_______________________________________ Name:_____________________________________ (print) Title:____________________________________ Address: 2800 Sand Hill Road Menlo Park, CA 94025 Facsimile: (650) 233-8386 WARBURG, PINCUS VENTURES L.P. By: Warburg, Pincus & Co., its General Partner By:_______________________________________ General Partner Address: 466 Lexington Avenue New York, New York 10017-3147 Facsimile: (212) 878-9361 JAN AND LOTTE LESCHLY By:_______________________________________ Jan Leschly By:_______________________________________ Lotte Leschly Address: 66 Aunt Molly Road Hopewell, NJ 08525 Facsimile:________________________________ MARK LESCHLY By:_______________________________________ Address: 66 Aunt Molly Road Hopewell, NJ 08525 STIG LESCHLY By:_______________________________________ Address: 66 Aunt Molly Road Hopewell, NJ 08525 NICK LESCHLY By:_______________________________________ Address: 66 Aunt Molly Road Hopewell, NJ 08525 JACOB AND MALIN LESCHLY By:_______________________________________ Jacob Leschly By:_______________________________________ Malin Leschly Address: 641 Lytton Avenue Palo Alto, CA 94301-1353 Facsimile:________________________________ ____________________________________________ John Young Address: 3200 Hillview Avenue Palo Alto, CA 94304 Facsimile:__________________________________ ____________________________________________ Scott Glenn Address: SR Technologies 5743 Pacific Center San Diego, CA 92121 Facsimile: (619) 824-0894 ____________________________________________ Scott Waterhouse Address: 4665 Kingswood Drive Danville, CA 94506-6037 Facsimile:___________________________________ GALEN PARTNERS III, L.P. By: Claudius, L.L.C. By:_________________________________________ Bruce F. Wesson Senior Managing Member GALEN PARTNERS INTERNATIONAL III, L.P. By: Claudius, L.L.C. By:_________________________________________ Bruce F. Wesson Senior Managing Member GALEN EMPLOYEE FUND III, L.P. By: Wesson Enterprises, Inc. By:_________________________________________ Bruce F. Wesson, President Address: 610 Fifth Avenue New York, NY 10020 Attn: Srini Conjeevaram Facsimile:(212) 218-4999 GENENTECH, INC. By:_________________________________________ Brad Goodwin Address: 1 DNA Way South San Francisco, CA 94080 Facsimile: (650) 225-5024 THE GOLDMAN SACHS GROUP, L.P. By: The Goldman Sachs Corporation By:____________________________________________ Name:__________________________________________ Title:_________________________________________ Address: 85 Broad Street New York, NY 10004 Attn: Randall A. Blumenthal Facsimile: (212) 357-5505 H&Q SERV*IS VENTURES, L.P. By:_____________________________________________ Bama B. Rucker Address: One Bush Street San Francisco, CA 94104 Facsimile: (415) 399-4631 ATGF II By:_____________________________________________ William S. Slattery Address: 399 Park Avenue, 22/nd/ Floor New York, NY 10022 Facsimile: (212) 371-6988 ____________________________________________ James Stableford Address: Amerindo Investment Advisors, Inc. 43 Upper Grosvenor Street London W1X 9PG England ____________________________________________ Anthony Ciulla Address: Amerindo Investment Advisors, Inc. One Embarcadero Center, Suite 2300 San Francisco, CA 94111 RALPH H. CECHETTINI 1995 TRUST By:_________________________________________ Trustee Address: Amerindo Investment Advisors, Inc. One Embarcadero Center, Suite 2300 San Francisco, CA 94111 ____________________________________________ Emeric McDonald Address: Amerindo Investment Advisors, Inc. One Embarcadero Center, Suite 2300 San Francisco, CA 94111 ____________________________________________ William Slattery Address: Amerindo Investment Advisors, Inc. 399 Park Avenue, 22/nd/ Floor New York, NY 10022 ____________________________________________ Dan Chapey Address: Amerindo Investment Advisors, Inc. 399 Park Avenue, 22/nd/ Floor New York, NY 10022 CITIVENTURE 96 PARTNERSHIP, L.P. By: INVESCO Private Capital, Inc. as Investment Adviser By:____________________________________ Name:__________________________________ Title:_________________________________ CHANCELLOR PRIVATE CAPITAL OFFSHORE PARTNERS II, LP By: CPCO Associates, L.P., its Investment General Partner By: INVESCO Private Capital, Inc., its General Partner By:____________________________________ Name:__________________________________ Title:_________________________________ CHANCELLOR PRIVATE CAPITAL PARTNERS III, L.P. By: CPCO Associates, L.P., its General Partner By: INVESCO Private Capital, Inc., its General Partner By:____________________________________ Name:__________________________________ Title:_________________________________ CHANCELLOR PRIVATE CAPITAL OFFSHORE PARTNERS I, C.V. By: Chancellor KME IV Partner, L.P., its Investment General Partner By: INVESCO Private Capital, Inc., its General Partner By:____________________________________ Name:__________________________________ Title:_________________________________ Address: c/o Invesco 1166 Avenue of the Americas New York, NY 10036-2789 Attn: Parag Saxena Facsimile: (212) 278-9830 SPINNAKER CLIPPER FUND, L.P. BY BOWMAN CAPITAL MANAGEMENT, L.L.C., ITS GENERAL PARTNER By:_______________________________________ William Haggerty Chief Operating Officer Address: 1875 South Grant Street, Suite 600 San Mateo, CA 94402 Facsimile:(650) 572-1844 SPINNAKER FOUNDERS FUND, L.P. BY BOWMAN CAPITAL MANAGEMENT, L.L.C., ITS GENERAL PARTNER By:_______________________________________ William Haggerty Chief Operating Officer SPINNAKER OFFSHORE FOUNDERS FUND CAYMAN LIMITED BY BOWMAN CAPITAL MANAGEMENT, L.L.C., ITS INVESTMENT ADVISOR AND ATTORNEY-IN-FACT By:_______________________________________ William Haggerty Chief Operating Officer COMDISCO VENTURES By:______________________________________ Jim Labe Address: 3000 Sand Hill Road Building 1, Suite 155 Menlo Park, CA 94025 Facsimile: (650) 854-4026 _________________________________________ Gary Bang Address: 875-A Island Drive, #370 Alameda, CA 94502 Facsimile:_______________________________ _________________________________________ Brad Baer Address: The Weinberg Group One Market Plaza Steuart Tower Suite 1450 San Francisco, CA 94105 Facsimile: 650-328-7826 ____________________________________________ Alex Barkas Address: 435 Tasso Palo Alto, CA 94301 Facsimile:___________________________________ ____________________________________________ Thomas L. Barton Address: 13833 Barton Court Los Altos Hills, CA 94022 Facsimile: (650) 856-1344 BURWEN FAMILY TRUST U/D/T DATED 9/30/88 ____________________________________________ David M. Burwen, Trustee Address: 1114 Blue Lake Square Mountain View, CA 94040 Facsimile: (650) 965-0320 ____________________________________________ Calvin Chang Address: 2959 Creek Point Drive San Jose, CA 95133 Facsimile: (408) 259-7797 ____________________________________________ Paul Coghlan Address: 686 Bicknell Road Los Gatos, CA 95030 Facsimile:_________________________________ ____________________________________________ Robert M. Curtis Address: 1320 Brandt Road Hillsborough, CA 94010 Facsimile: (650) 685-4388 ____________________________________________ John de Benedetti Address: Market Pulse 944 Market Street, Suite 203 San Francisco, CA 94102 Facsimile: (415) 398-7145 ____________________________________________ Anne De Gheest Address: 12133 Foothill Lane Los Altos Hills, CA 94022 Facsimile:___________________________________ ____________________________________________ Martin Dieck Address: 21105 Hazelbrook Drive Cupertino, CA 95014 Facsimile: (650) 298-9600 DIECK-MCGURK FAMILY TRUST U/D/T DATED APRIL 8, 1996, RONALD DIECK AND ERIN MCGURK, TRUSTEES By:________________________________________ Ronald Dieck. Trustee Address: 335 Lowell Avenue Palo Alto, CA 94301 Facsimile: (650) 327-9508 IRA H. DORF AND ROCHELLE DORF, TRUSTEES UNDER THE DORF FAMILY TRUST DATED 4-2-90 ____________________________________________ Ira Dorf, Trustee ____________________________________________ Rochele Dorf, Trustee Address: 13510 Mandarin Way Saratoga, CA 95070 Facsimile:__________________________________ ____________________________________________ Matthew Frank Address: MMF Consulting 2995 Woodside, Suite 400 Woodside, CA 94062 Facsimile: (650) 851-4483 ____________________________________________ Jody Fast Address: P.O. Box 2757 Saratoga, CA 95070-0757 Facsimile:__________________________________ ____________________________________________ Douglass Given Address: 130 Gloria Circle Menlo Park, CA 94025 Facsimile: (650) 326-4535 GOODWIN FAMILY TRUST 1997 U/A/D 7/30/97 By:________________________________________ Brad Goodwin, Trustee Address: 216 Amherst Avenue San Mateo, CA 94402 Facsimile: (650) 342-1510 ____________________________________________ Larry Haimovitch Address: 111 Highland Lane Mill Valley, CA 94941 Facsimile: (415) 274-6875 ____________________________________________ John M. Harland Address: 2705 Fairbrook Drive Mountain View, CA 94043 Facsimile:__________________________________ EDMON R. JENNINGS JR. LIVING TRUST ____________________________________________ Edmon R. Jennings, Trustee Address: P.O. Box 2102 South San Francisco, CA 94083-2102 Facsimile: (650) 851-5391 ____________________________________________ Vera Kallmeyer Address: 171 Cowper Street Palo Alto, CA 94301 Facsimile: (650) 323-0891 ____________________________________________ David P. Kaufman Address: 22486 Linda Ann Court Cupertino, CA 95014 Facsimile: (408) 733-3443 KILEY REVOCABLE TRUST UNDER AGREEMENT DATED 8-7-81 By:_________________________________________ Thomas D. Kiley, Trustee By:_________________________________________ Nancy Lynne Methven Kiley, Trustee Address: 986 Baileyana Road Hillsborough, CA 94010 Attn: Thomas Kiley Facsimile: (650) 340-1118 KILEY FAMILY PARTNERSHIP By:_________________________________________ Print Name:_________________________________ Title:______________________________________ Address: 986 Baileyana Road Hillsborough, CA 94010 Attn: Thomas Kiley Facsimile: (650) 340-1118 ____________________________________________ Tracy Lefteroff Address: 2460 Waverley Street Palo Alto, CA 94301 Facsimile:__________________________________ ____________________________________________ Alfred J. Mandel Address: 915 Cowper Street Palo Alto, CA 94301 Facsimile: (650) 328-2216 ____________________________________________ John Maroney Address: 2891 Woodside Road Woodside, CA 94062 Facsimile:__________________________________ ____________________________________________ David Mohler Address: 311 Stockbridge Avenue Atherton, CA 94027 Facsimile:__________________________________ -------------------------------- Joseph Nadan Address: MDC Six International Drive 3rd Floor Rye Brook, NY 10573 Facsimile: (914) 933-7868 -------------------------------- Howard Palefsky Address: 2700 Sand Hill Road Menlo Park, CA 94025 Facsimile: (650) 854-2276 -------------------------------- Carson V. Levit Address: 132 Locust Street San Francisco, CA 94118 Facsimile: (415) 346-6180 -------------------------------- Victoria Zaroff Address: 1548 8th Ave. San Francisco, CA 94122 Facsimile: (415) 664-9987 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -------------------------------- Steve Peroutka Address: 1025 Tournament Drive Hillsborough, CA 94010-7429 Facsimile:______________________ SECURITY TRUST COMPANY AS CUSTODIAN FOR FRANK RUDERMAN IRA By:_____________________________ Print Name:_____________________ Address: Security Trust Company 2390 East Camelback Road, Suite 240 Phoenix, Arizona 85016 Attn: Irene J. Luntz Facsimile: (602) 955-8014 -------------------------------- Myron Saranga Address: 17508 Vineland Avenue Monte Sereno, CA 95030 Facsimile: (408) 395-6681 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -------------------------------- Nicholas J. Simon Address: 531 Parrott Drive San Mateo CA 94402 Facsimile: (650) 225-4655 -------------------------------- Norman Sokoloff Address: 12390 Barley Hill Road Los Altos Hills, CA 94024 Facsimile: (408) 733-0648 THE TADMOR AND MICHAL SHALON REVOCABLE TRUST U/A/D/ 8/25/98 By:_____________________________ Print Name:_____________________ Title:__________________________ Address: c/o Tadmor Shalon and Michal Shalon, Trustees or Successor Trustee 955 Island Drive Palo Alto, CA 94301 Facsimile: (650) 473-9196 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDMENT AND RESTATED INVESTORS RIGHTS AGREEMENT --------------------------- David B. Swedlow Address: 2165 Canyon Oak Lane Danville, CA 94506-2011 Facsimile: (925) 820-0602 --------------------------- Benay Lisa Todzo Address: 120 Rogers Avenue San Carlos, CA 94070 Facsimile: (650) 592-7736 PACIFIC RIM CAPITAL, LLC By:________________________ T. Chester Wang Address: 2150 California Street Mountain View, CA 94040 Facsimile: (650) 938-1952 --------------------------- Michael S. Wlody Address: MDC Six International Drive 3rd Floor Rye Brook, NY 10573 Facsimile: (914) 933-7787 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATEDIINVESTORS' RIGHTS AGREEMENT EDWARD A. WEISS, M.D. INC. MONEY PURCHASE PENSION PLAN, EDWARD A. WEISS, M.D. TTEE DTD AUGUST 1, 1979 ----------------------------------- Edward A. Weiss, M.D., Trustee Address: 900 Welch Road Palo Alto, CA 94304 Facsimile:__________________ ___________________________________ Fred Dotzler Address: Medicus Venture Partners 2882 Sand Hill Road Suite 106 Palo Alto, CA 94025 Facsimile: (650) 854-5700 ----------------------------------- John Reher Address: 2835 Summit Drive Hillsborough, CA 94010 Facsimile: (650) 344-2564 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTORS' RIGHTS ----------------------------------- Greg B. Scott Address: 13 Homestead Court Danville, CA 94506 Facsimile: (925) 736-9876 ----------------------------------- George S. Taylor Address: 476 Border Hill Drive Los Altos, CA 94024 Facsimile:____________________ ----------------------------------- Arnold J. Kresch Address: CA Center for Pelvic Pain 780 Welch Road Suite 206 Palo Alto, CA 94304 Facsimile: (650) 327-2989 ------------------------------------ Thomas J. Toy Address: 331 Parrot Drive San Mateo, CA 94402 Facsimile: (650) 340-8678 SIGNATURE PAGE TO CHEMDEX CORPORTION THIRD AMENDED AND RESTATED INVENTORS' RIGHTS AGREEMENT ---------------------------------- Dave Perry Address: Chemdex Corporation 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 ----------------------------------- Pierre Samec Address: Chemdex Corporation 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 ------------------------------------ Martha Greer Address: Chemdex Corporation 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 -------------------------------------- Jim Wambach Address: Chemdex Corporation 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDMENT AND RESTATED INVESTORS' RIGHTS AGREEMENT --------------------------------- David Weber Address: Chemdex Corporation 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 ---------------------------------- Josh Olshansky Address: Chemdex Corporation 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 THE STEWART FAMILY REVOCABLE LIVING TRUST OF 10-25-97 By:_______________________________ Jim Stewar, Trustee Address: Chemdex Corporation 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDMENT AND RESTATED' RIGHTS AGREEMENT ----------------------------------- Justine Fenwick Address: Chemdex Corporation 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 ----------------------------------- J. Patterson McBaine Address: Gruber & McBaine Capital Management 50 Osgood Place San Francisco, CA 94133 Facsimile: (415) 981-2101 ---------------------------------- Scott Salka Address: Arcaris, Inc. 615 Arapeen Drive, Suite 300 Salt Lake City, UT 84018 Facsimile: (801) 303-0333 ----------------------------------- David Hirsh Address: College of Physicians & Surgeons 630 West 168th Street New York, NY 10032 Facsimile: (212) 305-7932 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTORS' AGREEMENT ----------------------------------- Richard F. Selden Address: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Facsimile: (617) 349-0220 BAYVIEW INVESTORS LTD. By:________________________________ Print Name:________________________ Title:_____________________________ Address: c/o BancBoston Robertson Stephens 555 California Street Suite #2600 San Francisco, CA 94104 Facsimile: (415) 676-2977 ----------------------------------- Bradford A. Benz Address: c/o Bayview Investors Ltd. Omega Venture Partners 555 California Street Suite #2350 San Francisco, CA 94104 Facsimile: (415) 676-2556 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDMED AND RESTATED INVESTORS' RIGHTS AGREEMENT __________________________________________ Sy Kaufman Address: c/o Bayview Investors Ltd. Omega Venture Partners 555 California Street Suite #2350 San Francisco, CA 94104 Facsimile: (415) 676-2556 __________________________________________ Anthony P. Brenner Address: c/o Bayview Investors Ltd. Omega Venture Partners 555 California Street Suite #2350 San Francisco, CA 94104 Facsimile: (415) 676-2556 __________________________________________ Paul J. Nowak Address: 1042 Cedar Mill Lane West Chester, PA 19382 Facsimile: 610-436-1760 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMEND AND RESTATED INVESTORS' RIGHTS AGREEMENT _______________________________________ Jerrold B. Harris Address: 706 Haldane Drive Kennett Square, PA 19348 Facsimile: (608) 388-0458 MONTREUX EQUITY PARTNERS II, L.P. By: Montreux Equity Management II, LLC Its: General Partner By:____________________________________ Dan Turner, Member Address: Montreux Equity Partners 2700 Sand Hill Road Menlo Park, CA 94025 Attn: Dan Turner Facsimile: (650) 234-1250 THE WALKER LIVING TRUST DATED 3/3/95, JOHN P. WALKER, TRUSTEE By:____________________________________ John P. Walker, Trustee Address: 126 Isabella Avenue Atherton, CA 94027 Facsimile: (650) 829-1067 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMEND AND RESTATED INVESTORS' RIGHTS AGREEMENT ___________________________________________ Dr. Fred Cohen Address: UCSF Department of Pharmacology, HSE1285 513 Parnassus Avenue San Francisco, CA 94143-0450 Facsimile: (415) 476-6515 ___________________________________________ Dr. David Binkley Address: Argonaut Technologies 887 Industrial Road, Suite G San Carlos, CA 94070 Facsimile: (650) 598-1359 ___________________________________________ William Rastetter Address: IDEC Pharmaceuticals 11099 N. Torrey Pines Road Suite 160 San Diego, CA 92037 Facsimile: (619) 550-8770 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMEND AND RESTATED INVESTORS' RIGHTS AGREEMENT _______________________________________________ Howard Birndorf Address: Nanogen 10398 Pacific Center Court San Diego, CA 92121 Facsimile: (619) 546-7717 BANK JULIUS BAER By:____________________________________________ Print Name:____________________________________ Title:_________________________________________ Address: c/o Claudio Studer, Manager Bahnhofstrasse #36 8010 Zurich Switzerland Facsimile: 011-41-228-55-34 _______________________________________________ Sam Straight Address: Glaxo Wellcome Inc. Five Moore Drive Research Triangle Park, NC 27709-3398 Facsimile: (919) 483-4007 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMEND AND RESTATED INVESTORS' RIGHTS AGREEMENT _______________________________________________ Flynn McDonald Address: 67 Parker Avenued San Francisco, CA 94118 Facsimile: (415) 750-1870 _______________________________________________ Joyce A. Lonergan Address: 166 East 63rd Street, #6D New York, NY 10021 Facsimile: (212) 486-2929 JAMES B. TANANBAUM AND DANA SHONFELD TANANBAUM FAMILY TRUST, JAMES B. TANANBAUM AND DANA SHONFELD TANANBAUM, TRUSTEES By:____________________________________________ James B. Tananbaum, Trustee By:____________________________________________ Dana Shonfeld Tananbaum, Trustee Address: Advanced Medicine, Inc. 280 Utah Avenue So. San Francisco, CA 94080 Facsimile: (650) 827-8683 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMEND AND RESTATED INVESTORS' RIGHTS AGREEMENT _______________________________________________ James B. Tananbaum Address: Advanced Medicine, Inc. 280 Utah Avenue So. San Francisco, CA 94080 Facsimile: (650) 827-8683 _______________________________________________ Dana Shonfeld Tananbaum Address: Advanced Medicine, Inc. 280 Utah Avenue So. San Francisco, CA 94080 Facsimile: (650) 827-8683 _______________________________________________ Wes Sterman Address:_______________________________________ _______________________________________ _______________________________________ Facsimile: ______________________ SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMEND AND RESTATED INVESTORS' RIGHTS AGREEMENT ______________________________________________ Steve Papadopoulos Address: CN Biosciences, Inc. 10394 Pacific Center Court San Diego, CA 92121 Facsimile: (619) 450-5522 _______________________________________________ Brad Garlinghouse Address: CMG@Ventures 3000 Alpine Road Menlo Park, CA 94028 Facsimile: (650) 233-0506 THE RETON FAMILY TRUST By:____________________________________________ Hollings Renton, Trustee Address: Onyx 3031 Research Way Richmond, CA 94806 Facsimile: (510) 222-9758 _______________________________________________ Kevin D. Jones Address: 1700 Leroy Avenue, #10 Berkeley, CA 94709 Facsimile: (510) 647-3799 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMEND AND RESTATED INVESTORS' RIGHTS AGREEMENT _______________________________________________ Thomas G. Wiggans Address: Connetics Corp. 3400 W. Bayshore Road Palo Alto, CA 94303 Facsimile: (650) 856-3480 (w); (650) 568-0860 (h) _______________________________________________ Steve Goldby Address: Symyx Technologies 3100 Central Expressway Santa Clara, CA 95051 Facsimile: (408) 988-3298 _______________________________________________ Ken Fong Address: P.O. Box 1937 Los Altos, CA 94023 Facsimile: (650) 949-4999 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMEND AND RESTATED INVESTORS' RIGHTS AGREEMENT ANGEL INVESTORS, L.P. By: Angel Management, LLC its general partner By:______________________________________________ J. Casey McGlynn, Administrative Member Address: c/o Casey McGlynn Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Facsimile: (650) 496-4082 _________________________________________________ Steve Fodor Address: Affymetrix, Inc. 3380 Central Expressway Santa Clara, CA 95051 Facsimile: (408) 481-0422 _________________________________________________ Dr. Louis G. Lange Address: CV Therapeutics, Inc. 3172 Porter Drive Palo Alto, CA 94304 Facsimile: (650) 858-0388 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMEND AND RESTATED INVESTORS' RIGHTS AGREEMENT VBW RAPTOR FUND, LLC By:________________________________________ Managing Member By:________________________________________ Managing Member Address: c/o David J. Duval Volpe Brown Whelan Asset Management, LLC One Boston Place, Suite 3310 Boston, MA 02108 Facsimile: (617) 305-0700 ___________________________________________ Richard Schell Address: 98 James Place Atherton, CA 94027 Facsimile: (650) 858-0390 NORTHLEA PARTNERS LTD. By:________________________________________ John Abeles, General Partner Address: 2365 NW 41st Street Boca Raton, Florida 33431 Facsimile: (561) 995-0802 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT ________________________________________ Debby Chen Address: 1163 Valley Quail Circle San Jose, CA 95120 Facsimile: (408) 268-5423 ________________________________________ Sasha Kamb Address: Arcaris, Inc. 615 Arapeen Drive, Suite 300 Salt Lake City, UT 84018 Facsimile: (801) 303-0333 ________________________________________ Denny Farrar Address: Arcaris, Inc. 615 Arapeen Drive, Suite 300 Salt Lake City, UT 84018 Facsimile: (801) 303-0333 ________________________________________ Daniel R. Rifkin Address: 80 East End Avenue Apt. 10-J New York, NY 10028 Facsimile: _______________________ SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT ______________________________________________ Dr. Howard Goodman Address: Chief of Dept. of Molecular Biology Massachusetts General Hospital Fruit Street Boston, MA 02114 Facsimile: (617) 726-3535 ______________________________________________ Jon D. Gruber Address: Gruber & McBaine Capital Management 50 Osgood Place San Francisco, CA 94133 Facsimile: (415) 981-2101 ______________________________________________ James P. O'Connell Address: 166 Solana Point Circle Solana Beach, CA 92075 Facsimile: (619) 546-7717 ______________________________________________ Alissa L. Lee Address: c/o Venture Law Group 2775 Sand Hill Road Menlo Park, CA 94025 Facsimile:(650) 233-8386 SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT _________________________________________ Andrea E. Chavez Address: c/o Venture Law Group 2775 Sand Hill Road Menlo Park, CA 94025 Facsimile: (650) 233-8386 _________________________________________ Sonya F. Erickson Address: c/o Venture Law Group 4750 Carrillon Point Kirkland, WA 98033 Facsimile: (425) 739-8750 MYTHEN TREUHAND- & VERWALTUNGS AG By:______________________________________ Print Name:______________________________ Title:___________________________________ Address: Splugenstrasse 9 8002 Zurich, Switzerland Attn: Alex Fancelli Facsimile: 011-41-1220-6149 BIOTECHNOLOGY INDUSTRY ORGANIZATION By: _____________________________________ Name:____________________________________ Title:___________________________________ Address:_________________________________ _________________________________ _________________________________ Facsimile:_______________________________ SIGNATURE PAGE TO CHEMDEX CORPORATION THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT FOUNDERS: _______________________________________ Jonathan D. Callaghan _______________________________________ Marc Kaschke _______________________________________ Jeff Leane _______________________________________ David P. Perry -1- EXHIBIT 1 FOUNDERS -------- David P. Perry Marc Kaschke Jeffrey S. Leane Jonathan D. Callaghan EXHIBIT 2 --------- PURCHASERS ---------- Schedule of Purchasers - ------------------------------------------------------------------------------- NAME - ------------------------------------------------------------------------------- ATGF II Angel Investors, L.P. - ------------------------------------------------------------------------------- Bay City Capital Fund I, L.P. Baer, Brad - ------------------------------------------------------------------------------- Burke, Charles R. Bang, Gary - ------------------------------------------------------------------------------- Cechettini 1995 Trust - Ralph H. Cechettini Bank Julius Baer - ------------------------------------------------------------------------------- Chancellor Private Capital Offshore Partners I, Barton, Thomas L. C.V. - ------------------------------------------------------------------------------- Chancellor Private Capital Offshore Partners II, Bayview Investors Ltd. L.P. - ------------------------------------------------------------------------------- Chancellor Private Capital Partners III, L.P. Benz, Bradford A. - ------------------------------------------------------------------------------- Chapey, Dan Binkley, David - ------------------------------------------------------------------------------- Citiventure 96 Partnership, L.P. Birndorf, Howard C. - ------------------------------------------------------------------------------- Ciulla, Anthony Brenner, Anthony P. - ------------------------------------------------------------------------------- CMG@Ventures, II, LLC Burwen Family Trust U/D/T dated 9-30-88, David Burwen, Trustee - ------------------------------------------------------------------------------- Comdisco, Inc. Chang, Calvin - ------------------------------------------------------------------------------- Cramer, Kenneth D. Chavez, Andrea E. - ------------------------------------------------------------------------------- Galen Employee Fund III, L.P. Chen, Debby - ------------------------------------------------------------------------------- Galen Partners III, L.P. Coghlan, Paul - ------------------------------------------------------------------------------- Galen Partners International III, L.P. Cohen, M.D., Fred - ------------------------------------------------------------------------------- Genentech, Inc. Curtis, Robert M. - ------------------------------------------------------------------------------- Goldman Sachs Group, L.P. de Benedetti, John - ------------------------------------------------------------------------------- H&Q Serv*is Ventures, L.P. De Gheest, Anne - ------------------------------------------------------------------------------- JKR Holdings II, LLC Dieck, Martin - ------------------------------------------------------------------------------- Kleiner Perkins Caufield & Byers VIII, L.P. Dieck-McGurk Family Trust U/D/T dated April 8, 1996, Ronald Dieck and Erin McGurk, Trustees - ------------------------------------------------------------------------------- KPCB Life Sciences Zaibatsu Fund II, L.P. Ira H. Dorf and Rochelle Dorf, Trustees Under the Dorf Family Trust dated 4-2- 90 - ------------------------------------------------------------------------------- KPCB VIII Founders Fund, L.P. Dotzler, Fred - ------------------------------------------------------------------------------- Leschly, Jacob and Malin Erickson, Sonya F. - ------------------------------------------------------------------------------- Leschly, Jan and Lotte Farrar, Dennis - ------------------------------------------------------------------------------- McDonald, Emeric Fast, Jody - ------------------------------------------------------------------------------- Slattery, William Fodor, Stephen - ------------------------------------------------------------------------------- Spinnaker Clippers Fund, L.P. Fong, Kenneth - ------------------------------------------------------------------------------- -1- - ------------------------------------------------------------------------------- Spinnaker Founders Fund, L.P. Frank, Matthew - ------------------------------------------------------------------------------- Spinnaker Offshore Founders Fund Cayman Limited Garlinghouse, Brad - ------------------------------------------------------------------------------- Stableford, James Given, Douglass - ------------------------------------------------------------------------------- Suto, Jeffrey Y. Goldby, Steve - ------------------------------------------------------------------------------- Tonsfeldt, Steven Goodman, Howard, M.D. - ------------------------------------------------------------------------------- Warburg, Pincus Ventures L. P. Goodwin Family Trust 1997 U/A/D 7-30-97, Brad Goodwin, Trustee - ------------------------------------------------------------------------------- Young, John Gruber, Jon D. - ------------------------------------------------------------------------------- Kaschke Investments, L.L.C. Haimovitch, Larry - ------------------------------------------------------------------------------- VLG Investments 1999 Harland, John M. - ------------------------------------------------------------------------------- Bove Family Living Trust Harris, Jerry - ------------------------------------------------------------------------------- Glenn, Scott Hirsh, David, M.D. - ------------------------------------------------------------------------------- Waterhouse, Scott Edmon R. Jennings Jr. Living Trust, Edmon R. Jennings, Jr., Trustee =============================================================================== Jones, Kevin D. - ------------------------------------------------------------------------------- Kallmeyer, Vera - ------------------------------------------------------------------------------- Kamb, Alexander - ------------------------------------------------------------------------------- Kaufman, David - ------------------------------------------------------------------------------- Kaufman, Sy - ------------------------------------------------------------------------------- Kiley Family Partnership - ------------------------------------------------------------------------------- Kiley Revocable Trust Under Agmt. dated 8-7-81 - ------------------------------------------------------------------------------- Kresch, Arnold - ------------------------------------------------------------------------------- Lefteroff, Tracy T. - ------------------------------------------------------------------------------- Lange, Louis G. - ------------------------------------------------------------------------------- Lee, Alissa L. - ------------------------------------------------------------------------------- Levit, Carson - ------------------------------------------------------------------------------- Lonergan, Joyce A. - ------------------------------------------------------------------------------- McBaine, J. Patterson - ------------------------------------------------------------------------------- Mandel, Alfred J. - ------------------------------------------------------------------------------- Maroney, John - ------------------------------------------------------------------------------- McDonald, Flynn - ------------------------------------------------------------------------------- Mohler, David G. - ------------------------------------------------------------------------------- Montreux Equity Partners II, L.P. - ------------------------------------------------------------------------------- Nadan, Joseph - ------------------------------------------------------------------------------- Northlea Partners, Ltd. (John Abeles, GP) - ------------------------------------------------------------------------------- -2- - ------------------------------------------------------------------------------- Nowak, Paul - ------------------------------------------------------------------------------- O'Connell, James P. - ------------------------------------------------------------------------------- Pacific Rim Capital, LLC - ------------------------------------------------------------------------------- Palefsky, Howard D. - ------------------------------------------------------------------------------- Papadopoulos, Steve - ------------------------------------------------------------------------------- Peroutka, Stephen J. - ------------------------------------------------------------------------------- Rastetter, William - ------------------------------------------------------------------------------- Reher, John - ------------------------------------------------------------------------------- The Renton Family Trust - ------------------------------------------------------------------------------- Rifkin, Daniel R. - ------------------------------------------------------------------------------- Security Trust Co. as Custodian for Frank Ruderman, IRA - ------------------------------------------------------------------------------- Salka, Scott - ------------------------------------------------------------------------------- Saranga, Myron - ------------------------------------------------------------------------------- Schell, Richard - ------------------------------------------------------------------------------- Scott, Greg - ------------------------------------------------------------------------------- Selden, Richard - ------------------------------------------------------------------------------- Simon, Nicholas J. - ------------------------------------------------------------------------------- Sokoloff, Norman F. - ------------------------------------------------------------------------------- The Stewart Family Revocable Living Trust dated 10-25-97 - ------------------------------------------------------------------------------- Straight, Sam - ------------------------------------------------------------------------------- Swedlow, David - ------------------------------------------------------------------------------- The Tadmor and Michal Shalon Revocable Trust U/A/D 8-25-98 ------------------------------------------------------------------------------- James B. Tananbaum and Dana Shonfeld Tananbaum Family Trust, James B. Tananbaum and Dana Shonfeld Tananbaum, Trustees ------------------------------------------------------------------------------- Tananbaum, James B. - ------------------------------------------------------------------------------- Tananbaum, Dana Shonfeld - ------------------------------------------------------------------------------- Taylor, S. George - ------------------------------------------------------------------------------- Todzo, Benay Lisa - ------------------------------------------------------------------------------- Toy, Thomas J. - ------------------------------------------------------------------------------- -3- - ------------------------------------------------------------------------------- VBW Raptor Fund, LLC (or Volpe Brown Whelan Asset Management, LLC) ------------------------------------------------------------------------------- The Walker Living Trust dated 3/3/95 ------------------------------------------------------------------------------- Weiss, Edward A., M.D. Inc. Money Purchase Pension Plan Edward A. Weiss, M.D. TTEE DTD August 1, 1979 - ------------------------------------------------------------------------------- Wiggans, Thomas G. - ------------------------------------------------------------------------------- Wlody, Michael - ------------------------------------------------------------------------------- Zaroff, Victoria - ------------------------------------------------------------------------------- Mythen Treuhand- & Verwaltungs AG - ------------------------------------------------------------------------------- Biotechnology Industry Organization - ------------------------------------------------------------------------------- -4- EX-4.3 5 AMENDMENT DATED APRIL 28, 1999 EXHIBIT 4.3 CHEMDEX CORPORATION AMENDMENT TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT This Amendment (the "Amendment") to the Third Amended and Restated Agreement dated March 24, 1999 (the "Agreement") is entered into as of April 28, --------- 1999 by and among Chemdex Corporation, a Delaware corporation with headquarters at 3950 Fabian Way, Palo Alto, CA 94303 (the "Company"), certain holders of the ------- Company's Common Stock (the "Founders"), and certain individuals and that were -------- parties to the Agreement (the "Purchasers"). The Founders and the Purchasers ---------- are referred to herein as the "Stockholders." Terms not capitalized herein ------------ shall have the meaning set forth in the Agreement. RECITALS -------- A. The Board of Directors of the Company has approved a 3,000,000 share increase to the Company's 1998 Stock Plan and the issuance of 375,000 shares of Common Stock to Biotechnology Industry Organization ("BIO"). --- B. The Company and the Stockholders wish to amend the Agreement to exempt from the Purchasers' right of first refusal as to the issuance new securities by the Company the additional 3,000,000 shares issuable under the 1998 Stock Plan and the 375,000 shares issued or issuable to BIO. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and covenants contained herein, the parties agree as follows: 1. Pursuant to Section 6.4 of the Agreement, the undersigned constitute at least sixty-six and two-thirds percent (66-2/3%) of the Registrable Securities held by the Purchasers (as defined in the Agreement), and at least two-thirds (2/3) of the total number of shares of Common Stock held by Founders (both as defined in the Agreement). 2. Section 2.1(b) of the Agreement is amended and restated in its entirety as follows: "(b) Except as set forth below, "New Securities" shall mean any Equity Securities, whether now authorized or not, and rights, options or warrants to purchase said Equity Securities. Notwithstanding the foregoing, "New Securities" does not include (i) up to an aggregate of 14,890,000 shares of Common Stock issued to employees, officers, consultants or directors of the Company pursuant to sales or options granted at any time after the date of incorporation of the Company or pursuant to a plan or agreement approved by at least two-thirds of the Company's Board of Directors or a committee of the Board of Directors that has been authorized by at least two-thirds of the Board of Directors; (ii) securities offered to the public generally pursuant to a registration statement in a Qualified IPO (as defined below); (iii) securities issued -1- pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all of the assets or other reorganization whereby the Company or the Purchasers own not less than fifty-one (51%) percent of the voting power of the surviving or successor corporation; (iv) the Conversion Stock; (v) stock issued pursuant to any rights or agreements including, without limitation, convertible securities, options and warrants, provided that the right of first refusal established by this Section 2 applies with respect to the initial sale or grant by the Company of such rights or agreements; (vi) stock issued in connection with any stock split, stock dividend or recapitalization by the Company; (vii) shares of Common Stock issued to VWR pursuant to the Common Stock Purchase Agreement between VWR and the Company dated March 5, 1999; (viii) shares issued pursuant to the Purchase Agreement; (ix) that certain warrant to purchase 100,000 shares of Common Stock issued to Galen and the Common Stock issued or issuable upon exercise thereof; (x) that certain warrant to purchase 210,000 shares of Series B Preferred Stock issued to Comdisco, Inc., the shares of Series B Preferred Stock issued or issuable upon exercise thereof and the Common Stock issuable upon conversion of such Series B Preferred Stock, and (xi) up to 375,000 shares of Common Stock issued or issuable to Biotechnology Industry Organization." 3. The rights set forth in Section 2.1 of the Agreement are hereby waived with respect to the issuance of the 375,000 shares of Common Stock issued or issuable to BIO. 4. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 5. If any provision of this Amendment, or the application thereof, shall for any reason and to any extent be invalid or unenforceable the remainder of this Amendment and application of such provision to persons or circumstances shall be interpreted so as best to reasonably effect the intent of the parties hereto, the parties further agree to replace such void or unenforceable provision of this Amendment with a valid and enforceable provision which will achieve to the extent possible, the economic, business and other purposes of the void or unenforceable provision. 6. Except as provided in this Amendment, the Agreement shall remain in full force and effect. -2- The foregoing agreement is hereby executed as of the date first above written. CHEMDEX CORPORATION By:--------------------- Title:------------------ Address: 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 SIGNATURE PAGE TO CHEMDEX CORPORATION AMENDMENT TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -3- VWR SCIENTIFIC PRODUCTS CORPORATION By:-------------------------------- Name:------------------------------ Title:----------------------------- Address: 1310 Goshen Parkway West-Chester, PA 19380 Facsimile: (610) 429-1760 SIGNATURE PAGE TO CHEMDEX CORPORATION AMENDMENT TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -4- CMG@VENTURES II, LLC By:------------------------------ Jonathan D. Callaghan Address: 3000 Alpine Road Menlo Park, CA 94028 Facsimile: (650) 233-0506 SIGNATURE PAGE TO CHEMDEX CORPORATION AMENDMENT TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -5- THE BAY CITY CAPITAL FUND I, L.P., A DELAWARE LIMITED PARTNERSHIP By: Bay City Capital Management LLC Its: General Partner By: ------------------------------- Name: ------------------------------- Title:------------------------------- Address: 750 Battery Street, Suite 600 San Francisco, CA 94111 Facsimile: (415) 837-0996 SIGNATURE PAGE TO CHEMDEX CORPORATION AMENDMENT TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -6- SIGNATURE PAGE TO CHEMDEX CORPORATION AMENDMENT TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -7- KLEINE R PERKINS CAUFIELD & BYERS VIII, L.P. By: KPCB VIII Associates, L.P., its General Partner By: ---------------------------------- General Partner Address: 2750 Sand Hill Road Menlo Park, CA 94025 Facsimile: (650) 233-0323 SIGNATURE PAGE TO CHEMDEX CORPORATION AMENDMENT TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -8- WARBURG, PINCUS VENTURES L.P. By: Warburg, Pincus & Co., its General Partner By: ----------------------------------- General Partner Address: 466 Lexington Avenue New York, New York 10017-3147 Facsimile: (212) 878-9361 SIGNATURE PAGE TO CHEMDEX CORPORATION AMENDMENT TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -9- GALEN PARTNERS III, L.P. By: Claudius, L.L.C. By: -------------------------------- Bruce F. Wesson Senior Managing Member Address: 610 Fifth Avenue New York, NY 10020 Attn: Srini Conjeevaram Facsimile: (212) 218-4999 SIGNATURE PAGE TO CHEMDEX CORPORATION AMENDMENT TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -10- FOUNDERS: ------------------------------------ Jonathan D. Callaghan ------------------------------------ Jeff Leane ------------------------------------ David P. Perry SIGNATURE PAGE TO CHEMDEX CORPORATION AMENDMENT TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -11- EX-10.1 6 FORM OF INDEMN. AGMT. BTWN. CHEMDEX AND OFFICERS EXHIBIT 10.1 INDEMNIFICATION AGREEMENT ------------------------- This Indemnification Agreement (the "Agreement") is made as of --------- _______________, by and between Chemdex Corporation, a Delaware corporation (the "Company"), and IndemniteeName~ (the "Indemnitee"). ------- ---------- RECITALS -------- The Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers and key employees, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers and key employees to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and agents of the Company may not be willing to continue to serve as agents of the Company without additional protection. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, and to indemnify its directors, officers and key employees so as to provide them with the maximum protection permitted by law. AGREEMENT --------- In consideration of the mutual promises made in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Indemnitee hereby agree as follows: 1. INDEMNIFICATION. --------------- (a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee ----------------------- if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall --------------------------------------------- indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its stockholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has ----------------------------- been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. 2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended -------------------- to create in Indemnitee any right to continued employment. 3. EXPENSES; INDEMNIFICATION PROCEDURE. ----------------------------------- (a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses ----------------------- incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referred to in Section l(a) or Section 1(b) hereof (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. (b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a -------------------------------- condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in -2- writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) PROCEDURE. Any indemnification and advances provided for in --------- Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of ------------------ a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. (e) SELECTION OF COUNSEL. In the event the Company shall be obligated -------------------- under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel -3- by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, pro-vided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. ------------------------------------------------- (a) SCOPE. Notwithstanding any other provision of this Agreement, the ----- Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) NONEXCLUSIVITY. The indemnification provided by this Agreement -------------- shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. 5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any ----------------------- provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge --------------------- that in certain instances, Federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. -4- For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is --- not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from ---------------------------------------- time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company. 8. SEVERABILITY. Nothing in this Agreement is intended to require or ------------ shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. EXCEPTIONS. Any other provision herein to the contrary ---------- notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses ------------------------------ to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law, but such indemnification or -5- advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; (b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses ------------------ incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; (c) INSURED CLAIMS. To indemnify Indemnitee for expenses or -------------- liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or (d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses -------------------------- or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 10. CONSTRUCTION OF CERTAIN PHRASES. ------------------------------- (a) For purposes of this Agreement, references to the "Company" ------- shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" ----------------- shall include employee benefit plans; references to "fines" shall include any ----- excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any ------------------------------------- service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not --- opposed to the best interests of the Company" as referred to in this Agreement. - -------------------------------------------- 11. ATTORNEYS' FEES. In the event that any action is instituted by --------------- Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee -6- with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 12. MISCELLANEOUS. ------------- (a) GOVERNING LAW. This Agreement and all acts and transactions ------------- pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflict of law. (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets --------------------------------------- forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (c) CONSTRUCTION. This Agreement is the result of negotiations ------------ between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (d) NOTICES. Any notice, demand or request required or permitted to ------- be given under this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (e) COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the ---------------------- Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. (g) SUBROGATION. In the event of payment under this Agreement, the ----------- Company shall be subrogated to the extent of such payment to all of the rights of recovery of -7- Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. [Signature Page Follows] -8- The parties hereto have executed this Agreement as of the day and year set forth on the first page of this Agreement. CHEMDEX CORPORATION By:____________________________ Name:__________________________ Title:_________________________ Address: 3950 Fabian Way Palo Alto, CA 94303 AGREED TO AND ACCEPTED: Indemnitee Name _____________________________ (Signature) Address:______________________ ______________________ ______________________ -9- EX-10.2 7 FORM OF CHANGE OF CONTROL AGREEMENT EXHIBIT 10.2 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into effective as of Date~, by and between Employee~ (the "Employee") and Chemdex Corporation, a Delaware corporation (the "Company"). RECITALS A. It is expected that another company or other entity may from time to time consider the possibility of acquiring the Company or that a change in control may otherwise occur, with or without the approval of the Company's Board of Directors (the "Board"). The Board recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Corporate Transaction (as defined below) of the Company. B. The Board believes that it is in the best interests of the Company and its stockholders to provide the Employee with an incentive to continue his or her employment with the Company. C. The Board believes that it is imperative to provide the Employee with certain benefits upon termination of the Employee's employment in connection with a Corporate Transaction, which benefits are intended to provide the Employee with financial security and provide sufficient encouragement to the Employee to remain with the Company notwithstanding the possibility of a Corporate Transaction. D. To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by the Employee, to agree to the terms provided in this Agreement. E. Certain capitalized terms used in the Agreement are defined in Section 3 below. In consideration of the mutual covenants herein contained, and in consideration of the continuing employment of Employee by the Company, the parties agree as follows: 1. At-Will Employment. The Company and the Employee acknowledge that ------------------ the Employee's employment is and shall continue to be at-will, as defined under applicable law. If the Employee's employment terminates for any reason, including (without limitation) any termination prior to a Corporate Transaction, the Employee shall not be entitled to any payments or benefits, other than as provided by this Agreement, or as may otherwise be available in accordance with the terms of Employee's offer letter from the Company (the "Offer Letter") and the Company's established employee plans and written policies at the time of termination. The terms of this Agreement shall terminate upon the earlier of (i) the date on which Employee ceases for any reason to be employed by the Company prior to the occurrence of a Corporate Transaction, (ii) the date that all obligations of the parties hereunder have been satisfied, or (iii) one (1) year after the closing of any Corporate Transaction. A termination of the terms of this Agreement pursuant to the preceding sentence shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits on account of a termination of employment occurring prior to the termination of the terms of this Agreement. 2. Stock Options and Restricted Stock. Subject to Sections 4 and 5 ---------------------------------- below, in the event of a Corporate Transaction, if either Employee's employment with the Company is terminated by the surviving entity without Cause or by Employee as the result of a Constructive Termination by the surviving entity within twelve months of the closing of the Corporate Transaction, each stock option granted for the Company's securities held by Employee and any shares of the Company's Common Stock that are subject to a right of repurchase by the Company pursuant to the terms of a Restricted Stock Purchase Agreement ("Restricted Stock") held by the Employee shall become fully vested on the effective date of the termination or Constructive Termination as to one hundred percent (100%) of the total number of shares issuable pursuant to such stock option grant or issued pursuant to such Restricted Stock Purchase Agreement. Each stock option shall otherwise vest in accordance with the provisions of the Stock Option Agreement and the Company's 1998 Stock Option Plan pursuant to which such option was granted and each Share of Restricted Stock shall be freely transferable to the extent so vested in accordance with the provisions of the Restricted Stock Purchase Agreement pursuant to which such stock was purchased by Employee. 3. Definition of Terms. The following terms referred to in this ------------------- Agreement shall have the following meanings: (a) Corporate Transaction. "Corporate Transaction" shall mean --------------------- the occurrence of either of the following stockholder-approved events to which the Company is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction; or (ii) the sale, transfer or other disposition of all or substantially all of the Company's assets in complete liquidation or dissolution of the Company. (b) Cause. "Cause" shall mean: ----- -2- (i) conviction of a felony or a crime involving fraud or moral turpitude; or (ii) intentional or reckless conduct or gross negligence materially harmful to the surviving entity after a Corporation Transaction, including violation of a non-competition or confidentiality agreement. Cause shall not include poor performance in the achievement of the Employee's --- job objectives or the death or physical disability of the Employee. (c) Constructive Termination. "Constructive Termination" shall ------------------------ mean the Employee's voluntary termination, upon 30 days prior written notice to the Company, following: (i) a material reduction or change in the Employee's job duties, responsibilities and requirements inconsistent with the Employee's position with the Company and the Employee's prior duties, responsibilities and requirements; (ii) any reduction of greater than 5% in the Employee's base compensation (including salary, benefits, incentive payments and bonuses), other than in connection with a general decrease in base salaries for most officers of the Company and any successor corporation; or (iii) the Employee's refusal to relocate to a facility or location more than 50 miles from the Company's current location. 4. Limitation on Payments. In the event that the benefits provided ---------------------- for in this Agreement to the Employee (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then the Employee's benefits under Section 2 shall be payable either: (a) in full, or (b) as to such lesser amount which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee on an after-tax basis, of the greatest amount of benefits under Section 2 notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and the Employee otherwise agree in writing, any determination required under this Section 4 shall be made in writing by the Company's independent public accountants (the "Accountants"), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes. For -3- purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4. 5. Certain Business Combinations. In the event it is determined by ----------------------------- the Board, upon consultation with Company management and the Company's independent auditors, that the enforcement of any Section of this Agreement, including, but not limited to, Section 2 hereof, which allows for the acceleration of vesting of stock options and Restricted Stock granted for the Company's securities upon the effective date of a Corporate Transaction would preclude accounting for any proposed business combination of the Company involving a Corporate Transaction as a pooling of interests, and the Board otherwise desires to approve such a proposed business transaction which requires as a condition to the closing of such transaction that it be accounted for as a pooling of interests, then any such Section of this Agreement shall be null and void. For purposes of this Section 5, the Board's determination shall require the unanimous approval of the non-employee Board members. 6. Successors. Any successor to the Company (whether direct or ---------- indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of the Employee's rights hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 7. Notice. Notices and all other communications contemplated by this ------ Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to the Employee shall be addressed to the Employee at the home address which the Employee most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary. 8. Miscellaneous Provisions. ------------------------ (a) No Duty to Mitigate. The Employee shall not be required to ------------------- mitigate the amount of any benefit contemplated by this Agreement (whether by seeking new employment or in any other manner), nor, except as otherwise provided in this Agreement, -4- shall any such benefit be reduced by any earnings that the Employee may receive from any other source. (b) Waiver. No provision of this Agreement shall be modified, ------ waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (c) Whole Agreement. No agreements, representations or --------------- understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement supersedes any agreement of the same title and concerning similar subject matter dated prior to the date of this Agreement, and by execution of this Agreement both parties agree that any such predecessor agreement shall be deemed null and void. (d) Choice of Law. The validity, interpretation, construction ------------- and performance of this Agreement shall be governed by the laws of the State of California without reference to conflict of laws provisions. (e) Severability. If any term or provision of this Agreement or ------------ the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or unenforceable, and a suitable and equitable term or provision shall be substituted therefor to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision. (f) Arbitration. Any dispute or controversy arising under or in ----------- connection with this Agreement may be settled at the option of either party by binding arbitration in the County of San Mateo, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Punitive damages shall not be awarded. (g) Legal Fees and Expenses. The parties shall each bear their ----------------------- own expenses, legal fees and other fees incurred in connection with this Agreement. (h) No Assignment of Benefits. The rights of any person to ------------------------- payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without -5- limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this subsection (h) shall be void. (i) Employment Taxes. Any payments made pursuant to this ---------------- Agreement will be subject to withholding of applicable income and employment taxes. (j) Assignment by Company. The Company may assign its rights --------------------- under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term "Company" when used in a section of this Agreement shall mean the corporation that actually employs the Employee. (k) Counterparts. This Agreement may be executed in ------------ counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. [Signature Page Follows] -6- IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written. CHEMDEX CORPORATION EMPLOYEE By:______________________________ __________________________________ Title:___________________________ SIGNATURE PAGE TO CHANGE OF CONTROL AGREEMENT EX-10.3 8 CHANGE OF CONTROL AGMT. BTWN. CHEMDEX & SWANSON EXHIBIT 10.3 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into effective as of May 13, 1998, by and between Robert Swanson (the "Director") and Chemdex Corporation, a Delaware corporation (the "Company"). RECITALS A. It is expected that another company or other entity may from time to time consider the possibility of acquiring the Company or that a change in control may otherwise occur, with or without the approval of the Company's Board of Directors (the "Board"). The Board recognizes that such consideration can be a distraction to the Director and can cause the Director to consider alternative service opportunities. The Board has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Director, notwithstanding the possibility, threat or occurrence of a Corporate Transaction (as defined below) of the Company. B. The Board believes that it is in the best interests of the Company and its stockholders to provide the Director with an incentive to continue his or her service with the Company. C. The Board believes that it is imperative to provide the Director with certain benefits upon termination of the Director's service in connection with a Corporate Transaction, which benefits are intended to provide the Director with financial security and provide sufficient encouragement to the Director to remain with the Company notwithstanding the possibility of a Corporate Transaction. D. To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by the Director, to agree to the terms provided in this Agreement. E. Certain capitalized terms used in the Agreement are defined in Section 2 below. In consideration of the mutual covenants herein contained, and in consideration of the continuing service of Director by the Company, the parties agree as follows:. 1. Stock Options and Restricted Stock. Subject to Sections 3 and 4 ---------------------------------- below, in the event of a Corporate Transaction, each stock option granted for the Company's securities held by Director and any shares of the Company's Common Stock that are subject to a right of repurchase by the Company pursuant to the terms of a Restricted Stock Purchase Agreement ("Restricted Stock") held by the Director shall become fully vested on the closing date of the Corporate Transaction as to one hundred percent (100%) of the total number of shares issuable pursuant to such stock option grant or issued pursuant to such Restricted Stock Purchase Agreement. Each stock option shall otherwise vest in accordance with the provisions of the Stock Option Agreement and the Company's 1998 Stock Option Plan pursuant to which such option was granted and each Share of Restricted Stock shall be freely transferable to the extent so vested in accordance with the provisions of the Restricted Stock Purchase Agreement pursuant to which such stock was purchased by Director. 2. Definition of Terms. The following terms referred to in this ------------------- Agreement shall have the following meanings: (a) Corporate Transaction. "Corporate Transaction" shall mean the --------------------- occurrence of either of the following stockholder-approved events to which the Company is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction; or (ii) the sale, transfer or other disposition of all or substantially all of the Company's assets in complete liquidation or dissolution of the Company. (b) Cause. "Cause" shall mean: ----- (i) conviction of a felony or a crime involving fraud or moral turpitude; or (ii) intentional or reckless conduct or gross negligence materially harmful to the surviving entity after a Corporation Transaction, including violation of a non-competition or confidentiality agreement. Cause shall not include poor performance in the achievement of the Director's --- job objectives or the death or physical disability of the Director. 3. Limitation on Payments. In the event that the benefits provided ---------------------- for in this Agreement to the Director (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then the Director's benefits under Section 1 shall be payable either: (a) in full, or (b) as to such lesser amount which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Director -2- on an after-tax basis, of the greatest amount of benefits under Section 1 notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and the Director otherwise agree in writing, any determination required under this Section 3 shall be made in writing by the Company's independent public accountants (the "Accountants"), whose determination shall be conclusive and binding upon the Director and the Company for all purposes. For purposes of making the calculations required by this Section 3, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and the Director shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 3. 4. Certain Business Combinations. In the event it is determined by ----------------------------- the Board, upon consultation with Company management and the Company's independent auditors, that the enforcement of any Section of this Agreement, including, but not limited to, Section 1 hereof, which allows for the acceleration of vesting of stock options and Restricted Stock granted for the Company's securities upon the effective date of a Corporate Transaction would preclude accounting for any proposed business combination of the Company involving a Corporate Transaction as a pooling of interests, and the Board otherwise desires to approve such a proposed business transaction which requires as a condition to the closing of such transaction that it be accounted for as a pooling of interests, then any such Section of this Agreement shall be null and void. For purposes of this Section 4, the Board's determination shall require the unanimous approval of the non-Director Board members. 5. Successors. Any successor to the Company (whether direct or ---------- indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of the Director's rights hereunder shall inure to the benefit of, and be enforceable by, the Director's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 6. Notice. Notices and all other communications contemplated by this ------ Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to the Director shall be addressed to the Director at the home address which the Director most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary. -3- 7. Miscellaneous Provisions. ------------------------ (a) No Duty to Mitigate. The Director shall not be required to ------------------- mitigate the amount of any benefit contemplated by this Agreement (whether by seeking new service or in any other manner), nor, except as otherwise provided in this Agreement, shall any such benefit be reduced by any earnings that the Director may receive from any other source. (b) Waiver. No provision of this Agreement shall be modified, ------ waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Director and by an authorized officer of the Company (other than the Director). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (c) Whole Agreement. No agreements, representations or --------------- understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement supersedes any agreement of the same title and concerning similar subject matter dated prior to the date of this Agreement, and by execution of this Agreement both parties agree that any such predecessor agreement shall be deemed null and void. (d) Choice of Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of California without reference to conflict of laws provisions. (e) Severability. If any term or provision of this Agreement or ------------ the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or unenforceable, and a suitable and equitable term or provision shall be substituted therefor to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision. (f) Arbitration. Any dispute or controversy arising under or in ----------- connection with this Agreement may be settled at the option of either party by binding arbitration in the County of San Mateo, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Punitive damages shall not be awarded. (g) Legal Fees and Expenses. The parties shall each bear their own ---------------------- expenses, legal fees and other fees incurred in connection with this Agreement. (h) No Assignment of Benefits. The rights of any person to ------------------------- payments or benefits under this Agreement shall not be made subject to option or assignment, either by -4- voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this subsection (h) shall be void. (i) Service Taxes. Any payments made pursuant to this Agreement will ------------- be subject to withholding of applicable income and service taxes. (j) Assignment by Company. The Company may assign its rights under --------------------- this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term "Company" when used in a section of this Agreement shall mean the corporation that actually employs the Director. (k) Counterparts. This Agreement may be executed in counterparts, ------------- each of which shall be deemed an original, but all of which together will constitute one and the same instrument. [Signature Page Follows] -5- IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written. CHEMDEX CORPORATION ROBERT SWANSON By: /s/ Cindy Vindsius /s/ Robert Swanson -------------------- ---------------------------- Title: Controller ---------- -6- EX-10.4 9 CHANGE OF CONTROL AGMT. BTWN. CHEMDEX & BURKE EXHIBIT 10.4 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into effective as of January 22, 1998, by and between Charles Burke (the "Director") and Chemdex Corporation, a Delaware corporation (the "Company"). RECITALS A. It is expected that another company or other entity may from time to time consider the possibility of acquiring the Company or that a change in control may otherwise occur, with or without the approval of the Company's Board of Directors (the "Board"). The Board recognizes that such consideration can be a distraction to the Director and can cause the Director to consider alternative service opportunities. The Board has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Director, notwithstanding the possibility, threat or occurrence of a Corporate Transaction (as defined below) of the Company. B. The Board believes that it is in the best interests of the Company and its stockholders to provide the Director with an incentive to continue his or her service with the Company. C. The Board believes that it is imperative to provide the Director with certain benefits upon termination of the Director's service in connection with a Corporate Transaction, which benefits are intended to provide the Director with financial security and provide sufficient encouragement to the Director to remain with the Company notwithstanding the possibility of a Corporate Transaction. D. To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by the Director, to agree to the terms provided in this Agreement. E. Certain capitalized terms used in the Agreement are defined in Section 2 below. In consideration of the mutual covenants herein contained, and in consideration of the continuing service of Director by the Company, the parties agree as follows:. 1. Stock Options and Restricted Stock. Subject to Sections 3 ---------------------------------- and 4 below, in the event of a Corporate Transaction, each stock option granted for the Company's securities held by Director and any shares of the Company's Common Stock that are subject to a right of repurchase by the Company pursuant to the terms of a Restricted Stock Purchase Agreement ("Restricted Stock") held by the Director shall become fully vested on the closing date of the Corporate Transaction as to one hundred percent (100%) of the total number of shares issuable pursuant to such stock option grant or issued pursuant to such Restricted Stock Purchase Agreement. Each stock option shall otherwise vest in accordance with the provisions of the Stock Option Agreement and the Company's 1998 Stock Option Plan pursuant to which such option was granted and each Share of Restricted Stock shall be freely transferable to the extent so vested in accordance with the provisions of the Restricted Stock Purchase Agreement pursuant to which such stock was purchased by Director. 2. Definition of Terms. The following terms referred to in this ------------------- Agreement shall have the following meanings: (a) Corporate Transaction. "Corporate Transaction" shall mean --------------------- the occurrence of either of the following stockholder-approved events to which the Company is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction; or (ii) the sale, transfer or other disposition of all or substantially all of the Company's assets in complete liquidation or dissolution of the Company. (b) Cause. "Cause" shall mean: ----- (i) conviction of a felony or a crime involving fraud or moral turpitude; or (ii) intentional or reckless conduct or gross negligence materially harmful to the surviving entity after a Corporation Transaction, including violation of a non-competition or confidentiality agreement. Cause shall not include poor performance in the achievement of the Director's --- job objectives or the death or physical disability of the Director. 3. Limitation on Payments. In the event that the benefits provided ---------------------- for in this Agreement to the Director (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then the Director's benefits under Section 1 shall be payable either: (a) in full, or (b) as to such lesser amount which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Director -2- on an after-tax basis, of the greatest amount of benefits under Section 1 notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and the Director otherwise agree in writing, any determination required under this Section 3 shall be made in writing by the Company's independent public accountants (the "Accountants"), whose determination shall be conclusive and binding upon the Director and the Company for all purposes. For purposes of making the calculations required by this Section 3, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and the Director shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 3. 4. Certain Business Combinations. In the event it is determined by ----------------------------- the Board, upon consultation with Company management and the Company's independent auditors, that the enforcement of any Section of this Agreement, including, but not limited to, Section 1 hereof, which allows for the acceleration of vesting of stock options and Restricted Stock granted for the Company's securities upon the effective date of a Corporate Transaction would preclude accounting for any proposed business combination of the Company involving a Corporate Transaction as a pooling of interests, and the Board otherwise desires to approve such a proposed business transaction which requires as a condition to the closing of such transaction that it be accounted for as a pooling of interests, then any such Section of this Agreement shall be null and void. For purposes of this Section 4, the Board's determination shall require the unanimous approval of the non-Director Board members. 5. Successors. Any successor to the Company (whether direct or ---------- indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of the Director's rights hereunder shall inure to the benefit of, and be enforceable by, the Director's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 6. Notice. Notices and all other communications contemplated by ------ this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to the Director shall be addressed to the Director at the home address which the Director most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary. -3- 7. Miscellaneous Provisions. ------------------------ (a) No Duty to Mitigate. The Director shall not be required to ------------------- mitigate the amount of any benefit contemplated by this Agreement (whether by seeking new service or in any other manner), nor, except as otherwise provided in this Agreement, shall any such benefit be reduced by any earnings that the Director may receive from any other source. (b) Waiver. No provision of this Agreement shall be modified, waived ------ or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Director and by an authorized officer of the Company (other than the Director). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (c) Whole Agreement. No agreements, representations or understandings --------------- (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement supersedes any agreement of the same title and concerning similar subject matter dated prior to the date of this Agreement, and by execution of this Agreement both parties agree that any such predecessor agreement shall be deemed null and void. (d) Choice of Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of California without reference to conflict of laws provisions. (e) Severability. If any term or provision of this Agreement or the ------------ application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or unenforceable, and a suitable and equitable term or provision shall be substituted therefor to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision. (f) Arbitration. Any dispute or controversy arising under or in ----------- connection with this Agreement may be settled at the option of either party by binding arbitration in the County of San Mateo, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Punitive damages shall not be awarded. (g) Legal Fees and Expenses. The parties shall each bear their own ----------------------- expenses, legal fees and other fees incurred in connection with this Agreement. (h) No Assignment of Benefits. The rights of any person to payments ------------------------- or benefits under this Agreement shall not be made subject to option or assignment, either by -4- voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this subsection (h) shall be void. (i) Service Taxes. Any payments made pursuant to this Agreement will ------------- be subject to withholding of applicable income and service taxes. (j) Assignment by Company. The Company may assign its rights under --------------------- this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term "Company" when used in a section of this Agreement shall mean the corporation that actually employs the Director. (k) Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed an original, but all of which together will constitute one and the same instrument. [Signature Page Follows] -5- IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written. CHEMDEX CORPORATION CHARLES BURKE By: /s/ Cindy Vindasius /s/ Charles R. Burke -------------------------- -------------------------- Title: Controller ----------------------- SIGNATURE PAGE TO CHANGE OF CONTROL AGREEMENT EX-10.5 10 1998 STOCK PLAN EXHIBIT 10.5 CHEMDEX CORPORATION 1998 STOCK PLAN 1. PURPOSES OF THE PLAN. The purposes of this 1998 Stock Plan are to -------------------- attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options (as defined under Section 422 of the Code) or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. Stock purchase rights may also be granted under the Plan. 2. DEFINITIONS. As used herein, the following definitions shall apply: ----------- (a) "ADMINISTRATOR" means the Board or any of its Committees appointed ------------- pursuant to Section 4 of the Plan. (b) "APPLICABLE LAWS" means the legal requirements relating to the --------------- administration of stock option and restricted stock purchase plans under applicable U.S. state corporate laws, U.S. federal and applicable state securities laws, the Code, any stock exchange rules or regulations and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan, as such laws, rules, regulations and requirements shall be in place from time to time. (c) "BOARD" means the Board of Directors of the Company. ----- (d) "CODE" means the Internal Revenue Code of 1986, as amended. ---- (e) "COMMITTEE" means the Committee appointed by the Board of --------- Directors in accordance with Paragraph 4(a) of Section 4 of the Plan. (f) "COMMON STOCK" means the Common Stock of the Company. ------------ (g) "COMPANY" means Chemdex Corporation, a Delaware corporation. ------- (h) "CONSULTANT" means any person, including an advisor, who is ---------- engaged by the Company or any Parent or Subsidiary to render services and is compensated for such services, and any director of the Company whether compensated for such services or not. (i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the ---------------------------------------------- absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Subsidiaries or their respective successors. For purposes of this Plan, a change in status from an Employee to a Consultant or from a Consultant to an Employee will not constitute an interruption of Continuous Status as an Employee or Consultant. (j) "DIRECTOR" means a member of the Board. -------- (k) "EMPLOYEE" means any person (including if appropriate, any Named -------- Executive, Officer or Director) employed by the Company or any Parent or Subsidiary of the Company, with the status of employment determined based upon such minimum number of hours or periods worked as shall be determined by the Administrator in its discretion, subject to any requirements of the Code. The payment by the Company of a director's fee to a director shall not be sufficient to constitute "employment" of such director by the Company. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as ------------ amended. (m) "FAIR MARKET VALUE" means, as of any date, the fair market value ----------------- of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system including without limitation the National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales ------ price for such stock (or the closing bid, if no sales were reported), as quoted on such system or exchange, or the exchange with the greatest volume of trading in Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is quoted on the Nasdaq System (but not on the National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an ---------------------- incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable written Option Agreement. (o) "LISTED SECURITY" means any security of the Company that is listed --------------- or approved for listing on a national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. (p) "NAMED EXECUTIVE" means any individual who, on the last day of --------------- the Company's fiscal year, is the chief executive officer of the Company (or is acting in such capacity) or among the four most highly compensated officers of the Company (other than the chief executive officer). Such officer status shall be determined pursuant to the executive compensation disclosure rules under the Exchange Act. (q) "NONSTATUTORY STOCK OPTION" means an Option not intended to ------------------------- qualify as an Incentive Stock Option, as designated in the applicable written Option Agreement. (r) "OFFICER" means a person who is an officer of the Company within ------- the meaning of Section 16(a) of the Exchange Act and the rules and regulations promulgated thereunder. (s) "OPTION" means a stock option granted pursuant to the Plan. ------ (t) "OPTION AGREEMENT" means a written agreement between an Optionee ---------------- and the Company reflecting the terms of an Option granted under the Plan and includes any documents attached to such Option Agreement, including, but not limited to, a notice of stock option grant and a form of exercise notice. (u) "OPTIONED STOCK" means the Common Stock subject to an Option or a -------------- Stock Purchase Right. (v) "OPTIONEE" means an Employee or Consultant who receives an Option -------- or a Stock Purchase Right. (w) "PARENT" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code, or any successor provision. (x) "PLAN" means this 1998 Stock Plan. ---- (y) "REPORTING PERSON" means an Officer, Director, or greater than ---------------- 10% stockholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act. (z) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant ---------------- to a grant of a Stock Purchase Right under Section 11 below. (aa) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement ----------------------------------- between a holder of a Stock Purchase Right and the Company reflecting the terms of a Stock Purchase Right granted under the Plan and includes any documents attached to such agreement. (bb) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act, ---------- as the same may be amended from time to time, or any successor provision. (cc) "SHARE" means a share of the Common Stock, as adjusted in ----- accordance with Section 13 of the Plan. (dd) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock -------------------- pursuant to Section 10 below. (ee) "SUBSIDIARY" means a "subsidiary corporation," whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code, or any successor provision. (ff) "TEN PERCENT HOLDER" means a person who owns stock representing ------------------ more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of ------------------------- the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 12,250,000 shares of Common Stock, plus an automatic annual increase on the first day of each of the Company's fiscal years beginning in 2000 and ending in 2004 equal to the lesser of (i) 2,5000,000 shares, (ii) three percent (3%) of the shares outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number of shares as is determined by the Board of Directors. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares that were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock which are retained by the Company upon exercise of an Option or Stock Purchase Right in order to satisfy the exercise or purchase price for such Option or Stock Purchase Right or any withholding taxes due with respect to such exercise shall be treated as not issued and shall continue to be available under the Plan. Shares repurchased by the Company pursuant to any repurchase right which the Company may have shall not be available for future grant under the Plan. 4. ADMINISTRATION OF THE PLAN. -------------------------- (a) GENERAL. The Plan shall be administered by the Board or a ------- Committee, or a combination thereof, as determined by the Board. The Plan may be administered by different administrative bodies with respect to different classes of Optionees and, if permitted by the Applicable Laws, the Board may authorize one or more officers (who may (but need not) be Officers) to grant Options or Stock Purchase Rights to Employees and Consultants. (b) ADMINISTRATION WITH RESPECT TO REPORTING PERSONS. With respect ------------------------------------------------ to Options granted to Reporting Persons and Named Executives, the Plan may (but need not) be administered so as to permit such Options to qualify for the exemption set forth in Rule 16b-3 and to qualify as performance-based compensation under Section 162(m) of the Code. (c) COMMITTEE COMPOSITION. If a Committee has been appointed --------------------- pursuant to this Section 4, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies (however caused) and remove all members of a Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws and, in the case of a Committee administering the Plan pursuant to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and Section 162(m) of the Code. (d) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the --------------------------- Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any Stock Exchange, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(m) of the Plan; (ii) to select the Consultants and Employees to whom Options and Stock Purchase Rights or any combination thereof may from time to time be granted hereunder; (iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder, which terms and conditions include but are not limited to the exercise or purchase price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option, Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to determine whether and under what circumstances an Option may be settled in cash under Section 10(f) instead of Common Stock; (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (ix) to determine the terms and restrictions applicable to Stock Purchase Rights and the Restricted Stock purchased by exercising such Stock Purchase Rights; and (x) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; and (xi) in order to fulfill the purposes of the Plan and without amending the Plan, to modify grants of Options or Stock Purchase Rights to participants who are foreign nationals or employed outside of the United States in order to recognize differences in local law, tax policies or customs. (e) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, ---------------------------------- determinations and interpretations of the Administrator shall be final and binding on all holders of Options or Stock Purchase Rights. 5. ELIGIBILITY. ----------- (a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and Stock -------------------- Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Stock Purchase Right may, if he or she is otherwise eligible, be granted additional Options or Stock Purchase Rights. (b) TYPE OF OPTION. Each Option shall be designated in the Option -------------- Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares subject to an Incentive Stock Option shall be determined as of the date of the grant of such Option. (c) The Plan shall not confer upon the holder of any Option or Stock Purchase Right any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with such holder's right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 6. TERM OF PLAN. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board of Directors or its approval by the stockholders of the Company as described in Section 19 of the Plan. It shall continue in effect for a term of ten years unless sooner terminated under Section 16 of the Plan. 7. TERM OF OPTION. The term of each Option shall be the term stated in -------------- the Option Agreement; provided, however, that the term shall be no more than ten years from the date of grant thereof or such shorter term as may be provided in the Option Agreement and provided further that, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, is a Ten Percent Holder, the term of the Option shall be five years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as provided --------------------------------- in Section 14 below, the maximum number of Shares which may be subject to Options and Stock Purchase Rights granted to any one Employee under this Plan for any fiscal year of the Company shall be 10,000,000 Shares. 9. OPTION EXERCISE PRICE AND CONSIDERATION. --------------------------------------- (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board and set forth in the applicable agreement, but shall be subject to the following: (i) In the case of an Incentive Stock Option that is: (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option that is: (A) granted prior to the date, if any, on which the Common Stock becomes a Listed Security to a person who, at the time of the grant of such Option, is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant. (B) granted to a person who, at the time of the grant of such Option, is a Named Executive of the Company, the per share Exercise Price shall be no less than 100% of the Fair Market Value on the date of grant if such Option is intended to qualify as performance-based compensation under Section 162(m) of the Code; or (C) granted prior to the date, if any, on which the Common Stock becomes a Listed Security to any person other than a Named Executive or a Ten Percent Holder, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant if required by the Applicable Laws and, if not so required, shall be such price as is determined by the Administrator. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note (subject to the provisions of Section 153 of the Delaware General Corporation Law), (4) other Shares that (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender or such other period as may be required to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) authorization for the Company to retain from the total number of Shares as to which the Option is exercised that number of Shares having a Fair Market Value on the date of exercise equal to the exercise price for the total number of Shares as to which the Option is exercised, (6) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price and any applicable income or employment taxes, (7) delivery of an irrevocable subscription agreement for the Shares that irrevocably obligates the option holder to take and pay for the Shares not more than twelve months after the date of delivery of the subscription agreement, (8) any combination of the foregoing methods of payment, or (9) such other consideration and method of payment for the issuance of Shares to the extent permitted under the Applicable Laws. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 10. EXERCISE OF OPTION. ------------------ (a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator and reflected in the Option Agreement, which may include vesting requirements and/or performance criteria with respect to the Company and/or the Optionee; provided, however, that if required by the Applicable Laws, any Option granted prior to the date, if any, upon which the Common Stock becomes a Listed Security shall become exercisable at the rate of at least 20% per year over five years from the date the Option is granted. In the event that any of the Shares issued upon exercise of an Option (which exercise occurs prior to the date, if any, upon which the Common Stock becomes a Listed Security) should be subject to a right of repurchase in the Company's favor, such repurchase right shall, if required by the Applicable Laws, lapse at the rate of at least 20% per year over five years from the date the Option is granted. Notwithstanding the above, in the case of an Option granted to an officer (including but not limited to Officers), Director or Consultant of the Company or any Parent or Subsidiary of the Company, the Option may become fully exercisable, and a repurchase right, if any, in favor of the Company shall lapse, at any time or during any period established by the Administrator. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and the Company has received full payment for the Shares with respect to which the Option is exercised. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, not withstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 13 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares that thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the ---------------------------------------------------- event of termination of an Optionee's Continuous Status as an Employee or Consultant with the Company, such Optionee may, but only within three months (or such other period of time not less than 30 days as is determined by the Administrator, with such determination in the case of an Incentive Stock Option being made at the time of grant of the Option and not exceeding three months) after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. No termination shall be deemed to occur and this Section 10(b) shall not apply if (i) the Optionee is a Consultant who becomes an Employee, or (ii) the Optionee is an Employee who becomes a Consultant. (c) DISABILITY OF OPTIONEE. ---------------------- (i) Notwithstanding Section 10(b) above, in the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her total and permanent disability (within the meaning of Section 22(e)(3) of the Code), such Optionee may, but only within twelve months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (ii) In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of a disability which does not fall within the meaning of total and permanent disability (as set forth in Section 22(e)(3) of the Code), such Optionee may, but only within six months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. However, to the extent that such Optionee fails to exercise an Option which is an Incentive Stock Option ("ISO") (within the meaning of Section --- 422 of the Code) within three months of the date of such termination, the Option will not qualify for ISO treatment under the Code. To the extent that the Optionee was not entitled to exercise the Option at the date of termination, or if the Optionee does not exercise such Option to the extent so entitled within six months from the date of termination, the Option shall terminate. (d) DEATH OF OPTIONEE. In the event of the death of an Optionee ----------------- during the period of Continuous Status as an Employee or Consultant since the date of grant of the Option, or within 30 days following termination of the Optionee's Continuous Status as an Employee or Consultant, the Option may be exercised, at any time within six months following the date of death (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), by such Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of death or, if earlier, the date of termination of the Optionee's Continuous Status as an Employee or Consultant. To the extent that the Optionee was not entitled to exercise the Option at the date of death or termination, as the case may be, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (e) EXTENSION OF EXERCISE PERIOD. The Administrator shall have full ---------------------------- power and authority to extend the period of time for which an Option is to remain exercisable following termination of an Optionee's Continuous Status as an Employee or Consultant from the periods set forth in Sections 10(b), 10(c) and 10(d) above or in the Option Agreement to such greater time as the Board shall deem appropriate, provided that in no event shall such Option be exercisable later than the date of expiration of the term of such Option as set forth in the Option Agreement. (f) RULE 16B-3. Options granted to Reporting Persons shall comply ---------- with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption for Plan transactions. 11. STOCK PURCHASE RIGHTS. --------------------- (a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either ------------------ alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer, which shall in no event exceed 30 days from the date upon which the Administrator made the determination to grant the Stock Purchase Right. In the case of a Stock Purchase Right granted prior to the date, if any, on which the Common Stock becomes a Listed Security and if required by the Applicable Laws at such time, the purchase price of Shares subject to such Stock Purchase Rights shall not be less than 85% of the Fair Market Value of the Shares as of the date of the offer, or, in the case of a Ten Percent Holder, the price shall not be less than 100% of the Fair Market Value of the Shares as of the date of the offer. If the Applicable Laws do not impose the requirements set forth in the preceding sentence and with respect to any Stock Purchase Rights granted after the date, if any, on which the Common Stock becomes a Listed Security, the purchase price of Shares subject to Stock Purchase Rights shall be as determined by the Administrator. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) REPURCHASE OPTION. Unless the Administrator determines otherwise, ----------------- the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original purchase price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine; provided, however, that with respect to a Stock Purchase Right granted prior to the date, if any, on which the Common Stock becomes a Listed Security to a purchaser who is not an officer (including an Officer), Director or Consultant of the Company or of any Parent or Subsidiary of the Company, it shall lapse at a minimum rate of 20% per year if required by the Applicable Laws. (c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall ---------------- contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock Purchase Agreements need not be the same with respect to each purchaser. (d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is ----------------------- exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. 12. TAXES. ----- (a) As a condition of the exercise of an Option or Stock Purchase Right granted under the Plan, the Participant (or in the case of the Participant's death, the person exercising the Option or Stock Purchase Right) shall make such arrangements as the Administrator may require for the satisfaction of any applicable federal, state, local or foreign withholding tax obligations that may arise in connection with the exercise of Option or Stock Purchase Right and the issuance of Shares. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied. (b) In the case of an Employee and in the absence of any other arrangement, the Employee shall be deemed to have directed the Company to withhold or collect from his or her compensation an amount sufficient to satisfy such tax obligations from the next payroll payment otherwise payable after the date of an exercise of the Option or Stock Purchase Right. (c) This Section 12(c) shall apply only after the date, if any, upon which the Common Stock becomes a Listed Security. In the case of Participant other than an Employee (or in the case of an Employee where the next payroll payment is not sufficient to satisfy such tax obligations, with respect to any remaining tax obligations), in the absence of any other arrangement and to the extent permitted under the Applicable Laws, the Participant shall be deemed to have elected to have the Company withhold from the Shares to be issued upon exercise of the Option or Stock Purchase Right that number of Shares having a Fair Market Value determined as of the applicable Tax Date (as defined below) equal to the amount required to be withheld. For purposes of this Section 12, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined under the Applicable Laws (the "Tax Date"). -------- (d) If permitted by the Administrator, in its discretion, a Participant may satisfy his or her tax withholding obligations upon exercise of an Option or Stock Purchase Right by surrendering to the Company Shares that (i) in the case of Shares previously acquired from the Company, have been owned by the Participant for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value determined as of the applicable Tax Date equal to the amount required to be withheld. (e) Any election or deemed election by a Participant to have Shares withheld to satisfy tax withholding obligations under Section 12(c) or (d) above shall be irrevocable as to the particular Shares as to which the election is made and shall be subject to the consent or disapproval of the Administrator. Any election by a Participant under Section 12(d) above must be made on or prior to the applicable Tax Date. (f) In the event an election to have Shares withheld is made by a Participant and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Participant shall receive the full number of Shares with respect to which the Option or Stock Purchase Right is exercised but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the applicable Tax Date. 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER ------------------------------------------------------------------- TRANSACTIONS. - ------------ (a) CHANGES IN CAPITALIZATION. Subject to any required action by the ------------------------- stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or that have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, the numbers of Shares set forth described in Sections 3(a)(i) and 8 above, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Board shall notify the Optionee at least 15 days prior to such proposed action. To the extent it has not been previously exercised, the Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) MERGER OR SALE OF ASSETS. In the event of a proposed sale of all ------------------------ or substantially all of the Company's assets or a merger of the Company with or into another corporation where the successor corporation issues its securities to the Company's stockholders, each outstanding Option or Stock Purchase Right shall be assumed or an equivalent option or right shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the successor corporation does not agree to assume the Option or Stock Purchase Right or to substitute an equivalent option or right, in which case such Option or Stock Purchase Right shall terminate upon the consummation of the merger or sale of assets. For purposes of this Section 13(c), an Option or a Stock Purchase Right shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon such merger or sale of assets, each holder of an Option or a Stock Purchase Right would be entitled to receive upon exercise of the Option or Stock Purchase Right the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of such transaction if the holder had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the Option or the Stock Purchase Right at such time (after giving effect to any adjustments in the number of Shares covered by the Option or Stock Purchase Right as provided for in this Section 13). (d) CERTAIN DISTRIBUTIONS. In the event of any distribution to the --------------------- Company's stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per share of Common Stock covered by each outstanding Option or Stock Purchase Right to reflect the effect of such distribution. 14. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options and -------------------------------------------------------- Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution, provided that, after the date, if any, upon which the Common Stock becomes a Listed Security, the Administrator may in its discretion grant transferable Nonstatutory Stock Options pursuant to Option Agreements specifying (i) the manner in which such Nonstatutory Stock Options are transferable and (ii) that any such transfer shall be subject to the Applicable Laws. The designation of a beneficiary by an Optionee will not constitute a transfer. An Option or Stock Purchase Right may be exercised, during the lifetime of the holder of Option or Stock Purchase Right, only by such holder or a transferee permitted by this Section 14. 15. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant -------------------------------------------------- of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Board; provided, however, that in the case of any Incentive Stock Option, the grant date shall be the later of the date on which the Administrator makes the determination granting such Incentive Stock Option or the date of commencement of the Optionee's employment relationship with the Company. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 16. AMENDMENT AND TERMINATION OF THE PLAN. ------------------------------------- (a) AUTHORITY TO AMEND OR TERMINATE. The Board may at any time amend, ------------------------------- alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation (other than an adjustment under pursuant to Section 13 above) shall be made that would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with the Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required (b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination ---------------------------------- of the Plan shall adversely affect Options already granted, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 17. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares pursuant thereto shall comply with the Applicable Laws. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law. 18. RESERVATION OF SHARES. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 19. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by ---------- written Option Agreements and Restricted Stock Purchase Agreements, respectively, in such form(s) as the Administrator shall approve from time to time. 20. STOCKHOLDER APPROVAL. If required by the Applicable Laws, continuance -------------------- of the Plan shall be subject to approval by the stockholders of the Company within twelve months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required under the Applicable Laws. 21. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. Prior to the ----------------------------------------------------- date, if any, upon which the Common Stock becomes a Listed Security and if required by the Applicable Laws, the Company shall provide financial statements at least annually to each Optionee and to each individual who acquired Shares Pursuant to the Plan, during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and in the case of an individual who acquired Shares pursuant to the Plan, during the period such individual owns such Shares. The Company shall not be required to provide such information if the issuance of Options or Stock Purchase Rights under the Plan is limited to key employees whose duties in connection with the Company assure their access to equivalent information. In addition, at the time of issuance of any securities under the Plan, the Company shall provide to the Optionee or the Purchaser a copy of the Plan and any agreement(s) pursuant to which securities granted under the Plan are issued. CHEMDEX CORPORATION 1998 STOCK OPTION PLAN NOTICE OF STOCK OPTION GRANT ---------------------------- Optionee OptioneeAddress1 OptioneeAddress2 You have been granted an option to purchase Common Stock "Common Stock" of ------------ Chemdex Corporation (the "Company") as follows: ------- Board Approval Date: BoardApproveDate Date of Grant (Later of Board Approval Date or Commencement of Employment/Consulting): GrantDate Vesting Commencement Date: VestingCommenceDate Exercise Price per Share: $ ExercisePrice Total Number of Shares Granted: NoofShares Total Exercise Price: $ TotalExercisePrice Type of Option: __________ Incentive Stock Option __________ Nonstatutory Stock Option Term/Expiration Date: ExpirDate Vesting Schedule: This Option may be exercised, in whole or in part, in accordance with the following schedule: 25% of the Shares subject to the Option shall vest on the one year anniversary of the Vesting Commencement Date and 1/48 of the total number of Shares subject to the Option shall vest each month thereafter. Termination Period: This Option may be exercised for three months after termination of employment or consulting relationship except as set out in Sections 6 and 7 of the Stock Option Agreement (but in no event later than the Expiration Date By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the 1998 Stock Option Plan and the Stock Option Agreement, both of which are attached and made a part of this document. OPTIONEE: CHEMDEX CORPORATION ___________________________ By: _______________________________ Signature ____________________________ _______________________________ Print Name Print Name and Title -17- CHEMDEX CORPORATION 1998 STOCK OPTION PLAN STOCK OPTION AGREEMENT ---------------------- 1. GRANT OF OPTION. Chemdex Corporation a Delaware corporation (the --------------- "Company"), hereby grants to Optionee ("Optionee"), an option (the "Option") ------- -------- ------ to purchase a total number of shares of Common Stock (the "Shares") set forth in ------ the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the "Exercise Price") subject to the terms, -------------- definitions and provisions of the 1998 Stock Option Plan (the "Plan") adopted ---- by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option. If designated an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. 2. EXERCISE OF OPTION. This Option shall be exercisable during its Term ------------------ in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and with the provisions of Section 9 of the Plan as follows: (a) RIGHT TO EXERCISE. ----------------- (i) This Option may not be exercised for a fraction of a share. (ii) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 5, 6 and 7 below, subject to the limitation contained in Section 2(a)(i). (iii) In no event may this Option be exercised after the Expiration Date of this Option as set forth in the Notice of Stock Option Grant. (b) METHOD OF EXERCISE. This Option shall be exercisable by ------------------ execution and delivery of the Exercise Notice and Restricted Stock Purchase Agreement attached hereto as Exhibit A (the "Exercise Agreement") or of any --------- ------------------ other form of written notice approved for such purpose by the Company which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of applicable law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares. 3. METHOD OF PAYMENT. Payment of the Exercise Price shall be by cash, ----------------- check or any other method permitted under the Plan; provided however that the Administrator may refuse to allow Optionee to tender a particular form of payment (other than cash or check) if, in the Administrator's sole discretion, acceptance of such form of consideration would not be in the best interests of the Company at such time. 4. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such ------------------------ time as the Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 5. TERMINATION OF RELATIONSHIP. In the event of termination of --------------------------- Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination ----------- Date"), exercise this Option during the Termination Period set forth in the - ---- Notice of Stock Option Grant. To the extent that Optionee was not entitled to exercise this Option at such Termination Date, or if Optionee does not exercise this Option within the Termination Period, the Option shall terminate. 6. DISABILITY OF OPTIONEE. ---------------------- (a) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee's Continuous Status as an Employee or Consultant as a result of Optionee's total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant), exercise this Option to the extent Optionee was entitled to exercise it as of such Termination Date. To the extent that Optionee was not entitled to exercise the Option as of the Termination Date, or if Optionee does not exercise such Option (to the extent so entitled) within the time specified in this Section 6(a), the Option shall terminate. (b) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee's consulting relationship or Continuous Status as an Employee as a result of disability not constituting a total and permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but only within six months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant), exercise the Option to the extent Optionee was entitled to exercise it as of such Termination Date; provided, however, that if this is an Incentive Stock Option and Optionee fails to exercise this Incentive Stock Option within three months from the Termination Date, this Option will cease to qualify as an Incentive Stock Option (as defined in Section 422 of the Code) and Optionee will be treated for federal income tax purposes as having received ordinary income at the time of such exercise in an amount generally measured by the difference between the Exercise Price for the Shares and the Fair Market Value of the Shares on the date of exercise. To the extent that Optionee was not entitled to exercise the Option at the Termination Date, or if Optionee does not exercise such Option to the extent so entitled within the time specified in this Section 6(b), the Option shall terminate. 7. DEATH OF OPTIONEE. In the event of the death of Optionee (a) during ----------------- the Term of this Option and while an Employee or Consultant of the Company and having been in Continuous Status as an Employee or Consultant since the date of grant of the Option, or (b) within 30 days after Optionee's Termination Date, the Option may be exercised at any time within six months following the date of death (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the Termination Date. 8. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by him or her. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee. 9. TERM OF OPTION. This Option may be exercised only within the Term set -------------- forth in the Notice of Stock Option Grant, subject to the limitations set forth in Section 7 of the Plan. 10. TAX CONSEQUENCES. Set forth below is a brief summary as of the date ---------------- of this Option of certain of the federal and California tax consequences of exercise of this Option and disposition of the Shares under the laws in effect as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option qualifies as ---------------------------------- an Incentive Stock Option, there will be no regular federal or California income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject Optionee to the alternative minimum tax in the year of exercise. (b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does not ------------------------------------- qualify as an Incentive Stock Option, there may be a regular federal income tax liability and a California income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (c) DISPOSITION OF SHARES. In the case of a Nonstatutory Stock --------------------- Option, if Shares are held for more than one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and California income tax purposes. In the case of an Incentive Stock Option, if Shares transferred pursuant to the Option are held for more than one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and California income tax purposes. In either case, the long-term capital gain will be taxed for federal income tax and alternative minimum tax purposes at a maximum rate of 20% if the Shares are held more than one year after exercise. If Shares purchased under an Incentive Stock Option are disposed of within one year after exercise or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the date of exercise, or (ii) the sale price of the Shares. (d) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK OPTION ------------------------------------------------------------- SHARES. If the Option granted to Optionee herein is an Incentive Stock Option, - ------ and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the Incentive Stock Option on or before the later of (i) the date two years after the Date of Grant, or (ii) the date one year after the date of exercise, Optionee shall immediately notify the Company in writing of such disposition. Optionee acknowledges and agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized by Optionee from the early disposition by payment in cash or out of the current earnings paid to Optionee. 11. WITHHOLDING TAX OBLIGATIONS. --------------------------- (a) GENERAL WITHHOLDING OBLIGATIONS. As a condition to the exercise ------------------------------- of Option granted hereunder, Optionee shall make such arrangements as the Administrator may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the exercise, receipt or vesting of the Option. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied. Optionee understands that, upon exercising a Nonstatutory Stock Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then Fair Market Value of the Shares over the Exercise Price. If Optionee is an employee, the Company will be required to withhold from Optionee's compensation, or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. Additionally, Optionee may at some point be required to satisfy tax withholding obligations with respect to the disqualifying disposition of an Incentive Stock Option. Optionee shall satisfy his or her tax withholding obligation arising upon the exercise of this Option by one or some combination of the following methods: (i) by cash or check payment, (ii) out of Optionee's current compensation, (iii) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares which (A) in the case of Shares previously acquired from the Company, have -4- been owned by Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value determined as of the applicable Tax Date (as defined in Section 11(c) below) on the date of surrender equal to the amount required to be withheld, or (iv) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a Fair Market Value determined as of the applicable Tax Date equal to the amount required to be withheld. (b) STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. In the -------------------------------------------------------- event the Administrator allows Optionee to satisfy his or her tax withholding obligations as provided in Section 11(a)(iii) or (iv) above, such satisfaction must comply with the requirements of this Section (11)(b) and all applicable laws. All elections by Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (i) the election must be made on or prior to the applicable Tax Date (as defined in Section 11(c) below); (ii) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and (iii) all elections shall be subject to the consent or disapproval of the Administrator. In the event the election to have Shares withheld is made by Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, Optionee shall receive the full number of Shares with respect to which the Option is exercised but Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. (c) DEFINITIONS. For purposes of this Section 11, the Fair Market ----------- Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined under the applicable laws (the "Tax Date"). -------- 12. MARKET STANDOFF AGREEMENT. In connection with the initial public ------------------------- offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Optionee agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering. [Signature Page Follows] -5- This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one document. CHEMDEX CORPORATION By: _______________________________ _______________________________ (Print name and title) OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Dated: ________________________ ______________________________ Optionee -6- EXHIBIT A --------- CHEMDEX CORPORATION 1998 STOCK OPTION PLAN EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT ------------------------------------------------------- This Agreement ("Agreement") is made as of ______________, by and between --------- Chemdex Corporation, a Delaware corporation (the "Company"), and Optionee~ ------- ("Purchaser"). To the extent any capitalized terms used in this Agreement are --------- not defined, they shall have the meaning ascribed to them in the Stock Option Plan. 1. EXERCISE OF OPTION. Subject to the terms and conditions hereof, ------------------ Purchaser hereby elects to exercise his or her option to purchase __________ shares of the Common Stock (the "Shares") of the Company under and pursuant to ------ the Company's 1998 Stock Option Plan (the "Plan") and the Stock Option Agreement ---- dated ______________, (the "Option Agreement"). The purchase price for the ---------------- Shares shall be $ExercisePrice~ per Share for a total purchase price of $_______________. The term "Shares" refers to the purchased Shares and all ------ securities received in replacement of the Shares or as stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares. 2. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares under -------------------------- this Agreement shall occur at the principal office of the Company simultaneously with the execution and delivery of this Agreement in accordance with the provisions of Section 2(b) of the Option Agreement. On such date, the Company will deliver to Purchaser a certificate representing the Shares to be purchased by Purchaser (which shall be issued in Purchaser's name) against payment of the exercise price therefor by Purchaser by (a) check made payable to the Company, (b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of shares of the Common Stock of the Company in accordance with Section 3 of the Option Agreement, or (d) a combination of the foregoing. 3. LIMITATIONS ON TRANSFER. In addition to any other limitation on ----------------------- transfer created by applicable securities laws, Purchaser shall not assign, encumber or dispose of any interest in the Shares except in compliance with the provisions below and applicable securities laws. (a) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or ---------------------- any transferee of Purchaser (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or ------ operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(a) (the "Right of First Refusal"). ---------------------- (i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall --------------------------- deliver to the Company a written notice (the "Notice") stating: (i) the ------ Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number ------------------- of Shares to be transferred to each Proposed Transferee; and (iv) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or terms as ------------- similar as reasonably possible) to the Company or its assignee(s). (ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30 days ---------------------------------- after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below. (iii) PURCHASE PRICE. The purchase price ("Purchase Price") for -------------- -------------- the Shares purchased by the Company or its assignee(s) under this Section 3(a) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (iv) PAYMENT. Payment of the Purchase Price shall be made, at the ------- option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in -------------------------- the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section 3(a), then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 60 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section 3 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, or if the Holder proposes to change the price or other terms to make them more favorable to the Proposed Transferee, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the -------------------------------------- contrary contained in this Section 3(a) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family (as defined below) or a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal ---------------- descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the -2- provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3. (b) INVOLUNTARY TRANSFER. -------------------- (i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In ----------------------------------------------------- the event, at any time after the date of this Agreement, of any transfer by operation of law or other involuntary transfer (including divorce or death, but excluding, in the event of death, a transfer to Immediate Family as set forth in Section 3(a)(vi) above) of all or a portion of the Shares by the record holder thereof, the Company shall have the right to purchase all of the Shares transferred at the greater of the purchase price paid by Purchaser pursuant to this Agreement or the Fair Market Value of the Shares on the date of transfer. Upon such a transfer, the person acquiring the Shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such Shares shall be provided to the Company for a period of 30 days following receipt by the Company of written notice by the person acquiring the Shares. (ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock ------------------------------ to be transferred pursuant to Section 3(b)(i), the price per Share shall be a price set by the Board of Directors of the Company that will reflect the current value of the stock in terms of present earnings and future prospects of the Company. The Company shall notify Purchaser or his or her executor of the price so determined within 30 days after receipt by it of written notice of the transfer or proposed transfer of Shares. However, if the Purchaser does not agree with the valuation as determined by the Board of Directors of the Company, the Purchaser shall be entitled to have the valuation determined by an independent appraiser to be mutually agreed upon by the Company and the Purchaser and whose fees shall be borne equally by the Company and the Purchaser. (c) ASSIGNMENT. The right of the Company to purchase any part of the ---------- Shares may be assigned in whole or in part to any stockholder or stockholders of the Company or other persons or organizations. (d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares ----------------------------------- or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement. Any sale or transfer of the Shares shall be void unless the provisions of this Agreement are satisfied. (e) TERMINATION OF RIGHTS. The Right of First Refusal and the --------------------- Company's right to repurchase the Shares in the event of an involuntary transfer pursuant to Section 3(b) above shall terminate upon the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"). -------------- (f) MARKET STANDOFF AGREEMENT. In connection with the initial public ------------------------- offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any -3- securities of the Company (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering. 4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the --------------------------------------- purchase of the Shares, Purchaser represents to the Company the following: (a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act. (b) Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. (c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Shares for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. (d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. -------------------------------------------- (a) LEGENDS. The certificate or certificates representing the Shares ------- shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws): (i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A -4- VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. (ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure --------------------- compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to ------------------- transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. (d) REMOVAL OF LEGEND. When all of the following events have ----------------- occurred, the Shares then held by Purchaser will no longer be subject to the legend referred to in Section 5(a)(ii): (i) the termination of the Right of First Refusal; and (ii) the expiration or termination of the market standoff provisions of Section 3(f) (and of any agreement entered pursuant to Section 3(f)). After such time, and upon Purchaser's request, a new certificate or certificates representing the Shares not repurchased shall be issued without the legend referred to in Section 5(a)(ii), and delivered to Purchaser. 6. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any -------------------- manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Purchaser's employment or consulting relationship, for any reason, with or without cause. 7. MISCELLANEOUS. ------------- (a) GOVERNING LAW. This Agreement and all acts and transactions ------------- pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. -5- (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets --------------------------------------- forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (c) SEVERABILITY. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (d) CONSTRUCTION. This Agreement is the result of negotiations ------------ between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (e) NOTICES. Any notice required or permitted by this Agreement shall ------- be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (f) COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement ---------------------- shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (H) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES ----------------------------------- WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. -6- [Signature Page Follows] -7- The parties have executed this Exercise Notice and Restricted Stock Purchase Agreement as of the date first set forth above. COMPANY: CHEMDEX CORPORATION By: __________________________________ Name: ________________________________ (print) Title: _______________________________ PURCHASER: OPTIONEE _____________________________________ (Signature) ____________________________________ (Print Name) Address: OptioneeAddress1 OptioneeAddress2 I, ______________________, spouse of Optionee, have read and hereby approve the foregoing Agreement. In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, I hereby agree to be bound irrevocably by the Agreement and further agree that any community property or similar interest that I may have in the Shares shall hereby be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement. _____________________________________ Spouse of Optionee -8- STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE ---------------------------------------------------- Title 10. Investment - Chapter 3. Commissioner of Corporations 260.141.11: Restriction on Transfer. ---------- ----------------------- (a) The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee. (b) It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of these rules), except: (1) to the issuer; (2) pursuant to the order or process of any court; (3) to any person described in Subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules; (4) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse; (5) to holders of securities of the same class of the same issuer; (6) by way of gift or donation inter vivos or on death; (7) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned; (8) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group; (9) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required; (10) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification; (11) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation; (12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification; (13) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state; (14) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state; (15) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser; (16) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities; or (17) by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirement of Section 25110 of the Code but exempt from that qualification requirement by subdivision (f) of Section 25102; provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section. (c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows: "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES." RECEIPT ------- The undersigned hereby acknowledges receipt of Certificate No. _____ for __________ shares of Common Stock of CHEMDEX CORPORAITON Dated: _______________ ______________________________ Optionee RECEIPT ------- CHEMDEX CORPORATION hereby acknowledges receipt of a check in the amount of $_____________ given by Optionee~ as consideration for Certificate No. _________ for ____________ shares of Common Stock of. Dated: ______________ CHEMDEX CORPORATION By: ___________________________________ Name: _________________________________ (print) Title: ________________________________ -11- EX-10.6 11 1999 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.6 CHEMDEX CORPORATION 1999 EMPLOYEE STOCK PURCHASE PLAN --------------------------------- The following constitute the provisions of the 1999 Employee Stock Purchase Plan of Chemdex Corporation 1. PURPOSE. The purpose of the Plan is to provide employees of the ------- Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. DEFINITIONS. ----------- (a) "BOARD" means the Board of Directors of the Company. ----- (b) "CODE" means the Internal Revenue Code of 1986, as amended. ---- (c) "COMMON STOCK" means the Common Stock of the Company. ------------ (d) "COMPANY" means Chemdex Corporation, a Delaware corporation. ------- (e) "COMPENSATION" means total cash compensation received by an ------------ Employee from the Company or a Designated Subsidiary. By way of illustration, but not limitation, Compensation includes regular compensation such as salary, wages, overtime, shift differentials, bonuses, commissions and incentive compensation, but excludes relocation, expense reimbursements, tuition or other reimbursements and income realized as a result of participation in any stock option, stock purchase, or similar plan of the Company or any Designated Subsidiary. (f) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any -------------------------------- interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company and its Designated Subsidiaries. (g) "CONTRIBUTIONS" means all amounts credited to the account of a ------------- participant pursuant to the Plan. (h) "CORPORATE TRANSACTION" means a sale of all or substantially all --------------------- of the Company's assets, or a merger, consolidation or other capital reorganization of the Company with or into another corporation, or any other transaction or series of related transactions in which the Company's stockholders immediately prior thereto own less than 50% of the voting stock of the Company (or its successor or parent) immediately thereafter. (i) "DESIGNATED SUBSIDIARIES" means the Subsidiaries which have been ----------------------- designated by the Board from time to time in its sole discretion as eligible to participate in the Plan; provided however that the Board shall only have the discretion to designate Subsidiaries if the issuance of options to such Subsidiary's Employees pursuant to the Plan would not cause the Company to incur adverse accounting charges. (j) "EMPLOYEE" means any person, including an Officer, who is -------- customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries. (k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as ------------ amended. (l) "OFFERING DATE" means the first business day of each Offering ------------- Period of the Plan. (m) "OFFERING PERIOD" means a period of twenty-four (24) months --------------- commencing on February 1 and August 1 of each year, except for the first Offering Period as set forth in Section 4(a). (n) "OFFICER" means a person who is an officer of the Company within ------- the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (o) "PLAN" means this Employee Stock Purchase Plan. ---- (p) "PURCHASE DATE" means the last day of each Purchase Period of the ------------- Plan. (q) "PURCHASE PERIOD" means a period of six (6) months within an --------------- Offering Period, except for the Purchase Periods in the first Offering Period as set forth in Section 4(b). (r) "PURCHASE PRICE" means with respect to a Purchase Period an amount -------------- equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a Share of Common Stock on the Offering Date or on the Purchase Date, whichever is lower; provided, however, that in the event (i) of any increase in the number of Shares available for issuance under the Plan as a result of a stockholder- approved amendment to the Plan, and (ii) all or a portion of such additional Shares are to be issued with respect to one or more Offering Periods that are underway at the time of such increase ("Additional Shares"), and (iii) the Fair ----------------- Market Value of a Share of Common Stock on the date of such increase (the "Approval Date Fair Market Value") is higher than the Fair Market Value on the - -------------------------------- Offering Date for any such Offering Period, then in such instance the Purchase Price with respect to Additional Shares shall be 85% of the Approval Date Fair Market Value or the Fair Market Value of a Share of Common Stock on the Purchase Date, whichever is lower. -2- (s) "SHARE" means a share of Common Stock, as adjusted in accordance ----- with Section 19 of the Plan. (t) "SUBSIDIARY" means a corporation, domestic or foreign, of which ---------- not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. 3. ELIGIBILITY. ----------- (a) Any person who is an Employee as of the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code; provided however that eligible Employees may not participate in more than one Offering Period at a time. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) if such option would permit his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. OFFERING PERIODS AND PURCHASE PERIODS. ------------------------------------- (a) OFFERING PERIODS. The Plan shall be generally implemented by a ---------------- series of Offering Periods of twenty-four (24) months' duration, with new Offering Periods (other than the first Offering Period) commencing on or about February 1 and August 1 of each year (or at such other time or times as may be determined by the Board of Directors). The first Offering Period shall commence on the beginning of the effective date of the Registration Statement on Form S-1 for the initial public offering of the Company's Common Stock (the "IPO Date") -------- and continue until July 31, 2001. The Plan shall continue until terminated in accordance with Section 19 hereof. The Board of Directors of the Company shall have the power to change the duration and/or the frequency of Offering Periods with respect to future offerings without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected. (b) PURCHASE PERIODS. Each Offering Period shall generally consist of ---------------- four (4) consecutive purchase periods of six (6) months' duration. The last day of each Purchase Period shall be the "Purchase Date" for such Purchase Period. ------------- A Purchase Period commencing on February 1 shall end on the next July 31. A Purchase Period commencing on August 1 shall end on the next January 31. The first Purchase Period of the first Offering Period shall -3- commence on the IPO Date and shall end on January 31, 2000. The Board of Directors of the Company shall have the power to change the duration and/or frequency of Purchase Periods with respect to future purchases without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Purchase Period to be affected. 5. PARTICIPATION. ------------- (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement on the form provided by the Company and filing it with the Company's payroll office prior to the applicable Offering Date, unless a later time for filing the subscription agreement is set by the Board for all eligible Employees with respect to a given Offering Period. The subscription agreement shall set forth the percentage of the participant's Compensation (subject to Section 6(a) below) to be paid as Contributions pursuant to the Plan. (b) Payroll deductions shall commence on the first payroll following the Offering Date and shall end on the last payroll paid on or prior to the last Purchase Period of the Offering Period to which the subscription agreement is applicable, unless sooner terminated by the participant as provided in Section 10. 6. METHOD OF PAYMENT OF CONTRIBUTIONS. ---------------------------------- (a) A participant shall elect to have payroll deductions made on each payday during the Offering Period in an amount not less than one percent (1%) and not more than [TWENTY] percent ([20%]) (or such other percentage as the Board may establish from time to time before an Offering Date) of such participant's Compensation on each payday during the Offering Period. All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account. (b) A participant may discontinue his or her participation in the Plan as provided in Section 10, or, on one occasion only during the Offering Period may increase and on one occasion only during the Offering Period may decrease the rate of his or her Contributions with respect to the Offering Period by completing and filing with the Company a new subscription agreement authorizing a change in the payroll deduction rate. The change in rate shall be effective as of the beginning of the next calendar month following the date of filing of the new subscription agreement, if the agreement is filed at least ten (10) business days prior to such date and, if not, as of the beginning of the next succeeding calendar month. (c) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's payroll deductions may be decreased during any Offering Period scheduled to end during the current calendar year to 0%. Payroll deductions shall re-commence at the rate provided in such participant's subscription agreement at the beginning of the first Offering Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10. -4- 7. GRANT OF OPTION. --------------- (a) On the Offering Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Purchase Date a number of Shares of the Company's Common Stock determined by dividing such Employee's Contributions accumulated prior to such Purchase Date and retained in the participant's account as of the Purchase Date by the applicable Purchase Price; provided however that the maximum number of Shares an Employee may purchase during each Purchase Period shall be [2,500] Shares (subject to any adjustment pursuant to Section 19 below), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 13. (b) The fair market value of the Company's Common Stock on a given date (the "Fair Market Value") shall be determined by the Board in its ----------------- discretion based on the closing sales price of the Common Stock for such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported by the National Association of Securities Dealers Automated Quotation (Nasdaq) National Market or, if such price is not reported, the mean of the bid and asked prices per share of the Common Stock as reported by Nasdaq or, in the event the Common Stock is listed on a stock exchange, the Fair Market Value per share shall be the closing sales price on such exchange on such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported in The Wall Street Journal. For purposes of the Offering Date under the first ----------------------- Offering Period under the Plan, the Fair Market Value of a share of the Common Stock of the Company shall be the Price to Public as set forth in the final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as amended. 8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as ------------------ provided in Section 10, his or her option for the purchase of Shares will be exercised automatically on each Purchase Date of an Offering Period, and the maximum number of full Shares subject to the option will be purchased at the applicable Purchase Price with the accumulated Contributions in his or her account. No fractional Shares shall be issued. The Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Purchase Date. During his or her lifetime, a participant's option to purchase Shares hereunder is exercisable only by him or her. 9. DELIVERY. As promptly as practicable after each Purchase Date of each -------- Offering Period, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the Shares purchased upon exercise of his or her option. Any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full Share shall be retained in the participant's account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 below. Any other amounts left over in a participant's account after a Purchase Date shall be returned to the participant. -5- 10. VOLUNTARY WITHDRAWAL; TERMINATION OF EMPLOYMENT. ----------------------------------------------- (a) A participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to each Purchase Date by giving written notice to the Company. All of the participant's Contributions credited to his or her account will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current period will be automatically terminated, and no further Contributions for the purchase of Shares will be made during the Offering Period. (b) Upon termination of the participant's Continuous Status as an Employee prior to the Purchase Date of an Offering Period for any reason, including retirement or death, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under Section 14, and his or her option will be automatically terminated. (c) In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least twenty (20) hours per week during the Offering Period in which the employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated. (d) A participant's withdrawal from an offering will not have any effect upon his or her eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company. 11. AUTOMATIC WITHDRAWAL. If the Fair Market Value of the Shares on any -------------------- Purchase Date of an Offering Period is less than the Fair Market Value of the Shares on the Offering Date for such Offering Period, then every participant shall automatically (i) be withdrawn from such Offering Period at the close of such Purchase Date and after the acquisition of Shares for such Purchase Period, and (ii) be enrolled in the Offering Period commencing on the first business day subsequent to such Purchase Period. Participants shall automatically be withdrawn as of July 31, 1999 from the Offering Period beginning on the IPO Date and re-enrolled in the Offering Period beginning on August 1, 1999 if the Fair Market Value of the Shares on the IPO Date is greater than the Fair Market Value of the Shares on July 31, 1999, unless a participant notifies the Administrator prior to July 31, 1999 that he or she does not wish to be withdrawn and re- enrolled. 12. INTEREST. No interest shall accrue on the Contributions of a -------- participant in the Plan. 13. STOCK. ----- (a) Subject to adjustment as provided in Section 19, the maximum number of Shares which shall be made available for sale under the Plan shall be 1,500,000 Shares, plus an automatic annual increase on the first day of each of the Company's fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser of (i) 400,000 shares, (ii) -6- one-half of one percent (.5%) of the shares outstanding on the last day of the immediately preceding fiscal year or (iii) a lesser amount determined by the Board. If the Board determines that, on a given Purchase Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Offering Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Purchase Date, the Board may in its sole discretion provide (x) that the Company shall make a pro rata allocation of the Shares of Common Stock available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and continue all Offering Periods then in effect, or (y) that the Company shall make a pro rata allocation of the shares available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and terminate any or all Offering Periods then in effect pursuant to Section 20 below. The Company may make pro rata allocation of the Shares available on the Offering Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the Company's stockholders subsequent to such Offering Date. (b) The participant shall have no interest or voting right in Shares covered by his or her option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse. 14. ADMINISTRATION. The Board, or a committee named by the Board, shall -------------- supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. 15. DESIGNATION OF BENEFICIARY. -------------------------- (a) A participant may file a written designation of a beneficiary who is to receive any Shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of a Purchase Period but prior to delivery to him or her of such Shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the Purchase Date of an Offering Period. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant (and his or her spouse, if any) at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of -7- such participant's death, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. TRANSFERABILITY. Neither Contributions credited to a participant's --------------- account nor any rights with regard to the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 15) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10. 17. USE OF FUNDS. All Contributions received or held by the Company under ------------ the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions. 18. REPORTS. Individual accounts will be maintained for each participant ------- in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of Shares purchased and the remaining cash balance, if any. 19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS. ------------------------------------------------------------------ (a) ADJUSTMENT. Subject to any required action by the stockholders of ---------- the Company, the number of Shares covered by each option under the Plan which has not yet been exercised and the number of Shares which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the maximum number of shares of -------- Common Stock which may be purchased by a participant in a Purchase Period, the number of shares of Common Stock set forth in Section 13(a)(i) above, and the price per Share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock (including any such change in the number of Shares of Common Stock effected in connection with a change in domicile of the Company), or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company; provided however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an option. (b) CORPORATE TRANSACTIONS. In the event of a dissolution or ---------------------- liquidation of the Company, any Purchase Period and Offering Period then in progress will terminate -8- immediately prior to the consummation of such action, unless otherwise provided by the Board. In the event of a Corporate Transaction, each option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or Subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute for outstanding options, each Purchase Period and Offering Period then in progress shall be shortened and a new Purchase Date shall be set (the "New Purchase Date"), as of which date any Purchase Period and Offering Period ----------------- then in progress will terminate. The New Purchase Date shall be on or before the date of consummation of the transaction and the Board shall notify each participant in writing, at least ten (10) days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Section 10. For purposes of this Section 19, an option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction, each holder of an option under the Plan would be entitled to receive upon exercise of the option the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of Shares of Common Stock covered by the option at such time (after giving effect to any adjustments in the number of Shares covered by the option as provided for in this Section 19); provided however that if the consideration received in the transaction is not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per Share consideration received by holders of Common Stock in the transaction. The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per Share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of Shares of its outstanding Common Stock, and in the event of the Company's being consolidated with or merged into any other corporation. 20. AMENDMENT OR TERMINATION. ------------------------ (a) The Board may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19, no such termination of the Plan may affect options previously granted, provided that the Plan or an Offering Period may be terminated by the Board on a Purchase Date or by the Board's setting a new Purchase Date with respect to an Offering Period and Purchase Period then in progress if the Board determines that termination of the Plan and/or the Offering Period is in the best interests of the Company and the stockholders or if continuation of the Plan and/or the Offering Period would cause the Company to incur adverse accounting charges as a result of a change after the effective date of the Plan in the generally accepted accounting rules applicable to the Plan. Except as provided in Section 19 and in this -9- Section 20, no amendment to the Plan shall make any change in any option previously granted which adversely affects the rights of any participant. In addition, to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required. (b) Without stockholder consent and without regard to whether any participant rights may be considered to have been adversely affected, the Board (or its committee) shall be entitled to change the Offering Periods and Purchase Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. 21. NOTICES. All notices or other communications by a participant to the ------- Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with ---------------------------------- respect to an option unless the exercise of such option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 23. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective upon ---------------------------- the IPO Date. It shall continue in effect for a term of twenty (20) years unless sooner terminated under Section 20. 24. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and conditions of ------------------------------------- options granted hereunder to, and the purchase of Shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the Shares issued upon exercise thereof -10- shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. -11- CHEMDEX CORPORATION 1999 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT ---------------------- New Election ______ Change of Election ______ 1. I, ________________________, hereby elect to participate in the Chemdex Corporation 1999 Employee Stock Purchase Plan (the "Plan") for the ---- Offering Period ______________, ____ to _______________, ____, and subscribe to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Plan. 2. I elect to have Contributions in the amount of ____% of my Compensation, as those terms are defined in the Plan, applied to this purchase. I understand that this amount must not be less than 1% and not more than 20% of my Compensation during the Offering Period. (Please note that no fractional percentages are permitted). 3. I hereby authorize payroll deductions from each paycheck during the Offering Period at the rate stated in Item 2 of this Subscription Agreement. I understand that all payroll deductions made by me shall be credited to my account under the Plan and that I may not make any additional payments into such account. I understand that all payments made by me shall be accumulated for the purchase of shares of Common Stock at the applicable purchase price determined in accordance with the Plan. I further understand that, except as otherwise set forth in the Plan, shares will be purchased for me automatically on the Purchase Date of each Offering Period unless I otherwise withdraw from the Plan by giving written notice to the Company for such purpose. 4. I understand that I may discontinue at any time prior to the Purchase Date my participation in the Plan as provided in Section 10 of the Plan. I also understand that I can increase or decrease the rate of my Contributions on one occasion only with respect to any increase and one occasion only with respect to any decrease during any Offering Period by completing and filing a new Subscription Agreement with such increase or decrease taking effect as of the beginning of the calendar month following the date of filing of the new Subscription Agreement, if filed at least ten (10) business days prior to the beginning of such month. Further, I may change the rate of deductions for future Offering Periods by filing a new Subscription Agreement, and any such change will be effective as of the beginning of the next Offering Period. In addition, I acknowledge that, unless I discontinue my participation in the Plan as provided in Section 10 of the Plan, my election will continue to be effective for each successive Offering Period. 5. I have received a copy of the Company's most recent description of the Plan and a copy of the complete "Chemdex Corporation 1999 Employee Stock Purchase Plan." I understand that my participation in the Plan is in all respects subject to the terms of the Plan. 6. Shares purchased for me under the Plan should be issued in the name(s) of (name of employee or employee and spouse only): ____________________________________ ____________________________________ 7. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due to me under the Plan: NAME: (Please print) ____________________________________ (First) (Middle) (Last) _______________________ ____________________________________ (Relationship) (Address) ____________________________________ 8. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Offering Date (the first day of the Offering Period during which I purchased such shares) or within 1 year after the Purchase Date, I will be treated for federal income tax purposes as having received ordinary compensation income at the time of such disposition in an amount equal to the excess of the fair market value of the shares on the Purchase Date over the price which I paid for the shares, regardless of whether I disposed of the shares at a price less than their fair market value at the Purchase Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. I hereby agree to notify the Company in writing within 30 days after the ------------------------------------------------------------------------ date of any such disposition, and I will make adequate provision for federal, - ----------------------------------------------------------------------------- state or other tax withholding obligations, if any, which arise upon the - ------------------------------------------------------------------------ disposition of the Common Stock. The Company may, but will not be obligated to, - ------------------------------- withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to the sale or early disposition of Common Stock by me. 9. If I dispose of such shares at any time after expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received compensation income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares under the option, or (2) 15% of the fair market value of the -2- shares on the Offering Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. I understand that this tax summary is only a summary and is subject to ---------------------------------------------------------------------- change. I further understand that I should consult a tax advisor concerning the - ------ tax implications of the purchase and sale of stock under the Plan. 10. I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan. SIGNATURE: ________________________ SOCIAL SECURITY #:_________________ DATE:______________________________ SPOUSE'S SIGNATURE (necessary if beneficiary is not spouse): ___________________________________ (Signature) ___________________________________ (Print name) -3- CHEMDEX CORPORATION 1999 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL -------------------- I, __________________________, hereby elect to withdraw my participation in the Chemdex Corporation 1999 Employee Stock Purchase Plan (the "Plan") for the ---- Offering Period that began on _________ ___, _____. This withdrawal covers all Contributions credited to my account and is effective on the date designated below. I understand that all Contributions credited to my account will be paid to me within ten (10) business days of receipt by the Company of this Notice of Withdrawal and that my option for the current period will automatically terminate, and that no further Contributions for the purchase of shares can be made by me during the Offering Period. The undersigned further understands and agrees that he or she shall be eligible to participate in succeeding offering periods only by delivering to the Company a new Subscription Agreement. Dated:___________________ ___________________________________ Signature of Employee ___________________________________ Social Security Number EX-10.7 12 1999 DIRECTORS' STOCK PLAN EXHIBIT 10.7 CHEMDEX CORPORATION 1999 DIRECTORS' STOCK OPTION PLAN --------------------------------- 1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock Option -------------------- Plan are to attract and retain the best available personnel for service as Directors of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be nonstatutory stock options. 2. DEFINITIONS. As used herein, the following definitions shall apply: ----------- (a) "BOARD" means the Board of Directors of the Company. ----- (b) "CHANGE OF CONTROL" means a sale of all or substantially all of ----------------- the Company's assets, or any merger or consolidation of the Company with or into another corporation other than a merger or consolidation in which the holders of more than 50% of the shares of capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by the voting securities remaining outstanding or by their being converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company, or such surviving entity, outstanding immediately after such transaction. (c) "CODE" means the Internal Revenue Code of 1986, as amended. ---- (d) "COMMON STOCK" means the Common Stock of the Company. ------------ (e) "COMPANY" means Chemdex Corporation, a Delaware corporation. ------- (f) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any ------------------------------- interruption or termination of service as a Director. (g) "CORPORATE TRANSACTION" means a dissolution or liquidation of the --------------------- Company, a sale of all or substantially all of the Company's assets, or a merger, consolidation or other capital reorganization of the Company with or into another corporation. (h) "DIRECTOR" means a member of the Board. -------- (i) "EMPLOYEE" means any person, including any officer or Director, -------- employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as ------------ amended. (k) "OPTION" means a stock option granted pursuant to the Plan. All ------ options shall be nonstatutory stock options (i.e., options that are not intended to qualify as incentive stock options under Section 422 of the Code). (l) "OPTIONED STOCK" means the Common Stock subject to an Option. -------------- (m) "OPTIONEE" means an Outside Director who receives an Option. -------- (n) "OUTSIDE DIRECTOR" means a Director who is not an Employee. ---------------- (o) "PARENT" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (p) "PLAN" means this 1999 Directors' Stock Option Plan. ---- (q) "SHARE" means a share of the Common Stock, as adjusted in ----- accordance with Section 11 of the Plan. (r) "SUBSIDIARY" means a "subsidiary corporation," whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section ------------------------- 11 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 500,000 Shares of Common Stock (the "Pool"). The ---- Shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan has been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock that are retained by the Company upon exercise of an Option in order to satisfy the exercise price for such Option, or any withholding taxes due with respect to such exercise, shall be treated as not issued and shall continue to be available under the Plan. If Shares that were acquired upon exercise of an Option are subsequently repurchased by the Company, such Shares shall not in any event be returned to the Plan and shall not become available for future grant under the Plan. 4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN. ------------------------------------------------------ (a) ADMINISTRATOR. Except as otherwise required herein, the Plan ------------- shall be administered by the Board. (b) PROCEDURE FOR GRANTS. All grants of Options hereunder shall be -------------------- automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: -2- (i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors. (ii) Each Outside Director shall be automatically granted an Option to purchase Shares (the "First Option") as follows: (A) with respect to persons who are Outside Directors on the effective date of this Plan, as determined in accordance with Section 6 hereof, 25,000 shares on such effective date, and (B) with respect to any person who becomes an Outside Director after the effective date of this Plan, 25,000 shares on the date on which such person first becomes an Outside Director, whether through election by the shareholders of the Company or appointment by the Board of Directors to fill a vacancy. (iii) Each Outside Director shall thereafter be automatically granted an Option to purchase 10,000 Shares (the "Subsequent Option") on the date of each Annual Meeting of the Company's stockholders immediately following which such Outside Director is serving on the Board, provided that, on such date, he or she shall have served on the Board for at least six (6) months prior to the date of such Annual Meeting. (iv) Notwithstanding the provisions of subsections (ii) and (iii) hereof, in the event that a grant would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased upon exercise of Options to exceed the Pool, then each such automatic grant shall be for that number of Shares determined by dividing the total number of Shares remaining available for grant by the number of Outside Directors receiving an Option on the automatic grant date. Any further grants shall then be deferred until such time, if any, as additional Shares become available for grant under the Plan through action of the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. (v) Notwithstanding the provisions of subsections (ii) and (iii) hereof, any grant of an Option made before the Company has obtained stockholder approval of the Plan in accordance with Section 17 hereof shall be conditioned upon obtaining such stockholder approval of the Plan in accordance with Section 17 hereof. (vii) The terms of each option granted hereunder shall be as follows: (1) each option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 9 below; (2) the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of each option, determined in accordance with Section 8 hereof,; (3) each Option shall be fully vested and exercisable on the date of grant. -3- (c) POWERS OF THE BOARD. Subject to the provisions and restrictions ------------------- of the Plan, the Board shall have the authority, in its discretion: (i) to determine, upon review of relevant information and in accordance with Section 8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine the exercise price per Share of Options to be granted, which exercise price shall be determined in accordance with Section 8 of the Plan; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the Plan; (v) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted hereunder; and (vi) to make all other determinations deemed necessary or advisable for the administration of the Plan. (d) EFFECT OF BOARD'S DECISION. All decisions, determinations and -------------------------- interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. (e) SUSPENSION OR TERMINATION OF OPTION. If the Chief Executive ----------------------------------- Officer or his or her designee reasonably believes that an Optionee has committed an act of misconduct, such officer may suspend the Optionee's right to exercise any option pending a determination by the Board (excluding the Outside Director accused of such misconduct). If the Board (excluding the Outside Director accused of such misconduct) determines an Optionee has committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary duty or deliberate disregard of the Company rules resulting in loss, damage or injury to the Company, or if an Optionee makes an unauthorized disclosure of any Company trade secret or confidential information, engages in any conduct constituting unfair competition, induces any Company customer to breach a contract with the Company or induces any principal for whom the Company acts as agent to terminate such agency relationship, neither the Optionee nor his or her estate shall be entitled to exercise any Option whatsoever. In making such determination, the Board of Directors (excluding the Outside Director accused of such misconduct) shall act fairly and shall give the Optionee an opportunity to appear and present evidence on Optionee's behalf at a hearing before the Board or a committee of the Board. 5. ELIGIBILITY. Options may be granted only to Outside Directors. All ----------- Options shall be automatically granted in accordance with the terms set forth in Section 4(b) above. An Outside Director who has been granted an Option may, if he or she is otherwise eligible, be granted an additional Option or Options in accordance with such provisions. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate his or her directorship at any time. 6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective on the ---------------------------- effectiveness of the registration statement under the Securities Act of 1933, as amended, relating to the Company's initial public offering of securities. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. -4- 7. TERM OF OPTIONS. The term of each Option shall be ten (10) years from --------------- the date of grant thereof unless an Option terminates sooner pursuant to Section 9 below. 8. EXERCISE PRICE AND CONSIDERATION. -------------------------------- (a) EXERCISE PRICE. The per Share exercise price for the Shares to be -------------- issued pursuant to exercise of an Option shall be 100% of the fair market value per Share on the date of grant of the Option. (b) FAIR MARKET VALUE. The fair market value shall be determined by ----------------- the Board; provided however that in the event the Common Stock is traded on the Nasdaq National Market or listed on a stock exchange, the fair market value per Share shall be the closing sales price on such system or exchange on the date of grant of the Option (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported in The Wall -------- Street Journal, or if there is a public market for the Common Stock but the - -------------- Common Stock is not traded on the Nasdaq National Market or listed on a stock exchange, the fair market value per Share shall be the mean of the bid and asked prices of the Common Stock in the over-the-counter market on the date of grant, as reported in The Wall Street Journal (or, if not so reported, as otherwise ------------------------ reported by the National Association of Securities Dealers Automated Quotation ("Nasdaq") System). For purposes of the First Options granted on the effective date of this Plan, the fair market value per Share shall be the Price to Public as set forth in the final prospectus filed with the Securities Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as amended. (c) FORM OF CONSIDERATION. The consideration to be paid for the --------------------- Shares to be issued upon exercise of an Option shall consist entirely of cash, check, other Shares of Common Stock having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option shall be exercised (which, if acquired from the Company, shall have been held for at least six months), or any combination of such methods of payment and/or any other consideration or method of payment as shall be permitted under applicable corporate law. 9. EXERCISE OF OPTION. ------------------ (a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times as are set forth in Section 4(b) above; provided however that no Options shall be exercisable prior to stockholder approval of the Plan in accordance with Section 17 below has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 8(c) of the Plan. Until the -5- issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. If an Outside ---------------------------------------------- Director ceases to serve as a Director, he or she may, but only within ninety (90) days after the date he or she ceases to be a Director of the Company, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that such Outside Director was not entitled to exercise an Option at the date of such termination, or does not exercise such Option (to the extent he or she was entitled to exercise) within the time specified above, the Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the Plan. (c) DISABILITY OF OPTIONEE. Notwithstanding Section 9(b) above, in ---------------------- the event a Director is unable to continue his or her service as a Director with the Company as a result of his or her total and permanent disability (as defined in Section 22(e)(3) of the Code), he or she may, but only within twelve (12) months from the date of such termination, exercise his or her Option to the extent he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he or she does not exercise such Option (to the extent he or she was entitled to exercise) within the time specified above, the Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the Plan. (d) DEATH OF OPTIONEE. In the event of the death of an Optionee: (A) ----------------- during the term of the Option who is, at the time of his or her death, a Director of the Company and who shall have been in Continuous Status as a Director since the date of grant of the Option, or (B) three (3) months after the termination of Continuous Status as a Director, the Option may be exercised, at any time within twelve (12) months following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of death or the date of termination, as applicable. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that an Optionee was not entitled to exercise the Option at the date of death or termination or if he or she does not exercise such Option (to the extent he or she was entitled to exercise) within the time specified above, the -6- Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the Plan. 10. NONTRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged, ----------------------------- assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution or pursuant to a qualified domestic relations order (as defined by the Code or the rules thereunder). The designation of a beneficiary by an Optionee does not constitute a transfer. An Option may be exercised during the lifetime of an Optionee only by the Optionee or a transferee permitted by this Section. 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS. ------------------------------------------------------------------ (a) ADJUSTMENT. Subject to any required action by the stockholders of ---------- the Company, the number of shares of Common Stock covered by each outstanding Option, the number of Shares of Common Stock set forth in Sections 4(b)(ii), (iii) and (iv) above, and the number of Shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock (including any such change in the number of Shares of Common Stock effected in connection with a change in domicile of the Company) or any other increase or decrease in the number of issued Shares of Common Stock effected without receipt of consideration by the Company; provided however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of a ----------------------------------------- Corporate Transaction, each outstanding Option shall be assumed or an equivalent option shall be substituted by the successor corporation or a Parent or Subsidiary of such successor corporation, unless the successor corporation does not agree to assume the outstanding Options or to substitute equivalent options, in which case the Options shall terminate upon the consummation of the transaction; provided however that in the event of a Change of Control, each optionee shall have the right to exercise all of his or her options to purchase Shares, immediately prior to the consummation of the transaction. For purposes of this Section 11(b), an Option shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon such Corporate Transaction or Change of Control, each Optionee would be entitled to receive upon exercise of an Option the same number and kind of shares of stock or the same amount of property, cash or securities as the Optionee would have been entitled to receive upon the -7- occurrence of such transaction if the Optionee had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the Option at such time (after giving effect to any adjustments in the number of Shares covered by the Option as provided for in this Section 11); provided however that if such consideration received in the transaction was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the Option to be solely common stock of the successor corporation or its Parent equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction. (c) CERTAIN DISTRIBUTIONS. In the event of any distribution to the --------------------- Company's stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per Share of Common Stock covered by each outstanding Option to reflect the effect of such distribution. 12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for ------------------------ all purposes, be the date determined in accordance with Section 4(b) hereof. Notice of the determination shall be given to each Outside Director to whom an Option is so granted within a reasonable time after the date of such grant. 13. AMENDMENT AND TERMINATION OF THE PLAN. ------------------------------------- (a) AMENDMENT AND TERMINATION. The Board may amend or terminate the ------------------------- Plan from time to time in such respects as the Board may deem advisable; provided that, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act (or any other applicable law or regulation), the Company shall obtain approval of the stockholders of the Company to Plan amendments to the extent and in the manner required by such law or regulation. (b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or ---------------------------------- termination of the Plan that would impair the rights of any Optionee shall not affect Options already granted to such Optionee and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 14. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other ---------------------------------- provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with the legal requirements relating to the administration of stock option plans under applicable U.S. state corporate laws, U.S. federal and applicable state securities laws, the Code, any stock exchange or Nasdaq rules or regulations to which the Company may be subject and the applicable laws of any other country or jurisdiction where Options are granted under the Plan, as such laws, rules, regulations and requirements shall -8- be in place from time to time (the "Applicable Laws"). Such compliance shall be --------------- determined by the Company in consultation with its legal counsel. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law. 15. RESERVATION OF SHARES. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 16. OPTION AGREEMENT. Options shall be evidenced by written option ---------------- agreements in such form as the Board shall approve. 17. STOCKHOLDER APPROVAL. If required by the Applicable Laws, continuance -------------------- of the Plan shall be subject to approval by the stockholders of the Company. Such stockholder approval shall be obtained in the manner and to the degree required under the Applicable Laws. -9- CHEMDEX CORPORATION 1999 DIRECTORS' STOCK OPTION PLAN NOTICE OF STOCK OPTION GRANT ---------------------------- .Optionee. .OptioneeAddress1. .OptioneeAddress2. You have been granted an option to purchase Common Stock of Chemdex Corporation (the "Company") as follows: ------- Date of Grant .GrantDate. Vesting Commencement Date .VestingStartDate. Exercise Price per Share .ExercisePrice. Total Number of Shares Granted .SharesGranted. Total Exercise Price .TotalExercisePrice. Expiration Date .ExpirDate. Vesting Schedule This Option may be exercised, in whole or in part, in accordance with the following schedule: 100% of the Option Shares shall be vested and exercisable in full as of the Date of Grant. Termination Period This Option may be exercised for 90 days after termination of Optionee's Continuous Status as a Director, or such longer period as may be applicable upon death or Disability of Optionee as provided in the Plan, but in no event later than the Expiration Date as provided above. -10- By your signature and the signature of the Company's representative below, you and the Company agree that this option is granted under and governed by the terms and conditions of the 1999 Directors' Stock Option Plan and the Nonstatutory Stock Option Agreement, all of which are attached and made a part of this document. OPTIONEE: CHEMDEX CORPORATION ____________________________ By:___________________________ Signature Title:________________________ ____________________________ Print Name -11- CHEMDEX CORPORATION NONSTATUTORY STOCK OPTION AGREEMENT ----------------------------------- 1. GRANT OF OPTION. The Board of Directors of the Company hereby grants --------------- to the Optionee named in the Notice of Stock Option Grant attached as Part I of this Agreement (the "Optionee"), an option (the "Option") to purchase a number -------- ------ of Shares, as set forth in the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the "Exercise -------- Price"'), subject to the terms and conditions of the 1999 Directors' Stock - ----- Option Plan (the "Plan"), which is incorporated herein by reference. ---- (Capitalized terms not defined herein shall have the meanings ascribed to such terms in the Plan.) In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Nonstatutory Stock Option Agreement, the terms and conditions of the Plan shall prevail. 2. EXERCISE OF OPTION. ------------------ (a) RIGHT TO EXERCISE. This Option is exercisable during its term in ----------------- accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and the applicable provisions of the Plan and this Nonstatutory Stock Option Agreement. In the event of Optionee's death, disability or other termination of Optionee's employment or consulting relationship, the exercisability of the Option is governed by the applicable provisions of the Plan and this Nonstatutory Stock Option Agreement. (b) METHOD OF EXERCISE. This Option is exercisable by delivery of an ------------------ exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), --------- --------------- which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and ---------------- such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. 3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be ----------------- by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; (c) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price; or (d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares. 4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution or pursuant to a domestic relations order (as defined by the Code or the rules thereunder) and may be exercised during the lifetime of Optionee only by the Optionee or a transferee permitted by Section 10 of the Plan. The terms of the Plan and this Nonstatutory Stock Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 5. TERM OF OPTION. This Option may be exercised only within the term set -------------- out in the Notice of Stock Option Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Nonstatutory Stock Option Agreement. 6. TAX CONSEQUENCES. Set forth below is a brief summary of certain ---------------- federal tax consequences relating to this Option under the law in effect as of the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) EXERCISING THE OPTION. Since this Option does not qualify as an --------------------- incentive stock option under Section 422 of the Code, the Optionee may incur regular federal income tax liability upon exercise. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. (b) DISPOSITION OF SHARES. If the Optionee holds the Option Shares --------------------- for more than one year, gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. The long- term capital gain will be taxed for federal income tax purposes as a maximum rate of 20 percent. -13- By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement. Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Nonstatutory Stock Option Agreement and fully understands all provisions of the Plan and Nonstatutory Stock Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Nonstatutory Stock Option Agreement. CHEMDEX CORPORATION _________________________________ By:__________________________________ .Optionee. Title:_______________________________ -14- CONSENT OF SPOUSE ----------------- The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Nonstatutory Stock Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Nonstatutory Stock Option Agreement. _______________________________ Spouse of Optionee EXHIBIT A --------- NOTICE OF EXERCISE ------------------ To: Chemdex Corporation Attn: Stock Option Administrator Subject: Notice of Intention to Exercise Stock Option -------------------------------------------- This is official notice that the undersigned ("Optionee") intends to -------- exercise Optionee's option to purchase __________ shares of Chemdex Corporation Common Stock, under and pursuant to the Company's 1999 Directors' Stock Option Plan and the Nonstatutory Stock Option Agreement dated _______________, as follows: Grant Number: _______________________________ Date of Purchase: _______________________________ Number of Shares: _______________________________ Purchase Price: _______________________________ Method of Payment of Purchase Price: _______________________________ Social Security No.: _______________________________ The shares should be issued as follows: Name: _______________________________ Address: _______________________________ _______________________________ _______________________________ Signed: _______________________________ Date: _______________________________ EX-10.8 13 STANDARD OFFICE LEASE DATED JUNE 11, 1998 EXHIBIT 10.8 STANDARD OFFICE LEASE--NET AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. BASIC LEASE PROVISIONS ("Basic Lease Provisions"). 1.1 PARTIES: This Lease, dated, for reference purposes only, June 11, 1998 is made by and between Fabian Partners II, a California General Partnership (herein called "Lessor") and Chemdex, a Delaware Corporation doing business under the name of __________________, (herein called "Lessee"). 1.2 PREMISES: Suite Number(s) 1st & 2nd floors, consisting of approximately 33,643 square feet, more or less, as defined in paragraph 2 and as shown on Exhibit "A" hereto (the "Premises"). 1.3 BUILDING: Commonly described as being located at 3950 Fabian Way in the City of Palo Alto County of Santa Clara State of California, as more particularly described in Exhibit A hereto, and as defined in paragraph 2. 1.4 USE: General office use, software development, sales, marketing & any uses incidental thereto, subject to paragraph 6. 1.5 TERM: Sixty-five months commencing August 1, 1998 or upon tenant improvements complete, whichever is later ("Commencement Date") and ending December 31, 2003, as defined in paragraph 3. 1.6 BASE RENT: See paragraph 50 of Addendum per month, payable on the 1st day of each month, per paragraph 4.1. 1.7 BASE RENT INCREASE: On the commencement of the 13th, 25th, 36th, 48th & 60th months, the monthly Base Rent payable under paragraph 1.6 above shall be adjusted as provided in paragraph 50 of Addendum. 1.8 RENT PAID UPON EXECUTION: See paragraph 51 of Addendum. 1.9 SECURITY DEPOSIT: See paragraph 52 of Addendum. 1.10 LESSEE'S SHARE OF OPERATING EXPENSES: 100% as defined in paragraph 4.2. 2. PREMISES, PARKING AND COMMON AREAS. 2.1 PREMISES: The Premises are a portion of a building, herein sometimes referred to as the "Building" identified in paragraph 1.3 of the Basic Lease Provisions. "Building" shall include adjacent parking structures used in connection therewith. The Premises, the Building, the Common Areas, the land upon which the same are located, along with all other buildings and improvements thereon or thereunder, are herein collectively referred to as the "Office Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, the real property referred to in the Basic Lease Provisions, paragraph 1.2, as the "Premises," including rights to the Common Areas as hereinafter specified. 2.2 VEHICLE PARKING: So long as Lessee is not in default, and subject to the rules and regulations attached hereto, and as established by Lessor from time to time, Lessee shall be entitled to use all parking spaces in the Office Building Project. 2.2.1 If Lessee commits, permits or allows any of the prohibited activities described in the Lease or the rules then in effect, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.3 COMMON AREAS--DEFINITION: The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Office Building Project that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and of other lessees of the Office Building Project and their respective employees, suppliers, shippers, customers and invitees, including but not limited to common entrances, lobbies, corridors, stairways and stairwells, public restrooms, elevators, escalators, parking areas to the extent not otherwise prohibited by the Lease, loading and unloading areas, trash areas, roadways, sidewalk, walkways, parkways, ramps, driveways, landscaped areas and decorative walls. 2.4 COMMON AREAS--RULES AND REGULATIONS: Lessee agrees to abide by and conform to the rules and regulations attached hereto as Exhibit B with respect to the Office Building Project and Common Areas, and to cause its employees, suppliers, shippers, customers, and invitees to so abide and conform. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to modify, amend and enforce said rules and regulations, see Lease Addendum, paragraph 2.4. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees, their agents, employees and invitees of the Office Building Project. 2.5 COMMON AREAS--CHANGES: Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Building interior and exterior and Common Areas, including, without limitation, changes in the location, size, shape, number, and appearance thereof, including but not limited to the lobbies, windows, stairways, air shafts, elevators, escalators, restrooms, driveways, entrances, parking spaces, parking areas, loading and unloading areas, ____, ____, direction of traffic, decorative walls, landscaped areas and walkways; provided, however, Lessor shall at all times provide the parking facilities required by applicable law and paragraph 2.2 hereof; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) To designate other land and improvements outside the boundaries of the Office Building Project to be a part of the Common Areas, provided that such other land and improvements have a reasonable and functional relationship to the Office Building Project; (d) To add additional buildings and improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Office Building Project, or any portion thereof; -2- (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Office Building Project as Lessor may, in the exercise of sound business judgment deem to be appropriate. 3. TERM. 3.1 TERM: The term and Commencement Date of this Lease shall be as specified in paragraph 1.5 of the Basic Lease Provisions. 3.2 DELAY IN POSSESSION: Notwithstanding said Commencement Date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date and subject to paragraph 3.2.2, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of the Lease or the obligations of Lessee hereunder or extend the term hereof; but, in such case, Lessee shall not be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease, except as may be otherwise provided in this Lease, until possession of the Premises is tendered to Lessee, as hereinafter defined; provided, however, that if Lessor shall not have delivered possession of the Premises within sixty (60) days following said Commencement Date, as the same may be extended under the terms of a Work Letter executed by Lessor and Lessee, Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease. In which event the parties shall be discharged from all obligations hereunder; provided, however, that, as to Lessor's obligations, Lessor shall return any money previously deposited by Lessee; and provided further, that if such written notice by Lessee is not received by Lessor within said (10) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. 3.2.1 POSSESSION TENDERED--DEFINED: Possession of the Premises shall be deemed tendered to Lessee ("Tender of Possession") when (1) the improvements to be provided by Lessor under this Lease are substantially completed, (2) the Building utilities are ready for use in the Premises, (3) Lessee has reasonable access to the Premises, and (4) ten (10) days shall have expired following advance written notice to Lessee of the occurrence of the matters described in (1), (2) and (3), above of this paragraph 3.2.1 3.2.2 DELAYS CAUSED BY LESSEE: There shall be no abatement of rent, and the sixty (60) day period following the Commencement Date before which Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed extended to the extent of any delays caused by acts or omissions of Lessee, its agents, employees and contractors. 3.3 EARLY POSSESSION: If Lessee occupies the Premises prior to said Commencement Date, such occupancy shall be subject to all provisions of this Lease, such occupancy shall not change the termination date, and Lessee shall pay rent for such occupancy. 3.4 UNCERTAIN COMMENCEMENT: In the event commencement of the Lease term is defined as the completion of the improvements, Lessee and Lessor shall execute an amendment to this Lease establishing the date of Tender of Possession (as defined in paragraph 3.2.1) or the actual taking of possession by Lessee, whichever first occurs, as the Commencement Date. 4. RENT. 4.1 BASE RENT: Subject to adjustment as hereinafter provided in paragraph 4.3, and except as may be otherwise expressly provided in this Lease, Lessee shall pay to Lessor the Base Rent for the -3- Premises set forth in paragraph 1.6 of the Basic Lease Provisions, without offset or deduction. Lessee shall pay Lessor upon execution hereof the advance Base Rent described in paragraph 1.8 of the Basic Lease Provisions. Rent for any period during the term hereof which is for less than one month shall be prorated based upon the actual number of days of the calendar month involved. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. 4.2 OPERATING EXPENSE: Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of all Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) "Lessee's Share" is defined, for purposes of this Lease, as the percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which percentage has been determined by dividing the approximate square footage of the Premises by the total approximate square footage of the rentable space contained in the Office Building Project. It is understood and agreed that the square footage figures set forth in the Basic Lease Provisions are approximations which Lessor and Lessee agree are reasonable and shall not be subject to revision except in connection with an actual change in the size of the Premises or a change in the space available for lease in the Office Building Project. (b) "Operating Expenses" is defined, for purposes of this Lease, to include all costs, if any, incurred by Lessor in the exercise of its reasonable discretion, for: (i) The operation, repair, maintenance, and replacement, in neat, clean safe, good order and condition, of the Office Building Project including but not limited to, the following: (aa) The Common Areas, including their surfaces, coverings, decorative items, carpets, drapes and window coverings, and including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, building exteriors and roofs, fences and gates; (bb) All heating, air conditioning, plumbing, electrical systems, life safety equipment, telecommunication and other equipment used in common by, or for the benefit of, lessees or occupants of the Office Building Project, including elevators and escalators, tenant directories, fire detection systems including sprinkler system maintenance and repair. (ii) Trash disposal, janitorial and security services; (iii) Any other service to be provided by Lessor that is elsewhere in this Lease stated to be an "Operating Expense"; (iv) The cost of the premiums for the liability and property insurance policies to be maintained by Lessor under paragraph 8 hereof; (v) The amount of the real property taxes to be paid by Lessor under paragraph 10.1 hereof; (vi) The cost of water, sewer, gas, electricity, and other publicly mandated services to the Office Building Project; -4- (vii) Labor, salaries and applicable fringe benefits and costs, materials, supplies and tools, used in maintaining and/or cleaning the Office Building Project and accounting and a management fee of 2.5% of the net rent attributable to the operation of the Office Building Project; (viii) Replacing and/or adding improvements mandated by any governmental agency and any repairs or removals necessitated thereby amortized over its useful life according to Federal income tax regulations or guidelines for depreciation thereof (including interest on the unamortized balance as is then reasonable in the judgment of Lessor's accountants); (ix) Replacements of equipment or improvements that have a useful life for depreciation purposes according to Federal income tax guidelines of five (5) years or less, as amortized over such life. (c) Operating Expenses shall not include the costs of replacements of equipment or improvements that have a useful life for Federal income tax purposes in excess of five (5) years unless it is of the type described in paragraph 4.2(b)(viii), in which case their cost shall be included as above provided. (d) Operating Expenses shall not include any expenses paid by any lessee directly to third parties, or as to which Lessor is otherwise reimbursed by any third party, other tenant, or by insurance proceeds. (e) Lessee's Share of Operating Expense Increase shall be payable by Lessee in an amount estimated by Lessor from time to time of Lessee's Share of annual Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each calendar year of the Lease term, on the same day as the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of Operating Expense as aforesaid, Lessor shall deliver to Lessee within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Operating Expenses incurred during the preceding year. If Lessee's payments under this paragraph 4.2(e) during said preceding calendar year exceed Lessee's Share as indicated on said statement, Lessee shall be entitled to credit the amount of such overpayment against Lessee's Share of Operating Expenses next falling due. If Lessee's payments under this paragraph during said preceding calendar year were less than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by Lessor to Lessee of said statement. 4.3 RENT INCREASE. See paragraph 50 of Addendum. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount then required of Lessee. Lessor shall not be required to keep said security deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not heretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at -5- Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. USE. 6.1 USE: The Premises shall be used and occupied only for the purpose set forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is reasonably comparable to that use and for no other purpose. 6.2 COMPLIANCE WITH LAW: (a) Lessor warrants to Lessee that the Premises, in the state existing on the date that the Lease term commences, but without regard to alterations or improvements made by Lessee or the use for which Lessee will occupy the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term Commencement Date. See Lease Addendum, paragraph 6.2. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. (b) Except as provided in paragraph 6.2(a), 6.3(a) and 7.1, Lessee shall, at Lessee's expense, promptly comply with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements of any fire insurance underwriters or rating bureaus, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises and the occupation and use by Lessee of the Premises. Lessee shall conduct its business in a lawful manner and shall not use or permit the use by its agents, contractors, employees or invitees (see paragraph 53 of Addendum) of the Premises or the Common Areas in any manner that will tend to create waste or a nuisance or shall tend to disturb other occupants of the Office Building Project. See Lease Amendment, paragraph 6.2(b). 6.3 CONDITION OF PREMISES: (a) Lessor shall deliver the Premises to Lessee in a clean condition on the Lease Commencement Date (unless Lessee is already in possession) and Lessor warrants to Lessee that the plumbing, lighting, air conditioning, and heating system in the Premises shall be in good operating condition. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sole cost, rectify such violation. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises and the Office Building Project in their condition existing as of the Lease Commencement Date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any easements, covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that it has satisfied itself by its own independent investigation that the Premises are suitable for its intended use, and that neither Lessor nor Lessor's agent or agents has made any representation or warranty as to the present -6- or future suitability of the Premises, Common Areas, or Office Building Project for the conduct of Lessee's business. 7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES. 7.1 LESSOR'S OBLIGATIONS: Lessor shall keep the Office Building Project, including the Premises, interior and exterior walls, roof, and common areas, and the equipment whether used exclusively for the Premises or in common with other premises, in good condition and repair; provided, however, except as otherwise provided in this Lease, Lessor shall not be obligated to paint, repair or replace wall coverings, or to repair or replace any improvements that are not ordinarily a part of the Building or are above then Building standards. Except as provided in paragraph 9.5, there shall be no abatement of rent or liability of Lessee on account of any injury or interference with Lessee's business with respect to any improvements, alterations or repairs made by Lessor to the Office Building Project or any part thereof. See Lease Addendum, paragraph 7.1. Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair, unless such failure constitutes a material breach of this lease by Lessor. 7.2 LESSEE'S OBLIGATIONS: (a) Notwithstanding Lessor's obligation to keep the Premises in good condition and repair, Lessee shall be responsible for payment of the cost thereof to Lessor as additional rent for that portion of the cost of any maintenance and repair of the Premises, or any equipment (wherever located) that serves only Lessee or the Premises, to the extent such cost is attributable to causes beyond normal wear and tear. Lessee shall be responsible for the cost of painting, repairing or replacing wall coverings, and to repair or replace any Premises improvements made to Premises by Lessee that are not ordinarily a part of the Building or that are above then Building standards. Lessor may, at its option, upon reasonable notice, elect to have Lessee perform any particular such maintenance or repairs the cost of which is otherwise Lessee's responsibility hereunder. (b) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices by Lessee subject to Lessor's repair and maintenance obligations hereunder. Lessee shall repair any damage to the Premises occasioned by the installation or removal of Lessee's trade fixtures, alterations, furnishings and equipment. Except as otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, air conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings and plumbing on the Premises and in good operating condition subject to Lessor's repair and maintenance obligations hereunder. 7.3 ALTERATIONS AND ADDITIONS: (a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, Utility Installations or repairs in, on or about the Premises, or the Office Building Project. As used in this paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and wall coverings, power panels, electrical distribution systems, lighting fixtures, air conditioning, plumbing, and telephone and telecommunication wiring and equipment. At the expiration of the term, Lessor may require the removal of any or all of said alterations, improvements, additions or -7- Utility Installations,see Lease Addendum paragraph 7.3(a), and the restoration of the Premises and the Office Building Project to their prior condition, at Lessee's expense. Should Lessor permit Lessee to make its own alterations, improvements, additions or Utility Installations, Lessee shall use only such contractor as has been expressly approved by Lessor, and Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, or use a contractor not expressly approved by Lessor, Lessor may, at any time during the term of this Lease, require that Lessee remove any part or all of the same. (b) Any alterations, improvements, additions or Utility Installations in or about the Premises or the Office Building Project that Lessee shall desire to make shall be presented to Lessor in written form, with proposed detailed plans, see Lease Addendum paragraph 7.3(b). If Lessor shall give its consent to Lessee's making such alteration, improvement, addition or Utility Installation, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from the applicable governmental agencies, furnishing a copy thereof to Lessor prior to the commencement of the work, and compliance by Lessee with all conditions of said permit in a prompt and expeditious manner. (c) Lessee shall pay, when due, all claims for labor or materials furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises, the Building or the Office Building Project, or any interest therein. (d) Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises by Lessee, and Lessor shall have the right to post notices on non-responsibility in or on the Premises or the Building as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises, the Building or the Office Building Project, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises, the Building and the Office Building Project free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's reasonable attorney's fees and costs in participating in such action if Lessor shall decide it is to Lessor's best interest so to do. (e) All alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee, which may be made to the Premises by Lessee, including but not limited to, floor coverings, paneling, doors, drapes, built-ins, moldings, sound attenuation, and lighting and telephone or communication systems, conduit, wiring and outlets, shall be made and done in a good and workmanlike manner and of good and sufficient quality and materials and shall be the property of Lessor and remain upon and be surrendered with the Premises at the expiration of the Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided Lessee is not in default, notwithstanding the provisions of this paragraph 7.3(e), Lessee's personal property and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises or the Building, and other than Utility Installations, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of paragraph 7.2. -8- (f) Lessee shall provide Lessor with as-built plans and specifications for any alterations, improvements, additions or Utility Installations. (g) Lessor approves Lessee to install network cabling and phone cabling without further approval of Lessor. Lessor acknowledges "Utility Installations" as defined herein does not include PBX system and associated components for the phone system which are defined as "Lessee's personal property" to remove at the end of the lease term. 7.4 UTILITY ADDITIONS: Lessor reserves the right to install new or additional utility facilities throughout the Office Building Project for the benefit of Lessor or Lessee, or any other lessee of the Office Building Project, including, but not by way of limitation, such utilities as plumbing, electrical systems, communication systems, and fire protection and detection systems, so long as such installations do not unreasonably interfere with Lessee's use of the Premises. 8. INSURANCE; INDEMNITY. 8.1 LIABILITY INSURANCE--LESSEE: Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Comprehensive General Liability insurance utilizing an Insurance Services Office standard form with Broad Form General Liability Endorsement (GL0404), or equivalent, in an amount of not less than $1,000,000 per occurrence of bodily injury and property damage combined or in a greater amount as reasonably determined by Lessor and shall insure Lessee with Lessor as an additional insured against liability arising out of the use, occupancy or maintenance of the Premises. Compliance with the above requirement shall not, however, limit the liability of Lessee hereunder. 8.2 LIABILITY INSURANCE--LESSOR: Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Broad Form Property Damage Insurance, plus coverage against such other risks Lessor deems advisable from time to time, insuring Lessor, but not Lessee, against liability arising out of the ownership, use, occupancy or maintenance of the Office Building Project in an amount not less that $5,000,000.00 per occurrence. 8.3 PROPERTY INSURANCE--LESSEE: Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease for the benefit of Lessee, replacement cost fire and extended coverage insurance, with vandalism and malicious mischief, sprinkler leakage and earthquake sprinkler leakage endorsements, in an amount sufficient to cover not less that 100% of the full replacement cost, as the same may exist from time to time, of all of Lessee's personal property, fixtures, equipment and tenant improvements other than Tenant Improvements constructed or installed by or on behalf of Lessor. 8.4 PROPERTY INSURANCE--LESSOR: Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Office Building Project Improvements other than Tenant Improvements constructed or installed by or on behalf of Lessor, but not Lessee's personal property, fixtures, equipment or tenant improvements, in the amount of the full replacement cost thereof, as the same may exist from time to time, utilizing Insurance Services Office standard form, or equivalent, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, plate glass and such other perils as Lessor deems advisable or may be required by a lender having a lien on the Office Building Project. In addition, Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all Operating Expenses for said period. Lessee will not be named in any such policies carried by Lessor and shall have no right to any proceeds therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain such -9- deductibles as Lessor or the aforesaid lender may determine. In the event that the Premises shall suffer an insured loss as defined in paragraph 9.1(f) hereof, the deductible amounts under the applicable insurance policies shall be deemed an Operating Expense. Lessee shall not do or permit to be done anything which shall invalidate the insurance policies carried by Lessor. Lessee shall pay the entirety of any increase in the property insurance premium for the Office Building Project over what it was immediately prior to the commencement of the term of this Lease if the increase is specified by Lessors insurance carrier as being caused by the nature of Lessee's occupancy or any act or omission of Lessee. 8.5 INSURANCE POLICIES: Lessee shall deliver to Lessor copies of liability insurance policies required under paragraph 8.1 or certificates evidencing the existence and amounts of such insurance within seven (7) days after the Commencement Date of this Lease. No such policy shall be cancellable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals thereof. 8.6 WAIVER OF SUBROGATION: Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other, for direct or consequential loss or damage arising out of or incident to the perils covered by property insurance carried by such party, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. If necessary all property insurance policies required under this Lease shall be endorsed to so provide. 8.7 INDEMNITY: Lessee shall indemnify and hold harmless Lessor and its agents, Lessor's master or ground lessor, partners and lenders, from and against any and all claims for damage to the person or property of anyone or any entity arising from Lessee's use of the Office Building Project, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises and shall further indemnify and hold harmless Lessor from and against any and all claims, costs and expenses arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any act or omission of Lessee, or any of Lessee's agents, contractors, employees, or invitees, and from and against all costs, attorney's fees, expenses and liabilities incurred by Lessor as the result of any such use, conduct, activity, work, things done, permitted or suffered, breach default or negligence, and in dealing reasonably therewith, including but not limited to the defense or pursuit of any claim or any action or proceeding involved therein; and in case any action or proceeding be brought against Lessor by reason of any such matter, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid nay such claim in order to be so indemnified. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property of Lessee or injury to persons, in, upon or about the Office Building Project arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.8 EXEMPTION OF LESSOR FROM LIABILITY: Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for loss of or damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises or the Office Building Project, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from theft, fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises or upon other portions of the Office Building Project, or from other sources or places, or from -10- new construction or the repair, alteration or improvement of any part of the Office Building Project, or of the equipment, fixtures or appurtenances applicable thereto, and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible, Lessor shall not be liable for any damages arising from any act or neglect of any other lessee, occupant or user of the Office Building Project, nor from the failure of Lessor to enforce the provisions of any other lease of any other lessee of the Office Building Project. 8.9 NO REPRESENTATION OF ADEQUATE COVERAGE: Lessor makes no representation that the limits or forms of coverage of insurance specified in this paragraph 8 are adequate to cover Lessee's property or obligations under this Lease. 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITIONS: (a) "Premises Damage" shall mean if the Premises are damaged or destroyed to any extent. (b) "Premises Building Partial Damage" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is less than fifty percent (50%) of the then Replacement Cost of the Building. (c) "Premises Building Total Destruction" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is fifty percent (50%) or more of the then Replacement Cost of the Building. (d) "Office Building Project Buildings" shall mean all of the buildings on the Office Building Project site. (e) "Office Building Project Building Total Destruction" shall mean if the Office Building Project Buildings are damaged or destroyed to the extent that the cost of repair is fifty percent (50%) or more of the then Replacement Cost of the Office Building Project Buildings. (f) "Insured Loss" shall mean damage or destruction which was caused by an event required to be covered by the insurance described in paragraph 8. The fact that an Insured Loss has a deductible amount shall not make the loss an uninsured loss. (g) "Replacement Cost" shall mean the amount of money necessary to be spent in order to repair or rebuild the damaged area to the condition that existed immediately prior to the damage occurring, excluding all improvements made by lessees, other that those installed by Lessor at Lessee's expense. 9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE: (a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of either Premises Damage or Premises Building Partial Damage, then Lessor shall, as soon as reasonably possible and to the extent the required materials and labor are readily available through usual commercial channels, at Lessor's expense, repair such damage (but not Lessee's fixtures, -11- equipment or tenant improvements originally paid for by Lessee) to its condition existing at the time of the damage, and this Lease shall continue in full force and effect. (b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee in which event Lessee shall make the repairs at Lessee's expense), which damage prevents Lessee from making any substantial use of the Premises, Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease as of the date of the occurrence of such damage, in which event this Lease shall terminate as of the date of the occurrence of such damage. 9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL DESTRUCTION: Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is damage, whether or not it is an Insured Loss, which falls into the classifications of either (i) Premises Building Total Destruction or (ii) Office Building Project Total Destruction, then Lessor may at Lessor's option either (i) repair such damage or destruction as soon as reasonably possible at Lessor's expense (to the extent the required materials are readily available through usual commercial channels) to its conditions existing at the time of the damage, but not Lessee's fixtures, equipment or tenant improvements, and this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of occurrence of such damage of Lessor's intention to cancel and terminate this Lease, in which case this Lease shall terminate as of the date of the occurrence of such damage. 9.4 DAMAGE NEAR END OF TERM: (a) Subject to paragraph 9.4(b), if at any time during the last twelve (12) months of the term of this Lease there is substantial damage to the Premises, Lessor or Lessee, may at either's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee or Lessor of either's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than twenty (20) days after the occurrence of an Insured Loss falling within the classification of Premises Damage during the last twelve (12) months of the term of this Lease. If Lessee duly exercises such option during said twenty (20) day period, Lessor shall, at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option during said twenty (20) day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said twenty (20) day period by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of said twenty (20) day period, notwithstanding any term or provision in the grant of option to the contrary. -12- 9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES: (a) In the event Lessor repairs or restores the Building or Premises pursuant to the provisions of this paragraph 9, and any part of the Premises are not usable (including loss of use due to loss of access or essential services), the rent payable hereunder (including Lessee's Share of Operating Expense Increase) for the period during which such damage, repair or restoration continues shall be abated, provided (1) the damage was not the result of the negligence of Lessee, and (2) such abatement shall only be to the extent the operation and profitability of Lessee's business as operated from the Premises is adversely affected. Except for said abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises or the Building under the provisions of this Paragraph 9 and shall not commence such repair or restoration within ninety (90) days after such occurrence, or if Lessor shall not complete the restoration and repair within six (6) months after such occurrence, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement or completion, respectively, of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. (c) Lessee agrees to cooperate with Lessor in connection with any such restoration and repair, including but not limited to the approval and/or execution of plans and specifications required. 9.6 TERMINATION--ADVANCE PAYMENTS: Upon termination of this Lease pursuant to this paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.7 WAIVER: Lessor and Lessee waive the provisions of any statute which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 10. REAL PROPERTY TAXES. 10.1 PAYMENT OF TAXES: Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Office Building Project subject to reimbursement by Lessee of Lessee's Share of such taxes in accordance with the provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2. 10.2 ADDITIONAL IMPROVEMENTS: Lessee shall not be responsible for paying any increase in real property tax specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Office Building Project by other lessees or by Lessor for the exclusive enjoyment of any other lessee. Lessee shall, however, pay to Lessor at the time that Operating Expenses are payable under paragraph 4.2(c) the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request. 10.3 DEFINITION OF "REAL PROPERTY TAX": As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Office Building Project or any portion thereof by any authority having the direct or indirect power to tax, including any city, county, state or federal -13- government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Office Building Project or in any portion thereof, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Office Building Project. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinabove included within the definition of "real property tax," or (ii) the nature of which was hereinbefore included within the definition of "real property tax," or (iii) which is imposed for a service or right not charged prior to June 1, 1978, or, if previously charged, has been increased since June 1, 1978, or (iv) which is imposed as a result of a change in ownership, as defined by applicable local statutes for property tax purposes, of the Office Building Project or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such change of ownership, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. All reference to "Office Building Project" herein is defined as Building. 10.4 JOINT ASSESSMENT: If the improvements or property, the taxes for which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not separately assessed, Lessee's portion of that tax shall be equitably determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information (which may include the cost of construction) as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 PERSONAL PROPERTY TAXES: (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. (b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay to Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. UTILITIES. 11.1 SERVICES PROVIDED BY LESSOR: Lessor shall provide heating, ventilation, air conditioning, and janitorial service as reasonably required, reasonable amounts of electricity for normal lighting and office machines, water for reasonable and normal drinking and lavatory use, and replacement light bulbs and/or fluorescent tubes and ballasts for standard overhead fixtures. 11.2 SERVICES EXCLUSIVE TO LESSEE: Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services specially or exclusively supplied and/or metered exclusively to the Premises or to Lessee, together with any taxes thereon. If any such services are not separately metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a reasonable proportion to be determined by Lessor of all charges jointly metered with other premises in the Building. 11.3 HOURS OF SERVICE: Said services and utilities shall be provided during generally accepted business days and hours or such other days or hours as may hereafter be set forth. Utilities and services are available 7 days/week, 24 hrs./day, paid directly be Lessee. 11.4 EXCESS USAGE BY LESSEE: Lessee shall not make connection to the utilities except by or through existing outlets and shall not install or use machinery or equipment in or about the Premises that -14- uses excess water, lighting or power, or suffer or permit any act that causes extra burden upon the utilities or services, including but not limited to security services, over standard office usage for the Office Building Project. Lessor shall require Lessee to reimburse Lessor for any excess expenses or costs that may arise out of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion, install at Lessee's expense supplemental equipment and/or separate metering applicable to Lessee's excess usage or loading. 11.5 INTERRUPTIONS: There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor's reasonable control or in cooperation with governmental request or directions. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED: Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in the Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner, but not later than ten (10) days from receipt of Lessee's written notice and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a material default and breach of this Lease without the need for notice to Lessee under paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include the transfer or transfers aggregating: (a) if Lessee is a corporation, more than forty percent (40%) of the voting stock of such corporation, or (b) if Lessee is a partnership, more that twenty-five percent (25%) of the profit and loss participation is such partnership. 12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING: (a) Regardless of Lessor's consent, no assignment or subletting shall release Lessee of Lessee's obligations hereunder or alter the primary liability of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's Share of Operating Expense increase, and to perform all other obligations to be performed by Lessee hereunder. (b) Lessor may accept rent from any person other than Lessee pending approval or disapproval of such assignment. (c) Neither a delay in the approval or disapproval of such assignment or subletting, nor the acceptance of rent, shall constitute a waiver of estoppel of Lessor's right to exercise its remedies for the breach of any of the terms or conditions of this paragraph 12 or this Lease. (d) If Lessee's obligations under this Lease have been guaranteed by third parties, then an assignment or sublease, and Lessor's consent thereto shall not be effective unless said guarantors give their written consent to such sublease and the terms thereof. (e) The consent by Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent and such action shall not relieve such persons from liability under this Lease or said sublease; however, such persons shall not be -15- responsible to the extent any such amendment or modification enlarges or increases the obligations of the Lessee or sublessee under this Lease or such sublease. (f) In the event of any default under this Lease, Lessor may proceed directly against Lessee, any guarantors or anyone else responsible for the performance of this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. (g) Lessor's written consent to any assignment or subletting of the Premises by Lessee shall not constitute an acknowledgment that no default then exists under this Lease of the obligations to be performed by Lessee nor shall such consent be deemed a waiver of any then existing default, except as may be otherwise stated by Lessor at the time. (h) The discovery of the fact that any financial statement relied upon by Lessor in giving its consent to an assignment or subletting was materially false shall, at Lessor's election, render Lessor's said consent null and void. 12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING: Regardless of Lessor's consent, the following terms and conditions shall apply to any subletting by Lessee of all or part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a default shall occur in the performance of Lessee's obligations under this Lease, Lessee may receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a default exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents due and to become due under the sublease. Lessee agrees that such sublessee shall have the right to rely upon any such statement and request from Lessor, and that such sublessee shall pay such rents to Lessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against said sublessee or Lessor for any such rents so paid by said sublessee to Lessor. (b) No sublease entered into by Lessee shall be effective unless and until it has been approved in writing by Lessor. In entering into any sublease, Lessee shall use only such form of sublessee as is satisfactory to Lessor, and once approved by Lessor, such sublease shall not be changed or modified without Lessor's prior written consent. Any sublease shall, by reason of entering into a sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every obligation herein to be performed by Lessee other that such obligations as are contrary to or inconsistent with provisions contained in a sublease to which Lessor has expressly consented in writing. (c) In the event Lessee shall default in the performance of its obligations under this Lease, Lessor at its option and without any obligation to do so, may require any sublessee to attorn to -16- Lessor, in which event Lessor shall undertake the obligations of Lessee under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to Lessee or for any other prior defaults of Lessee under such sublease. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) With respect to any subletting to which Lessor has consented, Lessor agrees to deliver a copy of any notice of default by Lessee to the sublessee. Such sublessee shall have the right to cure a default of Lessee within three (3) days after service of said notice of default upon such sublessee, and the sublessee shall have a right of reimbursement and offset from and against Lessee for any such defaults cured by the sublessee. 12.5 LESSOR'S EXPENSES: In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable costs and expenses incurred in connection therewith, including attorneys', architects', engineers' or other consultants' fees. 12.6 CONDITIONS TO CONSENT: Lessor reserves the right to condition any approval to assign or sublet upon Lessor's determination that (a) the proposed assignee or sublessee shall conduct a business on the Premises of a quality substantially equal to that of Lessee and consistent with the general character of the other occupants of the Office Building Project and not in violation of any exclusives or rights then held by other tenants, and (b) the proposed assignee or sublessee be at least as financially responsible as Lessee was expected to be at the time of the execution of this Lease or of such assignment or subletting, whichever is greater. 13. DEFAULT; REMEDIES. 13.1 DEFAULT: The occurrence of any one or more of the following events shall constitute a material default of this Lease by Lessee: (a) The vacation or abandonment of the Premises by Lessee unless rent is paid. (b) The breach of Lessee of any of the covenants, conditions or provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f) (false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33 (auctions), or 41.1 (easements), all of which are hereby deemed to be material, non-curable defaults without the necessity of any notice by Lessor to Lessee thereof. (c) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three (3) days after written notice thereof from Lessor to Lessee. In the event that Lessors serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (d) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee other than those referenced in subparagraphs (b) and (c), above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's -17- noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not b deemed to be in default if Lessee commenced such cure within said thirty (30) day period and thereafter diligently pursues such cure to completion. To the extent permitted by law, such thirty (30) day notice shall constitute the sole and exclusive notice required to be given to Lessee under applicable Unlawful Detainer statutes. (e) (i) The making by Lessee of any general arrangement or general assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as defined in 11 U.S.C. (S)101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee' assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. In the event that any provision of this paragraph 13.1(e) is contrary to any applicable law, such provision shall be of no force or effect. (f) The discovery by Lessor that any financial statement given to Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's obligation hereunder, was materially false. 13.2 REMEDIES: In the event of any material default or breach of this Lease by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and any real estates commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to paragraph 15 applicable to the unexpired term of this Lease. (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have vacated or abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law. 13.3 DEFAULT BY LESSOR: Lessors shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's -18- obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such 30-day period and thereafter diligently pursues the same to completion. 13.4 LATE CHARGES: Lessee hereby acknowledges that late payment by Lessee to Lessor of Base Rent, Lessee's Share of Operating Expense increase or other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Office Building Project. Accordingly, if any installment of Base Rent, Operating Expense increase, or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. 14. CONDEMNATION. If the Premises or any portion thereof or the Office Building Project are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs; provided that if so much of the Premises or the Office Building Project are taken by such condemnation as would substantially and adversely affect the operation and profitability of Lessee's business conducted from the Premises, Lessee shall have the option, to be exercised only in writing within thirty (30) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within thirty (30) days after the condemning authority shall have taken possession), to terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent and Lessee's Share of Operating Expense increase shall be reduced in the proportion that the floor area of the Premises taken bears to the total floor area of the Premise. Common Areas taken shall be excluded from the Common Areas usable by Lessee and no reduction of rent shall occur with respect thereto or by reason thereof. Lessor shall have the option in its sole discretion to terminate this Lease as of the taking of possession by the condemning authority, by giving written notice to Lessee of such election within thirty (30) days after receipt of notice of a taking by condemnation of any part of the Premises or the Office Building Project. Any award for the taking of all or any part of the Premises or the Office Building Project under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any separate award for loss of or damage to Lessee's trade fixtures, removable personal property and unamortized tenant improvements that have been paid for by Lessee. For that purpose the cost of such improvements shall be amortized over the original term of this Lease excluding any options. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation expect to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. -19- 15. BROKER'S FEE. (a) The brokers involved in this transaction are Cornish & Carey Commercial as "listing broker" and Cornish & Carey Commercial as "cooperating broker," licensed real estate broker(s). A "cooperating broker" is defined as any broker other than the listing broker entitled to a share of any commission arising under this Lease. Upon execution of this Lease by both parties, Lessor shall pay to said brokers jointly, or is such separate shares as they may mutually designate in writing, a fee as set forth in a separate agreement between Lessor and said broker(s). (b) Lessee and Lessor each represent and warrant to the other that neither has had any dealings with any person, firm, broker or finder (other that the person(s), if any, whose names are set forth in paragraph 15(a), above) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and no other broker or other person, firm or entity is entitled to any commission or finder's fee in connection with said transaction and Lessee and Lessor do each hereby indemnify and hold the other harmless from and against any costs, expenses, attorneys' fees or liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying party. 16. ESTOPPEL CERTIFICATE. (a) Each party (as "responding party") shall at any time upon not less than ten (10) days' prior written notice from the other party ("requesting party") execute, acknowledge and deliver to the requesting party a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lessee, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to the responding party's knowledge, any uncured defaults on the part of the requesting party, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Office Building Project or of the business of Lessee. (b) At the requesting party's option, the failure to deliver such statement within such time shall be a material default of this Lease by the party who is to respond, without any further notice to such party, or it shall be conclusive upon such party that (i) this Lease is in full force and effect without modification except as may be represented by the requesting party, (ii) there are no uncured defaults in the requesting party's performance and (iii) if Lessor is the requesting party, not more than one month's rent has been paid in advance. (c) If Lessor desires to finance, refinance, or sell the Office Building Project, or any part thereof, Lessees hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of Lessee as may be reasonably required by such lender or purchaser, not to exceed twice in one calendar year. Such statements shall include the past three (3) years' financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchase in confidence, with a confidentiality agreement mutually acceptable to Lessor and Lessee, and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the owner or owners at the time in question of the fee title or a lessee's interest in a ground lease of the Office Building Project, and except as expressly provided in paragraph 15, in the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and -20- after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor, shall, subject as aforesaid, be binding on Lessor's successors and assigns only during their respective periods of ownership. 18. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided any amount due to Lessor not paid when due shall bear interest the maximum rate then allowable by law or judgments from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease; provided however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee. 20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to be performed under this Lease. 21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the terms of this Lessee, including but not limited to Lessee's Share of Operating Expense and any other expenses payable by Lessee hereunder shall be deemed to be rent. 22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employee or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of the Premises or the Office Building Project and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and, except as otherwise provided in this Lease, the compliance thereof with all applicable laws and regulations in effect during the term of this Lease. 23. NOTICES. See Lease Addendum, paragraph 23. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal deliver or by certified or registered mail, or courier delivery, and shall be deemed sufficiently given if delivered or addressed to Lessee or to Lessor at the address noted below or adjacent to the signature of the respective parties, as the case may be. Mailed notices shall be deemed given upon actual receipt at the address required, or forty-eight hours following deposit in the mail, postage prepaid, whichever first occurs. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. 24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor -21- shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, except that the rent payable shall be two hundred percent (200%) of the rent payable immediately preceding the termination date of this lease, and all Options, if any, granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy. 27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State where the Office Building Project is located and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the Office Building Project is located. 30. SUBORDINATION. (a) This Lease, and any Option or right of first refusal granted hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Office Building Project and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease and any Options granted hereby prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease or such Options are dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (b) Provided Lessee simultaneously receives a non-disturbance agreement from the beneficiary, mortgagee or ground lessor, Lessee agrees to execute any documents required to effectuate an attornment, a subordination, or to make this Lease or any Option granted herein prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within ten (10) days after written demand shall constitute a material default by Lessee hereunder without further notice to Lessee or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee doe hereby make, constitute and irrevocably appoint Lessor as -22- Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this paragraph 30(b). 31. ATTORNEYS' FEES. 31.1 If either party or the broker(s) named herein bring an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, trial or appeal thereon, shall be entitled to his reasonable attorneys' fees to be paid by the losing party as fixed by the court in the same or a separate suit, and whether or not such action is pursued to decision or judgment. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder. 31.2 The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred in good faith. 31.3 Lessor shall be entitled to reasonable attorneys' fees and all other costs and expenses incurred in the preparation and service of notice of default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such default. 32. LESSOR'S ACCESS. 32.1 Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purposes of inspecting the same, performing any services required of Lessor, showing the same to prospective purchasers, lenders, or lessees, taking such safety measures, erecting such scaffolding or other necessary structures, making such alterations, repairs, improvements or additions to the Premises or to the Office Building Project as Lessor may reasonably deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee's use of the Premises. Lessor may at any time place on or about the Premises or the Building any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs. While on the Premises pursuant to this paragraph Lessor and its employees, agents and contractors shall use reasonable efforts to minimize any disturbance to the conduct of Lessee's business. 32.2 All activities of Lessor pursuant to this paragraph shall be without abatement of rent, nor shall Lessor have any liability to Lessee for the same 32.3 Lessor shall have the right to retain keys to the Premises and to unlock all doors in or upon the Premises other than to files, vaults and safes, and in the case of emergency to enter the Premises by any reasonably appropriate means, and any such entry shall not be deemed a forceable or unlawful entry or detainer of the Premises or an eviction. Lessee waives any charges for damages or injuries or interference with Lessee's property or business in connection therewith. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises or the Common Areas without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. The holding of any auction on the Premises or Common Areas in violation of this paragraph shall constitute a material default of this Lease. -23- 34. SIGNS. Lessee shall not place any sign upon the Premises or the Office Building Project without Lessor's prior written consent. Under no circumstances shall Lessee place a sign on any roof of the Office Building Project. 35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof, wherever in this Lease the consent of one party is required to an act of the other party such consent shall not be unreasonably withheld or delayed. 37. GUARANTOR. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Office Building Project. 39. OPTIONS. Provided Lessee is not in default hereunder as provided in paragraph 39, Lessee shall have one (1) three (3) year option to extend the term upon not less than nine (9) months nor more than twelve (12) months prior written notice of its intention to extend the term. The base rent for the extended term shall be 100% Fair Market Value for comparable office space in the Palo Alto area as further defined herein. In no event, however, shall the base rent for the extended term be less that that paid be Lessee for the last month of the Lease. Commencing on the date, if any, that Lessor receives Lessee's written exercise of the Option to Extend, and continuing for a thirty (30) day period thereafter, Lessor and Lessee hereby agree to negotiate in good faith the amount of base rent to be paid by Lessee to Lessor during the Extended Term of this Lease. Lessor and Lessee hereby agree that such base rent for the first 12 months of the Extended Term shall be equal to one hundred percent (100%) of the "Fair Market Rental Value" rate. Fair Market Rental Value shall be determined be reference to recent base rental rates for lease transactions signed by tenants within the past twelve (12) months, from the notification date, in other comparable office buildings in the Palo Alto area taking into account free rent and other tenant rental incentives (including tenant improvement allowance) for entering into renewal leases. If Lessor and Lessee are able to reach a written agreement as to the base rent for such Extended Term within the thirty (30) day period set forth in the first sentence of this paragraph, the Term of the Lease will be extended for the additional three (3) years at the agreed upon base rent with all other terms and conditions of the Lease remaining in full force and effect. If Lessor and Lessee are unable to reach a written agreement as to the base rent for the Extended Term within the thirty (30) day period described herein, the base rent to be paid by Lessee to Lessor during such Extended Term will be determined by the appraisal process described below. On or before not less than eight (8) months prior to the Termination Date, Lessor and Lessee will each select a real estate -24- broker with at least five (5) years full time commercial leasing experience in the Palo Alto area. On or before seven and one-half (7.5) months prior to the Termination Date, the two brokers selected by Lessor and Lessee as provided above (or the single broker so selected if one party fails to select a broker) shall jointly appoint (or if they are unable to agree, either Lessor or Lessee shall petition the local court to appoint a third real estate broker with at least five (5) years full time commercial leasing experience in the Palo Alto are (the "Appraiser"). The Appraiser so appointed shall appraise and determine the base rent to be paid be Lessee to Lessor during the Extended Term based on one hundred percent (100%) of the Fair Market Rental Value as defined above. The Appraiser's decision (a) shall be in writing and delivered to Lessor and Lessee on or before six (6) months prior to the Termination Date, and (b) shall be final and binding upon Lessor and Lessee. Upon receipt of the Appraiser's written decision, the Term of the Lease will be extended for the Extended Term at the base rent determined by the Appraiser with all other terms and conditions of this Lease remaining in full force. All costs, fees and expenses incurred in connection with the appraisal process shall be shared equally by Lessor and Lessee. 39.1 DEFINITION: As used in this paragraph the word "Option" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other space within the Office Building Project or other property of Lessor or the right of first offer to lease other space within the Office Building Project or other property of Lessor; (3) the right or option to purchase the Premises or the Office Building Project, or the right of first refusal to purchase the Premises or the Office Building Project or the right of first offer to purchase the Premises or the Office Building Project, or the right or option to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor. 39.2 OPTIONS PERSONAL: Each Option granted to Lessee in this Lease is personal to the original Lessee and may be exercised only by the original Lessee while occupying the Premises who does so without the intent of thereafter assigning this Lease or subletting the Premises or any portion thereof, and may not be exercised or be assigned voluntarily or involuntarily, by or to any person or entity other than Lessee; provided, however, that an Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any, herein granted to Lessee are not assignable separate and apart from this Lease, nor may any Option be separated from this Lease in any manner, either by reservation or otherwise. 39.3 MULTIPLE OPTIONS: In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4 EFFECT OF DEFAULT ON OPTIONS: (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in said notice of default is cured, or (ii) during the period of time commencing on the day after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) and continuing until the obligation is paid, or (iii) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, during the 12 month period of time immediately prior to the time that Lessee attempts to exercise the subject Option, (iv) if Lessee has committed any non-curable breach, including -25- without limitation those described in paragraph 13.1(b) or is otherwise in default of any of the terms, covenants or conditions of this Lease. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option. If, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor or monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(d) within thirty (30) days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessor gives to Lessee three or more notices of default under paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if Lessee has committed any non-curable breach, including without limitation those described in paragraph 13.1(b), or is otherwise in default of any of the terms, covenants and conditions of this Lease. 40. SECURITY MEASURES--LESSOR'S RESERVATIONS: 40.1 Lessee hereby acknowledges that Lessor shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Office Building Project. Lessee assumes all responsibility for the protection of Lessee, its agents, and invitees and the property of Lessee and of Lessee's agents and invitees from acts of third parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option, from providing security protection for the Office Building Project or any part thereof, in which event the cost thereof shall be included the definition of Operating Expenses, as set forth in paragraph 4.2(b). 40.2 Lessor shall have the following rights: (a) To change the name, address or title of the Office Building Project or building in which the Premises are located upon not less than 90 days prior written notice; (b) To, at Lessee's expense, provide and install Building standard graphics on the door of the Premises and such portions of the Common Areas as Lessor shall reasonably deem appropriate; (c) To permit any lessee the exclusive right to conduct any business as long as such exclusive does not conflict with any rights expressly given herein; (d) To place such signs, notices or displays as Lessor reasonably deems necessary or advisable upon the roof, exterior of the buildings or the Office Building Project or on pole signs in the Common Areas. 40.3 Lessee shall not: (a) Use a representation (photographic or otherwise) of the Building or the Office Building Project or their name(s) in connection with Lessee's business; -26- (b) Suffer or permit anyone, except in emergency, to go upon the roof of the Building. 41. EASEMENTS. 41.1 Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material default of this Lease by Lessee without the need for further notice to Lessee. 41.2 The obstruction of Lessee's view, air, or light by any structure erected in the vicinity of the Building, whether by Lessor or third parties, shall in no way affect this Lease or impose any liability upon Lessors. 42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjusted that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 43. AUTHORITY. If Lessee is a corporation, trust, or general or limited partnership, Lessee, and each individual executing this Lease on behalf of such entity represent and warrant that such individual is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 44. CONFLICT. Any conflict between the printed provisions, Exhibits or Addenda of this Lease and the typewritten or handwritten provisions, if any, shall be controlled by the typewritten or handwritten provisions. 45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to Lessee to lease. This Lease shall become binding upon Lessor and Lessee only when fully executed by both parties. 46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications to this Lease as may be reasonably required by an institutional lender in connection with the obtaining of normal financing or refinancing of the Office Building Project. 47. MULTIPLE PARTIES. If more than one person or entity is named as either Lessor or Lessee herein, except as otherwise expressly provided herein, the obligations of the Lessor or Lessee herein shall be the joint and several responsibility of all persons or entities named herein as such Lessor of Lessee, respectively. 48. ATTACHMENTS. Attached hereto are the following documents which constitute a party of this Lease: -27- ADDENDUM TO LEASE--(Paragraphs 2.4-32 and 50-56) EXHIBIT "A"--Floor Plan/Demolition Plan EXHIBIT "B"--Rules and Regulations for Standard Office Lease LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. LESSOR LESSEE Fabian Partners II Chemdex, a Delaware Corporation a California General Partnership By /s/ C. Bradley Lyman By /s/ David P. Perry -------------------------------- ------------------------ Its General Partner Its President -------------------------------- ------------------------ By /s/ Dan McGarry III - President By /s/ Brenda Fox -------------------------------- ------------------------ Its General Partner Its Director of Operations -------------------------------- ------------------------ Executed __________________________ Executed at ________________ on June 19, 1998 on June 19, 1998 Address: __________________________ Address: ___________________ -28- EXHIBIT A 3950 FABIAN WAY, PALO ALTO OFFICE R&D SPACE RULES AND REGULATIONS FOR STANDARD OFFICE LEASE Dated: June 11, 1998 By and Between Fabian Partners II, Lessor and Chemdex, Lessee for the Premises located at 3950 Fabian Way, Palo Alto GENERAL RULES 1. Lessor shall not suffer or permit the obstruction of any Common Areas, including driveways, walkways and stairways. 2. Lessor reserves the right to refuse access to any persons Lessor in good fait judges to be a threat to the safety, reputation, or property of the Office Building Project and its occupants. 3. Lessee shall not make or permit any noise or odors that annoy or interfere with other lessees or persons having business within the Office Building Project. 4. Lessee shall not keep animals or birds within the Office Building Project, and shall not bring bicycles, motorcycles or other vehicles into areas to designated as authorized for same. 5. Lessee shall not make, suffer or permit litter except in appropriate receptacles for that purpose. 6. Lessee shall not alter any lock or install new or additional locks or bolts. 7. Lessee shall be responsible for the inappropriate use of any toilet rooms, plumbing or other utilities. No foreign substances of any kind are to be inserted therein. 8. Lessee shall not deface the walls, partitions or other surfaces of the Premises or Office Building Project. 9. Lessee shall not suffer or permit anything in or around the Premises or Building that causes excessive vibration or floor loading in any part of the Office Building Project. 10. Furniture, significant freight and equipment shall be moved into or out of the building only with the Lessor's knowledge and consent, and subject to such reasonable limitations, techniques and timing, as may be designated by lessor. Lessee shall be responsible for any damage to the Office Building Project arising from any such activity. 11. Lessee shall not employ any service or contractor for services or work to be performed in the Building, except as approved by Lessor. 12. Lessor reserves the right to close and lock the Building on Saturdays, Sundays and legal holidays, and on other days between the hours of N/A P.M. and _____ A.M. of the following day. If Lessee uses the Premises during such periods, Lessee shall be responsible for securely locking any doors it may have opened for entry. 13. Lessee shall return all keys at the termination of its tenancy and shall be responsible for the cost of replacing any keys that are lost. 14. No window coverings, shades or awnings shall be installed or used by Lessee. 15. No Lessee, employee or invitee shall go upon the roof of the Building. 16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or cigarettes in areas reasonably designated by Lessor or by applicable governmental agencies as non-smoking areas. 17. Lessee shall not use any method of heating or air conditioning other than as provided by Lessor. 18. Lessee shall not install, maintain or operate any vending machines upon the Premises without Lessor's written consent. 19. The Premises shall not be used for lodging or manufacturing, cooking or food preparation. 20. Lessee shall comply with all safety, fire protection and evacuation regulations established by Lessor or any applicable governmental agency. 21. Lessor reserves the right to waive any one of these rules or regulations, and/or as to any particular Lessee, and any such waiver shall not constitute a waiver of any other rule or regulation or any subsequent application thereof to such Lessee. 22. Lessee assumes all risks from theft or vandalism and agrees to keep its Premises locked as may be required. 23. Lessor reserves the right to make such other reasonable rules and regulations as it may from time to time deem necessary for the appropriate operation and safety of the Office Building Project and its occupants. Lessee agrees to abide by these and such rules and regulations. PARKING RULES 1. Parking areas shall be used only for parking by vehicles no longer than full size, passenger automobiles herein called "Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized Vehicles." 2. Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. 3. Parking stickers or identification devices shall be the property of Lessor and be returned to Lessor by the holder thereof upon termination of the holder's parking privileges. Lessee will pay such replacement charge as is reasonably established by lessor for the loss of such devices. 4. Lessor reserves the right to refuse the sale of monthly identification devices to any person or entity that willfully refuses to comply with the applicable rules, regulations, laws and/or agreements. 5. Lessor reserves the right to reasonably allocate them between compact and standard size spaces, as long as the same complies with applicable laws, ordinances and regulations. 6. Users of the parking area will obey all posted signs and park only in the areas designated for vehicle parking. -2- 7. Unless otherwise instructed, every person using the parking area is required to park and lock his own vehicle. Lessor will not be responsible for any damage to vehicles, injury to persons or loss of property, all of which risks are assumed by the party using the parking area. 8. Validation, if established, will be permissible only by such method or methods as Lessor and/or its licensee may establish at rates generally applicable to visitor parking. 9. The maintenance, washing, waxing or cleaning of vehicles in the parking structure or Common Areas is prohibited. 10. Lessee shall be responsible for seeing that all of its employees, agents and invitees comply with the applicable parking rules, regulations, laws and agreements. 11. Lessor reserves the right to modify these rules and/or adopt such other reasonable and non-discriminatory rules and regulations as it may deem necessary for the proper operation of the parking area. 12. Such parking use as is herein provided is intended merely as a license only and no bailment is intended or shall be created hereby. -3- LEASE ADDENDUM ADDENDUM TO THE LEASE DATED JUNE 11, 1998, BY AND BETWEEN FABIAN PARTNERS II, A CALIFORNIA GENERAL PARTNERSHIP, LESSOR, AND CHEMDEX, A DELAWARE CORPORATION, LESSEE, FOR THOSE PREMISES LOCATED AT 3950 FABIAN WAY, PALO ALTO, CALIFORNIA. 2.4 Common Areas: Insert the following language after the word "regulations" in the fourth line: "provided such modifications and amendments are reasonable, non- discriminatory, and do not impair or abridge any of Lessee's existing rights under this Lease." 6.2(A) Compliance with Law: Add the following to Line 3 after "such Lease term Commencement Date: "and to the best of Lessor's knowledge, no hazardous or toxic substances, materials or wastes exist on or under the Office Building Project except as heretofore expressly disclosed in writing to Lessee" 6.2(B) Add to the end of this paragraph: Notwithstanding anything to the contrary in this Lease, no provision of this Lease shall obligate Lessee to: investigate, monitor, remove, remediate, or otherwise respond to any hazardous or toxic substances, materials or wastes which (A) existed in any state or form on or under the Office Building Project prior to the commencement Date, or (B) which may migrate onto or under the Office Building Project at any time after the Commencement Date, or (C) which are otherwise not placed in the Office Building Project by Lessee or its agents, contractors, employees or invitees." 7.1 Add to Line 6 after "any part thereof": "provided that Lessor and its agents and contractors, while performing such improvements, alterations or improvements, exert reasonable efforts to minimize any disruption of Lessee's business." 7.3(A) Add to Line 1 after "prior written consent": "not to be unreasonably withheld or delayed" 7.3(A) Add to Line 5 after "installations": "provided Lessor so notified Lessee thereof at the time Lessor consented the same," 7.3(B) Add to Line 2 after "detailed plans": "except non-structural alterations, repairs and improvements costing less than $5,000 per improvement shall be limited to Lessee's notification of such Lessor" 8.8 Exemption of Lessor from Liability: Add the following language to the end of this paragraph: "Notwithstanding the foregoing, this exemption shall not apply to any injury, loss or damage resulting from the negligence or willful misconduct of Lessor, its contractors, employees, or invitees and this exemption shall not relieve Lessor from any of its obligations under this Lease." 23. NOTICES: The address for notices to Lessor and Lessee are as follows: Lessor: Lessee: Fabian Partners II Chemdex Attn: William J. Hurwick Attn: Brenda Fox Cornish & Carey Commercial 3950 Fabian Way 245 Lytton Avenue, Suite 150 Palo Alto, CA 94303 Palo alto, CA 94301 (650) 813-0300 (650) 322-2600 32. LESSOR'S ACCESS: Add the following language to the end of paragraph 32.1: "While on the Premises pursuant to this paragraph Lessor and its employees, agents and contractors shall use reasonable efforts to minimize any disturbance to the conduct of Lessee's business." 50. BASE RENT/BASE RENT INCREASE: The monthly base rent shall be as follows:
Months Rate/Sq. Ft./Mo. NNN Base Rent ------ -------------------- --------- 01 - 05 $ 2.60 $ 46,527.00 06 - 12 $ 2.60 $ 87,472.00* 13 - 24 $2.6780 $ 90,096.00 25 - 36 $2.7583 $ 92,798.00 37 - 48 $2.8411 $ 95,583.00 49 - 60 $2.9263 $ 98,450.00 61 - 65 $3.0141 $101,403.00
*The First Floor Rent Commencement Date is defined as January 1, 1999 or upon tenant improvements complete, whichever is later. (First Floor Rental = $40,945 of the $87,472.00). 51. RENT PAID UPON EXECUTION:
Date Due Amount -------- ------ Execution $46,527.00 11-15-98 $40,945.00
52. SECURITY DEPOSIT:
Due Date Amount Form -------- ------ ---- Execution $ 45,000.00 Cash Execution $125,000.00 Letter of Credit 11-15-98 $ 45,000.00 Cash 11-15-98 $125,000.00 Letter of Credit
-2- Lessor and Lessee hereby agree that, in the event Lessee files for and completes an IPO (Initial Public Offering), Lessor shall provide Lessee written authorization to reduce the total amount of Letter of Credit ($250,000.00) by $90,000.00 leaving a remaining balance of $160,000.00. Said written authorization shall be due from lessor within thirty (30) days after Lessor's receipt (from Lessee) of notification of the IPO. 53. CONDITION OF PREMISES: Lessor shall, at Lessor's sole cost and expense, provide the following improvements to the Premises according to building standards and in a good and workmanlike manner, in compliance with all applicable laws and any plans and specifications approved by Lessee, and using new materials free of defect. The Second Floor improvements shall be complete prior to the August 1, 1998 Rent Commencement Date. Second Floor: ------------ - New carpet and paint throughout. Lessee to select color. - Ensure all mechanical, electrical and plumbing systems are operational and in good order and repair. - Install one glass partial wall to enclose the opening to the first floor landing. - Provide elevator key access security. - Raised floor computer room to remain with existing separate HVAC unit with 24 hour HVAC service to the area. - Carpet on the stairs and lobby of the building shall be replaced and the space shall be painted within thirty (30) days after Lessee's occupancy of the building. - Signage: Provide building lobby directory signage. Lessor grants to Lessee, at Lessee's cost, the right to install building monument signage (Lessor to define building standards). First Floor: ----------- The First Floor Improvements shall be complete prior to January 1, 1999 Rent Commencement Date. - Total Premises to be "office" space including drop ceiling, finished sheet rock walls, window coverings similar to the second floor and serviced with HVAC throughout - New carpet and paint. - Demolish walls to open the space to open floor plan. Walls to be demolished are noted on the attached Exhibit A floor plan. And, add one (1) door for back staircase access (See plan). Location of door to be mutually agreed to be Lessor & Lessee. -3- 54. ASSIGNMENT AND SUBLETTING: Notwithstanding paragraph 12 of this Lease, Lessee shall have the right to sublease all or any portion of its Premises during the term of the lease to a qualified Lessee, subject to Lessor's approval, which shall not be unreasonably withheld or delayed. Any profits generated by said subleasing shall be allotted 100% to Lessor after Lessee recovers all costs associated with subleasing, limited to a real estate commission, attorney fees (not to exceed $2,500) and interior improvements (not to exceed $2.00/sq.ft.). Lessor shall have the unilateral right to recapture from Lessee, at any time during the lease term, any and all space that Lessee desires to sublease to an identified sublessee (including all appropriate business terms, etc.). In the event Lessor approves sublease and elects to recapture the space, Lessor shall then agree to terminate the Lease effective on the Commencement Date of the Sublease for the specified square footage of the Premises. The exception to this recapture right is that in the event the Lessee elects to sublease up to 33% of the Premises during the initial twelve (12) months of the lease term (August 1, 1998 to July 31, 1999) for a period not to exceed two (2) years, the recapture right shall not apply. 55. OPTIONS: Provided Lessee is not in default hereunder as provided in paragraph 39, Lessee shall have one (1) three (3) year option to extend the term upon not less than nine (9) months nor more than twelve (12) months prior written notice of its intention to extend the term. The base rent for the extended term shall be 100% Fair Market Value for comparable office space in Palo Alto area as further defined herein. In no event, however, shall the base rent for the extended term be less than that paid be Lessee for the last month of the Lease. Commencing on the date, if any, that Lessor receives Lessee's written exercise of the Option to Extend, and continuing for a thirty (30) day period thereafter, Lessor and Lessee hereby agree to negotiate in good faith the amount of base rent to be paid by Lessee to Lessor during the Extended Term of this Lease. Lessor and Lessee hereby agree that such base rent for the first twelve months of the Extended Term shall be equal to one hundred percent (100%) of the "Fair Market Rental Value" rate. Fair Market Rental Value shall be determined by reference to recent base rental rates for lease transactions signed by tenants within the past twelve (12) months, from the notification date, in other comparable office buildings in the Palo Alto area taking into account free rent and other tenant rental incentives (including tenant improvement allowance) for entering into renewal leases. If Lessor and Lessee are able to reach a written agreement as to the base rent for such Extended Term within the thirty (30) day period set forth in the first sentence of this paragraph, the Term of the Lease will be extended for the additional three (3) years at the agreed upon base rent with all other terms and conditions of the Lease remaining in full force and effect. If Lessor and Lessee are unable to reach a written agreement as to the base rent for the Extended Term within the thirty (30) day period described herein, the base rent to be paid by Lessee to Lessor during such Extended Term will be determined by the appraisal process described below. On or before not less than eight (8) months prior to the Termination Date, Lessor and Lessee will each select a real estate broker with at least five (5) years full time commercial leasing experience in the Palo Alto area. On or before seven and one-half (7.5) months prior to the Termination Date, the two brokers selected by Lessor and Lessee as provided above (or the single broker so -4- selected if one party fails to select a broker) shall jointly appoint (or if they are unable to agree, either Lessor or Lessee shall petition the local court to appoint a third real estate broker with at least five (5) years full time commercial leasing experience in the Palo Alto area (the "Appraiser"). The Appraiser so appointed shall appraise and determine the base rent to be paid by Lessee to Lessor during the Extended Term based on one hundred percent (100%) of the Fair Market Rental Value as defined above. The Appraiser's decision (a) shall be in writing and delivered to Lessor and Lessee on or before six (6) months prior to the Termination Date, and (b) shall be final and binding upon Lessor and Lessee. Upon receipt of the Appraiser's written decision, the Term of the Lease will be extended for the Extended Term at the base rent determined by the Appraiser with all other terms and conditions of this Lease remaining in full force. All costs, fees and expenses incurred in connection with the appraisal process shall be shared equally by Lessor and Lessee. 56. CONDITIONS/TIME OF ESSENCE: This Lease is conditioned upon Lessee providing authorized approvals/signatures to this Lease and including but not limited to submittal of all base rents, security deposits (cash and Letter of Credit) as provided herein by no later than 12:00 Noon, Friday, June 19, 1998. LESSOR: FABIAN PARTNERS II, A CALIFORNIA GENERAL PARTNERSHIP By: ________________________ Date: _________________________ By: ________________________ Date: _________________________ LESSEE: CHEMDEX, A DELAWARE CORPORATION By: ________________________ Date: _________________________ By: ________________________ Date: _________________________ -5- EX-10.9 14 MASTER LEASE AGREEMENT DATED 01/20/1999 EXHIBIT 10.9 MASTER LEASE AGREEMENT MASTER LEASE AGREEMENT (the "Master Lease") dated January 20, 1999 by and between COMDISCO, INC. ("Lessor") and CHEMDEX CORPORATION("Lessee"). IN CONSIDERATION of the mutual agreements described below, the parties agree as follows (all capitalized terms are defined in Section 14.18): 1. PROPERTY LEASED. Lessor leases to Lessee all of the Equipment described on each Summary Equipment Schedule. In the event of a conflict, the terms of the applicable Schedule prevail over this Master Lease. 2. TERM. On the Commencement Date, Lessee will be deemed to accept the Equipment, will be bound to its rental obligations for each item of Equipment and the term of a Summary Equipment Schedule will begin and continue through the Initial Term and thereafter until terminated by either party upon prior written notice received during the Notice Period. No termination may be effective prior to the expiration of the Initial Term. 3. RENT AND PAYMENT. Rent is due and payable in advance on the first day of each Rent Interval at the address specified in Lessor's invoice. Interim Rent is due and payable when invoiced. If any payment is not made when due, Lessee will pay a Late Charge on the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay Lessor the Advance specified on the Schedule. The Advance will be credited towards the final Rent payment if Lessee is not then in default. No interest will be paid on the Advance. 4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES. 4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and disclaims any reliance upon statements made by the Lessor, other than as set forth in the Schedule. 4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so long as Lessee is not in default, Lessor will not disturb Lessee's quiet and peaceful possession, and unrestricted use of the Equipment. To the extent permitted by the manufacturer, Lessor assigns to Lessee during the term of the Summary Equipment Schedule any manufacturer's warranties for the Equipment. LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability, claim, loss, damage or expense of any kind (including strict liability in tort) caused by the Equipment except for any loss or damage caused by the willful misconduct or negligent acts of Lessor. In no event is Lessor responsible for special, incidental or consequential damages. 5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT. 5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights of the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor, as Lessee's agent, and at Lessor's expense, to prepare, execute and file in Lessee's name precautionary Uniform Commercial Code financing statements showing the interest of the Owner, Lessor, and any Assignee or Secured Party in the Equipment and to insert serial numbers in Summary Equipment Schedules as appropriate. Lessee will, at its expense, keep the Equipment free and clear from any liens or encumbrances of any kind (except any caused by Lessor) and will indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless from and against any loss caused by Lessee's failure to do so, except where such is caused by Lessor. 5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate Equipment to any location within the continental United States provided (i) the Equipment will not be used by an entity exempt from federal income tax, and (ii) all additional costs (including any administrative fees, additional taxes and insurance coverage) are reconciled and promptly paid by Lessee. Lessee may sublease the Equipment upon the reasonable consent of the Lessor and the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets the relocation requirements set out above, (ii) the sublease is expressly subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its rights in the sublease to Lessor and the Secured Party as additional collateral and security, (iv) Lessee's obligation to maintain and insure the Equipment is not altered, (v) all financing statements required to continue the Secured Party's prior perfected security interest are filed, and (vi) Lessee executes sublease documents acceptable to Lessor. No relocation or sublease will relieve Lessee from any of its obligations under this Master Lease and the relevant Schedule. 5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its interest or grant a security interest in each Schedule and/or the Equipment to a Secured Party or Assignee. In that event, the term Lessor will mean the Assignee and any Secured Party. However, any assignment, sale, or other transfer by Lessor will not relieve Lessor of its obligations to Lessee and will not materially change Lessee's duties or materially increase the burdens or risks imposed on Lessee. The Lessee consents to and will acknowledge such assignments in a written notice given to Lessee. Lessee also agrees that: (a) The Secured Party will be entitled to exercise all of Lessor's rights, but will not be obligated to perform any of the obligations of Lessor. The Secured Party will not disturb Lessee's quiet and peaceful possession and unrestricted use of the Equipment so long as Lessee is not in default and the Secured Party continues to receive all Rent payable under the Schedule; and (b) Lessee will pay all Rent and all other amounts payable to the Secured Party, despite any defense or claim which it has against Lessor. Lessee reserves its right to have recourse directly against Lessor for any defense or claim; (c) Subject to and without impairment of Lessee's leasehold rights in the Equipment, Lessee holds the Equipment for the Secured Party to the extent of the Secured Party's rights in that Equipment. 6. NET LEASE; TAXES AND FEES. 6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease. Lessee's obligation to pay Rent and all other amounts due hereunder is absolute and unconditional and is not subject to any abatement, reduction, set-off, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. 6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all taxes, fees or any other charges (together with any related interest or penalties not arising from the negligence of Lessor) accrued for or arising during the term of each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any governmental authority (except only Federal, state, local and franchise taxes on the capital or the net income of Lessor). Lessor will file all personal property tax returns for the Equipment and pay all such property taxes due. Lessee will reimburse Lessor for property taxes within thirty (30) days of receipt of an invoice. 7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR. 7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good operating order and appearance, protect the Equipment from deterioration, other than normal wear and tear, and will not use the Equipment for any purpose other -1- than that for which it was designed. If commercially available and considered common business practice for each item of Equipment, Lessee will maintain in force a standard maintenance contract with the manufacturer of the Equipment, or another party acceptable to Lessor, and will provide Lessor with a complete copy of that contract. If Lessee has the Equipment maintained by a party other than the manufacturer or self maintains, Lessee agrees to pay any costs necessary for the manufacturer to bring the Equipment to then current release, revision and engineering change levels, and to re-certify the Equipment as eligible for manufacturer's maintenance at the expiration of the lease term, provided re- certification is available and is required by Lessor. The lease term will continue upon the same terms and conditions until recertification has been obtained. 7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during reasonable business hours and subject to Lessee's security requirements, will make the Equipment and its related log and maintenance records available to Lessor for inspection. 8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents, warrants and covenants that with respect to the Master Lease and each Schedule executed hereunder: (a) The Lessee is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its incorporation, is duly qualified to do business in each jurisdiction (including the jurisdiction where the Equipment is, or is to be, located) where its ownership or lease of property or the conduct of its business requires such qualification, except for where such lack of qualification would not have a material adverse effect on the Company's business; and has full corporate power and authority to hold property under the Master Lease and each Schedule and to enter into and perform its obligations under the Master Lease and each Schedule. (b) The execution and delivery by the Lessee of the Master Lease and each Schedule and its performance thereunder have been duly authorized by all necessary corporate action on the part of the Lessee, and the Master Lease and each Schedule are not inconsistent with the Lessee's Articles of Incorporation or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Master Lease and each Schedule constitute legal, valid and binding agreements of the Lessee, enforceable in accordance with their terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally and rules of law concerning equitable remedies. (c) There are no actions, suits, proceedings or patent claims pending or, to the knowledge of the Lessee, threatened against or affecting the Lessee in any court or before any governmental commission, board or authority which, if adversely determined, will have a material adverse effect on the ability of the Lessee to perform its obligations under the Master Lease and each Schedule. (d) The Equipment is personal property and when subjected to use by the Lessee will not be or become fixtures under applicable law. (e) The Lessee has no material liabilities or obligations, absolute or contingent (individually or in the aggregate), except the liabilities and obligations of the Lessee as set forth in the Financial Statements and liabilities and obligations which have occurred in the ordinary course of business, and which have not been, in any case or in the aggregate, materially adverse to Lessee's ongoing business. (f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has access to, or can become licensed on reasonable terms under all patents, patent applications, trademarks, trade names, inventions, franchises, licenses, permits, computer software and copyrights necessary for the operations of its business as now conducted, with no known infringement of, or conflict with, the rights of others. (g) All material contracts, agreements and instruments to which the Lessee is a party are in full force and effect in all material respects, and are valid, binding and enforceable by the Lessee in accordance with their respective terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally, and rules of law concerning equitable remedies. 9. DELIVERY AND RETURN OF EQUIPMENT. Lessee hereby assumes the full expense of transportation and in-transit insurance to Lessee's premises and installation thereat of the Equipment. Upon termination (by expiration or otherwise) of each Summary Equipment Schedule, Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense (including, without limitation, expenses of transportation and in-transit insurance), return the Equipment to Lessor in the same operating order, repair, condition and appearance as when received, less normal depreciation and wear and tear. Lessee shall return the Equipment to Lessor at 6111 North River Road, Rosemont, Illinois 60018 or at such other address within the continental United States as directed by Lessor, provided, however, that Lessee's expense shall be limited to the cost of returning the Equipment to Lessor's address as set forth herein. During the period subsequent to receipt of a notice under Section 2, Lessor may demonstrate the Equipment's operation in place and Lessee will supply any of its personnel as may reasonably be required to assist in the demonstrations. 10. LABELING. Upon request, Lessee will mark the Equipment indicating Lessor's interest with labels provided by Lessor. Lessee will keep all Equipment free from any other marking or labeling which might be interpreted as a claim of ownership. 11. INDEMNITY. With regard to bodily injury and property damage liability only, Lessee will indemnify and hold Lessor, any Assignee and any Secured Party harmless from and against any and all claims, costs, expenses, damages and liabilities, including reasonable attorneys' fees, arising out of the ownership (for strict liability in tort only), selection, possession, leasing, operation, control, use, maintenance, delivery, return or other disposition of the Equipment during the term of this Master Lease or until Lessee's obligations under the Master Lease terminate. However, Lessee is not responsible to a party indemnified hereunder for any claims, costs, expenses, damages and liabilities occasioned by the negligent acts of such indemnified party. Lessee agrees to carry bodily injury and property damage liability insurance during the term of the Master Lease in amounts and against risks customarily insured against by the Lessee on equipment owned by it. Any amounts received by Lessor under that insurance will be credited against Lessee's obligations under this Section. 12. RISK OF LOSS. Effective upon delivery and until the Equipment is returned, Lessee relieves Lessor of responsibility for all risks of physical damage to or loss or destruction of the Equipment. Lessee will carry casualty insurance for each item of Equipment in an amount not less than the Casualty Value. All policies for such insurance will name the Lessor and any Secured Party as additional insured and as loss payee, and will provide for at least thirty (30) days prior written notice to the Lessor of cancellation or expiration, and will insure Lessor's interests regardless of any breach or violation by Lessee of any representation, warranty or condition contained in such policies and will be primary without right of contribution from any insurance effected by Lessor. Upon the execution of any Schedule, the Lessee will furnish appropriate evidence of such insurance acceptable to Lessor. Lessee will promptly repair any damaged item of Equipment unless such Equipment has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss, Lessee will provide written notice of that loss to Lessor and Lessee will, at Lessee's option, either (a) replace the item of Equipment with Like Equipment and marketable title to the Like Equipment will automatically vest in Lessor or (b) pay the Casualty Value and after that payment and the payment of all other amounts due and owing with respect to that item of Equipment, Lessee's obligation to pay further Rent for the item of Equipment will cease. -2- 13. DEFAULT, REMEDIES AND MITIGATION. 13.1 DEFAULT. The occurrence of any one or more of the following Events of Default constitutes a default under a Summary Equipment Schedule: (a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if that failure continues for five (5) business days after written notice; or (b) Lessee's failure to perform any other term or condition of the Schedule or the material inaccuracy of any representation or warranty made by the Lessee in the Schedule or in any document or certificate furnished to the Lessor hereunder if that failure or inaccuracy continues for ten (10) business days after written notice; or (c) An assignment by Lessee for the benefit of its creditors, the failure by Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee or the filing against Lessee of any petition under any bankruptcy or insolvency law or for the appointment of a trustee or other officer with similar powers, the adjudication of Lessee as insolvent, the liquidation of Lessee, or the taking of any action for the purpose of the foregoing; or (d) The occurrence of an Event of Default under any Schedule, Summary Equipment Schedule or other agreement between Lessee and Lessor or its Assignee or Secured Party. 13.2 REMEDIES. Upon the occurrence of any of the above Events of Default, Lessor, at its option, may: (a) enforce Lessee's performance of the provisions of the applicable Schedule by appropriate court action in law or in equity; (b) recover from Lessee any damages and or expenses, including Default Costs; (c) with notice and demand, recover all sums due and accelerate and recover the present value of the remaining payment stream of all Rent due under the defaulted Schedule (discounted at the same rate of interest at which such defaulted Schedule was discounted with a Secured Party plus any prepayment fees charged to Lessor by the Secured Party or, if there is no Secured Party, then discounted at 6%) together with all Rent and other amounts currently due as liquidated damages and not as a penalty; (d) with notice and process of law and in compliance with Lessee's security requirements, Lessor may enter on Lessee's premises to remove and repossess the Equipment without being liable to Lessee for damages due to the repossession, except those resulting from Lessor's, its assignees', agents' or representatives' negligence; and (e) pursue any other remedy permitted by law or equity. The above remedies, in Lessor's discretion and to the extent permitted by law, are cumulative and may be exercised successively or concurrently. 13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of Section 13.2, Lessor will use its best efforts in accordance with its normal business procedures (and without obligation to give any priority to such Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise dispose of all or any part of the Equipment at a public or private sale for cash or credit with the privilege of purchasing the Equipment. The proceeds from any sale, lease or other disposition of the Equipment are defined as either: (a) if sold or otherwise disposed of, the cash proceeds less the Fair Market Value of the Equipment at the expiration of the Initial Term less the Default Costs; or (b) if leased, the present value (discounted at three percent (3%) over the U.S. Treasury Notes of comparable maturity to the term of the re-lease) of the rentals for a term not to exceed the Initial Term, less the Default Costs. Any proceeds will be applied against liquidated damages and any other sums due to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may recover, the amount by which the proceeds are less than the liquidated damages and other sums due to Lessor from Lessee. 14. ADDITIONAL PROVISIONS. 14.1 BOARD ATTENDANCE. Upon invitation of Lessee, one representative of Lessor will have the right to attend Lessee's corporate Board of Directors meetings and Lessee will give Lessor reasonable notice in advance of any special Board of Directors meeting, which notice will provide an agenda of the subject matter to be discussed at such board meeting. Lessee will provide Lessor with a certified copy of the minutes of - 3 - 4/95 each Board of Directors meeting within thirty (30) days following the date of such meeting held during the term of this Master Lease. 14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month (and in any event within thirty (30) days), Lessee will provide to Lessor the same information which Lessee provides to its Board of Directors, but which will include not less than a monthly income statement, balance sheet and statement of cash flows prepared in accordance with generally accepted accounting principles, consistently applied (the "Financial Statements"). As soon as practicable at the end of each fiscal year, Lessee will provide to Lessor audited Financial Statements setting forth in comparative form the corresponding figures for the fiscal year (and in any event within ninety (90) days), and accompanied by an audit report and opinion of the independent certified public accountants selected by Lessee. Lessee will promptly furnish to Lessor any additional information (including, but not limited to, tax returns, income statements, balance sheets and names of principal creditors) as Lessor reasonably believes necessary to evaluate Lessee's continuing ability to meet financial obligations. After the effective date of the initial registration statement covering a public offering of Lessee's securities, the term "Financial Statements" will be deemed to refer to only those statements required by the Securities and Exchange Commission. 14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor will not be obligated to lease any Equipment which would have a Commencement Date after said notice if: (i) Lessee is in default under this Master Lease or any Schedule; (ii) Lessee is in default under any loan agreement, the result of which would allow the lender or any secured party to demand immediate payment of any material indebtedness; (iii) there is a material adverse change in Lessee's credit standing; or (iv) Lessor determines (in reasonable good faith) that Lessee will be unable to perform its obligations under this Master Lease or any Schedule. 14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed Merger at least sixty (60) days prior to the closing date. Lessor may, in its discretion, either (i) consent to the assignment of the Master Lease and all relevant Schedules to the successor entity, or (ii) terminate the Master Lease and all relevant Schedules. If Lessor elects to consent to the assignment, Lessee and its successor will sign the assignment documentation provided by Lessor. If Lessor elects to terminate the Master Lease and all relevant Schedules, then Lessee will pay Lessor all amounts then due and owing and a termination fee equal to the present value (discounted at 6%) of the remaining Rent for the balance of the Initial Term(s) of all Schedules, and will return the Equipment in accordance with Section 9. Lessor hereby consents to any Merger in which the acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially acceptable equivalent measure of creditworthiness as reasonably determined by Lessor. 14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary Equipment Schedules supersede all other oral or written agreements or understandings between the parties concerning the Equipment including, for example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A WRITING -3- SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE ENFORCED. 14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to constitute a waiver of compliance with any representation, warranty or covenant contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach of any provision of this Master Lease or a Schedule will not operate or be construed as a waiver of any subsequent breach. 14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS. 14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not limited to those arising under Section 6.2, representations and warranties contained in this Master Lease, any Schedule, Summary Equipment Schedule or in any document delivered in connection with those agreements are for the benefit of Lessor and any Assignee or Secured Party and survive the execution, delivery, expiration or termination of this Master Lease. 14.9 NOTICES. Any notice, request or other communication to either party by the other will be given in writing and deemed received upon the earlier of (1) actual receipt or (3) three days after mailing if mailed postage prepaid by regular or airmail to Lessor (to the attention of "the Comdisco Venture Group") or Lessee, at the address set out in the Schedule, (3) one day after it is sent by courier or (4) on the same day as sent via facsimile transmission, provided that the original is sent by personal delivery or mail by the sending party. 14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE. 14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease or any Schedule is for any reason held invalid, illegal or unenforceable, the remaining provisions of this Master Lease and any such Schedule will be unimpaired, and the invalid, illegal or unenforceable provision replaced by a mutually acceptable valid, legal and enforceable provision that is closest to the original intention of the parties. 14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any number of counterparts, each of which will be deemed an original, but all such counterparts together constitute one and the same instrument. If Lessor grants a security interest in all or any part of a Schedule, the Equipment or sums payable thereunder, only that counterpart Schedule marked "Secured Party's Original" can transfer Lessor's rights and all other counterparts will be marked "Duplicate." 14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products which will at all times remain the property of the owner of the Licensed Products. A license from the owner may be required and it is Lessee's responsibility to obtain any required license before the use of the Licensed Products. Lessee agrees to treat the Licensed Products as confidential information of the owner, to observe all copyright restrictions, and not to reproduce or sell the Licensed Products. 14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master Lease, provide Lessor with a secretary's certificate of incumbency and authority. Upon the execution of each Schedule with a purchase price in excess of $1,000,000, Lessee will provide Lessor with an opinion from Lessee's counsel in a form acceptable to Lessor regarding the representations and warranties in Section 8. 14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the other by electronic means under mutually agreeable terms. 14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in a form satisfactory to Lessor. 14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees that Lessor shall not, by virtue of its entering into this Master Lease, be required to remit any payments to any manufacturer or other third party until Lessee accepts the Equipment subject to this Master Lease. 14.18 DEFINITIONS. ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of - ------- each Schedule. ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as - -------- owner and Lessor of Equipment. CASUALTY LOSS - means the irreparable loss or destruction of Equipment. - ------------- CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid - -------------- for the balance of the lease term or the Fair Market Value of the Equipment immediately prior to the Casualty Loss. However, if a Casualty Value Table is attached to the relevant Schedule its terms will control. COMMENCEMENT DATE - is defined in each Schedule. - ----------------- DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting - ------------- from a Lessee default or Lessor's enforcement of its remedies. DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's - ------------- address. EQUIPMENT - means the property described on a Summary Equipment Schedule and any - --------- replacement for that property required or permitted by this Master Lease or a Schedule. EVENT OF DEFAULT - means the events described in Subsection 13.1. - ---------------- FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an - ----------------- arm's-length transaction between an informed and willing buyer/user and an informed and willing seller under no compulsion to sell. INITIAL TERM - means the period of time beginning on the first day of the first - ------------ full Rent Interval following the Commencement Date for all items of Equipment and continuing for the number of Rent Intervals indicated on a Schedule. INTERIM RENT - means the pro-rata portion of Rent due for the period from the - ------------ Commencement Date through but not including the first day of the first full Rent Interval included in the Initial Term. LATE CHARGE - means the lesser of five percent (5%) of the payment due or the - ----------- maximum amount permitted by the law of the state where the Equipment is located. LICENSED PRODUCTS - means any software or other licensed products attached to - ----------------- the Equipment. LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same - -------------- model, type, configuration and manufacture as Equipment. MERGER - means any consolidation or merger of the Lessee with or into any other - ------ corporation or entity, any sale or conveyance of all or substantially all of the assets or stock of the Lessee by or to any other person or entity in which Lessee is not the surviving entity. NOTICE PERIOD - means not less than ninety (90) days nor more than twelve (12) - ------------- months prior to the expiration of the lease term. OWNER - means the owner of Equipment. - ----- -4- RENT - means the rent Lessee will pay for each item of Equipment expressed in a - ---- Summary Equipment Schedule either as a specific amount or an amount equal to the amount which Lessor pays for an item of Equipment multiplied by a lease rate factor plus all other amounts due to Lessor under this Master Lease or a Schedule. RENT INTERVAL - means a full calendar month or quarter as indicated on a - ------------- Schedule. SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule - -------- which incorporates all of the terms and conditions of this Master Lease. SECURED PARTY - means an entity to whom Lessor has granted a security interest - ------------- for the purpose of securing a loan. SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor - -------------------------- summarizing all of the Equipment for which Lessor has received Lessee approved vendor invoices, purchase documents and/or evidence of delivery during a calendar quarter which will incorporate all of the terms and conditions of the related Schedule and this Master Lease and will constitute a separate lease for the equipment leased thereunder. IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as of the day and year first above written. CHEMDEX CORPORATION COMDISCO, INC., as Lessee as Lessor By: /s/ David P. Perry By: /s/ Jill C. Hansen ------------------------- --------------------------------- Title: CEO Title: SR VP ---------------------- ------------------------------ -5- ADDENDUM TO THE MASTER LEASE AGREEMENT DATED AS OF JANUARY 20 , 1999 BETWEEN CHEMDEX CORPORATION, AS LESSEE AND COMDISCO, INC., AS LESSOR The undersigned hereby agree that the terms and conditions of the above- referenced Master Lease are hereby modified and amended as follows: 1) Section 4.1., "SELECTION" --------- In line 2, insert "not expressly" before "made". 2) Section 5.2., "RELOCATION" ---------- In the second paragraph, to the end of the first sentence add ",which shall not be unreasonably withheld". 3) Section 6.2., "TAXES AND FEES" -------------- In line 7, after "property taxes" insert "paid by Lessor". 4) Section 8., "REPRESENTATIONS AND WARRANTIES OF LESSEE" ---------------------------------------- In line 4 of subparagraph (b), delete "Articles" and replace with "Certificate" and after "Bylaws," insert "to Lessee's knowledge". In line 2 of subparagraph (d), insert "as a result of Lessee's use". 5) Section 13.1., "DEFAULT" ------- In the first sentence of subparagraph (b), insert "material" before "form" and "representation". In subparagraph (c), in line 2, after "debts" insert "involving an amount in excess of $100,000". 6) Section 13.2., "REMEDIES" -------- In subparagraph (b), after "any damages and or" insert "reasonable" and after "expenses" insert "incurred by Lessor as a result of such Default". 7) Section 14.1., "BOARD ATTENDANCE" ---------------- Delete this section in its entirety. 8) Section 14.2., "FINANCIAL STATEMENTS" -------------------- In the first sentence, change the words "thirty (30)" to "forty-five (45)" In the first line, change the word "month" to "quarter" and in the forth line delete the word "monthly" and replace with "quarterly". Delete the last sentence of this section and replace with "After the effective dateof the initial registration statement covering a public offering of Lessee's securities, the obligation to provide Financial Statements shall terminate." 9) Section 14.4., "MERGER AND SALE PROVISIONS" -------------------------- In line 2, delete "sixty (60)" and replace with "twenty (20)". 10) Section 14.7., "BINDING NATURE" -------------- To the end of this section, add "WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, WHICH SHALL NOT BE UNREASONABLY WITHHELD". 11) Section 14.14., "SECRETARY'S CERTIFICATE" ----------------------- Delete the second sentence of this section in its entirety. 12) Section 14.16., "LANDLORD/MORTGAGEE WAIVER" ------------------------- Delete this section in its entirety. 13) Section 14.18., "DEFINITIONS" ----------- In the definition of "INTERIM RENT", delete "the pro-rata portion" and replace with "interest only portion of". CHEMDEX CORPORATION COMDISCO, INC. AS LESSEE AS LESSOR By: /s/ David P. Perry By: /s/ Jill C. Hansen ------------------------ --------------------- Title: CEO Title: SR VP --------------------- ------------------ Date: Date: --------------------- ------------------ EQUIPMENT SCHEDULE VL-2 DATED AS OF JANUARY 20, 1999 TO MASTER LEASE AGREEMENT DATED AS OF JANUARY 20, 1999 (THE "MASTER LEASE") LESSEE: CHEMDEX CORPORATION LESSOR: COMDISCO, INC. ADMIN. CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES: - ------------------------ ----------------------- Contact: Cindy Vindasius, Controller 6111 North River Road TEL: (650) 813-0300 Rosemont, Illinois 60018 FAX: (650) 813-0304 Attn.: Venture Group Address for Notices: - ------------------- 3950 Fabian Way Palo Alto, CA 94303 Central Billing Location: Rent Interval: Monthly - ------------------------ ------------- same as above Attn.: Lessee Reference No.:___________ (24 digits maximum) Location of Equipment: Initial Term: 48 months - --------------------- ------------ (Number of Rent Intervals) Lease Rate Factor: Months 1-18: 1.95% ----------------- Attn.: Months 19-48: 2.780% EQUIPMENT (as defined below): Advance Rent: None ------------ Interim Rent: Interest Only ------------ Software and tenant improvements specifically approved by Lessor, which shall be delivered to and accepted by Lessee during the period January 20, 1999 through January 20, 2000 ("Equipment Delivery Period") for which Lessor receives vendor invoices approved for payment, up to an aggregate purchase price of $1,200,000 ("Commitment Amount"); excluding custom use equipment, installation costs and delivery costs, rolling stock, special tooling, hand held items, molds and fungible items. 1. EQUIPMENT PURCHASE This Schedule contemplates Lessor's acquisition of Equipment for lease to Lessee, either by one of the first three categories listed below VLCASOFT.DOC 2 or by providing Lessee with Equipment from the fourth category, in an aggregate value up to the Commitment Amount referred to on the face of this Schedule. If the Equipment acquired is of category (i), (ii) , (iii) below, the effectiveness of this Schedule as it relates to those items of Equipment is contingent upon Lessee's acknowledgment at the time Lessor acquires the Equipment that Lessee has either received or approved the relevant purchase documentation between vendor and Lessor for that Equipment. (i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is obtained from a vendor by Lessee for its use subject to Lessor's prior approval of the Equipment. (ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at Lessee's site and to which Lessee has clear title and ownership may be considered by Lessor for inclusion under this Lease (the "Sale- Leaseback Transaction"). Any request for a Sale-Leaseback Transaction must be submitted to Lessor in writing (along with accompanying evidence of Lessee's Equipment ownership satisfactory to Lessor for all Equipment submitted) no later than February 20, 1999*. Lessor will not perform a Sale-Leaseback Transaction for any request or accompanying Equipment ownership documents which arrive after the date marked above by an asterisk (*). Further, any sale-leaseback Equipment will be placed on lease subject to: (1) Lessor prior approval of the Equipment; and (2) if approved, at Lessor's actual net appraised Equipment value pursuant to the schedule below: ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S DATE NET EQUIPMENT COST PAID BY LESSOR -------------------------- ---------------------------------- Between 11/24/98-02/20/99 100% Lessee represents that it has paid all California sales tax due on the cost of that portion of Equipment to be installed in California and agrees to provide evidence of such payment to Lessor, if specifically requested. As a result of the election, Lessor agrees that it will not invoice Lessee for use tax on the monthly rental rate. Lessee understands that this is an irrevocable election to measure the tax by the Equipment cost and cannot be changed except prior to installation of the Equipment. (iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which is obtained from a third party by Lessee for its use subject to Lessor's prior approval of the Equipment and at Lessor's appraised value for such used Equipment. (iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800 Direct Service, Lessor will purchase new or used Equipment from a third party or Lessor will supply new or used Equipment from its inventory for use by Lessee at rates provided by Lessor. 2. COMMENCEMENT DATE The Commencement Date for each item of new on-order or used on-order Equipment will be the install date as confirmed in writing by Lessee as set forth on the vendor invoice of which a facsimile transmission will constitute an original document. The Commencement Date for sale-leaseback -2- Equipment shall be the date Lessor tenders the purchase price. The Commencement Date for 800 Number Equipment shall be fifteen (15) days from the ship date, such ship date to be set forth on the vendor invoice or if unavailable on the vendor invoice the ship date will be determined by Lessor upon other supporting shipping documentation. Lessor will summarize all approved invoices, purchase documentation and evidence of delivery, as applicable, received in the same calendar month into a Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1, and the Initial Term will begin the first day of the calendar month thereafter. Each Summary Equipment Schedule will contain the Equipment location, description, serial number(s) and cost and will incorporate the terms and conditions of the Master Lease and this Schedule and will constitute a separate lease. 3. MISCELLANEOUS In consideration of Lessor financing software and tenant improvements hereunder, Lessee agrees in addition to its last Monthly Rent Payment to remit to Lessor an amount equal to 15% of Lessor's aggregate cost of software and tenant improvements provided hereunder. 4. SPECIAL TERMS The terms and conditions of the Lease as they pertain to this Schedule are hereby modified and amended as follows: (a) Section 9, Delivery and Return of Equipment ------------------------------------------- Delete second, third and fourth sentences in their entirety. Master Lease: This Schedule is issued pursuant to the Lease identified on page 1 of this Schedule. All of the terms and conditions of the Lease are incorporated in and made a part of this Schedule as if they were expressly set forth in this Schedule. The parties hereby reaffirm all of the terms and conditions of the Lease (including, without limitation, the representations and warranties set forth in Section 8) except as modified herein by this Schedule. This Schedule may not be amended or rescinded except by a writing signed by both parties. CHEMDEX CORPORATION COMDISCO, INC. AS LESSEE AS LESSOR By: /s/ David P. Perry By: /s/ Jill C. Hansen ----------------------- ----------------------- Title: CEO Title: SR VP -------------------- --------------------- Date: Date: -------------------- --------------------- -3- EXHIBIT 1 SUMMARY EQUIPMENT SCHEDULE -------------------------- This Summary Equipment Schedule dated XXXX is executed pursuant to Equipment Schedule No. X to the Master Lease Agreement dated XXXX between Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions, representations and warranties of the Master Lease Agreement and Equipment Schedule No. X are incorporated herein and made a part hereof, and this Summary Equipment Schedule constitutes a Schedule for the Equipment on the attached invoices. 1. For Period Beginning: And Ending: -------------------- ---------- 2. Initial Term Starts on: Initial Term: ---------------------- ------------ (Number of Rent Intervals) 3. Total Summary Equipment Cost: ---------------------------- 4. Lease Rate Factor: ----------------- 5. Rent: ---- 6. Acceptance Doc Type: ------------------- -4- EQUIPMENT SCHEDULE VL-1 DATED AS OF JANUARY 20, 1999 TO MASTER LEASE AGREEMENT DATED AS OF JANUARY 20, 1999 (THE "MASTER LEASE") LESSEE: CHEMDEX CORPORATION LESSOR: COMDISCO, INC. ADMIN. CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES: - ------------------------ ----------------------- Contact: Cindy Vindasius, Controller 6111 North River Road TEL: (650) 813-0300 Rosemont, Illinois 60018 FAX: (650) 813-0304 Attn.: Venture Group Address for Notices: - ------------------- 3950 Fabian Way Palo Alto, CA 94303 Central Billing Location: Rent Interval: Monthly - ------------------------ ------------- same as above Attn.: Lessee Reference No.:_______ (24 digits maximum) Location of Equipment: Initial Term: 48 months - --------------------- ------------ same as above (Number of Rent Intervals) Lease Rate Factor: Months 1-18: 1.95% ----------------- Attn.: Months 19-48: 2.780% EQUIPMENT (as defined below): Advance Rent: None ------------ Interim Rent: Interest Only ------------ Equipment specifically approved by Lessor, which shall be delivered to and accepted by Lessee during the period January 20, 1999 through January 20, 2000 ("Equipment Delivery Period"), for which Lessor receives vendor invoices approved for payment, up to an aggregate purchase price of $1,800,000 ("Commitment Amount"); excluding custom use equipment, leasehold improvements, installation costs and delivery costs, rolling stock, special tooling, "stand- alone" software, application software bundled into computer hardware, hand held items, molds and fungible items. 1. EQUIPMENT PURCHASE This Schedule contemplates Lessor's acquisition of Equipment for lease to Lessee, either by one of the first three categories listed below or by providing Lessee with Equipment from the fourth category, in an aggregate value up to the Commitment Amount referred to on the face of this Schedule. If the Equipment acquired is of category (i), (ii) , (iii) below, the effectiveness of this Schedule as it relates to those items of Equipment is contingent upon Lessee's acknowledgment at the time Lessor acquires the Equipment that Lessee has either received or approved the relevant purchase documentation between vendor and Lessor for that Equipment. (i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is obtained from a vendor by Lessee for its use subject to Lessor's prior approval of the Equipment. (ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at Lessee's site and to which Lessee has clear title and ownership may be considered by Lessor for inclusion under this Lease (the "Sale- Leaseback Transaction"). Any request for a Sale-Leaseback Transaction must be submitted to Lessor in writing (along with accompanying evidence of Lessee's Equipment ownership satisfactory to Lessor for all Equipment submitted) no later than February 20, 1999*. Lessor will not perform a Sale-Leaseback Transaction for any request or accompanying Equipment ownership documents which arrive after the date marked above by an asterisk (*). Further, any sale-leaseback Equipment will be placed on lease subject to: (1) Lessor prior approval of the Equipment; and (2) if approved, at Lessor's actual net appraised Equipment value pursuant to the schedule below: ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S DATE NET EQUIPMENT COST PAID BY LESSOR -------------------------- ---------------------------------- Between 11/24/98-02/20/99 100% Lessee represents that it has paid all California sales tax due on the cost of that portion of Equipment to be installed in California and agrees to provide evidence of such payment to Lessor, if specifically requested. As a result of the election, Lessor agrees that it will not invoice Lessee for use tax on the monthly rental rate. Lessee understands that this is an irrevocable election to measure the tax by the Equipment cost and cannot be changed except prior to installation of the Equipment. (iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which is obtained from a third party by Lessee for its use subject to Lessor's prior approval of the Equipment and at Lessor's appraised value for such used Equipment. (iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800 Direct Service, Lessor will purchase new or used Equipment from a third party or Lessor will supply new or used Equipment from its inventory for use by Lessee at rates provided by Lessor. 2. COMMENCEMENT DATE The Commencement Date for each item of new on-order or used on-order Equipment will be the install date as confirmed in writing by Lessee as set forth on the vendor invoice of which a facsimile transmission will constitute an original document. The Commencement Date for sale-leaseback -2- Equipment shall be the date Lessor tenders the purchase price. The Commencement Date for 800 Number Equipment shall be fifteen (15) days from the ship date, such ship date to be set forth on the vendor invoice or if unavailable on the vendor invoice the ship date will be determined by Lessor upon other supporting shipping documentation. Lessor will summarize all approved invoices, purchase documentation and evidence of delivery, as applicable, received in the same calendar month into a Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1, and the Initial Term will begin the first day of the calendar month thereafter. Each Summary Equipment Schedule will contain the Equipment location, description, serial number(s) and cost and will incorporate the terms and conditions of the Master Lease and this Schedule and will constitute a separate lease. 3. OPTION TO EXTEND So long as no Event of Default has occurred and is continuing hereunder, and upon written notice no earlier than twelve (12) months and no later than ninety (90) days prior to the expiration of the Initial Term of a Summary Equipment Schedule, Lessee will have the right to extend the Initial Term of such Summary Equipment Schedule for a period of one (1) year. In such event, the rent to be paid during said extended period shall be mutually agreed upon and if the parties cannot mutually agree, then the Summary Equipment Schedule shall continue in full force and effect pursuant to the existing terms and conditions until terminated in accordance with its terms. The Summary Equipment Schedule will continue in effect following said extended period until terminated by either party upon not less than ninety (90) days prior written notice, which notice shall be effective as of the date of receipt. 4. PURCHASE OPTION So long as no Event of Default has occurred and is continuing hereunder, and upon written notice no earlier than twelve (12) months and no later than ninety (90) days prior to the expiration of the Initial Term or the extended term of the applicable Summary Equipment Schedule, Lessee will have the option at the expiration of the Initial Term of the Summary Equipment Schedule to purchase all, but not less than all, of the Equipment listed therein for a purchase price not to exceed 16% of Lessor's cost and upon terms and conditions to be mutually agreed upon by the parties following Lessee's written notice, plus any taxes applicable at time of purchase. Said purchase price shall be paid to Lessor at least thirty (30) days before the expiration date of the Initial Term or extended term. Title to the Equipment shall automatically pass to Lessee upon payment in full of the purchase price but, in no event, earlier than the expiration of the fixed Initial Term or extended term, if applicable, except by mutual agreement of Lessor and Lessee. If the parties are unable to agree on the purchase price or the terms and conditions with respect to said purchase, then the Summary Equipment Schedule with respect to this Equipment shall remain in full force and effect. Notwithstanding the exercise by Lessee of this option and payment of the purchase price, until all obligations under the applicable Summary Equipment Schedule have been fulfilled, it is agreed and understood that Lessor shall retain a purchase money security interest in the Equipment listed therein and the Summary Equipment Schedule shall constitute a Security Agreement under the Uniform Commercial Code of the state in which the Equipment is located. 5. TECHNOLOGY EXCHANGE OPTION If Lessee is not in default, and there is no material adverse change in Lessee's credit, on or after the expiration of the 12th month of any Summary Equipment Schedule, Lessee shall have the option to replace any of the Equipment subject to such summary Equipment Schedule with new technology equipment ("New Technology Equipment") utilizing the following guidelines: -3- A. Equipment being replaced with New Technology Equipment shall have an aggregate original cost equal to or greater than $20,000 and be comprised of full configurations of equipment. B. This technology Exchange Option shall be limited to a maximum in the aggregate of fifty percent (50%) of the original equipment cost and shall not apply to software or any soft costs financed hereunder including but not limited to tenant improvements and custom equipment. C. The cost of the New Technology Equipment must be equal to or greater than the original equipment cost of the replaced equipment, but in no event shall exceed 150% of the original equipment cost. D. The remaining lease payments applicable to the equipment being replaced by the New Technology Equipment will be discounted to present value at 6%. The wholesale market value of the equipment being replaced will be established by Comdisco based upon then current market conditions. Upon the return of the replaced equipment, the wholesale price will be deducted from the present value of the remaining rentals and the differential will be added to the cost of the New Technology Equipment in calculating the new rental. The lease for the New Technology Equipment will contain terms and conditions substantially similar to those for the replaced equipment and will have an Initial Term not less than the balance of the remaining Initial Term for the replaced equipment. 6. EQUITY INVESTMENT Lessee grants Lessor the right to invest a minimum of $100,000 up to $250,000 in Lessee's Series C Preferred Stock financing. The exact amount of such investment shall be determined at the sole discretion of Lessee. 7. SPECIAL TERMS The terms and conditions of the Lease as they pertain to this Schedule are hereby modified and amended as follows: Master Lease: This Schedule is issued pursuant to the Lease identified on page 1 of this Schedule. All of the terms and conditions of the Lease are incorporated in and made a part of this Schedule as if they were expressly set forth in this Schedule. The parties hereby reaffirm all of the terms and conditions of the Lease (including, without limitation, the representations and warranties set forth in Section 8) except as modified herein by this Schedule. This Schedule may not be amended or rescinded except by a writing signed by both parties. CHEMDEX CORPORATION COMDISCO, INC. AS LESSEE AS LESSOR By: /s/ David P. Perry By: /s/ Jill C. Hansen ------------------- --------------------- Title: CEO Title: SR VP ----------------- ------------------- Date: Date: ----------------- ------------------- -4- EXHIBIT 1 SUMMARY EQUIPMENT SCHEDULE -------------------------- This Summary Equipment Schedule dated XXXX is executed pursuant to Equipment Schedule No. X to the Master Lease Agreement dated XXXX between Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions, representations and warranties of the Master Lease Agreement and Equipment Schedule No. X are incorporated herein and made a part hereof, and this Summary Equipment Schedule constitutes a Schedule for the Equipment on the attached invoices. 1. For Period Beginning: And Ending: -------------------- ---------- 2. Initial Term Starts on: Initial Term: ---------------------- ------------ (Number of Rent Intervals) 3. Total Summary Equipment Cost: ---------------------------- 4. Lease Rate Factor: ----------------- 5. Rent: ---- 6. Acceptance Doc Type: ------------------- EX-10.10 15 STARTER KIT LOAN AND SECURITY AGREEMENT EXHIBIT 10.10 IMPERIAL BANK Innovative Business Banking Member FDIC STARTER KIT LOAN AND SECURITY AGREEMENT Borrower: Chemdex Corporation Address: 470 San Antonio Road --------------------- -------------------- Date: February 1, 1998 Palo Alto, CA 94306 ---------------- --------------------- THIS LOAN AND SECURITY AGREEMENT ("Agreement") is made and entered into on the above date between IMPERIAL BANK ("Bank"), whose address is 226 Airport Parkway, ------------------- San Jose, CA 95110-1024 and the party(ies) named above (jointly and severally, - ----------------------- "Borrower"), whose chief executive office is located at the above address ("Borrower's Address"). 1. LOANS. Bank will make loans to Borrower (the "Loans") in amounts determined by Bank in its reasonable business judgment up to the amount (the "Credit Limit") shown on the Schedule to this Agreement (the "Schedule"), provided no Event of Default and no event which, with notice or passage of time or both, would constitute an Event of Default is occurring or has occurred. All Loans and other monetary Obligations will bear interest at the rate shown on the Schedule. Interest will be payable monthly, on the date shown on the monthly billing from Bank. Bank may, in its discretion, charge Borrower's deposit accounts maintained with Bank for any amounts coming due under this Agreement. 2. SECURITY INTEREST. As security for all present and future indebtedness, guarantees, liabilities, and other obligations, of Borrower to Bank (collectively, the "Obligations"), Borrower hereby grants Bank a continuing security interest in all of Borrower's right title and interest in and to any property now or hereafter described in a security agreement executed by Borrower to Bank as well as the following types of property, whether now owned or hereafter acquired, and wherever located (collectively, the "Collateral"): All "accounts", "general intangibles," "chattel paper," "documents," "letters of credit," "instruments," " deposit accounts," "inventory," "farm products," "fixtures" and "equipment," as such terms are defined in Division 9 of the California Uniform Commercial Code in effect on the date hereof, and all products, proceeds and insurance proceeds of the foregoing. 3. REPRESENTATIONS AND AGREEMENTS OF BORROWER. Borrower represents to Bank as follows, and Borrower agrees that the following representations will continue to be true, and that Borrower will comply with all of the following agreements throughout the term of this Agreement: 3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and will continue to be, duly authorized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. The execution. delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby have been duly and validly authorized, and do not violate any law or any provision of and are not grounds for acceleration under, any agreement or instrument which is binding upon Borrower. 3.2 NAME: PLACES OF BUSINESS. The name of Borrower set forth in this Agreement is its correct name. Borrower shall give Bank 15 days' prior written notice before changing its name. The address set forth in the heading to this Agreement is Borrower's chief executive office. In addition, Borrower has places of business and Collateral is located only at the locations set forth on the Schedule. Borrower will give Bank at least 15 days prior written notice before changing its chief executive office or locating the Collateral at any other location. 3.3 COLLATERAL. Bank has and will at all times continue to have a first- priority perfected security interest in all of the Collateral other than specific equipment identified in existing filed or to be filed Financing Statements. Borrower will immediately advise Bank in writing of any material loss or damage to the Collateral. 3.4 FINANCIAL CONDITION AND STATEMENTS. All financial statements now or in the future delivered to Bank have been, and will be prepared in conformity with generally accepted accounting principles. Since the last date covered by any such statement, there has been no material adverse change in the financial condition or business of Borrower. Borrower will provide Bank: (i) within 30 days after the end of each month, a monthly financial statement prepared by Borrower, and such other information as Bank shall reasonably request; (ii) within 90 days following the end of Borrower's fiscal year, complete annual financial statements, certified by independent certified public accountants acceptable to Bank and accompanied by the unqualified report thereon by said independent certified public accountants; and (iii) other financial information reasonably requested by Bank from time to time. 3.5 TAXES: COMPLIANCE WITH LAW. Borrower has filed, and will file, when due, all tax returns and reports required by applicable law, and Borrower has paid. and will pay, when due, all taxes, assessments, deposits and contributions now or in the future owed by Borrower. Borrower has complied. and will comply, in all material respects, with all applicable laws, rules and regulations. 3.6 INSURANCE. Borrower will at all times adequately insure all of the tangible personal property Collateral and carry such other business insurance as is customary in Borrower's industry. 3.7 ACCESS TO COLLATERAL AND BOOKS AND RECORDS. At reasonable times, on one business day's notice, Bank, or its agents. shall have the right to inspect the Collateral, and the right to audit and copy Borrower's books and records. 3.8 BANKING RELATIONSHIP AND OPERATING ACCOUNTS. Borrower shall maintain its primary operating deposit accounts with Bank. Borrower shall at all times maintain its primary banking relationship with Bank. 3.9 ADDITIONAL AGREEMENTS. Borrower shall not, without Bank's prior written consent, do any of the following: (i) enter into any transaction outside the ordinary course of business except for the sale of capital stock to venture investors. provided that Borrower promptly delivers written notification to Bank of any such stock sale; (ii) sell or transfer any Collateral, except in -2- the ordinary course of business; (iii) pay or declare any dividends on Borrower's stock (except for dividends payable solely in stock of Borrower); or (iv) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's stock other than the repurchase of up to five percent (5%) of Borrower's then issued stock in any fiscal year from Borrower's employees or directors pursuant to written agreements with Borrower. 4. TERM. This Agreement shall continue in effect until the maturity date set forth on the Schedule (the "Maturity Date"). This Agreement may be terminated, without penalty, prior to the Maturity Date as follows: (i) by Borrower, effective three business days after written notice of termination is given to Bank; or (ii) by Bank at any time after the occurrence of an Event of Default, without notice, effective immediately. On the Maturity Date or on any earlier effective date of termination, Borrower shall pay all Obligations in full, whether or not such Obligations are otherwise then due and payable. No termination shall in any way affect or impair any security interest or other right or remedy of Bank, nor shall any such termination relieve Borrower of any Obligation to Bank, until all of the Obligations have been paid and performed in full. 5. EVENTS OF DEFAULT AND REMEDIES. The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement: (a) Any representation, statement, report or certificate given to Bank by Borrower or any of its officers, employees or agents, now or in the future, is untrue or misleading in a material respect; or (b) Borrower fails to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Obligations outstanding at any time exceed the Credit Limit; or (d) Borrower fails to perform any other non-monetary Obligation, which failure is not cured within 5 business days after the date due; or (e) Dissolution, termination of existence, insolvency or business failure of Borrower or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by or against Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (f) a material adverse change in the business. operations, or financial or other condition of Borrower. If an Event of Default occurs, Bank, shall have the right to accelerate and declare all of the Obligations to be immediately due and payable, increase the interest rate by an additional five percent per annum, and exercise all rights and remedies recorded by applicable law. If any interest payment, principal payment or principal balance payment due from Borrower is delinquent ten or more days, Borrower agrees to pay Bank a late charge in the amount of 5% of the payment so due and unpaid, in addition to the payment; but nothing in this provision is to be construed as any obligation on the part of Bank to accept payment of any payment past due or less than the total unpaid principal balance after maturity. All payments shall be applied first to any late charges owing, then to interest and the remainder, if any, to principal. 6. GENERAL. If any provision of this Agreement is held to be unenforceable, the remainder of this Agreement shall still continue in full force and effect. This Agreement and any other written agreements, documents and instruments executed in connection herewith are the complete agreement between Borrower and Bank and supersede all prior and contemporaneous -3- negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. There are no oral understandings, representations or agreements between the parties which are not in this Agreement or in other written agreements signed by the parties in connection with this Agreement. The failure of Bank at any time to require Borrower to comply strictly with any of the provisions of this Agreement shall not waive Bank's right later to demand and receive strict compliance. Any waiver of a default shall not waive any other default. None of the provisions of this Agreement may be waived except by a specific written waiver signed by an officer of Bank and delivered to Borrower. The provisions of this Agreement may not be amended, except in a writing signed by Borrower and Bank. Borrower shall reimburse Bank for all reasonable attorney's fees and all other reasonable costs incurred by Bank, in connection with this Agreement (whether or not a lawsuit is filed) including any post petition bankruptcy activities. If Bank or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorney's fees from the non-prevailing party. Borrower may not assign any rights under this Agreement without Bank's prior written consent. This Agreement shall be governed by the laws of the State of California to the jurisdiction of whose courts Borrower hereby agrees to submit. 7. MUTUAL WAIVER OF JURY TRIAL. BORROWER AND BANK EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF BANK OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR AFFILIATES. 8. REFERENCE PROCEEDINGS. a. Each controversy, dispute or claim ("Claim") between the parties arising out of or relating to this Agreement, which is not settled in writing within ten days after the "Claim Date" (defined as the date on which a party gives written notice to all other parties that a controversy, dispute or claim exists), will be settled by a reference proceeding in Los Angeles, California in accordance with the provisions of Section 638 et seq. of -- --- the California Code of Civil Procedure, or their successor section ("CCP"), which shall constitute the exclusive remedy for the settlement of any Claim, including whether such Claim is subject to the reference proceeding and the parties waive their rights to initiate any legal proceedings against each other in any court or jurisdiction other than the Superior Court of Los Angeles (the "Court"). The referee shall be a retired Judge selected by mutual agreement of the parties, and if they cannot so agree within thirty days after the Claim Date, the referee shall be selected by the Presiding Judge of the Court. The referee shall be appointed to sit as a temporary judge, as authorized by law. The referee shall (a) be requested to set the matter for hearing within sixty (60) days after the Claim Date and (b) try any and all issues of law or fact and report a statement of decision upon them, if possible, within ninety (90) days of the Claim Date. Any decision rendered by the referee will be final, binding and conclusive and judgment shall entered pursuant to CCP 644 in the Court. All discovery permitted by this Agreement shall be completed no later than fifteen (15) days before the first hearing date established by the referee. The referee may extend such period in the event of a party's refusal to provide requested discovery for any reason whatsoever, including, without limitation, legal objections raised to such discovery or unavailability of a -4- witness due to absence or illness. No party shall be entitled to "priority" in conducting discovery. Depositions may be taken by either party upon seven (7) days written notice, and, request for production or inspection of documents shall be responded to within ten (10) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding upon the parties. b. The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, to provide all temporary and/or provisional remedies and to enter equitable orders that will be binding upon the parties. The referee shall issue a single judgment at the close of the reference proceeding which shall dispose of all of the claims of the parties that are the subject of the reference. The parties hereto expressly reserve the right to contest or appeal from the final judgment or any appealable order or appealable judgment entered by the referee. The parties expressly reserve the right to findings of fact, conclusions of law, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision. Borrower: Chemdex Corporation By:________________________________________________ President or Vice President By:________________________________________________ (Assistant) Secretary or Chief Financial Officer Bank: IMPERIAL BANK By:_________________________________________________ Title:______________________________________________ -5- Schedule to Starter Kit Loan and Security Agreement (Equipment Advances) BORROWER: Chemdex Corporation ------------------- DATE: February 18, 1998 ----------------- This Schedule is an integral part of the Loan and Security Agreement between Imperial Bank ("Bank") and the above-named Borrower of even date. CREDIT LIMIT (EQUIPMENT) (Section 1): $ 400.000 (such amount to be funded under the aggregate Credit Limit). Software Advances are limited to $100,000 of the aggregate Credit Limit. At no time shall total equipment Advances exceed the Credit Limit. Equipment Advances will be made during two consecutive advance periods identified as Period (1) and Period (2). Period (1) Equipment Advances will be made only on or prior to August 17, 1998 (the "Last Advance Date") and only for the purpose of purchasing equipment reasonably acceptable to Bank. Borrower must provide invoices for the equipment to Bank on or before the Last Advance Date. Period (2) Equipment Advances will be made only during the period beginning August 18, 1998 and on or prior to February 17, 1999 (the "Last Advance Date") and only for the purpose of purchasing equipment reasonably acceptable to Bank. Borrower must provide invoices for the equipment to Bank on or before the Last Advance Date. INTEREST RATE The rate equal to Bank's Prime Rate in effect from time to (Section 1): time plus 1.0% per annum. Interest shall be calculated on the basis of a 360 day year for the actual number of days elapsed. The Prime Rate shall be the rate announced from time to time by Bank as its "Prime Rate;" as a base rate upon which other rates charged by Bank are based, and it is not necessarily the best rate available at Bank. The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate. MATURITY DATE After the Last Advance Date of Period (1), the unpaid (Section 4): principal balance of the Equipment Advances advanced during Period (1) shall be repaid in 30 equal monthly installments of principal, plus interest, commencing on August 18, 1998 and continuing on the same day of each month thereafter until the entire unpaid principal balance of the Equipment Advances and all accrued unpaid interest have been paid (subject to Bank's right to -6- accelerate the Equipment Advances on an Event of Default). After the Last Advance Date of Period (2), the unpaid principal balance of the Equipment Advances advanced during Period (2) shall be repaid in 30 equal monthly installments of principal, plus interest, commencing on February 18, 1999 and continuing on the same day of each month thereafter until the entire unpaid principal balance of the Equipment Advances and all accrued unpaid interest have been paid (subject to Bank's right to accelerate the Equipment Advances on an Event of Default). BORROWER: BANK: CHEMDEX CORPORATION IMPERIAL BANK By:___________________________ By:_________________________ President of Vice President Title:______________________ By:___________________________ -7- Schedule to Starter Kit Loan and Security Agreement (Merchant Services Sublimit) BORROWER: Chemdex Corporation ------------------- DATE: February 18, 1998 ------------------- This Schedule is an integral part of the Loan and Security Agreement between Imperial Bank ("Bank") and the above-named Borrower of even date. MERCHANT SERVICES The aggregate Credit Limit Shall be reduced by Sublimit (Section 1): an amount equal to the sum of (a) $ 50,000 (the "Merchant Service Reserve"). Bank may, in its sole discretion, charge as Loans. any amounts that may become due or owing to Bank in connection with merchant credit card processing services furnished to Borrower by or through Bank, the "Credit Card Services." Borrower shall execute all standard form applications and agreements of Bank in connection with the Credit Card Services and, without limiting any of the terms of such applications and agreements, Borrower will pay all standard fees and charges of Bank in connection with the Credit Card Services and, without limiting any of the terms of such applications and agreements, Borrower will pay all standard fees and charges of Bank in connection with the Credit Card Services. MATURITY DATE (Section 4): August 18, 1999 ------------------- BORROWER: BANK: CHEMDEX CORPORATION IMPERIAL BANK - ----------------------- By:____________________ By:_______________________ President or Vice President Title:____________________ By:___________________________ -8- RESOLUTION AUTHORIZING CREDIT BORROWER: CHEMDEX CORPORATION, A CORPORATION ORGANIZED UNDER THE LAWS OF THE --------------------- STATE OF DELAWARE ----------- DATE: SEPTEMBER 4, 1997 ------------------- I, the undersigned, officer of the above-named borrower, a corporation organized under the laws of the state set forth above, do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws, of said corporation, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked. RESOLVED, that this corporation borrow from Imperial Bank ("Bank"). from time to time, such sum or sums of money as, in the judgment of the officer or officers authorized hereby, this corporation may require. RESOLVED FURTHER, that any officer of this corporation be, and he or she is hereby authorized, in the name of this corporation, to execute and deliver to Bank the loan agreements, security agreements, notes financing statements, and other documents and instruments providing for such loans and evidencing or securing such loans and said authorized officers are authorized from time to tome to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments. RESOLVED FURTHER, that said authorized officers be and they are hereby authorized, as security for any and all indebtedness of this corporation to Bank, whether arising pursuant to this resolution or otherwise, to grant to but not limited to, any and all real property. accounts, inventory, equipment, general intangibles, instruments documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods and other property of every kind, and to execute and deliver to Bank any and all pledge agreements mortgages, deeds of trust, financing statements, security agreements and other agreements, which said instruments and the note or notes and other instruments referred to in the proceeding paragraph may contain such provisions, covenants, recitals and agreements as Bank may require. and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval. RESOLVED FURTHER, that Bank may conclusively rely on a certified copy of these resolutions and a certificate of an officer of this corporation as to the officers of this corporation and their offices and signatures, and continue to conclusively rely on such certified copy of these resolutions and said certificate for all past, present and future transactions until written notice of any change hereto or thereto is given to Bank by this corporation by certified mail, return receipt requested. -9- The undersigned further hereby certifies that the following persons are the fully elected and acting officers of the corporation named above as borrower and that the following are their actual signatures: NAMES OFFICE(S) ACTUAL SIGNATURES - ----- --------- ----------------- David P. Perry President ___________________ ____________________ _____________________ Secretary ___________________ ____________________ _____________________ ___________________ ____________________ _____________________ IN WITNESS WHEREOF, I have hereunto set my hand as such corporate Officer on the date set forth above X________________________ Its:_____________________ PRO FORMA INVOICE FOR LOAN CHARGES BORROWER: Chemdex Corporation ------------------- ACCOUNT OFFICER: James Byron ------------------- DATE: February 18. 1998 ------------------- LOAN FEE: $1,500 ------ UCC & FILING FEES: $ 330 ------ Please indicate the method of payment: ( ) A check for the total amount is attached. ( ) Debit Account #__________ for the total amount. ( ) Loan proceeds ______________________________ By:___________________________ Authorized Signer Imperial Bank By:____________________________ Account Officer's Signature -10- EX-10.11 16 WARRANT AGREEMENT TO PURCHASE SHARES OF SERIES B EXHIBIT 10.11 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. WARRANT AGREEMENT TO PURCHASE SHARES OF THE SERIES B PREFERRED STOCK OF CHEMDEX CORPORATION DATED AS OF JANUARY 20, 1999 (THE "EFFECTIVE DATE") WHEREAS, Chemdex, a Delaware corporation (the "Company") has entered into a Master Lease Agreement dated as of January 20, 1999, Equipment Schedule No. VL-1 and VL-2 dated as of January 20, 1999, and related Summary Equipment Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Leases, the right to purchase shares of its Series B Preferred Stock; NOW, THEREFORE, in consideration of the Warrantholder executing and delivering such Leases and in consideration of mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows: 1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK. ---------------------------------------------- The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase, from the Company, 210,000 fully paid and non- assessable shares of the Company's Series B Preferred Stock ("Preferred Stock") at a purchase price of $0.75 per share (the "Exercise Price"). The number and purchase price of such shares are subject to adjustment as provided in Section 8 hereof. 2. TERM OF THE WARRANT AGREEMENT. ----------------------------- Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Preferred Stock as granted herein shall commence on the Effective Date and shall be exercisable for a period of (i) seven (7) years or (ii) three (3) years from the effective date of the Company's initial public offering, whichever is longer. 3. EXERCISE OF THE PURCHASE RIGHTS. ------------------------------- The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of shares which remain subject to future purchases, if any. The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula: X = Y(A-B) ------ A Where: X = the number of shares of Preferred Stock to be issued to the Warrantholder. Y = the number of shares of Preferred Stock requested to be exercised under this Warrant Agreement. A = the fair market value of one (1) share of Preferred Stock. B = the Exercise Price. For purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock: (i) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the initial "Price to Public" specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (ii) if this Warrant is exercised after, and not in connection with the Company's initial public offering, and: (a) if traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a twenty-one (21) day period ending three days before the day the current fair market value of the securities is being -2- determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; or (b) if actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the twenty-one (21) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the current fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the fair market value of Preferred Stock shall be deemed to be the value received by the holders of the Company's Preferred Stock on a common equivalent basis pursuant to such merger or acquisition. Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof. 4. RESERVATION OF SHARES. --------------------- (a) Authorization and Reservation of Shares. During the term of this --------------------------------------- Warrant Agreement, the Company will, promptly after execution of this Warrant, and in any case before exercise of the Warrant, authorize and reserve a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. (b) Registration or Listing. If any shares of Preferred Stock ----------------------- required to be reserved hereunder require registration with or approval of any governmental authority under any Federal or State law (other than any registration under the Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any similar Federal statute then enforced, or any state securities law, required by reason of any transfer involved in such conversion), or listing on any domestic securities exchange, before such shares may be issued upon conversion, the Company will, at its expense and as resonably expeditiously as possible, use its best efforts to cause such shares to be duly registered, listed or approved for listing on such domestic securities exchange, as the case may be. -3- 5. NO FRACTIONAL SHARES OR SCRIP. ----------------------------- No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 6. NO RIGHTS AS SHAREHOLDER. ------------------------ This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant. 7. WARRANTHOLDER REGISTRY. ---------------------- The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 8. ADJUSTMENT RIGHTS. ----------------- The purchase price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows: (a) Merger and Sale of Assets. If at any time there shall be a ------------------------- capital reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation whether or not the Company is the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the number of shares of preferred stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable to the greatest extent possible. (b) Reclassification of Shares. If the Company at any time shall, by -------------------------- combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. -4- (c) Subdivision or Combination of Shares. If the Company at any time ------------------------------------ shall combine or subdivide its Preferred Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. (d) Stock Dividends. If the Company at any time shall pay a dividend --------------- payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Company's stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Company's stock outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Preferred Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) Right to Purchase Additional Stock. If, the Warrantholder's total ---------------------------------- cost of equipment leased pursuant to the Leases exceeds $3,000,000, Warrantholder shall have the right to purchase from the Company, at the Exercise Price (adjusted as set forth herein), an additional number of shares, which number shall be determined by (i) multiplying the amount by which the Warrantholder's total equipment cost exceeds $3,000,000 by 5.25%, and (ii) dividing the product thereof by the Exercise Price per share referenced above. (f) Antidilution Rights. Additional antidilution rights applicable to ------------------- the Preferred Stock purchasable hereunder are as set forth in the Company's Certificate of Incorporation, as amended through the Effective Date, a true and complete copy of which is attached hereto as Exhibit A (the "Charter"). The Company shall make available to the Warrantholder of the Charter for review upon request. The Company shall provide Warrantholder with the same notices it provides the holders of Series B Preferred Stock. (g) Notice of Adjustments. If: (i) the Company shall declare any --------------------- dividend or distribution upon its stock, whether in cash, property, stock or other securities; (ii) the Company shall offer for subscription prorata to the holders of any class of its Preferred or other convertible stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an initial public offering; or (v) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least ten (10) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least ten (10) days' prior written notice of the date when the same shall take place -5- (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of a public offering, the Company shall give the Warrantholder at least ten (10) days written notice prior to the effective date thereof. Each such written notice shall set forth, in reasonable detail, (i) the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the method by which such adjustment was calculated, (iv) the Exercise Price, and (v) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first class mail, postage prepaid, addressed to the Warrantholder, at the address as shown on the books of the Company. (h) Timely Notice. Failure to timely provide such notice required by ------------- subsection (g) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder. The notice period shall begin on the date Warrantholder dispatches such written notice containing all the information specified above. 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. -------------------------------------------------------- (a) Reservation of Preferred Stock. The Preferred Stock issuable upon ------------------------------ exercise of the Warrantholder's rights and the Company's Certificate of Incorporation will be duly and validly reserved and, when issued in accordance with the provisions of this Warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Preferred Stock issuable pursuant to this Warrant Agreement will be subject to restrictions on transfer under state and/or Federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended. The issuance of certificates for shares of Preferred Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Preferred Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Warrantholder. (b) Due Authority. The execution and delivery by the Company of this ------------- Warrant Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Preferred Stock, have been duly authorized by all necessary corporate action on the part of the Company, and the Leases and this Warrant Agreement are not inconsistent with the Company's Charter or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Leases and this Warrant Agreement constitute legal, valid and binding agreements of the Company, enforceable in accordance with their respective terms. -6- (c) Consents and Approvals. No consent or approval of, giving of ---------------------- notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Agreement, except for the filing of notices pursuant to Regulation D under the 1933 Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (d) Issued Securities. All issued and outstanding shares of Common ----------------- Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all Federal and state securities laws. In addition, as of the date hereof: (i) The authorized capital of the Company consists of (A) 35,000,000 shares of Common Stock, of which 7,780,280 shares are issued and outstanding, and (B) 22,924,633 shares of preferred stock, of which 17,299,998 shares are issued and outstanding. (ii) The Company has reserved (A) 6,750,000 shares of Common Stock for issuance under its 1998 Stock Option Plan, under which 1,080,390 options are outstanding. Except as provided in the Company's Series B Preferred Stock financing documents, there are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company's capital stock or other securities of the Company. (iii) In accordance with the Company's Articles of Incorporation, no shareholder of the Company has preemptive rights to purchase new issuances of the Company's capital stock. (e) Insurance. The Company has in full force and effect insurance --------- policies, with extended coverage, insuring the Company and its property and business against such losses and risks, and in such amounts, as are customary for corporations engaged in a similar business and similarly situated and as otherwise may be required pursuant to the terms of any other contract or agreement. (f) Exempt Transaction. Subject to the accuracy of the ------------------ Warrantholder's representations in Section 10 hereof, the issuance of the Preferred Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof. (g) Compliance with Rule 144. At the written request of the ------------------------ Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. -7- 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. -------------------------------------------------- This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: (a) Investment Purpose. The right to acquire Preferred Stock or the ------------------ Preferred Stock issuable upon exercise of the Warrantholder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder statement filed with the SEC has no present intention of selling or engaging in any public distribution of the same except pursuant to a lawful registration or exemption from the registration requirements of the 1933 Act. (b) Private Issue. The Warrantholder understands (i) that the ------------- Preferred Stock issuable upon exercise of this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws, and (ii) that the Company's reliance on an exemption from the registration requirements of the 1933 Act is predicated on the representations set forth in this Section 10. (c) Disposition of Warrantholder's Rights. In no event will the ------------------------------------- Warrantholder make a disposition of any of its rights to acquire Preferred Stock or Preferred Stock issuable upon exercise of such rights unless and until (i) it shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of such rights do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Preferred Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration or (2) such security shall have been sold without registration in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Preferred Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Preferred Stock not bearing any restrictive legend. -8- (d) Financial Risk. The Warrantholder has such knowledge and -------------- experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (e) Risk of No Registration. The Warrantholder understands that there ----------------------- is no public market for the Company's Securities. The Warrantholder also understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to Section 15(d), of the 1934 Act", or if a registration statement covering the securities under the 1933 Act is not in effect when the Warrantholder desires to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be required to hold such securities indefinitely. The Warrantholder also understands that any sale of its rights of the Warrantholder to purchase Preferred Stock or Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. (f) Accredited Investor. Warrantholder is an "accredited investor" ------------------- within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 11. TRANSFERS. --------- Subject to the terms and conditions contained in Section 10 hereof, this Warrant Agreement and all rights hereunder are transferable in whole or in part by the Warrantholder and any successor transferee, provided, however, in no event shall the number of transfers of the rights and interests in all of the Warrants exceed three (3) transfers. The transfer shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. 12. MISCELLANEOUS. ------------- (a) Effective Date. The provisions of this Warrant Agreement shall be -------------- construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. (b) Attorney's Fees. In any litigation, arbitration or court --------------- proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. (c) Governing Law. This Warrant Agreement shall be governed by and ------------- construed for all purposes under and in accordance with the laws of the State of Illinois. -9- (d) Counterparts. This Warrant Agreement may be executed in two or ------------ more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (e) Notices. Any notice required or permitted hereunder shall be ------- given in writing and shall be deemed effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, Attention: Venture Lease Administration, cc: Legal Department, Attention.: General Counsel, (and/or, if by facsimile, (847) 518-5465 and (847)518-5088) and (ii) to the Company at 3950 Fabian Way, Palo Alto, CA 94303, Attention: ____________ (and/or if by facsimile, (650) 813-0304 or at such other address as any such party may subsequently designate by written notice to the other party. (f) Remedies. In the event of any default hereunder, the non- -------- defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. (g) No Impairment of Rights. The Company will not, by amendment of ----------------------- its Charter or through any other means, 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 actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. (h) Survival. The representations, warranties, covenants and -------- conditions of the respective parties contained herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this Warrant Agreement. (i) Severability. In the event any one or more of the provisions of ------------ this Warrant Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. (j) Amendments. Any provision of this Warrant Agreement may be ---------- amended by a written instrument signed by the Company and by the Warrantholder. (k) Additional Documents. The Company, upon execution of this Warrant -------------------- Agreement, shall provide the Warrantholder with certified resolutions with respect to the representations, warranties and covenants set forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase price for the Leases referenced in the preamble of this Warrant Agreement exceeds $1,000,000, the Company will also provide Warrantholder with an opinion -10- from the Company's counsel with respect to those same representations, warranties and covenants. The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request. IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date. COMPANY: CHEMDEX CORPORATION By: /s/ David P. Perry ----------------------- Title: CEO, President --------------------- WARRANTHOLDER: COMDISCO, INC. By: Jill C. Hansen ------------------------ Title: SR VP --------------------- -11- EXHIBIT I NOTICE OF EXERCISE TO: ___________________________ (1) The undersigned Warrantholder hereby elects to purchase _______ shares of the Series ____ Preferred Stock of ________________________, pursuant to the terms of the Warrant Agreement dated the ______ day of _____________________, 19__ (the "Warrant Agreement") between ___________________________________ and the Warrantholder, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any. (2) In exercising its rights to purchase the Series ____ Preferred Stock of __________________________, the undersigned hereby confirms and acknowledges the investment representations and warranties made in Section 10 of the Warrant Agreement. (3) Please issue a certificate or certificates representing said shares of Series ____ Preferred Stock in the name of the undersigned or in such other name as is specified below. _______________________________ (Name) _______________________________ (Address) WARRANTHOLDER: COMDISCO, INC. By:____________________________ Title:_________________________ Date:__________________________ -12- EXHIBIT II ACKNOWLEDGMENT OF EXERCISE The undersigned ____________________________________, hereby acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ____ shares of the Series ____ Preferred Stock of _________________, pursuant to the terms of the Warrant Agreement, and further acknowledges that ______ shares remain subject to purchase under the terms of the Warrant Agreement. COMPANY: By:_________________________ Title:______________________ Date:_______________________ -13- EXHIBIT III TRANSFER NOTICE (TO TRANSFER OR ASSIGN THE FOREGOING WARRANT AGREEMENT EXECUTE THIS FORM AND SUPPLY REQUIRED INFORMATION. DO NOT USE THIS FORM TO PURCHASE SHARES.) FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced thereby are hereby transferred and assigned to ______________________________________________________ (Please Print) whose address is______________________________________ ______________________________________________________ Dated:____________________________ Holder's Signature:_______________ Holder's Address:_________________ Signature Guaranteed:_________________________________ NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Warrant Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant Agreement. -14- EX-10.12 17 WARRANT TO PURCHASE BTWN. CHEMDEX & GALEN III EXHIBIT 10.12 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. - ------------------------------------------------------------------------------- Warrant No. CS-4 Number of Shares: 91,357 Effective Date of Issuance: March 24, 1999 (subject to adjustment) CHEMDEX CORPORATION AMENDED AND RESTATED COMMON STOCK PURCHASE WARRANT ----------------------------- Chemdex Corporation (the "Company"), for value received, hereby certifies ------- that Galen Partners III, L.P., or its registered assigns (the "Registered ---------- Holder"), is entitled, subject to the terms set forth below, to purchase from - ------ the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 5 below), up to Ninety One Thousand Three Hundred Fifty Seven (91,357) shares (as adjusted from time to time pursuant to the provisions of this Warrant) of Common Stock of the Company, at a purchase price of $2.60 per share. This Warrant is fully vested and non-forfeitable on the Effective Date of Issuance. The shares purchasable upon exercise of this Warrant and the purchase price per share, as adjusted from time to time pursuant to the provisions of this Warrant, are sometimes hereinafter referred to as the "Warrant Stock" and the "Purchase Price," respectively. ------------- -------------- This Warrant No. CS-4 is issued in consideration of the cancellation of Warrant No. CS-1 which was previously issued by the Company to the Registered Holder in connection with a Consulting Agreement dated March 24, 1999 between the Company and Galen Associates (the "Consulting Agreement"). This Warrant No. -------------------- CS-4 amends, restates and supersedes Warrant No. CS-1 which the undersigned hereby agree is cancelled. 1. EXERCISE. -------- (a) MANNER OF EXERCISE. This Warrant may be exercised by the ------------------ Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as Exhibit A duly executed by such Registered --------- Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check, wire transfer or by the surrender of promissory notes or other instruments representing indebtedness of the Company to the Registered Holder. (b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall -------------------------- be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in Section 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates. (c) DELIVERY TO HOLDER. As soon as practicable after the exercise ------------------ of this Warrant in whole or in part, and in any event within ten (10) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) above. 2. ADJUSTMENTS. ----------- (a) STOCK SPLITS AND DIVIDENDS. If outstanding shares of the -------------------------- Company's Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (b) RECLASSIFICATION, MERGER, ETC. In case of any reclassification ------------------------ or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant), or merger of the Company with and into another entity or any similar corporate reorganization on or after the date hereof, then and in each such case the holder of this Warrant, upon the exercise hereof at any time after the consummation of such reclassification, change, reorganization, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in Section 2(a); and in each such case, the terms of this Section 2 -2- shall be applicable to the shares of stock or other securities properly receivable upon the exercise of this Warrant after such consummation. This Warrant may be assumed by the successor corporation in any such merger. (c) ADJUSTMENT CERTIFICATE. When any adjustment is required to be ---------------------- made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property into which this Warrant shall be exercisable after such adjustment. 3. TRANSFERS. --------- (a) UNREGISTERED SECURITY. Each holder of this Warrant acknowledges --------------------- that this Warrant and the Warrant Stock have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and agrees not to -------------- sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Warrant Stock issued upon its exercise in the absence of (i) an effective registration statement under the Act as to this Warrant or such Warrant Stock and registration or qualification of this Warrant or such Warrant Stock under any applicable U.S. federal or state securities law then in effect or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect. (b) TRANSFERABILITY. Subject to Section 14 below, this Warrant and --------------- all rights hereunder are transferable, in whole or in part, upon surrender of the Warrant with a properly executed assignment (in the form of Exhibit B --------- hereto) at the principal office of the Company. (c) WARRANT REGISTER. The Company will maintain a register ---------------- containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in -------- ------- blank, the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change. 4. NO IMPAIRMENT. The Company will not, by amendment of its charter or ------------- through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, 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 holder of this Warrant against impairment. 5. TERMINATION. This Warrant (and the right to purchase securities upon ----------- exercise hereof) shall terminate upon the earliest to occur of the following (the "Expiration Date"): (a) the seventh anniversary of the date of this Warrant --------------- or (c) two years after the closing of a firm -3- commitment underwritten public offering pursuant to a registration statement under the Securities Act ("Triggering IPO") ---------------- 6. NOTICES OF CERTAIN TRANSACTIONS. In case: ------------------------------- (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, or (d) of a Triggering IPO, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up) are to be determined. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 7. RESERVATION OF STOCK. The Company will at all times reserve and keep -------------------- available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 8. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of -------------------- any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. -4- 9. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 10. NOTICES. Any notice required or permitted by this Warrant shall be in ------- writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth below or subsequently modified by written notice to the Registered Holder. 11. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the ------------------------ Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 12. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be -------------------- issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock on the date of exercise, as determined in good faith by the Company's Board of Directors. 13. REGISTERED HOLDER REPRESENTATIONS AND WARRANTIES. The Registered ------------------------------------------------ Holder hereby represents and warrants to the Company the following: (a) The Registered Holder is acquiring this Warrant and the Warrant Stock upon exercise of this Warrant (collectively, the "Securities") for its own ---------- account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act. (b) The Registered Holder understands that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of its investment intent as expressed herein. In this connection, the Registered Holder understands that, in the view of the Securities and Exchange Commission ("SEC"), the statutory basis for such exemption may be unavailable if --- its representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities or for a period of one year or any other fixed period in the future. (c) The Registered Holder further understands that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. Moreover, the Registered Holder understands that the Company is under no obligation to register the Securities. In addition, the Registered Holder -5- understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for the Company. (d) The Registered Holder is aware of the provisions of Rule 144, promulgated under the Securities Act, which in substance, permits limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, including, among other things: the availability of certain public information about the Company; the resale occurring not less than one year after the Securities were purchased and paid for; the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and the amount of securities being sold during any three month period not exceeding the specified limitations stated therein. (e) The Registered Holder further understands that at the time the Registered Holder wishes to sell the Securities there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, the Registered Holder would be precluded from selling the Securities under Rule 144 even if the two-year minimum holding period had been satisfied. (f) The Registered Holder further understands that in the event all of the requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and their respective brokers who participate in such transactions do so at their own risk. (g) The Registered Holder agrees in connection with any registration of the Company's securities (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, pledge (or otherwise encumber or hypothecate), grant any option for the purchase of, or otherwise dispose of any shares (other than those included in the registration) without the prior written consent of the Company and such underwriters, as the case may be, for such period of time as the Board of Directors establishes pursuant to its good faith negotiations with such managing underwriters. 14. STANDOFF AGREEMENT. Registered Holder agrees in connection with the ------------------ Company's initial public offering of the Company's securities that, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of this Warrant or any Warrant Stock (unless included in the registration) without the prior written -6- consent of the Company or such underwriters, as the case may be, for such period of time as is agreed upon by holders of a majority of the outstanding capital stock of the Company not to exceed a period commencing upon the effective date of such registration and ending one hundred and eighty (180) days thereafter; provided, that the officers and directors of the Company who own stock of the Company and any stockholder holding more than five percent (5%) of the outstanding voting securities of the Company also agree to such restrictions. 15. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or ------------------- waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought. 16. HEADINGS. The headings in this Warrant are for purposes of reference -------- only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 17. GOVERNING LAW. This Warrant shall be governed, construed and ------------- interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. [Signature Page Follows] -7- The parties have executed this Common Stock Purchase Warrant as of the date first written above. CHEMDEX CORPORATION /s/ David P. Perry --------------------- David Perry, Chief Executive Officer 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 GALEN PARTNERS III, L.P. By: /s/ Bruce F. Wesson ---------------------- Name: Bruce F. Wesson -------------------- Title: Senior Managing Member ----------------------- Rockefeller Center 610 Fifth Avenue New York, NY Facsimile: (212) 218-4999 SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT EXHIBIT A --------- PURCHASE FORM ------------- To: Chemdex Corporation Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant No. CS-4 hereby irrevocably elects to purchase _______ shares of the Common Stock covered by such Warrant and herewith makes payment of $_________, representing the full purchase price for such shares at the price per share provided for in such Warrant. The undersigned acknowledges that it has reviewed the representations and warranties contained in Section 13 of the Warrant, and by its signature below hereby makes such representations and warranties to the Company as of the date set forth above. Defined terms contained in such representations and warranties shall have the meanings assigned to them in the Warrant, provided that the term -------- "Purchaser" shall refer to the undersigned and the term "Securities" shall refer to the Warrant Stock. The undersigned further acknowledges that it has reviewed the market standoff provisions set forth in Section 14 of the Warrant and agrees to be bound by such provisions. Signature:____________________________ Name (print):_________________________ Title (if applic.)_____________________ Company (if applic.):_________________ EXHIBIT B --------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, to: NAME OF ASSIGNEE ADDRESS/FAX NUMBER NO. OF SHARES ---------------- ------------------ ------------- Dated:_______________ Signature:____________________________ ______________________________ Witness:______________________________ EX-10.13 18 WARRANT TO PURCHASE BTWN. CHEMDEX & GALEN INTL. EXHIBIT 10.13 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. - -------------------------------------------------------------------------------- Warrant No. CS-5 Number of Shares: 8,269 Effective Date of Issuance: March 24, 1999 (subject to adjustment) CHEMDEX CORPORATION AMENDED AND RESTATED COMMON STOCK PURCHASE WARRANT ----------------------------- Chemdex Corporation (the "Company"), for value received, hereby certifies ------- that Galen Partners International III, L.P., or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to ----------------- purchase from the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 5 below), up to Eight Thousand Two Hundred Sixty Nine (8,269) shares (as adjusted from time to time pursuant to the provisions of this Warrant) of Common Stock of the Company, at a purchase price of $2.60 per share. This Warrant is fully vested and non-forfeitable on the Effective Date of Issuance. The shares purchasable upon exercise of this Warrant and the purchase price per share, as adjusted from time to time pursuant to the provisions of this Warrant, are sometimes hereinafter referred to as the "Warrant Stock" and the "Purchase Price," respectively. ------------- -------------- This Warrant No. CS-5 is issued in consideration of the cancellation of Warrant No. CS-2 which was previously issued by the Company to the Registered Holder in connection with a Consulting Agreement dated March 24, 1999 between the Company and Galen Associates (the "Consulting Agreement"). This Warrant No. -------------------- CS-5 amends, restates and supersedes Warrant No. CS-2 which the undersigned hereby agree is cancelled. 1. EXERCISE. -------- (a) MANNER OF EXERCISE. This Warrant may be exercised by the ------------------ Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as Exhibit A duly executed by such Registered --------- Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check, wire transfer or by the surrender of promissory notes or other instruments representing indebtedness of the Company to the Registered Holder. (b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall -------------------------- be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in Section 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates. (c) DELIVERY TO HOLDER. As soon as practicable after the exercise of ------------------ this Warrant in whole or in part, and in any event within ten (10) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) above. 2. ADJUSTMENTS. ----------- (a) STOCK SPLITS AND DIVIDENDS. If outstanding shares of the -------------------------- Company's Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (b) RECLASSIFICATION, MERGER, ETC. In case of any reclassification or ------------------------------ change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant), or merger of the Company with and into another entity or any similar corporate reorganization on or after the date hereof, then and in each such case the holder of this Warrant, upon the exercise hereof at any time after the consummation of such reclassification, change, reorganization, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in Section 2(a); and in each such case, the terms of this Section 2 -2- shall be applicable to the shares of stock or other securities properly receivable upon the exercise of this Warrant after such consummation. This Warrant may be assumed by the successor corporation in any such merger. (c) ADJUSTMENT CERTIFICATE. When any adjustment is required to be ---------------------- made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property into which this Warrant shall be exercisable after such adjustment. 3. TRANSFERS. --------- (a) UNREGISTERED SECURITY. Each holder of this Warrant acknowledges --------------------- that this Warrant and the Warrant Stock have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and agrees not to -------------- sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Warrant Stock issued upon its exercise in the absence of (i) an effective registration statement under the Act as to this Warrant or such Warrant Stock and registration or qualification of this Warrant or such Warrant Stock under any applicable U.S. federal or state securities law then in effect or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect. (b) TRANSFERABILITY. Subject to Section 14 below, this Warrant and --------------- all rights hereunder are transferable, in whole or in part, upon surrender of the Warrant with a properly executed assignment (in the form of Exhibit B --------- hereto) at the principal office of the Company. (c) WARRANT REGISTER. The Company will maintain a register ---------------- containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in -------- ------- blank, the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change. 4. NO IMPAIRMENT. The Company will not, by amendment of its charter or ------------- through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, 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 holder of this Warrant against impairment. 5. TERMINATION. This Warrant (and the right to purchase securities upon ----------- exercise hereof) shall terminate upon the earliest to occur of the following (the "Expiration Date"): (a) the seventh anniversary of the date of this Warrant --------------- or (c) two years after the closing of a firm -3- commitment underwritten public offering pursuant to a registration statement under the Securities Act ("Triggering IPO"). -------------- 6. NOTICES OF CERTAIN TRANSACTIONS. In case: ------------------------------- (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, or (d) of a Triggering IPO, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up) are to be determined. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 7. RESERVATION OF STOCK. The Company will at all times reserve and keep -------------------- available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 8. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of -------------------- any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. -4- 9. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 10. NOTICES. Any notice required or permitted by this Warrant shall be in ------- writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth below or subsequently modified by written notice to the Registered Holder. 11. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the ------------------------ Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 12. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be -------------------- issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock on the date of exercise, as determined in good faith by the Company's Board of Directors. 13. REGISTERED HOLDER REPRESENTATIONS AND WARRANTIES. The Registered ------------------------------------------------ Holder hereby represents and warrants to the Company the following: (a) The Registered Holder is acquiring this Warrant and the Warrant Stock upon exercise of this Warrant (collectively, the "Securities") for its own ---------- account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act. (b) The Registered Holder understands that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of its investment intent as expressed herein. In this connection, the Registered Holder understands that, in the view of the Securities and Exchange Commission ("SEC"), the statutory basis for such exemption may be unavailable if --- its representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities or for a period of one year or any other fixed period in the future. (c) The Registered Holder further understands that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. Moreover, the Registered Holder understands that the Company is under no obligation to register the Securities. In addition, the Registered Holder -5- understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for the Company. (d) The Registered Holder is aware of the provisions of Rule 144, promulgated under the Securities Act, which in substance, permits limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, including, among other things: the availability of certain public information about the Company; the resale occurring not less than one year after the Securities were purchased and paid for; the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and the amount of securities being sold during any three month period not exceeding the specified limitations stated therein. (e) The Registered Holder further understands that at the time the Registered Holder wishes to sell the Securities there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, the Registered Holder would be precluded from selling the Securities under Rule 144 even if the two-year minimum holding period had been satisfied. (f) The Registered Holder further understands that in the event all of the requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and their respective brokers who participate in such transactions do so at their own risk. (g) The Registered Holder agrees in connection with any registration of the Company's securities (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, pledge (or otherwise encumber or hypothecate), grant any option for the purchase of, or otherwise dispose of any shares (other than those included in the registration) without the prior written consent of the Company and such underwriters, as the case may be, for such period of time as the Board of Directors establishes pursuant to its good faith negotiations with such managing underwriters. 14. STANDOFF AGREEMENT. Registered Holder agrees in connection with the ------------------ Company's initial public offering of the Company's securities that, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of this Warrant or any Warrant Stock (unless included in the registration) without the prior written -6- consent of the Company or such underwriters, as the case may be, for such period of time as is agreed upon by holders of a majority of the outstanding capital stock of the Company not to exceed a period commencing upon the effective date of such registration and ending one hundred and eighty (180) days thereafter; provided, that the officers and directors of the Company who own stock of the Company and any stockholder holding more than five percent (5%) of the outstanding voting securities of the Company also agree to such restrictions. 15. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or ------------------- waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought. 16. HEADINGS. The headings in this Warrant are for purposes of reference -------- only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 17. GOVERNING LAW. This Warrant shall be governed, construed and ------------- interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. [Signature Page Follows] -7- The parties have executed this Common Stock Purchase Warrant as of the date first written above. CHEMDEX CORPORATION /s/ David P. Perry ---------------------------------------- David Perry, Chief Executive Officer 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 GALEN PARTNERS INTERNATIONAL III, L.P. By: /s/ Bruce F. Wesson ------------------------------------- Name: Bruce F. Wesson ----------------------------------- Title: Senior Managing Member ---------------------------------- Rockefeller Center 610 Fifth Avenue New York, NY Facsimile: (212) 218-4999 SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT EXHIBIT A --------- PURCHASE FORM ------------- To: Chemdex Corporation Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant No. CS-5 hereby irrevocably elects to purchase _______ shares of the Common Stock covered by such Warrant and herewith makes payment of $_________, representing the full purchase price for such shares at the price per share provided for in such Warrant. The undersigned acknowledges that it has reviewed the representations and warranties contained in Section 13 of the Warrant, and by its signature below hereby makes such representations and warranties to the Company as of the date set forth above. Defined terms contained in such representations and warranties shall have the meanings assigned to them in the Warrant, provided that the term -------- "Purchaser" shall refer to the undersigned and the term "Securities" shall refer to the Warrant Stock. The undersigned further acknowledges that it has reviewed the market standoff provisions set forth in Section 14 of the Warrant and agrees to be bound by such provisions. Signature:____________________________ Name (print):_________________________ Title (if applic.)____________________ Company (if applic.):_________________ EXHIBIT B --------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, to: NAME OF ASSIGNEE ADDRESS/FAX NUMBER NO. OF SHARES ---------------- ------------------ ------------- Dated:_________________ Signature:_________________________ _________________________ Witness: _________________________ EX-10.14 19 WARRANT TO PURCHASE BTWN. CHEMDEX & GALEN FUND III EXHIBIT 10.14 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. - -------------------------------------------------------------------------------- Warrant No. CS-6 Number of Shares: 374 Effective Date of Issuance: March 24, 1999 (subject to adjustment) CHEMDEX CORPORATION AMENDED AND RESTATED COMMON STOCK PURCHASE WARRANT ----------------------------- Chemdex Corporation (the "Company"), for value received, hereby certifies ------- that Galen Employee Fund III, L.P., or its registered assigns (the "Registered ---------- Holder"), is entitled, subject to the terms set forth below, to purchase from - ------ the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 5 below), up to Three Hundred Seventy Four (374) shares (as adjusted from time to time pursuant to the provisions of this Warrant) of Common Stock of the Company, at a purchase price of $2.60 per share. This Warrant is fully vested and non-forfeitable on the Effective Date of Issuance. The shares purchasable upon exercise of this Warrant and the purchase price per share, as adjusted from time to time pursuant to the provisions of this Warrant, are sometimes hereinafter referred to as the "Warrant Stock" and the "Purchase ------------- -------- Price," respectively. - ----- This Warrant No. CS-6 is issued in consideration of the cancellation of Warrant No. CS-3 which was previously issued by the Company to the Registered Holder in connection with a Consulting Agreement dated March 24, 1999 between the Company and Galen Associates (the "Consulting Agreement"). This Warrant No. -------------------- CS-6 amends, restates and supersedes Warrant No. CS-3 which the undersigned hereby agree is cancelled. 1. EXERCISE. -------- (a) MANNER OF EXERCISE. This Warrant may be exercised by the ------------------ Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as Exhibit A duly executed by such Registered --------- Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check, wire transfer or by the surrender of promissory notes or other instruments representing indebtedness of the Company to the Registered Holder. (b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall -------------------------- be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in Section 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates. (c) DELIVERY TO HOLDER. As soon as practicable after the exercise of ------------------ this Warrant in whole or in part, and in any event within ten (10) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) above. 2. ADJUSTMENTS. ----------- (a) STOCK SPLITS AND DIVIDENDS. If outstanding shares of the -------------------------- Company's Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (b) RECLASSIFICATION, MERGER, ETC. In case of any reclassification or ------------------------------ change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant), or merger of the Company with and into another entity or any similar corporate reorganization on or after the date hereof, then and in each such case the holder of this Warrant, upon the exercise hereof at any time after the consummation of such reclassification, change, reorganization, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock -2- or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in Section 2(a); and in each such case, the terms of this Section 2 shall be applicable to the shares of stock or other securities properly receivable upon the exercise of this Warrant after such consummation. This Warrant may be assumed by the successor corporation in any such merger. (c) ADJUSTMENT CERTIFICATE. When any adjustment is required to be ---------------------- made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property into which this Warrant shall be exercisable after such adjustment. 3. TRANSFERS. --------- (a) UNREGISTERED SECURITY. Each holder of this Warrant acknowledges --------------------- that this Warrant and the Warrant Stock have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and agrees not to -------------- sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Warrant Stock issued upon its exercise in the absence of (i) an effective registration statement under the Act as to this Warrant or such Warrant Stock and registration or qualification of this Warrant or such Warrant Stock under any applicable U.S. federal or state securities law then in effect or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect. (b) TRANSFERABILITY. Subject to Section 14 below, this Warrant and --------------- all rights hereunder are transferable, in whole or in part, upon surrender of the Warrant with a properly executed assignment (in the form of Exhibit B --------- hereto) at the principal office of the Company. (c) WARRANT REGISTER. The Company will maintain a register ---------------- containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in -------- ------- blank, the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change. 4. NO IMPAIRMENT. The Company will not, by amendment of its charter or ------------- through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, 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 holder of this Warrant against impairment. -3- 5. TERMINATION. This Warrant (and the right to purchase securities upon ----------- exercise hereof) shall terminate upon the earliest to occur of the following (the "Expiration Date"): (a) the seventh anniversary of the date of this Warrant --------------- or (c) two years after the closing of a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act ("Triggering IPO"). - ---------------- 6. NOTICES OF CERTAIN TRANSACTIONS. In case: ------------------------------- (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, or (d) of a Triggering IPO, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up) are to be determined. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 7. RESERVATION OF STOCK. The Company will at all times reserve and keep -------------------- available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 8. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of -------------------- any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the -4- name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 9. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 10. NOTICES. Any notice required or permitted by this Warrant shall be in ------- writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth below or subsequently modified by written notice to the Registered Holder. 11. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the ------------------------ Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 12. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be -------------------- issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock on the date of exercise, as determined in good faith by the Company's Board of Directors. 13. REGISTERED HOLDER REPRESENTATIONS AND WARRANTIES. The Registered ------------------------------------------------ Holder hereby represents and warrants to the Company the following: (a) The Registered Holder is acquiring this Warrant and the Warrant Stock upon exercise of this Warrant (collectively, the "Securities") for its own ---------- account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act. (b) The Registered Holder understands that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of its investment intent as expressed herein. In this connection, the Registered Holder understands that, in the view of the Securities and Exchange Commission ("SEC"), the statutory basis for such exemption may be unavailable if --- its representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, -5- for or until an increase or decrease in the market price of the Securities or for a period of one year or any other fixed period in the future. (c) The Registered Holder further understands that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. Moreover, the Registered Holder understands that the Company is under no obligation to register the Securities. In addition, the Registered Holder understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for the Company. (d) The Registered Holder is aware of the provisions of Rule 144, promulgated under the Securities Act, which in substance, permits limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, including, among other things: the availability of certain public information about the Company; the resale occurring not less than one year after the Securities were purchased and paid for; the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and the amount of securities being sold during any three month period not exceeding the specified limitations stated therein. (e) The Registered Holder further understands that at the time the Registered Holder wishes to sell the Securities there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, the Registered Holder would be precluded from selling the Securities under Rule 144 even if the two-year minimum holding period had been satisfied. (f) The Registered Holder further understands that in the event all of the requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and their respective brokers who participate in such transactions do so at their own risk. (g) The Registered Holder agrees in connection with any registration of the Company's securities (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, pledge (or otherwise encumber or hypothecate), grant any option for the purchase of, or otherwise dispose of any shares (other than those included in the registration) without the prior written consent of the Company and such underwriters, as the case may be, for such period of -6- time as the Board of Directors establishes pursuant to its good faith negotiations with such managing underwriters. 14. STANDOFF AGREEMENT. Registered Holder agrees in connection with the ------------------ Company's initial public offering of the Company's securities that, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of this Warrant or any Warrant Stock (unless included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time as is agreed upon by holders of a majority of the outstanding capital stock of the Company not to exceed a period commencing upon the effective date of such registration and ending one hundred and eighty (180) days thereafter; provided, that the officers and directors of the Company who own stock of the Company and any stockholder holding more than five percent (5%) of the outstanding voting securities of the Company also agree to such restrictions. 15. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or ------------------- waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought. 16. HEADINGS. The headings in this Warrant are for purposes of reference -------- only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 17. GOVERNING LAW. This Warrant shall be governed, construed and ------------- interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. [Signature Page Follows] -7- The parties have executed this Common Stock Purchase Warrant as of the date first written above. CHEMDEX CORPORATION /s/ David P. Perry --------------------------------------- David Perry, Chief Executive Officer 3950 Fabian Way Palo Alto, CA 94303 Facsimile: (650) 813-0304 GALEN EMPLOYEE FUND III, L.P. By: /s/ Bruce F. Wesson ----------------------------------- Name: Bruce F. Wesson --------------------------------- Title: Senior Managing Member -------------------------------- Rockefeller Center 610 Fifth Avenue New York, NY Facsimile: (212) 218-4999 SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT EXHIBIT A --------- PURCHASE FORM ------------- To: Chemdex Corporation Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant No. CS-6 hereby irrevocably elects to purchase _______ shares of the Common Stock covered by such Warrant and herewith makes payment of $_________, representing the full purchase price for such shares at the price per share provided for in such Warrant. The undersigned acknowledges that it has reviewed the representations and warranties contained in Section 13 of the Warrant, and by its signature below hereby makes such representations and warranties to the Company as of the date set forth above. Defined terms contained in such representations and warranties shall have the meanings assigned to them in the Warrant, provided that the term -------- "Purchaser" shall refer to the undersigned and the term "Securities" shall refer to the Warrant Stock. The undersigned further acknowledges that it has reviewed the market standoff provisions set forth in Section 14 of the Warrant and agrees to be bound by such provisions. Signature:_________________________ Name (print):______________________ Title (if applic.)_________________ Company (if applic.):______________ EXHIBIT B --------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, to: NAME OF ASSIGNEE ADDRESS/FAX NUMBER NO. OF SHARES ---------------- ------------------ ------------- Dated:_________________ Signature:_________________________ _________________________ Witness: _________________________ EX-23.1 20 INDEPENDENT AUDITORS' CONSENT Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Data" and "Experts" and to the use of our report dated May 7, 1999 (except for Note 9, as to which the date is May 11, 1999) in the Registration Statement (Form S-1) and the related Prospectus of Chemdex Corporation dated May 14, 1999. Our audits also included the financial statement schedule of Chemdex Corporation listed in Item 16(b). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP San Jose, California May 13, 1999 EX-27.1 21 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR 3-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 MAR-31-1999 5,990,188 27,783,684 0 0 34,259 130,354 2,000 4,000 0 0 6,309,438 28,327,011 1,843,281 4,496,878 285,036 495,090 8,168,155 32,635,886 1,819,798 3,966,759 0 0 0 0 2,289 3,269 270 452 6,348,357 27,862,378 8,168,155 32,635,886 29,355 165,552 29,355 165,552 22,105 155,960 22,105 155,960 8,803,454 6,848,408 0 0 2,620 24,928 (8,488,414) (6,808,846) 0 0 (8,488,414) (6,808,846) 0 0 0 0 0 0 (8,488,414) (6,808,846) (0.43) (0.24) (0.43) (0.24)
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